A ruling by the United States Court of Appeals in July upheld a group's right to apply a hotel contract’s force-majeure clause and cancel a 1,200-attendee meeting without penalty. While the specifics of the case relate to Covid-pandemic restrictions, the ramifications could be broader.
“Not only was this a federal case, but it went to the Court of Appeals for the area, one rung below the U.S. Supreme Court,” says Joshua Grimes, Esq., Grimes Law Offices. “The next time there's a force-majeure cancellation lawsuit, other federal courts and even some state courts will look to this case. It serves as a precedent because a high-level court reviewed the case.”
The facts of the suit echo the experiences of many event organizers and meeting venues faced with difficult choices during the pandemic.
In 2019, Avantax Wealth Management booked Marriott’s Gaylord Opryland Resort & Convention Center in Nashville to host its June 18-24, 2021, annual conference. The contract included a standard force-majeure clause allowing termination if circumstances made it “illegal or impossible” to provide or use the hotel facilities.
Then along came Covid. Nashville’s Metropolitan Board of Health declared a public-health emergency in March 2020, and in the year that followed, issued various public-health orders regarding hosting events. On March 10, 2021, it announced that it anticipated reaching 40 percent vaccination by July 1, and at that point “expected there would be a cap of 300 attendees for very high-risk events, 750 attendees for high-risk events, 1,250 attendees for low-risk events, and 5,000 attendees for very low-risk events.”
On March 25, Avantax cancelled the conference, pointing to the March 10 letter. It’s education and networking event had many social and celebratory elements that put it in the “very high-risk” category, with an anticipated 300-attendee cap. This was well below the 1,200 attendees contemplated in the hotel contract.
However, on April 27, the board of health updated its Covid orders significantly, announcing that all event capacity limits would be lifted in mid-May. Marriott sent Advantax a $1.3 million cancellation bill because there were no Covid restrictions actually in place over the dates of the meeting. Advantax sued to avoid paying Marriott’s damages.
Ruling in favor of Avantax, the courts held that the force-majeure clause allowed termination based on the prospective illegality or impossibility of performance, as determined at the time of termination—not at the actual date of the event.
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Grimes sees lessons that can be applied to many force-majeure cases.
“I’ve long argued that the relevant factors in a force-majeure case should be whether the group had a reasonable basis to cancel at the time they made the determination,” says Grimes, “and this court agreed.”
The court considered the notice provision in the force-majeure clause, which mandated written notice of termination “within ten days after learning” of “the basis for such termination.” Avantax, the court said, “was therefore required to terminate the contract not only in advance of performance, but within ten days of determining, prospectively, that its June conference could not go forward.” If Marriott’s position on contract liability had prevailed, then the 10-day notice provision would have put the host organization “in the untenable position of having to terminate a contract possibly well in advance of performance, if it learned of the basis for termination then, only to have its liability for terminating the contract judged long after in hindsight,” the court said.
Grimes notes that the 10-day notice provision is typical in standard hotel force-majeure clauses. “I've always felt that was nonsensical,” he says, “because it doesn't allow the group to wait to decide if it really needs to cancel. So, for instance, the 10-day notice provision would mean that if there's a hurricane in Puerto Rico and your meeting is six months from now, you need to decide within 10 days of the hurricane whether to cancel; you can't wait to see if repairs are possible.” The court, Grimes says, “in a way, is agreeing that it makes no sense.”
Marriott also argued that since the force-majeure clause states that it must be “illegal or impossible to provide or use the Hotel facilities,” that the clause doesn’t apply if the Gaylord could have been used in any fashion at all. Avantax countered that force majeure should apply if the hotel can’t be used in the way specified by the contract. The courts sided with Avantax: “Reading the contract as a whole supports Avantax’s interpretation—that the force-majeure clause allowed for termination of the contract when the Gaylord Opryland could not be used as contractually intended.”
Grimes sees this judgement as victory for common sense. “What this Court decision says is that even with the most one-sided force-majeure clause, courts are willing to read reasonableness into the clause so that in an appropriate force-majeure situation, a group could still cancel the contract. I don’t expect hotels to change their position on drafting or interpreting these clauses, but it gives groups that are willing to test the limits more hope that a court would find in their favor.”
