Category: Blog

Very helpful articles for small businesses to stay on top of the latest regulation and more!

EB Attorneys Steve Berger and Tami Lewis Recognized as Top 100 Lawyers in Arizona for 2021

Engelman Berger congratulates attorneys Steve Berger and Tami Lewis on being recognized as Top 100 Lawyers in Arizona for 2021 by Az Business Magazine. They have been recognized for their professional success and ratings as well as their impact in their law firm, the communities they serve, and the legal profession as a whole.

Steven N. Berger | Shareholder | Engelman Berger

Practice areas: Bankruptcy and reorganization, creditor’s rights, loan workouts, business restructurings, business and real estate disputes, mediation

Tamalyn E. Lewis | Shareholder | Engelman Berger

Practice areas: Bankruptcy and reorganization, creditors’ rights, commercial landlord tenant law, loan workouts, business and financial restructuring, real estate, loan documentation

Each year, the Az Business Magazine’s Editorial Team collaborates with industry experts to select and compile a prestigious group of Arizona’s most talented and successful attorneys.

Congratulations, Steve and Tami!

Covid 19 Blog Patrick A Clisham


May 13, 2020

The Small Business Association (SBA) released today a number of clarifications regarding the recent Paycheck Protection Program (PPP).  The forty-six question and answer responses address many of the process and forgiveness questions that have been on the minds of borrowers and lenders alike since the program launched on April 3rd.  Topics range from good faith certification and auditing to signature requirements and authorization documents.  Details can be found at this link.

About the author:  Patrick Clisham assists clients in all aspects of chapter 11 reorganizations, out of court restructurings, asset acquisitions and sales, lease negotiations and enforcement, and business transactions.  [email protected] | 602.222.4968

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.

Rachel E Phillips Covid 19 Blog Post


April 28, 2020

If you are thinking about filing a lawsuit during the Covid-19 pandemic, consider your strategy for serving process at the outset of the case.  While some courts in other states have ordered temporary suspensions of personal service, the Arizona State Court has yet to take such action.  Arizona Rules of Civil Procedure 4 and 4.1 provide the rules for serving pleadings that bring an Arizona-based party into an action.  In most cases, serving an individual under Rule 4.1 requires hand-delivery of a copy of the summons and the pleading to the individual being served, someone at that individual’s home, or an agent authorized to accept service.  With the Covid-19 pandemic in the picture, such methods of service of process may give rise to health and safety concerns, and may prove to be ineffective with individuals evading such service for fear of infection.

Parties initiating a lawsuit in Arizona state courts have a limited time—ninety days—to serve a defendant before the court dismisses the action or orders service within a specified time.  This rule also allows parties to request an extension under certain circumstances, including a showing of “good cause” for the failure to serve.  Accordingly, would-be litigants are currently faced with the following questions:  (1) is it better to file a complaint now and try to serve process during the ninety day limit, or wait a few months to file in hopes that the pandemic will have subsided; and (2) what constitutes “good cause” for a failure to serve within the ninety days allowed by Rule 4(i)?

A recent Arizona Supreme Court opinion sheds some light on these questions.  In Sholem v. Gass, et al., the Arizona Supreme Court held that under Rule 4(i), if a plaintiff shows good cause for failing to serve a defendant within ninety days, a court is required to extend the time for service. However, Rule 4(i) also allows a court, in its discretion, to extend the period for service without a plaintiff showing good cause.  The Court also shed some light on factors to be considered when trying to show “good cause” under Rule 4(i), such as: (1) whether the plaintiff abandons service after only a few unsuccessful attempts over a limited time during the allotted time period for service, (2) whether the reason for failure to serve is outside the plaintiff’s control, such as “sudden illness, natural catastrophe, or [defendant’s] evasion of service of process,” and (3) whether the plaintiff attempts to serve the plaintiff at more than one location (such as business and home addresses) or by alternative means (after first seeking permission from court).  Finally, the Court listed some factors to be considered when determining whether to grant a discretional extension under Rule 4(i): (1) whether a plaintiff would be time-barred from re-filing the lawsuit due to the statute of limitations; (2) if the defendant evaded service; and (3) if the defendant would be harmed, or prejudiced, in some way if the court grants the extension.

