‘Lack of Money’ Exclusion From Restaurant Lease Force Majeure Clause Not Enough to Get Eatery [Fully] Off the Hook – IL ND

Topical and timely, In re Hitz, 2020 WL 2924523 [Bankr. N.D. Ill. 2020] presents as a useful quarantine-era case that interprets the scope of a force majeure clause in a restaurant lease.

The debtor filed for bankruptcy protection in mid-March 2020 after failing to pay rent for that month.  The creditor moved to modify the automatic stay and sought post-petition rent under 11 U.S.C. 362 and 365, respectively.  In response, the restaurant debtor argued that it was excused from paying post-petition rent based on the lease’s force majeure clause [the “FM Clause”].

The FM Clause excused, the restaurant’s lease performance where its obligations were delayed or hindered by “governmental action or inaction, and “orders of government.”  Notably, the FM Clause specifically carved out an exception for lack of funds.  It stated: [l]ack of money shall not be grounds for Force Majeure.”

The debtor argued that the FM Clause was triggered by Illinois Governor Pritzker’s Executive Order 2020-7 [the “EO”] which banned Illinois restaurants from offering food and drink for on-premises consumption for the two-week period ending March 30, 2020. The EO did, however, encourage restaurants to provide off-premises consumption via delivery and curbside pick-up.

The Court first held that because rent was due March 1, 2020 – fifteen days before the debtor’s petition, the FM Clause did not excuse debtor’s March 2020 rent payment.

To decide whether the FM Clause applied to the following months [e.g. did it excuse rental payments occurring after the March 16, 2020 petition date?], the Court framed the issue as one of basic contract interpretation

In Illinois, a force majeure clause will only excuse contractual performance where the triggering event is the proximate cause of the party’s nonperformance.

The Court found the EO plainly activated the FM Clause.  The EO constituted governmental action and an “order of government” that “hindered” the debtor’s performance of its lease obligations by lopping off its on-premises food and drink revenue.

The Court rejected the creditor’s first argument that the FM Clause didn’t control because the banking and postal systems were still open.  According to the creditor, despite Covid-19, the tenant could have still written rental checks and mailed them to the landlord.  The Court deemed this argument specious; it did not address the debtor’s force majeure argument – that the inability to sell food and drink on-site made it impossible to generate enough revenue to pay rent.

Next, the creditor focused on the lease provision that a “lack of money” didn’t equate to a force majeure event.  The Court nixed this argument, too.  It found that the debtor tenant was not claiming a lack of funds as the proximate cause of its failure to pay rent.  Instead, the EO was: it shut down all Illinois restaurants’ on-premises consumption of food and beverages for a two-week period.

For textual support, the Court applied the contract interpretation maxim that a more specific provision controls over a general one.  While the lease did except a general lack of funds from the FM Clause’s reach, it also counted “governmental action” and “orders of government” as specific force majeure events.  And since the EO plainly qualified as governmental action, the Court held the tenant could properly invoke the FM Clause to reduce its post-petition rent payments.

The creditor’s argument that the tenant could have applied for an SBA loan also fell flat.  The Court noted that nothing in the lease, the FM Clause or any cited legal precedent required a defaulting tenant to try to borrow money to ameliorate any adverse governmental action that hampered a tenant’s ability to pay rent.

The Court didn’t excuse the tenant completely, though. The Court noted the EO expressly urged restaurants to offer food and beverage for off-premises via delivery and curbside pick-up.  Because of this, the Court reduced the tenant’s rental duties in proportion to its diminished ability to generate funds to pay rent.  In its response brief, the debtor estimated the EO rendered 75% of the tenant’s indoor space unusable.  But it also allowed the remaining 25% of the space, including the kitchen, was still working.

Applying this simple math, the Court found the tenant was responsible for 25% of its normal monthly rent payment [including proportionate common area maintenance expenses] for the post-petition months of April – June 2020.

Take-aways:

This case likely augurs [or is at least representative of] a future glut of Covid-19 commercial lease default cases.

Where a general provision conflicts with a more specific one, the latter will control.  Here, while the lease specifically excluded a tenant’s lack of money from the force majeure’s reach, the more specific, “order of government” and “governmental action or inaction” language controlled and served to partially excuse the tenant’s rent liabilities.

The Court’s analysis also tacitly recognized a tenant’s duty to mitigate damages.  Since the tenant acknowledged that it still had a working kitchen and 25% of usable restaurant space, the Court proportionately reduced the tenant’s lease payments instead of completely excusing them.

 

 

Federal Court Examines Illinois’ Savings Clause, Job-Related Per Se Defamation in Warring Yelp.com Posts

Shortly after their business relationship imploded, the parties in Levin v. Abramson, 2020 WL 249649, brought dueling defamation claims in Federal court premised on March 2017 Yelp posts by the parties.

The former client defendant (the “Client”) skewered the plaintiffs lawyer and her law firm (“Lawyer”) on Yelp.com in which he braded the Lawyer, among other things, an incompetent predator who defrauded Client.

