New Court Decisions Analyze How the Pandemic Impacts Private Party Rights

As discussed in our last update, the legal landscape continues rapidly to evolve in response to COVID-19. Six recent decisions, summarized below, highlight the continuing uncertainty as to the application of certain laws and doctrines in COVID-19 matters. Among other things, the decisions touch upon landlord’s obligations to follow COVID-19-related safety procedures; whether New York orders suspending certain foreclosure actions apply to pre-pandemic foreclosures; whether a New York Yellowstone injunction is available for commercial tenants who failed to pay rent during the pandemic; and whether force majeure clauses and similar legal doctrines excuse performance of settlement agreements and other contractual obligations.

351-359 E. 163RD Street Tenants Association v. East 163 LLC

In 351-359 E. 163RD Street Tenants Association v. East 163 LLC,¹residential tenants filed an order to show cause in Bronx County Supreme Court seeking the repair of various conditions in their apartments. The court ordered the landlord to remedy the lack of hot water.²In doing so, the court also ordered the landlord to comply with “all appropriate safety protocols in light of the COVID-19 pandemic”, including:

wearing gloves and masks, complying with all rules, regulations, and orders related to social distancing, and following the recommendations of the Centers for Disease Control (“CDC”), the NYS and NYC Departments of Health and other health officials, and to take into consideration the health and safety vulnerabilities of the tenants and their household members to the extent the landlord and/or its agents have knowledge.³

Because this decision appears to be one of the first from a New York court regarding a landlord’s obligation to follow COVID-19-related safety procedures, residential and even commercial landlords in New York and elsewhere may want to pay close attention to that aspect of the decision.

Money Source, Inc. v. Mevs

In Money Source, Incorporated v. Mevs, a New York state court interpreted how various federal and state COVID-19-related orders and laws impacted residential foreclosure actions in the state. The court held that New York Banking Law §9-x, which was enacted on June 17, 2020 in response to COVID-19 and created new procedures for residential forbearance, applied only to “mortgages affected by the COVID-19 pandemic” and did not apply to foreclosure actions commenced prior to March 7, 2020.⁴The court also found that Governor Cuomo’s most recent Executive Order (202.48) extended stays of foreclosure proceedings only for commercial properties.⁵The court held this Executive Order did not extend the stay for residential foreclosure actions and that these actions are now subject to the statutory regulations of Banking Law §9-x.⁶The court further held that the COVID-19-related Administrative Order 131/20 from the New York state court system, which set forth various procedures related to residential foreclosures, was no longer in effect in light of Executive Order 202.48 and the enactment of Banking Law §9-x.⁷

Finally, the court noted, in dicta, that some prior COVID-19 related Executive Orders conflicted with New York Executive Law §29-a because the Executive Orders purported to suspend statutory deadlines for more than thirty days.⁸This finding is consistent with a Suffolk County District Court decision, Anthi New Neocronon Corporation v. Coalition of Landlords, described in our prior update. However, both decisions noted that any such orders were no longer in effect in light of subsequent Executive Orders and the enactment of Banking Law §9-x.⁹

Prestige Deli & Grill Corporation v. PLG Bedford Holdings LLC

In Prestige Deli & Grill Corporation v. PLG Bedford Holdings LLC, another New York state court granted a Yellowstone injunction in favor of a commercial tenant based upon Governor Cuomo’s COVID-19 related Executive Order 202.28.¹⁰In that case, a landlord served a notice to cure, which, among other items, noted that the tenant owed rent and other fees.¹¹After the tenant failed to respond, the landlord served a notice of lease termination.¹²The tenant sought a Yellowstone injunction, arguing that based upon various COVID-19 executive and administrative orders that: (1) the notices to cure and of termination were invalid; or (2) the notice to cure had not yet expired.¹³

Ultimately, the court held, on the specific facts presented, that Executive Order 202.28, which stated “there shall be no . . . enforcement . . . for nonpayment of rent or a foreclosure of any residential or commercial mortgage, for nonpayment of such mortgage, owned or rented by someone that is eligible for unemployment insurance or benefits under state or federal law or otherwise facing financial hardship due to the COVID-19 pandemic for a period of sixty days beginning on June 20, 2020”, prohibited the termination of the commercial lease at issue during such time period.¹⁴The court further noted that the New York court system’s Administrative Order 131/20 not only stayed foreclosure proceedings, but also stayed nonpayment matters.¹⁵The decision, thus, was predicated in large part upon a notice of termination having been served, as opposed to the underlying notice to cure, although the court suggested that the tenant would have an opportunity to cure in the event that the court ultimately determined that the tenant’s non-payment was not excused by the COVID-19-related Executive Orders.¹⁶