As long as plaintiffs consider the “good cause” and “discretionary” factors set forth in Sholem, fear of being unable to serve pleadings within the ninety day time period should not, alone, deter a party from initiating a lawsuit during the pandemic.  Ultimately, the decision of whether to send a process server out to effect personal service should still be still be made on a case-by-case basis in consultation with your attorney during the pandemic.  Plaintiffs who go ahead with filing during the pandemic should consider the following strategies during the ninety day period for service to avoid running afoul of Rule 4(i):

  • Consider reaching out to defendant early in the ninety-day period and asking if they will waive service or accept service.  The Rules provide further guidance on each option;
  • Make multiple attempts at serving the party throughout the ninety-day period, not just over a limited period in the ninety days (i.e., instead of making six attempts at service during the second week, try spreading these attempts over the ninety days);
  • If it appears that the party is evading service or service will be unsuccessful for reasons outside of the litigant’s control (i.e., the defendant will not leave her home or answer the door for health reasons), consider asking the court for permission to use an alternative means of service under Rule 4.1(k) before the expiration of the ninety-day period.

About the Author: Rachel Phillips is a business litigation attorney who assists clients across multiple industries in both state and federal courts. Rachel has represented lenders, recycling and waste solutions providers, food companies, regional financial institutions, commercial landlords, and insurance providers. She focuses on providing innovative solutions and effective advocacy for clients. [email protected] | 602.222.4962

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.

Covid 19 Blog Julie Mackenzie and Brigitte Green


April 21, 2020

In an effort to help support nonprofit organizations assisting families and children with essential services, the Maricopa County Industrial Development Authority is contributing $1 million to the Arizona COVID-19 Community Response Fund.  Together with many other contributing businesses and organizations, the Arizona Community Foundation created the Community Response Fund to provide general operating support for nonprofits serving their communities.   Arizona nonprofits providing community services in response to the COVID-19 pandemic, including childcare, eldercare, education, food, healthcare and mental health, are encouraged to apply for the grants. 

Eligible organizations are any Arizona 501(c)(3) nonprofit corporation , government agency, tribal entity or religious organization.  Organizations may reapply for additional funding every 30-days during the State of Arizona’s Emergency Declaration.  Each nonprofit is asked to answer the question “How has your nonprofit been impacted by the spread of COVID-19 in Arizona?”

Information about the Community Response Fund can be accessed by contacting the Arizona Community Foundation at [email protected] or by filling out the request form here.

About the Authors: Julie Arvo MacKenzie works closely with nonprofit corporations and public finance sector clients to assist with capital project and equipment financings.  Brigitte Finley Green serves as bond counsel and helps clients navigate the complex federal tax rules that allow them to borrow money at lower tax-exempt rates.  Together Julie and Brigitte have handled countless bond transactions in Arizona for state agencies, universities, counties, cities, school districts, charter schools, 501(c)(3) nonprofit organizations and other entities. [email protected] | 602.222.4971 | [email protected] | 602.222.4990

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.

Covid 19 Blog Post Kurt Peterson


April 16, 2020

Disruption of business and government-mandated closures related to the COVID-19 pandemic are creating significant stress on commercial landlords and their tenants. Although we encourage an open line of communication between landlord and tenant, we also strongly recommend completing a thorough review of the lease and applicable law as a prudent first step in assessing each party’s risk exposure and preparing to mitigate damages. Because each leased property, each lease and each lease default is unique, the parties should consult with counsel for guidance in determining their respective rights and obligations so that they are better equipped to navigate the current uncertainty and determine the appropriate time for taking action. Some general guidelines follow.

Review Applicable Lease Provisions. Prior to engaging the other party, both landlords and tenants should review the lease to determine which provisions may apply to COVID-19 events, including:

  • force majeure (note that even if COVID-19 events qualify as force majeure events, rent is still likely due as force majeure clauses typically excuse performance of non-monetary obligations, but not payment of rent) and, if not applicable, applicability of equitable doctrines of impossibility or frustration of purpose;
  • covenant of continuous operation or minimum opening hours (compare to likely inconsistency with tenant’s general covenant to comply with all laws), including similar covenants in leases with other tenants;
  • permitted use, restrictions and exclusives (e.g. where tenants have been forced to adapt their use to continue operating);
  • landlord’s covenant of quiet enjoyment (e.g. where premises are voluntarily closed absent government mandate);
  • eminent domain or taking;
  • landlord’s obligation to provide basic services, and exculpation or termination rights for interruption in or failure to provide same;
  • general rent abatement provisions; and
  • applicable notice requirements.

