On December 16, 2020, Judge Denise L. Cote of the U.S. District Court for the Southern District of New York found that London-based auction house Phillips Auctioneers (“Phillips”) properly terminated its agreement governing the auctioning of a Rudolf Stingel painting for force majeure after postponing its spring auctions in the midst of the COVID-19 pandemic.
In June 2019, Phillips, one of the world’s leading auction houses, contracted with seller JN Contemporary Art (“JN”) to offer the Stingel painting for sale at Phillips’ biannual evening auction of 20th Century & Contemporary Art, scheduled to occur in New York in May 2020 (the “New York Auction”), with a commitment to pay JN a guaranteed minimum of $5 million (the “Stingel Agreement”). However, on March 14, 2020, Phillips announced a postponement of auctions, including the New York Auction, as the COVID-19 pandemic swept through New York, and Governor Andrew M. Cuomo declared a State Disaster Emergency and issued a series of executive orders restricting and eventually barring non-essential business activities until June 2020. Phillips’ March 14 announcement stated that the New York Auction would instead be held the week of June 22, 2020, consolidating Phillips’ New York and London sales into one week of auctions. Then, in May, Phillips raised the possibility of offering the Stingel painting at auction in November 2020. However, on June 1, Phillips terminated the Stingel Agreement, invoking its rights under the Agreement’s force majeure clause.
Approximately one week later, JN sued Phillips for, among other causes of action, unlawful termination of the Stingel Agreement, and moved for a preliminary injunction and temporary restraining order forcing Phillips to offer the Stingel painting for sale at its next auction and comply with the guaranteed minimum commitment. In the alternative, JN sought $7 million in compensatory damages and $10 million in punitive damages.
In the lawsuit, JN alleged that Phillips terminated the Stingel Agreement because it determined that the market for the Stingel painting had weakened such that Phillips would lose money on the sale after paying JN the $5 million guaranteed minimum. JN also asserted that, by the time Phillips terminated the Stingel Agreement, Phillips had already rescheduled the New York Auction to occur on July 2, but did not advise JN of the rescheduling. In fact, on July 2, Phillips held a virtual auction entitled “20th Century and Contemporary Art Evening Sale New York Auction” (the “Virtual Auction”). The Virtual Auction streamed from London and participants could place bids on the featured artworks remotely. Having terminated the Stingel Agreement in early June, Phillips did not include the Stingel painting for sale in the Virtual Auction.
On July 15th, the Court denied JN’s request for a temporary restraining order.
In her December 16 decision dismissing the action against Phillips in its entirety, Judge Cote, applying New York principles of contract interpretation, found that the COVID-19 pandemic and consequent government-imposed restrictions on business operations fell squarely within the Stingel Agreement’s force majeure clause, which permitted Phillips to terminate due to circumstances beyond its reasonable control. Judge Cote emphasized that “[t]hose circumstances include[d] ‘without limitation’ a ‘natural disaster,’” and that it “cannot be seriously disputed that the COVID-19 pandemic is a natural disaster.” Judge Cote further found that “a pandemic requiring the cessation of normal business activity is the type of ‘circumstance’ beyond the parties’ reasonable control” envisioned by the Stingel Agreement’s force majeure clause, which included as exemplar events “not only environmental calamities events such as floods or fires, but also widespread social and economic disruptions such as ‘general strikes,’ ‘war,’ ‘chemical contamination,’ and ‘terrorist attack.’”
Judge Cote rejected JN’s argument that Phillips should have exhausted its efforts to sell the Stingel painting at a later auction before invoking the force majeure clause, finding that “[t]he relevant inquiry is what the parties understood the Stingel Agreement to mean when they executed the agreement, not how Phillips chose to continue its operations after the pandemic disrupted its normal business activities.” Judge Cote found that the Stingel Agreement required Phillips to auction the Stingel painting at a specific location and time: Phillips’ evening auction of 20th Century & Contemporary Art in New York, scheduled for May 2020. Accordingly, once the New York Auction was postponed for reasons beyond Phillips’ control, Phillips was entitled to terminate the Stingel Agreement. Rejecting JN’s claims that Phillips’ decision to invoke the force majeure clause was pretextual, Judge Cote found that, as long as Phillips was entitled to exercise its contractual right to terminate the Stingel Agreement, its motives for doing so were irrelevant.
While the contours of force majeure contractually defined by parties in their agreements dictate the doctrine’s application, effect and scope, Judge Cote’s recent decision in JN Contemporary Art LLC v. Phillips Auctioneers LLC bodes well for parties to contracts governed by New York law that have elected to invoke their termination rights for force majeure in the midst of the COVID-19 pandemic. JN has until January 15, 2021 to appeal the district court’s decision.
 See JN Contemporary Art LLC v. Phillips Auctioneers LLC, 472 F. Supp. 3d 88 (S.D.N.Y. 2020).
 JN Contemporary Art LLC v. Phillips Auctioneers LLC, No. 20CV4370 (DLC), 2020 WL 7405262, at *7 (S.D.N.Y. Dec. 16, 2020).
 Id. Judge Cote recognized that, “while neither the New York Court of Appeals nor the Second Circuit Court of Appeals has yet addressed whether the COVID-19 pandemic should be classified as a natural disaster,” the Second Circuit has, in other contexts identified “disease” as a natural disaster, and other circuits have determined that the COVID-19 pandemic qualifies as a natural disaster. Id. at n.7.
 Id. at *8.
 Id. at *9.
 Id. at *10.
 Id. at * 6 (quoting Constellation Energy Servs. of New York, Inc. v. New Water St. Corp., 46 N.Y.S. 3d 25, 27 (1st Dep’t 2017)).