The Lawyer responded with a post of her own the same day.  She added some factual context to Client’s screed and portrayed the reason behind Client’s vitriol as a simple billing dispute.  Lawyer also added in her retort that Client had a pattern of suing all of his lawyers.

Lawyer’s Complaint alleged claims for defamation and false light invasion of privacy.  Client counter-sued for defamation, too, and added legal malpractice and breach of fiduciary duty claims based on Lawyer’s Yelp response.

The Lawyer moved to dismiss Client’s counterclaims and both parties filed cross-motions for summary judgment.

Lawyer’s Motion to Dismiss

Rejecting the Lawyer’s argument that the Client’s defamation suit was untimely, the Court examined the interplay between Code Sections 13-201 [735 ILCS 5/13-201], the one-year statute of limitations for defamation suits and 13-207 [735 ILCS 5/13-207], the Illinois “savings” statute that permits otherwise time-barred counterclaims in certain circumstances.

The Court noted that each side’s alleged defamatory Yelp posts were published on March 22, 2017.  So the defamation one-year limitation period would normally expire March 22, 2018.  The Lawyer filed her defamation suit on March 8, 2018 – two weeks before the defamation statute lapsed while Client filed his counter-claim in January 2019 – almost 10 months after the limitations ran.

However, since the Lawyer’s defamation claim accrued before the defendant’s defamation counter-suit lapsed – March 22, 2018 – Section 13-207 preserved or “saved” the defendant’s countersuit even though it wasn’t filed until 10 months later.

The court then focused on whether the Client sufficiently alleged per se defamation against the Lawyer’s Rule 12(b)(6) attack.

Two salient stripes of per se defamation include statements (1) that impute a plaintiff’s inability to perform or want of integrity in the discharge of his duties of office or employment and (2) that prejudice a plaintiff or impute a lack of ability in his or her trade.  These particular per se claims must directly involve a plaintiff’s job performance;  generalized personal attacks on a plaintiff’s integrity and character are non-actionable.

The Court rejected Lawyer’s truth defense argument – that her Yelp retort was substantially true.  The Court found that whether, as Lawyer said in her post, that Client had in fact sued all of his other lawyers, lost his bid to reverse his credit card payment to Lawyer, and that his complaints to ARDC and CBA were rejected, were questions more appropriate for a summary judgment motion and not a dismissal motion.

Next, the Court addressed Lawyer’s argument that Client failed to properly allege in his Counterclaim what his job was and therefore couldn’t make out a claim that Lawyer’s Yelp response prejudiced Client in his work.  The Court held that when considering Client’s Counterclaim exhibits and supporting affidavit [both of which established that client owned a record label] Client plausibly pled Lawyer’s Yelp statements could prejudice him in his role as business owner.  On this point, the Court also credited Client’s argument that plaintiff’s Yelp response could cause the record company to lose current and future clients.

Cross-Motions for Summary Judgment

Both sides moved for summary judgment on plaintiff’s defamation and false light claims.  The Court considered Lawyer’s argument that Client’s Yelp post contained actionable facts as opposed to non-actionable opinions.

Black-letter defamation law cautions that opinions that do not misstate facts are not actionable. Whether a given statement consists of a factual (and therefore actionable) assertion, the court considers (1) whether the statement has a precise and readily understood meaning, (2) whether the statement is verifiable, and (3) whether the statement’s literary or social context signals it has factual content.

The Court found that Client’s Yelp review contained both opinion and factual elements.  The Client’s statements that Lawyer illegally charged Client’s credit card, exceeded a $4,000 ghost-writing budget by nearly $10,000, and that Client’s credit card sided with him in his dispute with Lawyer were all verifiable enough to be factual.  The Court also found that defendant’s branding plaintiff a “con artist” – normally non-actionable name-calling or opinion – rose to the level of actionable fact when viewed in context with other aspects of the Yelp review.

According to the Court, for the Lawyer to win summary judgment on her defamation claim, she must show that no reasonable jury fact could decide that Client’s Yelp statements were substantially true. Conversely, on the Client’s cross-motion, the Court noted that he must establish that a jury could only conclude that his Yelp review statements were substantially true for him to prevail on his cross-motion.

The Court found the record revealed genuine disputed fact questions as to (1) who severed the Lawyer-Client relationship and when, (2) whether the Lawyer agreed to cap her fees at $4,000 [which Lawyer disputed], (3) whether there was in fact a $4,000 budget for Lawyer’s ghost-writing work and (4) whether Lawyer had authority to charge Client’s credit card once the $4,000 retainer was exhausted.  These factual discrepancies led the Court to deny the warring summary judgment motions.

Afterwords:

Levin meticulously dissects the governing legal standards that control pleadings and dispositive motion practice in Federal courts.

The case also provides a trenchant analysis of Illinois per se defamation law, particularly the contours of job performance-related per se defamation, the truth defense, and the importance of the fact-versus-opinion analysis inherent in such a claim.