Prerequisites to Granting Relief. Prior to considering granting any relief to a tenant, landlords can generally be expected to require that the tenant submit a specific written request for relief and demonstrate financial hardship by means of:

  • confirming application and approval for an SBA loan or other disaster assistance available under the CARES Act;
  • making a claim under any available business interruption insurance policy; and
  • supplying current financial statements or projections, to the extent available.

Options for Relief. Possible solutions for providing relief to tenants, and consideration therefor, include:

  • rent deferment (repaid in lump sum, amortized over all or part of remaining lease term, or a tenant promissory note in the case of a short term lease);
  • rent reduction;
  • rent abatement (base rent only, or to include triple-net/CAM charges), with or without commensurate extension of lease term or mandatory exercise of extension option;
  • forbearance on late charges and interest;
  • application of security deposit to rent (to be replenished at later date);
  • grant of more favorable lease terms or relinquishment of other negotiable tenant rights such as rights of first refusal, options or expense caps; and
  • addition of personal guaranty, security or other credit enhancement

Landlord Lender Considerations. Landlords should review their loan documents and engage with their lender early in the process, considering the applicability of:

  • loan covenants or SNDAs restricting or prohibiting lease amendment or termination without lender consent;
  • loan covenants obligating landlord to use commercially reasonable efforts to enforce leases;
  • effect on debt service coverage ratio and other financial covenants and MAC covenants; and
  • possible imposition of liability under nonrecourse guaranty carve-out for failure to obtain required lender consents or admitting to insolvency.

Operational Issues. Landlords and tenants should consider the effects of COVID-19 events on operational and administrative issues, such as:

  • ongoing maintenance and security obligations, and increased costs for same;
  • responsibility and protocol for addressing positive-tested persons within the premises and general prevention of the spread of COVID-19;
  • access rights to leased premises and common areas;
  • deadlines for delivery of premises, build-outs, use of tenant improvement allowances and the like; and
  • fair market rent valuations for extension options.

Documenting Lease / Loan Document Amendments. All rent concessions, loan modifications or forbearances, and related agreements should be documented in a formal, written lease or loan amendment, executed by both parties and any guarantors. In addition to the business terms, landlords may consider including the following in any lease amendment:

  • prohibition against tenant double-dipping on disaster relief;
  • requirement that tenant pursue all insurance claims;
  • increased tenant financial reporting obligations;
  • requirement that tenant comply with CDC guidelines;
  • estoppel language confirming no landlord defaults;
  • waiver of (or revisions to) any force majeure clause;
  • waiver of common law defenses and all claims against landlord; and
  • confidentiality provision.

General Considerations. Underlying all of the above considerations are:

  • effect of governmental moratoriums such as Arizona Executive Order 2020-21 (effective through May 31, 2020), which suspends evictions and other remedies under commercial leases for small businesses, as well as imposes additional obligations and restrictions on both landlords and tenants;
  • cost-benefit of an informal forbearance given the indefinite duration of the COVID-19 events and possible future avenues of financial assistance;
  • unintended consequences on other contractual arrangements; and
  • how current decisions may be viewed in hindsight, by business partners and also by the courts in a litigation context.

About the Author: Kurt Peterson assists clients in the areas of real estate, commercial finance and general business law. Drawing on over 30 years of experience, Kurt’s commercial transactional practice includes real estate acquisitions, financing, leasing, operation and disposition as well as a diverse general business practice representing business owners on corporate formation, risk management, acquisitions, contracts and operational matters. [email protected] | 602.222.4951

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.

Covid19 Blog Post Wade Burgeson


April 14, 2020

Updated: May 28, 2020

The COVID-19 pandemic has created an unprecedented global, national, state, and local crisis, impacting significantly on the health and welfare of the general public.  Just as businesses are struggling to cope with the economic impact of the pandemic, courts must also balance necessary safety and social distancing/shut-down directives against the need to ensure reasonable and meaningful access to the courts and judicial processes.  To ameliorate judicial disruptions, Arizona’s courts have issued a number of administrative orders, the purpose of which is to temporarily modify specific rules of procedure and, when constitutionally permitted, restrict or limit the necessity for in-person judicial appearances.  Below are key Arizona state-wide and county specific administrative orders to consider as relates to both ongoing and contemplated litigation and judicial actions:

