Dore Law - August 2020

Dore Law - August 2020

THE D or É R eport

D ore L aw . com

AUGUST 2020

FORCE MAJEURE CLAUSES IN THE ERA OF COVID-19 AN IN-DEPTH LOOK WITH ATTORNEY ANDRIJA ‘ANDRE’ STANOJCIC

In the last few months, my team and I have been getting a lot of questions about force majeure clauses. This is completely understandable given the current situation. To answer your questions, I turned to Andrija “Andre” Stanojcic, one of our top-notch attorneys and an expert on force majeure. In the following pages, Andre will fill you in on everything you need to know.

A NOTE FROM CARL DORÉ

The first quarter and the beginning of the second quarter of 2020 saw the domestic oil and gas industry face a previously unseen crisis. This crisis is the result of two major factors: (1) the global COVID-19 pandemic (and resulting governmental responses); and (2) the collapse of oil prices in the face of rapidly disappearing demand, along with a huge supply increase — the result of a Saudi–Russia price war. Notwithstanding the federal government’s classification of the oil and gas industry as an “essential industry,” the current business and legal environment has placed many oilfield services companies and their customers in a precarious position. As is often the case in difficult economic times like these, many oilfield services companies and their legal counsel are dusting off their master service agreements with customers and scanning them feverishly in anticipation of forthcoming difficulties. And if they are not, they very well should be. Unsurprisingly, there has been a recent, renewed interest in “force majeure” clauses and their analysis and application to real world situations. This begs the following questions, “What are force majeure clauses? Are they not simply ‘boilerplate’ terms found in all contracts? My contract’s force majeure clause must surely apply in a situation like this, right?” The short answer is, “Probably not.” Your attorney will likely say, “Maybe, it depends.” And they would be right. In the following paragraphs, I’ll seek to give some elementary explanation of force majeure clauses and their interpretation under Texas law. So, what is “force majeure”? The phrase means “superior force” in French. Generally speaking, force majeure describes a legal doctrine that excuses a party’s performance under a contract when a certain

supervening event prevents that performance outright or, in some cases, makes that performance commercially impracticable. But that is where the generalities end and the analysis of your contract’s specific force majeure language must begin.

Your analysis of your contract’s force majeure clause should focus on answering three separate questions:

1. Does the force majeure clause apply to the facts of your company’s situation? 2. If the clause applies, is your performance excused? 3. If your performance is excluded, how do you effectively invoke the force majeure clause? In resolving the first issue, it is important to note that, under Texas law, there is no boilerplate force majeure language that a party can rely on to serve as an effective “catchall” clause. When asked to interpret the scope and application of a certain contract’s force majeure provision, Texas courts will examine the specific language of that clause in order to make that determination.¹ The first place to start is by looking at the events specifically listed in the clause. Remember, the more specific the language, the more likely that a court would find a force majeure clause to apply.² Your Master Servicers Agreement’s (MSA) force majeure provision will likely include phrases you’ve seen before: Fires, floods, acts of God, governmental orders, wars, strikes, insurrections, and acts of terrorism are some of

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FORCE MAJEURE CLAUSES IN THE ERA OF COVID-19

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the more common phrases. In the context of the coronavirus pandemic, applicable language would be “pandemic,” “pathogen,” “outbreak of disease,” or even more useful, “coronavirus.” Unfortunately, this sort of specific verbiage does not appear to be common in most oilfield MSAs, at least until now. If your force majeure clause does not contain one of these specific terms, your next best bet will likely be “act of God” or “acts of government.” Generally, Texas courts have found that an “act of God” refers to natural forces, events, or causes. That is an event “occasioned exclusively by the violence of nature.”³ Events without human intervention, such as hurricanes and floods, would be examples of “acts of God,” as stated by several Texas courts.⁴ Consequently, it’s not crystal clear whether the current pandemic would qualify as an “act of God” under Texas law. There is a good argument to be made, but there are some counterarguments, as well, one being that government [human] intervention is the actual cause which renders a party’s performance impossible or difficult, as opposed to an “act of God.” In addition to events that are specifically listed, many force majeure clauses will include “catchall” language that the drafters intended to include all other unspecified events. A common example is “ … and any other similar causes that are not within the reasonable control of the party affected.” This verbiage is usually found at the end of the list of enumerated events, as discussed in the previous paragraph. Unfortunately, this sort of “catchall” language often raises contract interpretation issues. If it comes after the enumerated list of events (like in our example) then a Texas court would apply the doctrine of ejusdem generis , which essentially means that the catchall cannot extend to events that are significantly different than the enumerated events.⁵ Additionally, in Texas, catchall provisions can only apply to events that are unforeseeable. This may not be the case with a specifically enumerated event.⁶ Once you have analyzed the first issue and concluded that the language of your force majeure provision applies to your situation, the next standard question applies to measure your inability to perform. Does the situation have to make it impossible or illegal for you to perform? Or does it only have to make your performance difficult or delayed, for example? If your situation meets the standard set out in the provision, then the next question is what does the provision excuse? Typically, the force majeure provisions will only excuse delayed performance during the period of delay caused by the force majeure. If the excused party is able to find a reasonable workaround

