As the COVID-19 pandemic continues to keep most of the country in an unprecedented state of shutdown, including most of the nation’s court systems, this Quick Study analyzes practical issues businesses should consider for current and prospective commercial litigation in the era of COVID-19 and beyond.
Contract Performance Disputes:
COVID-19 has forced most businesses to focus on contract performance obligations—both the extent to which a business must continue performing its obligations, as well as the recourse and remedies available in the event a counterparty fails to perform its obligations. The economic fallout from COVID-19 is sure to trigger disputes between contracting parties that will require interpretation and application of contract provisions that are sometimes an afterthought and less frequently interpreted and applied by courts (especially in circumstances like the unique ones presented by this pandemic).
Businesses should consult with counsel on the effect of force majeure clauses, as well as provisions relating to “time is of the essence,” limitation of liability, indemnification, and price increases in light of price-gouging laws, all of which may impact contractual performance obligations as COVID-19 continues to disrupt commercial activity around the world. In addition to contract provisions, performance by either party may be impacted by common law doctrines such as impossibility, impracticability, and frustration of purpose, as well as statutory provisions in the Uniform Commercial Code.
Businesses should also work with counsel to review all notice provisions and be sure to comply with these provisions to avoid the risk of waiving a breach of contract claim. Remember that notice provisions are often not in the governing contract document but incorporated by reference through terms and conditions found on a website or in a separate document. In addition, all choice of law, forum selection, and arbitration clauses should also be reviewed with counsel to determine how such provisions will impact potential litigation. Businesses should also make all reasonable efforts to mitigate damages caused by a breaching party’s actions, and document mitigation efforts, as well as the types and amounts of any damages incurred, in the event the dispute proceeds to litigation.
Preservation of Evidence:
In addition to contract claims, the COVID-19 pandemic is also likely to give rise to business torts, including fraud and fiduciary duty claims, as well as statutory claims. Regardless of whether these claims are asserted during the pandemic or in the future, it is advisable take steps now to preserve all relevant documents, information, data, and witness testimony related to any claims, counterclaims and potential affirmative defenses. Businesses should consider consulting counsel on whether and how to issue litigation holds, as well as interviewing relevant employees to ensure key facts are preserved. Taking these actions will better position the business to prevail in a future litigation, as well as help reduce litigation costs.
Statutes of Limitations:
To date, the federal court system has not taken a unified approach to addressing the statutes of limitations applicable to federal claims in response to the COVID-19 pandemic. State approaches to addressing statutes of limitations have varied. On one end of the spectrum are states like Maine and Vermont, which have specifically announced that statutes of limitations will not be extended or tolled due to the COVID-19 pandemic. In the middle are states like Rhode Island, which requires prospective litigants to petition the court for an extension of the limitations period, and Texas, where the Supreme Court issued an order giving trial courts discretion to extend the statute of limitations for up to 30 days after the statewide emergency has been lifted. On the other end are states like New York and Connecticut, where the governors issued executive orders suspending statutes of limitations state-wide, and Delaware and Massachusetts, where the Supreme Courts of those states issued orders tolling the statute of limitations. Many states, including Florida, Illinois, and Wisconsin, have yet to issue orders or other guidance regarding the statute of limitations for civil matters.
These divergent and evolving approaches leave many open questions and gray areas concerning how statutes of limitations will be applied during and after the pandemic, especially in complex commercial matters involving parties from different jurisdictions and/or events taking place in more than one state. Businesses with affirmative claims (or facing potential claims), whether under a contract, a statute, or the common law, should consult with litigation counsel on the following issues:
Whether to Initiate Litigation Now or Wait:
Apart from the statute of limitations, there are more nuanced considerations regarding whether to pursue litigation during the pandemic or wait. On one hand, claims that arise during the pandemic will typically have years before the applicable statute of limitations or repose expires—for example, the statute of limitations on claims for breach of written contracts in Illinois is ten years. Businesses understandably may not wish to incur the cost of litigation during such uncertain economic times, especially when access to court systems has been significantly restricted (as discussed next). If a decision is made to defer litigation, businesses should still consult with litigation counsel on the best ways to preserve relevant evidence and mitigate potential damages in the interim, as discussed above.
On the other hand, waiting to assert a claim may mean having to get in line behind other creditors and potentially face a diminished recovery in the event the other party becomes insolvent. Still another consideration is that while there may be years remaining on an applicable statute of limitations, a claim could nevertheless be subject to equitable defenses, such as laches, estoppel, and waiver. Ultimately, whether to pursue litigation now or wait to see what the future brings will depend on the specific facts and circumstances. Litigation counsel can assist businesses with working through these competing considerations.
Court Procedures and Availability:
Courts have responded by simultaneously relaxing and restricting traditional procedures and rules. For instance, courts are embracing technology, such as offering court proceedings via Zoom and YouTube, significantly extending all case deadlines, delaying bench and jury trials, and considering as evidence sworn out of court statements. The Northern District of Illinois, for instance, has set up a specific docket (No. 20-cv-01792) to specifically address motions requesting emergency relief from its COVID-19 general order. Conversely, courts are shuttering courthouses, reducing availability of staff to handle clerical matters, narrowing the definition of what is an “emergency,” and reprimanding those parties who proceed with “reckless” emergency designations. C.W. v. NCL (Bahamas) Ltd., No. 1:19-cv-24441-CMA, 2020 WL 1492904 (S.D. Fla. Mar. 21, 2020); Circuit Court of Cook County Gen. Admin. Order No: 2020-01 COVID-10 Emergency Measures (“[Civil] [m]atters agreed by all parties to be emergencies will be heard . . . .” (emphasis added)). Many federal appellate courts have suspended the filing of paper copies and either postponed oral arguments or moved them to telephonic or video conference. Businesses should consult with counsel for the latest information on courthouse closures, deadlines and the availability of remote procedures.
The result of closing courthouse doors and moving to only electronic filing and remote appearances is that commercial dispute proceedings, especially trials, will see significant delays and/or likely receive less priority once the court system returns to normal business operations.
In light of the restrictions and corresponding delays in the court system due to the pandemic, businesses should consider whether alternative dispute resolution processes, such as arbitration or mediation, would better serve their needs during this time. The advantages of arbitration and how to move current disputes into arbitration are discussed in more detail in a separate Locke Lord QuickStudy, found here.
We will continue to monitor these issues and will provide future client updates concerning these topics. This QuickStudy is for guidance only and is not intended to be a substitute for specific legal advice. If you would like more information on the matters discussed here, please contact the authors or your Locke Lord attorney.
Visit our COVID-19 Resource Center often for up-to-date information to help you stay informed of the legal issues related to COVID-19.
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