Force Majeure As An Affirmative Defense

Force Majeure as an affirmative defense
What does the Southern District of Florida have to say?


Force Majeure as a defense in the context of the current Coronavirus Pandemic will be an important issue in business and corporate litigation. Set forth below is a recent case from Judge Middlebrooks that provides a good roadmap for how some courts will consider this defense.

First, it is worth noting that Judge Middlebrooks recognizes that there is limited precedent regarding Force Majeure clauses.

Secondly, it is interesting how Judge Middlebrooks cites the Seaboard Lumber case to point out that “government policies affecting the profitability of a contract but not precluding performance are not sufficient to trigger a force majeure clause.”

Therefore, we can conclude that a court will certainly focus on whether or not performance under the contract was in fact “precluded.”


ARHC NV WELFL01, LLC, a Delaware limited liability company, Plaintiff,
CHATSWORTH AT WELLINGTON GREEN, LLC, a Florida limited liability company, Defendant.
Signed 02/05/2019

THIS CAUSE is before the Court upon Plaintiff ARHC NV WELFL01, LLC’s (“Plaintiff ARHC”) Motion for Summary Judgment, filed on August 10, 2018 (“Motion”). Defendant Chatsworth at Wellington Green, LLC (“Defendant Wellington”) filed a Response on November 9, 2018, to which Plaintiff replied on November 16, 2018. For reasons stated below, the Motion is granted.

Plaintiff ARHC is the owner of real property located at 10330 NuVista Avenue in Wellington, Florida. On October 14, 2014, Plaintiff ARHC and Defendant Wellington entered into a Lease Agreement with respect to the property. In exchange for, among other things, payment of “Minimum Rent,” as outlined in the Lease Agreement, Defendant operates on the property a skilled nursing and assisted living facility known as “NuVista Living at Wellington Green.”

A “significant source” of Defendant’s revenue was the Bundled Payment for Care Improvement (“BPCI”) program operated by the Centers for Medicare and Medicaid Services (“CMS”). Soon after the Lease Agreement was executed, CMS began to modify the BPCI program. Defendant states that as a result of these modifications, it was deprived of nearly $5,000,000 in revenue between the first quarter of 2015 and the third quarter of 2018. Despite Defendant’s investment of $2,500,000 in developing a business model that did not rely on the BPCI program, Defendant failed to timely pay the Minimum Rent in July 2017. Plaintiff notified Defendant of the default through several demand letters. On May 25, 2018, Plaintiff delivered notice of default to Defendant and sought payment of the unpaid rents or possession of the property. Defendant did not pay the amount sought and continued to occupy the properties. Plaintiff alleges that, as of August 8, 2018—two days prior to the date it filed its Motion for Summary Judgment—Defendant owes Plaintiff $5,003,575.00 in unpaid Minimum Rent, $365,507.80 in interest, and $48,592.00 in late fees.

Plaintiff filed a Motion to Enforce Settlement Agreements on October 25, 2018, alleging that several documents executed after the initiation of this lawsuit constituted a settlement of all claims. The motion was denied by this Court on November 7, 2018, on the basis that Plaintiff had failed to meet its burden of showing that Defendant assented to and subsequently breached any agreements that settled this litigation. Plaintiff subsequently filed a Renewed Motion to Enforce Settlement Agreements, which remains pending before the Court.
Plaintiff initiated this action on June 1, 2018. Count I of the Complaint seeks eviction of Defendant, Count II seeks appointment of a receiver, and Count III alleges a claim of breach of contract.

“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A disputed fact is “material” if it “might affect the outcome of the suit under the governing law.” Talavera v. Shah, 638 F.3d 303, 308 (D.C. Cir. 2011) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)). A dispute over a material fact is “genuine” if it could lead a reasonable jury to return a verdict in favor of the nonmoving party. See Scott v. Harris, 550 U.S. 372, 380 (2007); Paige v. DEA, 665 F.3d 1355, 1358 (D.C. Cir. 2012). “Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge at summary judgment. Thus, [the court] do[es] not determine the truth of the matter, but instead decide[s] only whether there is a genuine issue for trial.” Barnett v. PA Consulting Group, Inc., 715 F.3d 354, 358 (D.C. Cir. 2013) (quoting Pardo-Kronemann v. Donovan, 601 F.3d 599, 604 (D.C. Cir. 2010)).

