COVID-19 Enough to Trigger Force Majeure?

By Zita R. Brack

In response to the rapid spread of the infectious COVID-19 virus, most states have issued Stay-At-Home Orders for residents, the severity of the Stay-At-Home orders vary from state to state. Consequently, all non-essential businesses, such as, restaurants, bars, theatres, concert halls, studios, parks and museums have been mandated to close and significant travel restrictions have been put into place. What does this mean for Hollywood? Film release dates have been pushed back, television productions have been suspended, concerts and festivals have been rescheduled, sporting events are cancelled indefinitely, and the list continues. Consequently, these delays and restrictions have film studios, record companies and other entertainment companies looking to explore options to excuse their obligations under existing contracts.

Force majeure refers to a clause that is included in contracts to remove liability when a contracting party is relieved from performing when performance is made impossible by an unforeseeable event outside of such party’s control. As reflected in the California Civil Code, the principle is that “No man is responsible for that which no man can control.” Cal. Civ. Code § 3526. There are three basic categories of force majeure: acts of God (i.e. natural disasters: hurricanes, earthquakes, tornadoes, fires); human events (i.e. riots, wars and other serious upheavals); and performance failures outside of the contracting party’s control (i.e. labor-related disputes, unavailability of raw materials, restrictions imposed by the government). To trigger force majeure, the event must be both unavoidable and unforeseeable. Some jurisdictions also require the parties to explore alternate performance options.

Whether or not COVID-19 will qualify as an event to trigger force majeure depends on the jurisdiction, and the actual contract language. Some contracting parties may be able to invoke force majeure to excuse contractual non-performance if the government’s stay-at-home orders make the clauses at issue impossible to perform. From there, the party seeking to avail themselves of force majeure must also establish that along with impossibility of performance, there is the inability to mitigate.

In production agreements with production companies, many television and movie studios often include a catchall that states that force majeure is triggered due to “any other reason beyond the reasonable control of a party.” California courts have not ruled on the applicability of force majeure provisions with regard to a pandemic such as the coronavirus. Nonetheless, even if the clause does not specifically, refer to epidemics or infectious diseases as an event to trigger force majeure, given the extreme disruption COVID-19 has caused, the defaulting party will likely have a strong argument under such a catchall. As a result, under this theory, the production company may cancel shooting or delay shooting indefinitely without being in breach of the agreement, however, the studio would not be responsible for any extra costs incurred due to such delay or cancellation (e.g., talent fees, location fees, option fees, etc.).

Where the contract does not include a force majeure clause, the common law doctrines of impossibility and impracticably will govern. A party can seek protection under the impossibility or impracticability doctrine where performance physically becomes impossible perhaps due to death or incapacitation; the item crucial to performance becomes destroyed (through no fault of the defaulting party) and there is no reasonable substitution, or, if after the contract is signed a new law comes into being that makes such performance illegal. In California, courts find that performance must truly be impossible to perform. Mere difficulty or unusual unexpected expenses will not be enough on its own to excuse performance. In the case where events/ concerts/ activations have been postponed, but not cancelled, even if the companies may experience unexpected expenses, this will not be enough for non-performance, at least not in California. Further, a party may be excused from performance if they can show commercial impracticability. Commercial impracticability is a defense where the defaulting party can show that performance is so difficult or costly to perform that the value of the contract to one party is destroyed. This defense is typically used in connection with the sale of goods. This might offer relief for businesses in the fashion industry. For example, if they are required to fulfil an order, but now must obtain materials from a more expensive source, this might frustrate the value of the contract that was in place prior to the COVID-19 outbreak.

All in all, COVID-19 and governmental regulations must be monitored closely to determine the actual impact on contractual performance, determining if these factors, in fact, make performance of contractual obligations impossible while looking for possible ways of mitigation.

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Creating a Strategic Plan for the New Year!

