HOW DOES IT APPLY TO CANNABIS BUSINESSES?
by Sarah Lee Gossett Parrish, Cannabis Lawyer1
Prior to the COVID-19 global pandemic, “force majeure” was merely a stock provision placed in most contracts that seldom, if ever, became an issue. Now, the landscape has changed dramatically, and Oklahoma medical marijuana businesses need to be aware of what this provision means and how it may apply to them.
Force majeure provisions are contained in contracts—leases, insurance policies, business contracts—contracts involving most Oklahoma medical marijuana businesses. Under conditions like the present, where economic volatility is a real concern, disputes between companies will multiply, and many businesses, medical marijuana companies among them, will seek to extinguish commitments and modify contracts. For some businesses, force majeure clauses may provide a viable option.
In essence, a force majeure provision excuses a party’s performance under a contract when such performance becomes impossible or impracticable due to circumstances beyond the party’s control. Declaratory judgment actions are being filed in the few jurisdictions where courts are still open for non-emergency litigation (via electronic filing networks), to determine whether COVID-19 and/or the government’s efforts to mitigate it (shelter-in-place orders and business closures) would qualify as force majeure events. Two such cases have already been filed in California and Kentucky. Whether force majeure clauses will excuse a party’s failure to perform under a contract will likely become an important question for Oklahoma’s medical marijuana businesses to answer during the COVID-19 crisis and in the months to follow.
Similar to any contractual terms, the scope and effect of a force majeure provision is determined by its specific language and applicable state law. However, the language used in these provisions and the laws governing their interpretation share common features that make it possible to draw some general conclusions about how Oklahoma courts could apply them.
Standard Force Majeure Language
Standard language included in most force majeure clauses enumerates triggering force majeure events such as “Act of Government,” “Act of God,” and “circumstances beyond the parties’ control”. Other language sometimes used, but perhaps less common, would include the words: “pandemic,” “epidemic,” “disease,” or “national emergency.” Notably, a force majeure event must cause the party’s non-performance under the contract, in order for it to be successfully applied. Thus, parties to a contract who could not perform even prior to the COVID-19 crisis, or who now cannot perform for some reason other than the pandemic, cannot rely upon force majeure to excuse their non-performance. 2
Disruption of Performance Standard
How bad does the force majeure event have to be to excuse non-performance? In other words, how disruptive to performance under the contract must a force majeure event be to apply? Again, the specific language of the provision in each contract sets the standard. Many clauses require that performance be rendered impossible by the force majeure event. Some provide for more lenient standards, such as commercial impracticability.
Thus, if the COVID-19 crisis has merely made contract performance less convenient or profitable, then it is likely that the applicable standard will not be satisfied under even more lenient standards. However, if a business can establish a causal link between the COVID-19 crisis and non-performance under the contract, and can also show significant efforts to mitigate the virus’ impact on performance, then there is a plausible argument that the force majeure provision would apply. Ultimately, however, these issues will be litigated by the courts when litigation resumes, and such litigation will likely span years, if not decades.
So…what’s the take-away?
Take a hard look at the force majeure provisions in your lease, insurance policies, and/or business contracts. If you plan to rely on force majeure, build a solid case before terminating your lease or accepting a distributor’s position that product deliveries have been terminated. Call your lawyer, too. You will need a good one to get through this.
Information contained herein provides general information related to the law and does not provide legal advice. It is recommended that readers consult their personal lawyer if they want legal advice. No attorney-client or confidential relationship exists or is formed between you and Ms. Parrish as a result of this article.