or the force majeure event ends, then performance must continue. Sometimes, the provision may allow the other party (to whom the performance is owed) to terminate the contract for convenience if a force majeure event continues for a certain period of time or longer (e.g., 60 days). Once you have determined whether your performance is excused, and to what extent, the last inquiry should be how to effectively invoke the force majeure clause. If your clause contains a notice requirement and deadline, which it likely does, then you must strictly comply with this deadline (e.g., “no later than 10 days of the force majeure event”) and any requirements of form (e.g., “delivered in writing via certified mail”). Some clauses have broader language (e.g., “within a reasonable time after the occurrence of the cause relied upon”). This presents the problem of determining when the particular event giving rise to your force majeure claim occurred. (In the case of COVID-19, we now know there were several months between when it was first reported in China until it began adversely affecting commerce in the United States.) In any case, you should act as diligently as possible once you determine that there will be a likelihood that an event will disrupt your performance under a contract. The courts have enforced these requirements strictly! Failure to provide proper notice according to the express terms of the force majeure clause will preclude reliance on the clause.⁷ In conclusion, if you suspect that your performance may be delayed or completely halted due to coronavirus infections or governmental action, you will need to review the specific language of your MSA. It is best to do so sooner than later, as your MSA’s force majeure clause may contain strict notice requirements and short deadlines. If you fail to comply with these strict requirements, you waive your right to obtain relief under the force majeure provision. Even though the events our industry has encountered in the last several months have been unprecedented, there is no guarantee they are a basis for relief under your MSA’s force majeure clause, should you need to invoke it. Consult with your in-house or outside counsel to determine what relief you may be entitled to; going forward, consider negotiating future MSAs to account for the possibility of pandemics and resulting governmental actions. If you have any further questions about force majeure clauses, please reach out to my team here are Doré Rothberg McKay. We’re always happy to help.

Sources:

1. Zurich Am. Ins. Co. v. Hunt Petrol.(AEC), Inc., 157 S.W.3d 462, 466 (Tex. App.—Houston [14th Dist.] 2004, no pet.). 2. Perlman v. Pioneer Ltd. Partnership , 918 F.2d 1244, 1248 n.5 (5th Cir. 1990). 3. McWilliams v. Masterson , 112 S.W.3d 314, 320 (Tex. App.—Amarillo 2003, pet. denied). 4. See Travelers Ins. Co. v. Williams , 378 S.W.2d 110, 113 (Tex. App.—Amarillo 1964, writ ref’d n.r.e.); HRD Corp. v. Lux Int’l Corp. at *11–12 (S.D. Tex. July 17, 2007). 5. See Ross v. St. Luke’s Episcopal Hosp ., 462 S.W.3d 496, 504 (Tex. 2015). 6. See TEC Olmos, LLC v. ConocoPhillips Co. , 555 S.W.3d 176, 184 (Tex. App.—Houston [1st Dist.] 2018, pet. denied); Valero Transmission Co. v. Mitchell Energy Corp. , 743 S.W.2d 658, 663 (Tex. App.—Houston [1st Dist.] 1987, no pet.). 7. Sun Operating Ltd. Partnership v. Holt , S.W.2d 277, 284 (Tex. App.—Amarillo 1988, pet. denied).

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WHEN LIFE GIVES YOU LEMONS ... 4 BUSINESS LESSONS FROM YOUNG ENTREPRENEURS

ASK FOR REFERRALS. Megan, kid entrepreneur and owner of “Dr. Megan’s Mad Mango Lemonade” in Louisiana, knows a thing or two about the value of word-of-mouth marketing. Megan makes sure customers have an easy time spreading the word about the refreshing lemonade. In her second summer running the stand, Megan says, “I advertised through Facebook and word of mouth. I created my own business page. I shared it with friends, family, and the community. ArkLaTex Horse Rescue advertised my stand, and I posted advertisements to many local Facebook groups as well.” BUILD YOUR BUSINESS AROUND YOUR VALUES. Have you heard of anyone starting a million-dollar lemonade stand? There’s one person who has, and her name is Alex. She was diagnosed with

Lemonade stands are rumored to have originated with New York journalist Edward Bok, who, as a kid growing up in Brooklyn, sold ice water on hot summer days to thirsty passersby. When other water salespeople tried to move in on Bok’s profit, he got creative by adding lemon juice and eventually sugar to the mix. The result of this innovation? Sales soared. Lemonade stands continue to be a popular summer pastime for burgeoning entrepreneurs, and there are a few things we can learn from these humble business endeavors. BE ADAPTABLE. Warren Buffett has had business on the brain since birth. During his childhood, when he noticed that a friend’s house got more foot traffic than his did, the future tycoon moved his lemonade stand to the prime realty. Buffett obviously benefited from this innovation; the jury is still out on his friend. GO ABOVE AND BEYOND FOR YOUR CUSTOMERS. When Ann Handley’s daughter and her friend opened up a lemonade stand, they found a way to connect with their demographic. The location of the stand was frequented by many French-speaking Canadian customers, and since the friend was born in Montreal and spoke French, the girls greeted each customer in English and French. More conversation makes more sales.

