Last week I wrote about the Eden Roc Miami Beach hotel keeping a $2.3 million deposit for a school trip. The New York – Miami trip couldn’t happen because of the coronavirus – not only was it inadvisable to travel, but the hotel was ordered to be closed and couldn’t host them.
As it keeping the money wasn’t bad enough, the hotel demanded an additional $1.2 million to cover their expected revenue under the agreement. Naturally, the school sued.
While hotel chains have been good about allowing cancellations of non-refundable, non-changeable consumer bookings, this flexibility has not been extended to events in most cases. Most hotels seem to be asking event hosts to reschedule for a future date, not cancel, and are reluctant to return deposits.
Normally a force majeure clause in a contract would effectively make an event contract void when a government regulation prohibits it, and where a hotel is closed or unable to perform. The organization holding the event can’t pursue damages for non-performance, but the hotel can’t insist on payment. The agreement is voided as though it had not happened, restoring both parties to the positions they held prior to its execution.
Still, force majeure clauses are normally construed quite narrowly. The clause needs to be specific about the kinds of things that would be included. The party who wants out of the agreement has to specify the issue which triggers the clause, and demonstrate that they made good faith efforts to fulfill its requirements.
It’s hard to imagine a situation where a government order not to hold events wouldn’t excuse performance. Yet one organization is having difficulty with the what appears to be the San Jose Marriott adjacent to the Convention Center. The hotel is pursuing them for over $400,000 for an event that was supposed to be held March 10-12, despite a government order banning large events that was put in place for the county the day before.
— Jason ✨InItTogether✨ Lemkin (@jasonlk) April 14, 2020
Events here may not be quite as straightforward as this tweet appears as I’ll explain in a moment. However it’s worth discussing the issues at play in whether or not payment would be required for cancelling an event during coronavirus lockdowns.
Even if there was no force majeure clause in the contract (seriously) I think the hotel would have a hard time enforcing an obligation in court given the concept of contract frustration. Even without a specific contract clause, the organization that planned to host the event can argue that their purpose in doing so was frustrated by coronavirus, and the performance under the agreement was impossible due to government regulation.
Let me say that I am not a lawyer, and haven’t investigated California law (it appears both parties are in California, and I haven’t read the contract to see whether there’s an alternate choice of law agreed upon).
However circumstances have changed dramatically since the agreement was signed, and the event host’s performance would be virtually worthless, since no one would attend the event. It’s clear given the coronavirus outbreak, and the government response to fight it, that the contract under these circumstances makes almost no sense at all. Coronavirus has been cataclysmic and it was completely unforeseeable at the time the agreement was entered into, and that agreement is now totally without value to the event hosts.
If in fact it is impossible to legally perform under shelter in place orders or bans on events in place at the time of the conference, courts are unlikely to enforce performance (or penalties for non-performance).
San Jose Convention Center Marriott, Credit: Marriott
Returning to the SaaStr 2020 conference where the hotel is pursuing over $400,000, it appears the conference was cancelled on March 5 before it was actually illegal to hold events. Timing matters here. However I think there’s a strong argument for frustration of purpose, though less likely for impossibility of performance given the timing of cancellation.
Would any lawyers like to weigh in here? Is my general sense of these matters correct?
(HT: @TProphet)
ouch
Dionne Warwick just dropped the microphone as she started
singing “Do you know the way to San Jose”
I’ve been managing business event for more than 25 years. Force Majeure is very tricky depending on what is in the clause. The difference between impossible, illegal or commercially impracticable is huge. Many times hotels will not agree to impracticable language. It really comes down to hotel management and ownership and how they interpret the situation and the Force Majeure language in any particular clause. Literally dozens of their contract could be different than other contracts. At the end of the day if a hotel won’t agree to Force Majeure it may need to go to arbitration.
I’m assuming this contract was for the conference space, not hotel rooms.
I’d expect a California court to look at this as an anticipatory breach by SaaStr but subsequently excused by impossibility. In order to recover from SaaStr, SJM would have to show they were still able to perform (see e.g. Ersa Grae Corp. v. Fluor Corp. (1991)1 Cal.App.4th 613, 625 [2 Cal.Rptr.2d 288] – “anticipatory breach… does not mean damages can be recovered without evidence that, but for the defendant’s breach, the plaintiff would have had the ability to perform.”)
SJM could take the position that they’re only providing a venue and SaaStr didn’t have to fill it with more than 1,000 people, but if the contract was for a large space I don’t see a court buying that.
