Not every unpaid invoice, even a big invoice, leads to a lawsuit. That’s obvious. One of the unspoken drivers behind many lawsuits is emotional or psychological. I was recently working on an employment lawsuit where it turned out the employee looked to the employer as a mentor and wanted their blessing to strike out on their own and open their own business, which the employer didn’t want to give. This led to hurt feelings and a dispute over how much back pay and commissions were owed. In another case, a fairly straightforward vendor-customer dispute, the other party promised repeatedly to ship the goods my client ordered but didn’t, then promised repeatedly to return the money my client already paid but didn’t. My client couldn’t trust them. Some of my other cases involve parties that are unscrupulous and have followed President Trump’s negotiating style and refuse to pay contractors as a matter of principle, gambling the other side won’t sue and will settle for a fraction of what they’re owed. Even in the 2008 Great Recession, far outside any one party’s control or fault, my bank clients would say they had “lost confidence” in the ability of a developer or business owner to bring a project home or to continue operations. None of those psychological factors are at play in the current crisis. It’s hard to imagine a lender stating to a local restaurant owner that they’re not the right party to steer through the current environment – as if substituting in anyone else would do the trick? Nonetheless, a downturn appears to be upon us (how protracted it will be is another story) and one of the byproducts of recessions tends to be litigation. A couple of things to think about:
Communication. What is the relationship like with the other party to the business relationship? Typically, a healthy level of communication with a landlord or lessor or vendor is where the only time they hear from you is when they receive a check. But now might be an exception to that rule and also the time to open up a line of dialogue about what is happening with your business and what things may be looking like a few weeks out from now.
Force majeure. These are contract provisions that kicks in in times of crisis, from hurricanes to declarations of martial law and other so-called acts of god. Force majeure clauses generally state that the occurrence of certain specified events that are beyond a party’s control will excuse that party from performing its obligations under the contract. Not all force majeure provisions are created equal. You will have to consider a number of issues, including whether there is a force majeure provision in the applicable contract, whether the current Coronavirus pandemic qualifies under the provision’s terms, what is required in order to assert rights under the provision, and what rights or benefits will be available as a result. For example, if performance is excused (you don’t have to ship the goods, or make the required payment), is that for a period covering the time of the pandemic, or perhaps some reasonable period afterwards as well?
Notice and Termination rights. Has the Coronavirus (COVID-19) pandemic triggered a termination right under the contract or agreement, either by you or the other party? If so, what are the notice requirements that a party may be required to give? If one party breaches the contract, what are the repercussions?