Backal Hospitality Group LLC v. 627 West 42nd Retail LLC

It is unclear whether other judges in New York will follow the Prestige Deli decision’s broad interpretation of the COVID-19-related Executive and Administrative Orders. In fact, a recent decision denying injunctive relief to a commercial tenant, albeit under different circumstances, suggests that other New York courts may view the effect of the Executive Orders more narrowly. In Backal Hospitality Group, LLC v. 627 West 42nd Retail LLC,¹⁷a commercial tenant was unable fully to operate its business, which relied upon indoor events, due to various Executive Orders.¹⁸The tenant then claimed that the lease was terminated, which would, in turn, allow the tenant to cancel a letter of credit that secured the lease.¹⁹The tenant sought an injunction from the court that would require the landlord to refund the entire value of the letter of credit to the tenant or post a bond in that amount.²⁰

The court rejected the tenant’s request for injunctive relief, holding first that the lease could not be terminated without the landlord’s written consent, which was not present here.²¹The court then considered whether the Executive Orders made it impossible for the tenant to perform under the lease. The court held that the Executive Orders did not, based upon a unique provision in the lease that provided that if the tenant was unable to perform due to governmental restrictions, tenant and landlord “would reach an agreement regarding the collection of rent at the conclusion of the governmental restriction.”²²The mere fact that the parties were unable to reach such an agreement did not permit the tenant unilaterally to terminate the lease.²³

The Backal Hospitality decision is likely of limited applicability due to the unique nature of the lease provision relied upon by the court. Nevertheless, it indicates that different New York courts may take different very different approaches when evaluating the impact, if any, of COVID-19-related Executive Orders on lease obligations.

FTC v. A.S. Research, LLC

In FTC v. A.S. Research, LLC, the marketers of a dietary supplement sought relief from a settlement agreement entered into with the FTC on the grounds that COVID-19 had frustrated the purpose of such agreement.²⁴A Colorado federal court rejected defendants’ argument that “COVID-19 ha[d] resulted in the parties' objectives being impossible to meet”, finding that this was “insufficient to constitute a frustration-of-purpose”.²⁵In reaching this decision, the court noted that defendants failed to identify the purpose of the agreement or explain why it was frustrated by COVID-19.²⁶

Future Street Limited v. Big Belly Solar, LLC

In Future Street Limited v. Big Belly Solar, LLC,²⁷a party to an exclusive licensing agreement sought a declaratory judgment that that the COVID-19 pandemic qualified as a force majeure event under such agreement. In that case, the plaintiff had entered into an exclusive licensing agreement to distribute defendant’s solar-powered intelligent waste and recycling bins. The licensing agreement required plaintiff to purchase various amounts of product over time. However, beginning in 2019, plaintiff refused to pay defendant or purchase any additional product after allegedly receiving defective products.

Plaintiff initiated the action by seeking a preliminary injunction. Plaintiff argued that it was likely to succeed on the merits of its declaratory judgment action and, therefore, an injunction should be granted, because COVID-19 qualified as a force majeure event under the licensing agreement. A Massachusetts federal court rejected this argument, but did not rule on whether COVID-19 excused performance under the force majeure provision. Instead, the court held that plaintiff failed to show its nonperformance was caused by COVID-19. Specifically, the court noted plaintiff’s refusal to comply with the minimum purchasing requirements in the licensing agreement pre-dated COVID-19.

Takeaways

These cases demonstrate continued uncertainty regarding private party obligations in the wake of the pandemic. In some cases, courts find that COVID-19 excuses parties from their usual legal obligations, while in other cases it does not. As the legal landscape continues to change, it is important to stay up to date not only on new laws and regulations, but court decisions interpreting or applying those regulations.

---

1.  13412/2019, 2020 N.Y. Misc. LEXIS 3610 (Civ. Ct. Bronx Cnty. July 15, 2020)
2.  Id. at *2, 12.
3.  Id. at *12-13.
4.  608778/18, 2020 N.Y. Misc. LEXIS 3540, at *9. (Sup. Ct. Suffolk Cnty. July 14, 2020).
5.  Id. at *8.
6.  Id. at *8, 10.
7.  Id. at *22. The court also made various findings related to federal COVID-19 rules and regulations, including that the moratorium for federally insured foreclosures, as set forth in the federal CARES Act, expired on May 15, 2020. Id.
8.  Id. at *5-7.
9.  Id.
10.  Index No. 510220/20, 2020 WL 4059137 (Sup. Ct. Kings Cnty. July 17, 2020)
11.  Id. at 1.
12.  Id.
13.  Id.
14.  Id. at 3.
15.  Id. at 3 (emphasis added).
16.  Id. at 4.
17.  Index No. 154141/2020 (Sup. Ct. N.Y. Cnty. Aug. 3, 2020).
18.  Id. at 3.
19.  Id.
20.  Id. at 3-4.
21.  Id. at 7-8.
22.  Id. at 8-9.
23.  Id. at 9.
24.  Civil Action No. 19-cv-03423-PAB-KMT, 2020 U.S. Dist. LEXIS 128182, at *4-5 (D. Colo. July 21, 2020). In this case, defendants expressly conceded they were not making an impossibility argument. Id. at *5.
25.  Id. at *5.
26.  Id. at *4.
27.  Civil Action No. 20-cv-11020-DJC, 2020 WL 4431764 (D. Mass. July 31, 2020)