Under the summary judgment standard, the moving party bears the “initial responsibility of informing the district court of the basis for [its] motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits which [it] believe[s] demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). In response, the nonmoving party must “go beyond the pleadings and by [its] own affidavits, or depositions, answers to interrogatories, and admissions on file, ‘designate’ specific facts showing that there is a genuine issue for trial.” Id. at 324 (internal citations omitted). If a party against whom a motion is filed fails to “establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial,” summary judgment for the movant is warranted. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). The party moving for summary judgment bears the burden of establishing that there is insufficient evidence to support the non-moving party’s case. Id. at 325. At the summary judgment stage, courts construe the facts in the light most favorable to the non-movant, and any doubts should be resolved against the moving party. Adickes v. S.H. Kress & Co., 398 U.S. 144, 157 (1970).

Where affirmative defenses are contested, however, a different analysis applies. Because a defendant bears the burden of proof on any affirmative defenses at trial, Thorsteinsson v. M/V Drangur, 891 F.2d 1547, 1550–51 (11th Cir. 1990), on a plaintiff’s motion for summary judgment, the defendant bears the initial burden of showing that the affirmative defense is applicable. Blue Cross and Blue Shield v. Weitz, 913 F.2d 1544, 1552 (11th Cir. 1990). Upon such a showing, the burden shifts to plaintiff regarding that affirmative defense. Id. at n.13.

Plaintiff moves for the entry of summary judgment on all counts of the Complaint: eviction, appointment of a receiver, and breach of contract. Defendant argues against summary judgment on the basis that its nonperformance under the Lease Agreement is excusable under the contract’s force majeure clause. Defendant further argues that appointment of a receiver is improper in this case as a result of complications arising from the licensing requirements applicable to operators of a skilled nursing and rehabilitation facility such as NuVista Living at Wellington Green.

I. Defendant’s Force Majeure Defense
Defendant presents as an affirmative defense that its inability to pay rent was specifically and solely the result of government action, and as such is a force majeure event. Per the Lease Agreement, “Tenant shall not be deemed to have committed an Event of Default under this Agreement if such Event of Default resulted from a Force Majeure Event (as long as Tenant is making a good faith effort to perform its obligations under this Agreement).” The Lease Agreement defines a force majeure event: “Force Majeure Event” means any circumstance which is not in the reasonable control of either party hereto, caused by any of the following: strikes, lockouts; acts of God; acts of war; civil commotion; fire or any other casualty; governmental action; or other similar cause or circumstance which is not in the reasonable control of either party hereto. Neither lack of financing nor general economic and/or market factors is a Force Majeure Event.

The Lease Agreement is governed by Florida law, under which contract interpretation is generally a question of law. See Lawyers Title Ins. Corp. v. JDC (Am.) Corp., 52 F.3d 1575, 1580 (11th Cir. 1995). Questions of fact arise only when an ambiguous contract term forces the court to turn to extrinsic evidence of the parties’ intent, such as precontract negotiations, to interpret the disputed term. Id. (citing Thornton v. Bean Contracting Co., 592 F.2d 1287, 1290 (5th Cir. 1979)). Such an ambiguity, however, “does not exist merely because a contract can possibly be interpreted in more than one manner.” Shipner v. Eastern Air Lines, Inc., 868 F.2d 401, 409 (11th Cir. 1989) (applying Florida law) (citing American Medical Int’l, Inc. v. Scheller, 462 So.2d 1, 7 (Fla. Dist. Ct. App. 1984), rev. denied, 471 So.2d 44 (Fla. 1985), cert. denied, 474 U.S. 947 (1985)).

Defendant argues that the government’s modification of the BPCI program constituted a force majeure event. Defendant states that the changes and eventual elimination of the program resulted in approximately $7,000,000 in lost revenue and $2,500,000 in costs over the relevant time frame. Defendant argues that the BPCI modification constitutes force majeure because it was a “governmental action” that was “not in the reasonable control of either party” to the Lease Agreement and was the result of neither a “lack of financing nor general economic and/or market factors.”

A force majeure clause is defined as “a contractual provision allocating the risk of loss if performance becomes impossible or impracticable, especially as a result of an event or effect that the parties could not have anticipated or controlled.” Black’s Law Dictionary, 718 (9th ed. 2009). Force majeure clauses are typically narrowly construed, and “will generally only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.” In re Cablevision Consumer Litigation, 864 F.Supp.2d 258, 264 (E.D.N.Y., 2012) (citing Reade v. Stoneybrook Realty, LLC, 63 A.D.3d 433, 434 (N.Y. App. Div. 2009)).

