The sudden emergence of the COVID-19 pandemic in the U.S. in March 2020 forced performance venues, auction houses and event spaces to cancel events, depriving artists and venues of thousands, and in some cases, millions of dollars.  When the inevitable lawsuits ensued, and plaintiffs demanded compensation for non-performance of their contracts, many defendants relied on “force majeure” provisions within those contracts—clauses that excuse non-performance when there is an intervening event that the parties could not have anticipated or controlled—to avoid liability.  In cases where those clauses were ambiguous, parties argued about whether they covered losses stemming from the COVID-19 pandemic.  Over the course of the pandemic, there have been numerous rulings in many courts on the application of force majeure clauses in various industries.  In most, but not all instances, force majeure has not been a successful defense, although many cases are still working their way through the courts.  This year, when ruling on two different force majeure clauses, both the Second Circuit and a California state court ruled in favor of defendants, excusing non-performance by the defendant, although they relied on different language in the parties’ agreements to do so.

  1. Second Circuit: JN Contemporary Art LLC v. Phillips Auctioneers LLC

On March 23, 2022, the U.S. Court of the Appeals for the Second Circuit enforced a force majeure clause invoked by international auction house Phillips Auctioneers (“Phillips”) after it postponed its spring 2020 auctions at the height of the COVID-19 pandemic.  The decision represents a win for businesses in the arts sector forced to abruptly halt their business activities during the pandemic.

As previously discussed on this blog, Phillips contracted with seller JN Contemporary Art (“JN”) in June 2019 to offer a Rudolf Stingel painting for sale in New York at Phillips’ biannual evening auction of 20th Century & Contemporary Art, scheduled to occur in New York in May 2020 (the “New York Auction”).  Phillips committed to pay JN a guaranteed minimum of $5 million (the “Stingel Agreement”).[1]    On March 14, 2020, however, due to the emergence of the COVID-19 pandemic and Governor Andrew M. Cuomo’s executive orders limiting non-essential business activities, Phillips announced its postponement of the New York Auction until June 22, 2020.[2]  When June arrived, and there was no sign of the pandemic slowing down, Phillips terminated the Stingel Agreement pursuant to the Agreement’s force majeure clause.[3]

On June 8, 2020,  a week after Phillips terminated the Stingel Agreement, JN sued Phillips for unlawful termination of that agreement and simultaneously moved for a preliminary injunction and temporary restraining order to compel Phillips to offer the Stingel Painting at its next auction.[4]  On July 5, 2020, the U.S. District Court for the Southern District of New York denied the motion for a temporary restraining order.[5]  After Phillips moved for dismissal, JN filed a second amended complaint.[6]  Phillips again moved to dismiss and, on December 16, 2020, the District Court granted that motion.[7]  JN appealed to the U.S. Court of Appeals for the Second Circuit and, on March 23, 2022, the Second Circuit affirmed the District Court’s holding.[8]

Writing the opinion for the Second Circuit, Judge Rosemary Pooler first addressed JN’s argument that Phillips improperly terminated the Stingel Agreement because the force majeure clause did not apply. [9]   Judge Pooler echoed the District Court’s holding that the force majeure clause empowered Phillips to terminate the Stingel Agreement because “the COVID-19 pandemic, coupled with the state government’s orders restricting the activities of nonessential businesses, constitute[d] an occurrence beyond the parties’ reasonable control, allowing Phillips to end the Stingel Agreement.”[10] JN had also argued that the district court erred in deeming the pandemic a natural disaster, and that JN was entitled to discovery as to “whether COVID-19 escaped from one of two labs in Wuhan,” but the appeal court did not address that argument.[11]

Judge Pooler next addressed the argument that Phillips breached the Stingel Agreement before it terminated it because it failed to obtain JN’s written consent to reschedule the New York Auction.  The court found that the decision to postpone “was dictated by the pandemic and executive orders issued in response to the pandemic, and thus fell within the force majeure clause.”[12]

The court also held that Phillips did not breach another agreement that required JN to bid for an artwork by Jean-Michel Basquiat because Phillips fully performed its obligations under that agreement, and that the District Court properly dismissed JN’s claims for breach of covenant of good faith and fair dealing, bad faith and breach of fiduciary duty.[13]

By reading “circumstances beyond [one’s] reasonable control” to include the COVID-19 pandemic, the Second Circuit set a precedent for New York courts to broadly interpret force majeure clauses, particularly as they relate to global pandemics.