Arizona Supreme Court Order*

Coconino County Superior Court Order

Gila County Superior Court Order

LaPaz County Superior Court Order

Maricopa County Superior Court Order

Mohave County Superior Court Order

Navajo County Superior Court Order

Pima County Superior Court Order

Yavapai County Superior Court Order

Arizona’s courts have made every effort to remain open and assessable, but we can expect there to be some unavoidable delays in obtaining hearings and orders from the court.  Further, while emergency relief (such as prejudgment remedies, appointment of receivers, etc.) remain available, accommodations may be necessary to allow for telephonic or video appearances.

*April 28, 2020 Update: Arizona Supreme Court Order

*May 12, 2020 Update: Arizona Supreme Court Order

*May 28, 2020 Update: Arizona Supreme Court Order

About the Author: Wade Burgeson assists clients in matters involving commercial litigation, receiverships, collateral enforcement, loan workouts, medical marijuana disputes and operations, and debtor-creditor related matters, ranging from pre-judgment remedies to disputes in bankruptcy court.  He also works closely with businesses and individuals to help them resolve disputes and negotiate outcomes that support their financial objectives. [email protected] | 602.222.4989

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.

Covid19 Blog Post Bradley Pack


April 13, 2020

Many small businesses owners who suddenly found their revenues devastated by the economic fallout from the COVID-19 pandemic have looked to the billions of dollars of low-interest loans made available by the CARES Act. While it has received far less public attention, another provision of the Act expands access to a powerful financial tool with the potential to help businesses avoid ruin and weather the storm. This tool—a Chapter 11 reorganization under the recently enacted Small Business Reorganization Act— streamlines the traditionally expensive and cumbersome Chapter 11 bankruptcy process into a more manageable and less taxing proceeding.  

Small Business Challenges in Traditional Reorganizations

In a traditional Chapter 11 bankruptcy, the debtor (the business or individual that is the subject of the bankruptcy) is given a reprieve from creditors’ collection efforts. The bankruptcy filing acts as an “automatic stay” that temporarily prohibits creditors from filing or prosecuting lawsuits, executing on judgments, foreclosing liens on the debtor’s assets, or taking certain other actions that threaten the debtor’s financial stability. And, the debtor is given the opportunity to file a plan of reorganization that permanently alters the debtor’s obligations to its creditors. The plan may allow the debtor to effectively reduce the principal amount of its debt to its secured creditors down to the value of the collateral, stretch payments out over a longer period of time, reduce interest rates, and lower monthly payments. The plan may also provide for a significant reduction, restructuring, or elimination of the debt owed to unsecured creditors.

While a traditional Chapter 11 reorganization can be tremendously beneficial to a struggling business, it can also be prohibitively expensive, time-consuming, risky, and involve contested litigation to gain bankruptcy court approval of a reorganization plan. The debtor and its lawyers and financial consultants must spend substantial time to formulate the reorganization plan and an accompanying “Disclosure Statement,” documents that require technical and financial expertise and disclosures about the debtor’s past, present and future finances, management and the like. Committees may be appointed to represent the interests of creditors. These committees may hire their own lawyers and other professionals, whose fees are payable out of the debtor’s property and income. The debtor must generally obtain votes accepting its plan by at least one class of creditors, which often requires the debtor to engage in heavy negotiations. The debtor risks having a creditor or committee file and obtain confirmation of its own plan of reorganization, which is likely to be more burdensome, and which may even provide for the business’s liquidation. And, the debtor’s owners are prohibited from retaining their equity unless the plan provides for full payment of all pre-bankruptcy debt or the equity holders make a “new value contribution”—generally in the form a cash payment equal to the value of the equity retained. 

In short, a traditional Chapter 11 reorganization can often be far too expensive and time consuming for many small businesses to undertake. This is where the CARES Act and the Small Business Reorganization Act (SBRA) that was passed by congress in 2019 may now provide small businesses with much needed and meaningful relief.

