By Lee Brenner and Adam Kwon

Law360 (March 27, 2020, 6:19 PM EDT) --

Lee Brenner

Adam Kwon

As the U.S. grapples with the COVID-19 pandemic, companies across a broad range of industries are increasingly affected by the growing restrictions on travel and trade. Practically speaking, concerns abound over issues like whether airlines will issue refunds for cancelled flights, or what happens to manufacturers who source materials from Asia.

And the entertainment industry is not immune either. For instance, what if a production contract calls for filming in Hong Kong next week? What if talent is unable to leave their home country for a concert tomorrow? What if, heaven forbid, talent is under mandatory quarantine while recovering from the virus?

At times like these, the answers usually lie in the contracts, specifically in a powerful provision that is often underestimated because it is only invoked in the unlikeliest of scenarios: the force majeure clause.

At its core, the principle underlying the doctrine of force majeure (i.e., "vis major" or "superior force") is simple: "No man is responsible for that which no man can control."[1] Generally, a force majeure clause is triggered when the occurrence of a force majeure event, sometimes referred to as an "act of God," ultimately renders performance so impracticable that it is excused.

Notably, force majeure is technically broader and more comprehensive than an act of God — because force majeure, unlike an act of God, can originate in human agency just as readily as it can originate in a natural force (e.g., war, terrorism, a workers' strike or quarantine), and courts similarly recognize that the doctrine of impossibility does not require a showing of actual or literal impossibility of performance, but only a showing of commercial impracticability.[2]

Thus, a force majeure clause is an application of the doctrine of impossibility or impracticability: Performance of a contract is excused when an (1) unforeseeable event (2) outside of the parties' control (3) renders performance impossible or impracticable.[3]

In practice, a contract will often define what types of events can constitute a force majeure (e.g., earthquake, flood, fire, epidemic, mandatory quarantine, terrorism, war, strike, etc.), although specific enumeration is not necessary. When invoked, a force majeure clause is typically a shield, used as a defense to a breach of contract claim where performance is rendered impracticable or even impossible by a force majeure event, thereby excusing performance.

Alternatively, a party may seek declaratory relief to determine the status of a contract in light of a force majeure. In any event, in determining whether an event constitutes a force majeure, the California Supreme Court has explained that the meaning of force majeure

is not necessarily limited to the equivalent of an act of God. The test is whether under the particular circumstances there was such an insuperable interference occurring without the party's intervention as could not have been prevented by the exercise of prudence, diligence and care.[4]

Significantly, force majeure clauses vary depending on the nature of the contract, and parties may contract around the default rules.[5] For instance, in an entertainment contract, a force majeure clause may give particular significance and attention to the effects of a strike as a potential force majeure.

Moreover, a force majeure clause may, through its own terms, provide for a more narrow or broad application of the doctrine than what is typically applied under common law principles. For example, a strike may temporarily suspend a studio's contractual obligations, or it may permanently excuse a studio's performance, depending on the specifics of the clause in the contract. Absent specific deviations, however, the underlying principles of impracticability or impossibility govern — and a party must establish the general requirements of an unforeseen, uncontrollable impracticability in order to invoke a typical force majeure clause.[6]

California courts have not ruled on the applicability of force majeure provisions with regard to a plague or epidemic such as the coronavirus. Applying the principles discussed above, however, a court would likely determine that the coronavirus outbreak and its subsequent effects were neither foreseeable nor within the parties' control.

Consequently, application of a force majeure clause would likely hinge on whether the coronavirus has rendered performance of a contract actually impossible or impracticable. This will ultimately require a circumstantial analysis.

For example, if a production contract requires a party to travel to or from Wuhan, performance would almost certainly be excused under force majeure. On the other hand, if the epidemic does not necessarily hinder production, a court is less likely to excuse performance. Moreover, if the parties' contract happens to contemplate a global health epidemic like the spread of COVID-19, express terms of the contract would dictate the ultimate result.

Although many questions remain unanswered, a few things appear to be clear at this point. It can be expected that virtually all production contracts will contain some sort of force majeure provision. While some contracts will list examples of force majeure events with great specificity (e.g., "global pandemic"), others will have more generalized provisions. 

In either event, with respect to production contracts, it is clear that we are squarely in force majeure territory in light of the COVID-19 pandemic. Indeed, even if a contract does not specifically call out a health pandemic, it likely contains a broader provision regarding acts of God and government orders, and there can be no reasonable dispute that the coronavirus and government restrictions in play now trigger pretty much any force majeure provision.

So the question arises: What happens next? That is where things can get complicated as a practical matter. Production schedules have been and will continue to be disrupted. Studios and production companies may or will be excused from paying writers, directors, actors and other talent under a force majeure provision.

Talent certainly will take the position that they are not going to travel anywhere. But what happens if and when the production resumes later? What about exclusivity provisions for talent? It is common for contracts to include exclusivity provisions with regard to talent, and postponing production may seriously complicate whether exclusivity is even feasible anymore.

Naturally, a studio will not want to forfeit the funds it has already invested in a production by losing its exclusivity, and the exclusivity may be absolutely required in order to complete a given season or series. A series may have just a handful of episodes left to shoot, for example.

On the other hand, if talent is forced to wait on the sidelines while production operations are suspended, they may want some sort of additional compensation to help account for the period of time that they remain out of work due to the pandemic. Of course, it is possible they were out of work anyway due to the force majeure event in the first instance. Or perhaps they will need relief from their exclusivity once the force majeure event ends.

In short, the legal world is turning its attention to force majeure issues because they are likely to be litigated as more contracts are affected by the coronavirus. In the entertainment industry, parties should carefully analyze the actual extent of those effects and familiarize themselves with the basic principles underlying the force majeure doctrine, as discussed above.

It is clear that the COVID-19 pandemic will qualify as a force majeure event, but it remains to be seen how Hollywood will navigate the complications that are sure to arise, notwithstanding the fact that performance under many contracts was likely excused. Moreover, so long as the state of the pandemic continues, so will the number of force majeure provisions triggered.

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Lee S. Brenner is a partner and Adam W. Kwon is an associate at Venable LLP.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] Cal. Civ. Code § 3526.

[2] See George A. Locke, Act of God, 6 Am. Jur. Proof of Facts 3d § 1, Comment (1989); Seaboard Lumber Co. v. U.S. , 308 F.3d 1283, 1294 (Fed. Cir. 2002).

[3] See Citizens of Humanity LLC v. Caitac Int'l Inc. , No. B215232, at *14 (Cal. Ct. App. Aug. 3, 2010) ("'Force majeure' is the equivalent of the common law contract defense of impossibility"); Cal. Civ. Code § 3531 ("The law never requires impossibilities").

[4] Pac. Vegetable Oil Corp. v. C.S.T. Ltd. , 29 Cal. 2d 228, 238 (Cal. 1946).

[5] See Cal Civ. Code § 1511 (performance of an obligation is excused "[w]hen it is prevented or delayed by an irresistible, superhuman cause ... unless the parties have expressly agreed to the contrary").

[6] See Pac. Vegetable Oil Corp., 29 Cal. 2d at 238.

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