In West Pueblo Partners, LLC v. Stone Brewing Co., LLC, (2023 WL 3151827), the California Court of Appeal, First Appellate District, affirmed summary judgment on the basis that the COVID-19 pandemic force majeure event did not delay, interrupt, or prevent Stone Brewing Co., LLC (“Stone”) from paying rent to the landlord, West Pueblo Partners, LLC (“West Pueblo”). Stone conceded in discovery that it had the ability to pay rent and meet its contractual obligations, but chose not to perform due to financial constraints caused by COVID-related government regulations.
In May 2016, Stone and West Pueblo entered into a lease with a force majeure provision that excused performance if either party was “delayed, interrupted or prevented from performing any of its obligations under this Lease, and such delay, interruption or prevention is due to fire, act of God, governmental act or failure to act, labor dispute, unavailability of materials or any cause outside the reasonable control of that Party….”
COVID-19’s emergence resulted in severe government restrictions prohibiting on-premises and indoor dining, and limiting the number of patrons at a given time. Stone asserted these regulations were “’devastat[ing]’ to its operating profits.” Stone failed and refused to pay rent based on the force majeure provision for four months during the period the regulations were in effect. As a result, both parties filed competing motions for summary judgment.
The first question was whether the COVID-19 pandemic qualified as a force majeure event. The appellate court affirmed that the COVID-19 pandemic qualified as a force majeure event. The second question was whether Stone’s performance of the obligation to pay rent was “delayed, interrupted, or prevented” by the COVID-19 pandemic and the related closure orders.
At the trial court level, “Stone made binding admissions that despite pandemic orders it had the ability to pay rent during the subject period.” Nonetheless, Stone made three arguments in furtherance of its position that its rent payments were “delayed, interrupted or prevented” by the COVID-19 pandemic.
First, Stone argued that the meaning of such language is not synonymous with “unable to pay.” Second, Stone argued that the force majeure provision applied to the delay of rental payments “where a force majeure event interfered with a party’s operations or revenue.” Lastly, Stone argued that extrinsic evidence illustrated that the parties’ intent behind the provision meant to encompass “unforeseen events that ‘make performance [more] difficult and expensive than the parties originally contemplated.’”
Even though the trial court agreed that the terms “delayed” and “interrupted” are not synonymous with “inability,” the trial court still held that Stone was not delayed or interrupted in its ability to pay rent by its Covid-related financial difficulties.
The appellate court affirmed and reasoned that for the force majeure provision to have applied, “Stone’s ability to pay rent must have been ‘delayed, interrupted, or prevented’ by COVID-19 because timely performance would have either been impossible or was made impracticable due to extreme and unreasonable difficulty.”
Instead, the Court found “Stone merely argues that the force majeure event made it more costly to do so,” which did not excuse Stone’s non-payment under the lease. This confirms that mere increased cost to perform, even if relating to a true force majeure event like COVID-19, is not something that makes contract performance “impossible” or “impracticable due to extreme and unreasonable difficulty.”
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