Precedent on the enforcement of force majeure clauses is limited in Florida. Many of the cases that address such clauses pertain to the Interstate Land Sales Full Disclosure Act (the “ILSFDA”). 15 U.S.C. § 1701 et seq. In Stein v. Paradigm Mirasol, LLC, for example, a steep drop in housing prices led plaintiffs to seek to escape from their purchase of an under-construction condominium unit on the basis that the developer failed to provide them with a property report as required by the ILSFDA. 586 F.3d 849, 852 (11th Cir. 2009). The ILSFDA has an exemption for sales of land under contracts obligating the seller to erect building on the land within a period of two years. See 15 U.S.C. § 1702(a)(2). One of the questions addressed by the Stein court was whether the force majeure clause in the sales contract took it out of the ILSFDA’s exemption because it was so broad as to render illusory any obligation to complete construction within two years. 586 F.3d at 857. The lower court in Stein held that the sale contract was illusory because the excuses the force majeure clause provided for delay “would not qualify under Florida’s impossibility of performance principles,” but the Eleventh circuit reversed, determining that force majeure clauses broader than the scope of impossibility are enforceable under Florida law. Id. at n.6 (citing, inter alia, Devco Dev. Corp. v. Hooker Homes, Inc., 518 So. 2d 922, 923 (Fla. Dist. Ct. App. 1987) (holding that excessive rain excused delay under the contract’s force majeure clause as a condition outside of the seller’s control)). Some Florida courts have analyzed force majeure clauses in a manner similar to Stein. See, e.g., Home Devco/Tivoli Isles LLC v. Silver, 26 So. 3d 718, 722 (Fla. Dist. Ct. App. 2010) (force majeure clause did not render two-year construction obligation illusory); Snavely Siesta Assocs., LLC v. Senker, 34 So. 3d 813, 818 (Fla. Dist. Ct. App. 2010) (same).

Perhaps in light of the scarcity of authoritative precedent analyzing force majeure clauses with respect to acts of government, the Parties devote much of their briefs to discussion of Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1288 (Fed. Cir. 2002). Seaboard Lumber was two lumber companies’ joint appeal of Court of Federal Claims decisions assessing liability and awarding damages to the government after the companies failed to perform on different timber sales contracts. Id. at 1287. One of the companies appealed the rejection as a matter of law, on the basis of its non-performance defenses of force majeure, impossibility of performance, commercial impracticability, and frustration of purpose. Id. The force majeure clause in Seaboard Lumber stated that contractors qualified for contract term adjustments where they experienced delays greater than ten days as a result of, inter alia, “acts of Government.” Id. at 1292. The lumber company argued that government fiscal and monetary policy decisions undertaken in the early 1980s, including new monetary control procedures and the deregulation of savings institutions, were beyond its control and resulted in an increase in interest rates and a slump in the timber market that prevented it from timely performance under the contract. Id. at 1293. The Federal Circuit rejected this argument on the basis that “such acts [had] only an attenuated effect on the contracts at issue, at most making performance by the timber contractors unprofitable.” Id. (emphasis added). The Seaboard Lumber court found that government policies affecting the profitability of a contract but not precluding performance are not sufficient to trigger a force majeure clause. To support its conclusion, the Seaboard Lumber court cited Langham–Hill Petroleum, Inc. v. S. Fuels Co., 813 F.2d 1327 (4th Cir. 1987), where the Fourth Circuit rejected a force majeure argument based on unprofitability arising from the collapse in world oil prices caused by the actions of Saudi Arabia’s government, and N. Ind. Pub. Serv. Co. v. Carbon County Coal Co., 799 F.2d 265 (7th Cir. 1986), where the Seventh Circuit held that a government order denying a utility company’s request to pass increased coal prices along to customers did not excuse the utility from an unprofitable long-term contract to buy coal. Seaboard Lumber, 308 F.3d at 1293. “A force majeure clause is not intended to buffer a party against the normal risks of a contract.” Id. (quoting N. Ind. Pub. Serv. Co., 799 F.2d at 275).

In this case, I find that Defendant has failed to meet its burden of showing that the Lease Agreement’s force majeure clause should be invoked. On a plaintiff’s motion for summary judgment, the defendant bears the initial burden of showing that the affirmative defense is applicable. Blue Cross and Blue Shield, 913 F.2d at 1552. The performance required of Defendant under the Lease Agreement was payment of rent, and while I acknowledge that the government’s decision to alter the BPCI program was “not in the reasonable control of either party,” the Lease Agreement only excuses a party’s nonperformance if the “Event of Default resulted from a Force Majeure Event.” Defendant has not shown that its failure to perform “resulted from” the BPCI program modifications. Under Florida law, Defendant did not need to prove that the policy changes made performance impossible, Stein, 586 F.3d at 857, but Defendant has failed to create a dispute of fact even as to a lesser showing, providing only an affidavit stating that it was deprived of approximately $7,000,000 in revenue and an unexplained excerpt from a business plan that purports to demonstrate that the “BPCI program was a material and important factor in Wellington’s revenue stream and in its ability to pay rent.” Without specific information in the record as to the relative role of the BPCI reimbursements in Defendant’s revenue stream, this Court cannot determine whether Defendant’s failure to pay rent “resulted from” the program changes, as contemplated by the force majeure clause.