As we wrap up the year, it is a great time for you to take stock of your business and turn your attention to the future. What are your business goals for the new year? Now is the time to work on a strategic plan so you know what kind of plans you need to accomplish those goals. A strategic plan may sound like something only big companies do, but it is a great tool that any size business can use to thrive and grow.

With a strategic plan, you want to answer the following questions:
1. How is your business performing?
2. What business goals do you have for the new year?
3. What are the best ways to accomplish your goals?

Here are some key steps you can take to plan out your goals for 2019.
1. Review the current state of your business. Assess key areas in your business, such as operations, finances, customer engagement, and capacity for growth. Identify what has worked this past year and what you can improve on. Also identify what worked well and scale that too.
2. List the 3 most important objectives for your business over the next year. These should be important “big picture” accomplishments that will lead to profits and future achievement. Examples include sales quotas, performance goals, etc.
3. For each objective listed above, identify your responsibility in achieving the objective. WHAT will you do? HOW will you do it? WHEN will you do it?
4. Decide if you need to re-position your business story. How are you positioning your business, services, products to your potential customers? Is your story clear and consistent? If not, you may want to re-assess your brand story and marketing strategy.
5. Lastly, consider your personal goals too. If you are a small business, founder, or entrepreneur, your business goals are generally intertwined with your personal goals. Do you want to buy a house, spend more time with your family, maybe take a big trip? What things do you need to do in your business to achieve this personal goal? You should factor this into your strategic plan.

Creating a strategic plan will help you map out where you want your business to go and is an excellent way to plant the seeds for success in the new year. Keep this document handy throughout the year and revisit to keep you on track.

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A Reminder to Entrepreneurs: You Can’t (and Shouldn’t) Do Everything Yourself

As entrepreneurs, we think we are the only one who can get the job done. It is difficult to let the reins go and let other qualified people help us. But if you don’t learn to allow others to assist you, especially in areas that you are weak in, you will surely become overwhelmed and frustrated.

Accept the fact that you can’t do it all by yourself. You need a team. Studies show that one of the biggest challenges for many entrepreneurs is building a solid team to grow their brand and business. To determine where you need help, you must honestly assess your strengths and weaknesses. The right team must include people who have skill sets that complement your skills and can help the business grow. The benefit of team members is they can also contribute information and resources that you may not have.

Your “team” can take many shapes whether you are bringing in co-founders, hiring staff, or outsourcing tasks. Whether it’s choosing a co-founder, hiring an employee, or selecting a vendor, using a solid and well-defined set of core values is a great place to start. Your core values determine your priorities, goals and the decisions you’re willing to make. Anyone you bring aboard must understand and share those same core values.

Delegating and outsourcing tasks to the right people so you can focus on what’s really important for your company can be a of great value. Just as finding the right help to hire is crucial, entrepreneurs must carefully choose the people they outsource tasks to. Communication is the key for interacting with all employees, both full-time and independent contractors. Being on the same page is the best way to ensure a successful partnership.

Most importantly, you must trust your team. If they were hired or chosen to perform a certain role and are qualified to perform in that role, then you must let them do what they are skilled at and stop constantly checking on them. Trusting them to fulfill their roles without watching their every move shows faith and allows the team to grow. It also shows great leadership.

I recall being on a business flight soon after launching my own practice and sitting next to a very accomplished business man, who also happened to be a NASA engineer – yes, an actual rocket scientist. We began to chat about our professions and I shared with him some of my early frustrations with running my own solo practice. He asked me what I liked the least about my job and I told him it was time-keeping and billing. He advised me to outsource that task immediately explaining that the time I was wasting avoiding the task on top of the time I was taking to complete the task was a complete drain to my overall bottom line. It wasn’t rocket science. Basically, it would cost me less to outsource than it was costing me to do it myself. This was a big light bulb moment for me as a young attorney and a huge turning point in the success of my business.

So, the other lesson is not only can you not do it all yourself, but you shouldn’t. It isn’t worth it!

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