cancer as a young girl, and her determined spirit motivated her to fight back. She started a lemonade stand to raise money for other kids with cancer. The message of the stand with a purpose spread, and Alex raised $2,000 in a single day. Sadly, Alex passed away when she was 8, but her legacy continues to thrive through her family, who turned Alex’s Lemonade Stand into a foundation. It’s raised over $127 million for cancer research.

MEET BRENT DORÉ, OUR NEWEST ATTORNEY

WEEKNIGHT CURRIED APPLE PORK CHOPS Inspired by The Primal Desire

Our law firm is pleased to welcome a new attorney — Brent Doré. Until he joined our team, Brent worked in business litigation at Harris, Finley & Bogle in Fort Worth, a position he took after graduating from Texas A&M University School of Law four years ago. He serves on the boards of two local charities as well as the Texas Aggie Bar Association (TABA). Brent will be an anchor for Doré Rothberg McKay in the Dallas/ Fort Worth area where he has

INGREDIENTS •

2 tbsp coconut oil or ghee

2 tbsp hot curry powder 3 cups diced apples (peeled or not, your choice!)

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1 cup onion, diced 1 tbsp garlic, crushed

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1 tsp ginger, finely chopped

6 pork chops

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1 tsp salt

Cilantro, roughly chopped

1/2 cup water or apple juice

DIRECTIONS

1. Preheat oven to 375 F. 2. In a large pan over medium heat, melt coconut oil or ghee. 3. Add onions, garlic, ginger, and salt. Sauté for 10 minutes or until onions are soft and mixture is fragrant. 4. Mix in water or apple juice and curry powder. Then add apples, ensuring they get coated in sauce. 5. In an oven-safe dish, arrange pork chops, cover with sauce and apple mixture, and cook for 20 minutes (if using bone-in chops, cook for an additional 10 minutes) or until the meat reaches an internal temperature of 145 F. 6. Garnish with cilantro. Enjoy!

lived and worked for 17 years. He will concentrate on our clients in West and North Texas, where his experience in business disputes will be a great fit for our practices in collections, bankruptcy, and commercial litigation. As you might have guessed, Brent also happens to have a father in the “family business.”

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Force Majeure Clauses in the Era of COVID-19

What You Can Learn From the Most Successful Lemonade Stands

Meet Our Newest Attorney

Weeknight Curried Apple Pork Chops

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Jay Abraham’s Simple Guide to Success

THE PROFOUND SIMPLICITY OF ‘GETTING EVERYTHING YOU CAN OUT OF ALL YOU’VE GOT’

clear, actionable steps to get you to “recognize the income- and success- increasing connections that are all around you.” With this workmanlike approach, “Getting Everything You Can” breaks down success in business into its component processes: attracting new clients, increasing the average size per sale of a client, and boosting client retention. These three aspects of success, according to Abraham, hinge on your ability to leverage a “unique selling proposition,” or USP. Put bluntly, a USP

Jay Abraham’s “Getting Everything You Can Out of All You’ve Got” is one of those evergreen business books every entrepreneur should pick up at some point. Rather than latch on to fleeting business trends or the gimmicks of the early dot-com era, Abraham, a business coach who has spent his entire career solving problems and fixing companies, reexamines the basics of business. By returning to and interrogating the building blocks of growth, he is able to deliver the sort of timeless wisdom most business authors only dream of being able to capture. What makes “Getting Everything You Can” stand out is the simplicity of the ideas it presents. In fact, Abraham’s central thesis is that our tendency to overlook or dismiss the mundane, everyday aspects of our business is what keeps us from seeing its real value. As Abraham puts it, “You are surrounded by simple, obvious solutions that can dramatically increase your income, power, influence, and success.” Finding those solutions is what “Getting Everything You Can” is all about. What makes Abraham so successful as a business coach for small companies and international brands alike is his practical, methodical approach, which shines through in this book. You won’t find banal platitudes or sweeping summations within these pages. Instead, Abraham uses direct, approachable language to outline

stems from the aspects of your business that make it stand out from the competition — what you bring to the table that others can’t.

Identifying a USP sounds like a simple-enough concept, but as Abraham explains, business owners are often blind to the real value of their company. Seeing what truly makes your brand unique requires looking at old problems in new ways and fundamentally shifting your perspective on the basics of running a business. Finding solutions hidden in plain sight is no easy task, but “Getting Everything You Can Out of All You’ve Got” is committed to getting you there.

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