Further, it is not clear that the force majeure clause is applicable in this instance as a matter of law. Defendant argues that the government’s modification of the BPCI program triggered the force majeure clause because its reliance on the BPCI program was a fundamental tenet of the Lease Agreement, and that, in essence, its duty to pay rent was conditioned on its revenue. Defendant contends that its reliance on the BPCI program was made known to Plaintiff during the due diligence period preceding the execution of a prior contract between the Parties, the Asset Purchase Agreement (the “APA”), whereby the Wellington facility and an unbuilt facility in Jupiter, Florida were sold by Defendant to Plaintiff. As evidence of Plaintiff’s knowledge of Defendant’s reliance on the BPCI program, Defendant offers the business plan excerpt, which was produced for Plaintiff prior to execution of either the APA or Lease Agreement.

I decline to consider the proposed extrinsic evidence put forth by Defendant. When a contract provision is clear and unambiguous, as are the rent provisions in the Lease Agreement, the court may not consider extrinsic or parol evidence to change the plain meaning set forth in the contract. Acquisition Corp. of Am. v. Fed. Deposit Ins. Corp., 760 F. Supp. 1558, 1561 (S.D. Fla. 1991). Exclusion of parol evidence in the interpretation of the Lease Agreement is further justified by the contract’s integration clause, which states that the Lease Agreement contains the entire agreement between the Parties. (FN1)

II. Receivership
Defendant also argues that summary judgment is inappropriate on Plaintiff’s claim for appointment of a receiver on the basis that any receiver’s lack of proper nursing facility
license would prevent the operation of the facility and result in a crisis of patient care. The Parties do not dispute that a license is required to operate NuVista Living at Wellington Green, Fla. Stat. § 400.062, nor do they dispute that a license may be transferred under the statute. Fla. Stat. § 408.807. Because of the length of time involved in license transferal, however, Defendant argues that a receiver appointed by the court will not be able to operate the facility under Defendant’s license without first obtaining a separate license for itself. Defendant contends that pursuant to the Parties’ Operations Transfer Agreement—the subject of Plaintiff’s Motions to Enforce Settlements—the Parties have prepared a transition plan, and that Defendant, as the only recognized licensee, must retain operational control of the facility during the transition in order to avoid a lapse in licensed operation of the facility.

The health, safety, and welfare of the patients in the nursing home are of the utmost importance to the Parties and to this Court, but I do not find that Defendant’s concerns regarding licensure are sufficient to defeat summary judgment. Without the ability to avail itself of the force majeuere clause, as analyzed above, there is no dispute of material fact as to Defendant’s claim for breach of contract. A district court’s appointment of a receiver is “an extraordinary equitable remedy.” United States v. Bradley, 644 F.3d 1213, 1310 (11th Cir. 2011) (quoting 13 Moore’s Federal Practice, § 66.04[2][a] (3d ed. 2010)). As an equitable remedy, appointment of a receiver is within the discretion of the district court. Nat’l P’ship Inv. Corp. v. Nat’l Hous. Dev. Corp., 153 F.3d 1289, 1292 (11th Cir. 1998). Opposition to a possible remedy, however well-intentioned, is not sufficient to defeat a motion for summary judgment. In order to fashion a remedy that vindicates Plaintiff’s prevailing claim for breach of contract while avoiding harm to the patients and residents of NuVista Living at Wellington Green, the Parties shall convene before the Court for a hearing on damages and remedies.

For the reasons stated herein, it is ORDERED AND ADJUDGED as follows:
1. Plaintiff’s Motion for Summary Judgment (DE 21) is GRANTED as to Defendant’s liability for breach of contract.
2. The calendar call scheduled for February 13, 2019 at 1:15 p.m. is CANCELLED. The trial set for the two-week period beginning February 19, 2019 is CANCELLED.
3. The Parties are ORDERED to appear before the Court for a hearing regarding damages and remedies. The hearing is hereby SCHEDULED on Friday, February 15 at 2:00 p.m. in Courtroom 7 on the second floor of the United States District Court at 701 Clematis Street, in West Palm Beach, Florida.
4. Final Judgement will be entered by separate order following the scheduled hearing.

All Citations
Slip Copy, 2019 WL 4694146

FN1: Additionally, I doubt this extrinsic evidence would change the result. The Lease Agreement itself does not condition payment of rent on Defendant’s revenue, whether derived from

government reimbursement programs or otherwise. Force majeure clauses generally operate as catch-all provisions, not as substantive terms. If a certain contractual provision is of critical importance to a contracting party—as Defendant contends regarding protection from policy-driven revenue fluctuations—it is incumbent on that party to draft the contract in such a way that the contract unambiguously reflects the desired provision.