Relief under the SBRA

Earlier this year, before the scale of the economic and public health emergency wrought by the coronavirus became evident, the SBRA became effective. The SBRA makes it significantly more expedient and cost-effective for eligible small businesses to restructure their debts through a Chapter 11 bankruptcy reorganization. Among other benefits:

  • No committees are allowed in an SBRA case unless the bankruptcy court expressly orders otherwise;
  • The debtor need not obtain approval of a disclosure statement unless the bankruptcy court expressly orders otherwise;
  • The debtor has the exclusive right to seek confirmation of a plan. Competing plans are not allowed;
  • It is not necessary for the debtor to obtain votes approving its plan by any class of creditor. The bankruptcy court may confirm the debtor’s plan as long as it satisfies certain minimum requirements and is “fair and equitable;”
  • It is also not necessary for the debtor’s owners to make a new value contribution as a condition of retaining their equity. Instead, the debtor must commit to contributing its projected disposable income (i.e., net revenues minus reasonable operating costs) for a period of 3 to 5 years toward payment of its pre-bankruptcy debts.

These provisions of the SBRA significantly improved small business access to the bankruptcy courts, but it too had its limitations.  Most critically, reorganizations under the SBRA were limited to businesses and individuals with no more than $2,725,625 in debt, at least 50% of which must have arisen from the commercial or business activities of the debtor. Small businesses whose total debt exceeded this limit could only seek reorganization through a traditional Chapter 11 proceeding, with all of its attendant costs and complexity.

The CARES Act Expands Eligibility under the SBRA

The CARES Act substantially expands access to the SBRA for small businesses and individuals by temporarily increasing the debt limit from about $2.7 million to $7.5 million.  This increase in the debt limit applies to bankruptcy petitions filed from March 27, 2020 through March 26, 2021. It sunsets one year from the CARES Act’s enactment.

Thus, small businesses that do not qualify for the SBA loan or other relief under the CARES Act, or who find this relief insufficient to fully recover, should know that all is not lost. If ongoing debt issues prevent stabilization or threaten viability, a small business with less than $7.5 million in debt may still later seek relief and reorganize is obligations under the streamlined and more efficient SBRA—at least until the increased debt limit sunsets on March 26, 2021.    

About the Author: Bradley Pack is a shareholder with the law firm of Engelman Berger, P.C. He is a certified business bankruptcy specialist, whose practice focuses primarily on debtor-creditor relationships, workout and insolvency issues, commercial litigation, and civil appeals. [email protected] | 602.222.4994

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.

Covid19 Blog Post Damien Meyer


April 10, 2020

COVID-19 has dramatically altered our way of life both socially and professionally.  Like many other industries, the legal system has been forced to adapt to the “new normal.”  While many court proceedings have been postponed, such as in-person hearings and jury trials, other court services have continued. One issue that many clients and attorneys have found themselves facing is the current status of alternative dispute resolution (“ADR”). How are parties to address a previously scheduled settlement conference before a court-appointed Judge Pro Tempore (“JPT”) or a private mediator?

I am a JPT in Maricopa County, and I hold settlement conferences to assist parties in settling their pending lawsuits. The Alternative Dispute Resolution program for the Maricopa County Superior Court has issued a directive that JPTs may continue to hold settlement conferences either telephonically or through video conference. In fact, in February 2020, the ADR program hosted a Continuing Legal Education seminar for JPTs encouraging JPTs to hold settlement conferences via video conference. I recently conducted a telephonic settlement conference due to the concerns surrounding COVID-19. I found the process to be efficient and effective, and we settled the case in less than three hours. I wanted to share my observations from my experience and offer recommendations on how clients and attorneys can best approach telephonic or video settlement conferences.[1]

At the outset, the parties need to be prepared to modify the methodical approach of a traditional, in-person, settlement conference to the faster-paced telephonic/video settlement conference. The telephonic/video settlement conference tends to naturally move at a swift pace. Before the conference, it is critical to provide the JPT with streamlined, efficient information so the JPT can be prepared to jump-start the conference from the beginning. The settlement conference memorandum, setting forth your position to the JPT, is of utmost importance. It must be concise and include only the essential exhibits. Remember the parties and the JPT are at best sharing a screen – not a conference room where multiple exhibits can be spread out and reviewed simultaneously. The negotiations also move at a much quicker pace. Clients and their attorneys need to be prepared to adjust their strategy and to quickly make and respond to settlement offers to create and sustain the momentum that so often leads to resolution of their dispute.

During this difficult time where many aspects of our legal system have been slowed or entirely brought to halt, it is important for clients and attorneys to know they continue to have the opportunity to participate in ADR and obtain final resolution of their disputes.