  1. California: VFLA Eventco, LLC v. William Morris Endeavor Entertainment, LLC, et al.

On August 31, 2022, Judge Mark Epstein of the Superior Court of California for the County of Los Angeles granted summary judgment in favor of three high-profile music artists—Lizzo, Kali Uchis and Ellie Goulding (the “Artists”)—and their booking agents, William Morris Endeavor Entertainment, LLC (“WME”), following cancellation of Virgin Fest Los Angeles, a Los Angeles music festival scheduled to take place in June 2020.[14]  In February 2020, VFLA Eventco, LLC (“VFLA”), the festival’s organizer, entered into agreements pursuant to which it would pay the Artists deposits of varying amounts if they agreed to play at the festival.[15]  The agreements included force majeure provisions stating that, in the event of a cancellation due to a “Force Majeure Event,” the Artists were obligated to return the deposits unless they were “otherwise ready, willing, and able to perform” at the time of the cancellation.[16]  On May 8, 2020, the City of Los Angeles informed VFLA that the festival could not proceed due to a city-wide “Safer at Home” order.  VFLA then cancelled the festival and sent WME a demand for the return of all the deposits.  WME, on behalf of the Artists, refused, and VFLA sued for breach of contract.[17]

The litigation proceeded to discovery, which revealed that the agreements originally included language that the Artists could only keep the deposits if they had already “commenced performance” at the time of the cancellation. Counsel for WME proposed the more artist-friendly “ready, willing, and able” language because they saw the musical festival as a “higher risk” show.  VFLA’s counsel did not object to that change.

All parties eventually moved for summary judgment.  In their motions, the parties disagreed about the meaning of “otherwise ready, willing, and able to perform.”  VFLA argued that the Artists could not have been “ready, willing, and able to perform” at the time of cancellation because “doing so would have been illegal given the governmental performance ban.”  VFLA also argued that, because the government directed VFLA to cancel the event, they were not at fault.  Under the Artists’ interpretation, because they would have performed but for the “Force Majeure Event,” i.e., COVID-19, they were “ready, willing, and able to perform” and were thus entitled to keep the deposits.

When ruling on the motions, the court looked to VFLA’s acceptance of the “ready, willing, and able” language as lending support to the Artists’ interpretation of the force majeure clause.  The court found that the change in language, coupled with WME’s explanation that it was more artist-friendly, demonstrated that artists’ reading of the force majeure clause was correct.  As such, the court granted summary judgment in favor of the Artists and allowed them to keep the pre-paid deposits from VFLA.

VFLA filed a notice of appeal on October 7, 2022 and filed its opening brief in the appellate court on December 7, 2022.[18]  Respondent’s brief is due on January 6, 2023.

[1] JN Contemporary Art LLC v. Phillips Auctioneers LLC, 29 F.4th 118, 121 (2d Cir. 2022).

[2] Id. at 122.

[3] Id.

[4] Id.

[5] JN Contemporary Art LLC v. Phillips Auctioneers LLC, 472 F. Supp. 3d 88, 89 (S.D.N.Y. 2020).  Following this ruling on the temporary restraining order, JN withdrew its request for preliminary injunctive relief.

[6] JN Contemporary Art LLC, at 122.

[7] JN Contemporary Art LLC v. Phillips Auctioneers LLC, 507 F. Supp. 3d 490 (S.D.N.Y. 2020).

[8] JN Contemporary Art LLC, at 123.

[9] Specifically, the force majeure clause in the Stingel Agreement stated:

In the event that the auction is postponed for circumstances beyond our or your reasonable control, including, without limitation, as a result of natural disaster, fire, flood, general strike, war, armed conflict, terrorist attack or nuclear or chemical contamination, we may terminate this Agreement with immediate effect. In such event, our obligation to make payment of the Guaranteed Minimum shall be null and void and we shall have no other liability to you.

Id. at 121.

[10] Id. at 124.

[11] Id. at 123-24.

[12] Id. at 125.

[13] Id. at 126-27.

[14] Order Granting the Artist Defendants’ and WME’s Motion for Summary Judgment, VFLA Eventco, LLC v. William Morris Endeavor Entertainment, LLC, et al., No. 20-SMCV-00933 (August 31, 2022 Cal. Super. Ct.).

[15] Id. at 2.

[16] Id. at 3-4.

[17] Id. at 4.

[18] We were not able to access VFLA’s brief from the California Court of Appeal docket.