Earlier this year, I provided our 2021 Corporate Compliance and Litigation Outlook for Manufacturers. I noted that even though we had been counseling a lot of manufacturers on force majeure events (i.e., the ability to suspend performance) “there has not been a lot of litigation outside of what you hear about in the commercial real estate space.”
Five days after my outlook, a lawsuit was filed in California federal court by a metal manufacturer (G&H Diversified Manufacturing LP) against a “green technology” firm (Regreen Technologies, Inc.) that sells industrial machines. The facts alleged in the lawsuit are complex, but essentially, they involve a manufacturing relationship wherein G&H had to purchase a $1.6 million machine from a third party, “reverse engineer it,” and construct a master 3D drawing for Regreen. Once that was done, G&H would be paid.
In short, G&H claims that it was never paid and that Regreen now argues that it should not have to pay pursuant to a force majeure clause in the contract. In its complaint, G&H argues that the clause is not applicable because it “does not address epidemics or pandemics, ‘only acts of God, acts of war, riot, fire, explosion, flood or sabotage.'”
We will be following this lawsuit closely because one of the common issues facing manufacturers before COVID-19 was that their force majeure clauses did not expressly state that they applied to epidemics or pandemics. There are arguments to be made on both sides, and a lot depends on the law of the jurisdiction that governs the contract. Stay tuned for further developments.