Courts Continue to Analyze How COVID-19 Orders Affect Private Party Rights

Three recent decisions demonstrate how the legal landscape continues rapidly to change and evolve in response to COVID-19. These decisions highlight certain developing uncertainties in the law, including the impact of COVID-19-related executive and administrative orders on the rights of private parties.

D2 Mark LLC v. OREI VI Investments, LLC

In D2 Mark LLC v. OREI VI Investments, LLC, a New York state court evaluated what constituted a “commercially reasonable” Uniform Commercial Code (“UCC”) foreclosure sale “during the world-wide COVID-19 pandemic.”¹The court issued a preliminary injunction halting the UCC foreclosure sale of the Mark Hotel in New York City after the plaintiff, a mezzanine borrower, had defaulted as a result of COVID-19 related financial hardship.

The court held that the borrower sufficiently demonstrated a likelihood of success on the merits in showing that “the proposed foreclosure sale may not be commercially reasonable.”²The court relied upon the borrower’s expert affidavit, which stated that the sale was commercially unreasonable for several reasons, including that it was not “crafted in a way to accommodate New York City ‘stay at home’ orders and other state and local mandates in response to COVID-19.”³The court noted that Governor Cuomo’s executive orders were “persuasive authority that support plaintiff's contention that “what is reasonable during normal business times, may not be reasonable during a pandemic.”⁴The court did not rule that all foreclosure sales held during the pandemic were necessarily not commercially reasonable and a different New York state court earlier held that Governor Cuomo’s COVID-19 executive order did not stay UCC foreclosures.⁵

The court also held that the balancing of the equities weighed in the borrower’s favor, finding that the lender’s purported injuries, including “whether COVID-19 will resurge; whether protests will continue to be peaceful; whether the mayor and governor will together address transportation problems in New York City” were pure “conjecture.”⁶Ultimately, the sale was stayed for 30 days and the lender was ordered to create a commercially reasonable sale plan and re-notice the sale.⁷

Belk v. Le Chaperon Rouge Company

In Belk v. Le Chaperon Rouge Company,⁸owners of an Ohio childcare facility sought relief from a settlement agreement in a Fair Labors Standard Act class action entered into on March 12, 2020. Defendants claimed that the performance of the settlement agreement – which required defendants to, among other things, pay $200,000 within 40 days of the court’s approval of the agreement – was impossible due to unforeseen financial circumstances stemming from COVID-19, including the closure of their business pursuant to various Ohio executive orders that required the closure of, or changes to, childcare facilities.

The Ohio orders were issued on the same day that the parties reached a settlement agreement on the record during a mediation conference. Defendants then failed formally to execute the settlement agreement, citing to COVID-19-related financial issues. Plaintiffs moved to enforce the agreement.

In considering the motion, the Ohio federal court rejected defendants’ argument that the agreement was unenforceable under the doctrine of impossibility of performance due to unforeseen circumstances.⁹Specifically, the court held that “it was reasonably foreseeable on March 12, 2020 that COVID-19 could have a significant negative impact on Defendants' business operations and financial ability to fund the settlement payment.”¹⁰The court also noted that in light of COVID- 19 developments, “Defendants could have delayed settlement proceedings, negotiated the inclusion of a force majeure provision in the parties’ settlement agreement, or otherwise discussed provisions to address potential financial risks posed by COVID-19,” but failed to do so.¹¹

Anthi New Neocronon Corporation v. Coalition of Landlords

In Anthi New Neocronon Corporation v. Coalition of Landlords,¹²a New York state court ruled on the validity of various COVID-19 Executive and Judicial Administrative Orders. On May 7, 2020, in response to COVID-19, Governor Cuomo issued Executive Order #202.28, staying evictions for nonpayment of rent for certain tenants in New York until August 20, 2020.¹³On May 20, 2020 the Office of Court Administration for the New York State Courts issued Administrative Order # 45-20, which stayed all evictions generally.

The court held that this Administrative Order was unconstitutional because it countermanded Governor Cuomo’s Executive Order by expanding eviction stays to holdover proceedings.¹⁴The court also went on in dicta to state that Executive Order #202.28 was itself invalid because it violated New York statutes requiring a precise statement of what statute or regulations are being suspended and limits suspension by executive orders to 30 days.¹⁵Because the underlying action involved a holdover proceeding, the court held that the landlord was entitled to summary judgment as a matter of law and a granting of a “judgment of possession” and “warrant of eviction”.¹⁶

This decision appears to be an outlier that other courts have not followed and, in any event, has been overtaken by subsequent events. Governor Cuomo has since signed the Tenant Safe Harbor Act,¹⁷which statutorily expands his Executive Order, at least with respect to residential tenants. Specifically, the Act: (1) allows residential tenants to use COVID-19 financial hardships as a defense in eviction proceedings; and (2) prohibits landlords from taking possession of their property while COVID-19-related restrictions remain in effect.

Takeaways:

These decisions reflect the importance of staying up to date not only on various executive and administrative COVID-19 orders and anticipating the effects of those orders on pending litigation, but also Court decisions interpreting such orders or otherwise dealing with the effects of COVID-19. The legal landscape will continue to be affected as courts grapple with the continuing fallout from the pandemic.

---

1.  652259/2020, 2020 N.Y. Misc. LEXIS 2978, at *1-2 (Sup. Ct. N.Y. Cnty. June 23, 2020).
2.  Id. at 11-12.
3.  Id. at 9.
4.  Id. at 15.
5.  1248 Assoc. Mezzii LLC v. 12E48 Mezz II LLC, 651812/2020, 2020 WL 2569405, at *1 (Sup. Ct. N.Y. Cnty. May 18, 2020).
6.  Id. at 17.
7.  Id. at 12-14.
8.  Case No. 1:18cv1954, 2020 U.S. Dist. LEXIS 117985 (N.D. Ohio July 6, 2020).
9.  Id. at 8.
10.  Id. at 31-32.
11.  Id. at 32, n.7.
12.  LT-708-19/BA, 2020 NYLJ LEXIS 1143 (Dist. Ct. Suffolk Cnty. July 15, 2020)
13.  Id. at 3.
14.  Id. at 5.
15.  Id.
16.  Id. at 10.
17.  Senate Bill S.8192B; Assembly Bill A.10290B.