The United States Court of Appeals for the Sixth Circuit held in Avantax Wealth Management, Inc v. Marriott Hotel Services, Inc., No. 23-5880 (6th Cir. 2024), that a company can use COVID-19 as a basis for validly terminating a contract with a hotel under the contract’s force majeure clause.
Avantax for several years had held a large annual conference for company employees. In March of 2019, Avantax entered into a contract with Gaylord Opryland Resort & Convention Center (“Hotel”) to host their annual conference from June 18-24, 2021. The contract included clauses pertaining to a minimum amount spent on food and beverage; a minimum amount of pre-paid guest rooms; as well as what happens in the case of a “force majeure.”
A force majeure clause allows a party to terminate the contract should there exist any “extraordinary event beyond the control of the parties” that would not allow for the contract to be completed. Id. In this contract, the force majeure clause listed “acts of God, war, domestic terrorism, strikes or similar circumstances” as events that would make it either “illegal or impossible to provide or use the Hotel facilities.” Id.
On March 15, 2020, the Metropolitan Board of Health of Nashville and Davidson County (“Health Department”) declared COVID-19 a public health emergency. Over the next year, the Health Department issued orders which altered the way businesses could operate. On March 10, 2021, a letter released by the Health Department stated that the restrictions were forecasted to last into July. Based on this letter, Avantax terminated the contract under the force majeure clause.
The district court granted Avantax’s motion for summary judgment and the Court of Appeals affirmed. The Court of Appeals held that termination could be based on the prospective “illegality or impossibility” of performance. The Court of Appeals found that this language should be interpreted based on the facts available at the time of termination and not in hindsight. The Health Department’s restrictions issued on March 10, 2021, would not have allowed for the contract to have been executed as intended on June 18-24, 2021. The Court of Appeals held that even though the restrictions were eventually lifted, and performance was possible and legal by the date of the conference, the hindsight application would render the force majeure clause impractical.
Additionally, the Court of Appeals determined that it was best to interpret this force majeure clause to mean that the contract could be terminated if the Hotel could not be used in the way anticipated by the contract. Despite the restrictions allowing a small amount of people to gather and use the Hotel, this would be a significant alteration of what had been agreed to.