You don’t need a force majeure clause, just one of the following: (a) breach of contract (since the hotel isn’t performing or can’t perform its contractual obligations), or (b) rebus sic stantibus (which I’d happily argue in court given the fundamental & egregious change in circumstances that Covid has brought about). If the hotel won’t/cannot provide the agreed upon services, they cannot reasonably expect to keep the money – let alone ask for more.
Before I read the article, seeing the headline my first thought was “Marriott property”? Yup. Such a terrible company.
I just dealt with this for a larger event with 26,000+ attendees, five host hotels and large conference space in a large metro city. Our legal team stated that we had to wait until the state/county/city government made it illegal for events to occur to use our force majeure clauses. Without it, even with the coronavirus, we could be held liable under our overall attrition clauses with all of our venues.
Now, this current case could have been avoided if the conference kept in communication with their venues with their thought process around cancellation. We had a cadence of phone calls with not just our venues, but also the quasi-governmental organization that managed our conference center and members of the Executive Branch of our state government. Things were changing rapidly, and you have to be on the same page throughout everything.
Having a good relationship with your venue is key here, since attrition clauses often state that the venue “may assess charges of x amount.” The key phrase is MAY ASSESS. We also third-party our hotel booking management, so they were able to use their national negotiation power to get the right people on the phone with us.
Also, to people who thing event insurance covers this kind of thing, it does not. Cancellation insurance is not cheap and often includes carve outs for pandemics, labor action, weather and terrorism. It’s often way more expensive to add coverage for those, except for terrorism as that’s fairly cheap.
If they used the standard Marriott event agreement, both the hotel and the event will have to go to arbitration and not to court. Arbitration is not friendly to the plaintiff, so it’s going to be a very tough battle for them. It will probably end with a settlement of not the full amount, but some sort of penalty.
As a professional hotel negotiator, I have defended many of our existing clients and new groups who are facing unfair treatment from hotel. Force majeure, violation of law, curtailment of transportation, health order and frustration of purpose are some of possible augments. I am happy to represent anyone on pro bono basis who is undergoing this.
While knowing nothing about this area of the law, I wonder if the group could find another event that was going to be held at that Marriott that the hotel subsequently cancelled due to the government order? If that was the case, they’d have a strong argument that Marriott wasn’t going to hold their event either.
Googling terms like the hotel’s exact name and phrases like “host hotel” might find some leads.
No law, civil, criminal, commerce, is good for all parties at all times. This is a caveat of western law, where common sense held by majority conventional wisdom has to be fitted into interpretation of modern laws, in which our society is supposed to be most advanced in time. The result is it protects some people sometimes but never all people at all times.
As a professional hotel negotiator, I have defended many of our existing clients and new groups who are facing unfair treatment from hotel. Force majeure, violation of law, curtailment of transportation, health order and frustration of purpose are some of possible augments. I am happy to represent you on pro bono basis if you are in this situation.
AndromedaConsultants.com
People and organizations have long memories. Any hotel that pulls this nonsense is going to be blackballed for years. You can count on it. For venues that depend on repeat business, this will not end well
That company should have used HelmsBriscoe to book their event. They’re the best at negotiating contracts and terms, bar none. HB canceled over 45 meetings for us (20 of those in the Bay area) and we haven’t had to pay one cent in cancellation penalties.
Miserable bastards..
> People and organizations have long memories. Any hotel that pulls this nonsense is going to be blackballed for years. You can count on it. For venues that depend on repeat business, this will not end well.
I completely agree. I am keeping a written list of vendors whom I had to go to battle with in order to get a refund I was due from them (and it surprisingly includes airlines like Singapore Air) and will avoid buying from them once I am shopping for those services again.
@ UA-NYC
As a counterpoint to your comment Over the years I have been generally pleased with Marriott properties when it comes to refunds for unanticipated room cancellations, even when I have clearly been in the wrong.
An example is our recently cancelled June family vacation to Italy. After contacting Marriott they without hesitation agreed to provide us a refund even though our original reservation deposit was clearly specified as “non-refundable.” Kudos to Marriott.
On the contrary, the local hotel on the Isle of Capri has thus far refused to offer us a refund (only an offer to reschedule) on our room deposits, even though as we suspect the hotel will not be open in June due to the COVID-19 pandemic.
For those keeping track of potential “bad actors” in the hotel industry, the Cosmopolitan of Las Vegas is a likely candidate for the list (an organization I’m affiliated with is trying to work with them on a Fall 2021 event and the Cosmo is not behaving well).
We’ve had a multiple year relationship with them that they seem hellbent on destroying.