[1] If you have a scheduled mediation with a private mediator, contact the mediator to discuss their particular office procedures. Some private mediators are offering to conduct mediations by video conference to continue to allow litigants the opportunity to resolve their cases.

About the Author: Damien Meyer focuses his practice on commercial litigation, assisting clients in their business matters and contractual disputes.  He counsels clients in several different industries including real estate, construction and banking.  His goal is to proactively guide businesses and individuals in the resolution of disputes to achieve and protect their business objectives and interests.  Damien also serves as a Maricopa County Judge Pro Tempore. [email protected] | 602.222.4948

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.

Covid19 Blog Post Michael Rolland


April, 7, 2020

Introduction to Force Majeure, and the Doctrines of Impracticability and Frustration of Purposes

The COVID-19 pandemic has rendered many contractual obligations difficult, or impossible, to perform. While some businesses have utilized telework technology to continue operations relatively uninterrupted, that is not an option for the sectors of our economy that provide in-person services, such as restaurants, hotels, and others in the hospitality industry. Many businesses will face weeks, if not months, without sufficient revenue or staff to satisfy existing contractual obligations. This will cause a ripple effect of contract defaults affecting vendors, landlords, lenders, and everyone in between.

How should parties address these inevitable defaults? Can the defaulting party use the emergent nature of present circumstances to avoid liability? These questions are particularly difficult to answer where one of the parties has already incurred costs and/or partially performed. To prepare for this situation, parties should review their contracts for force majeure provisions (discussed below), and also become familiar with the legal doctrines of “impracticability” and “frustration of purposes,” to determine whether they might permit either party to avoid liability under the contract.

Force Majeure – Review your contract to see if it includes a “force majeure,” a clause that excuses a party’s failure to perform when an unforeseen event outside that party’s control makes performance impossible. Not all force majeure provisions are identical, so analyze the provision closely to determine whether it actually works in your favor. A few specific things to consider when evaluating a force majeure provision:

  • Who does it benefit? Some force majeure provisions apply equally to all parties to the contract, but some specifically only apply to one party. A robust force majeure provision will be no help to you if it only excuses the other party from performing.
  • When is it triggered? Force majeure provisions typically list the types of events that trigger the clause – i.e., war, weather events, etc. Does your provision include “pandemic,” “state of emergency,” “quarantine,” or something similar as a triggering event? If not, does your provision include “catch-all” language that could include the COVID-19 pandemic, such as “acts of God” or “including but not limited to”?
  • Does the triggering event make performance impossible? The party invoking a force majeure clause to excuse its failure to perform must generally show that the triggering event actually made performance impossible. If the triggering event merely made performance more costly, for example, the force majeure provision likely will not excuse performance. However, some force majeure provisions use a lower standard than impossibility, for example by excusing performance if it has become commercially unreasonable.
  • Was the triggering event foreseeable or contemplated by the parties? Force majeure clauses generally only excuse performance if the parties did not know the triggering event had occurred or would occur.
  • Is the force majeure clause exclusive? As described below, there are common law doctrines that may excuse performance under certain conditions. However, those common law doctrines are probably unavailable if your contract includes a force majeure provision, which presumptively excludes non-contract common law doctrines. However, read the contract carefully to determine whether the force majeure provision is meant to be read in conjunction with, and not exclusive of, other legal doctrines.

If your contract does not include a force majeure provision, then you should consider whether performance may be discharged under the legal doctrines of ‘impracticability” or “frustration of purposes,” which were embraced by the Arizona Court of Appeals in a case called 7200 Scottsdale Rd. Gen. Partners v. Kuhn Farm Mach., Inc.[i]

Doctrine of Impracticability

The doctrine of impracticability, also sometimes called the doctrine of impossibility, is defined as follows:

Where, after a contract is made, a party’s performance is made impracticable without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his duty to render that performance is discharged, unless the language or the circumstances indicate the contrary.

Traditionally, the doctrine applies to three categories of supervening events: (1) death or incapacity of a person necessary for performance, (2) destruction of a specific thing necessary for performance, and (3) prohibition or prevention by law. The third supervening event appears to be the most relevant to the COVID-19 pandemic, which has resulted in a number of regulatory actions and executive orders prohibiting a variety of business activities.

Doctrine of Frustration of Purposes

The doctrine of frustration of purposes differs from the doctrine of impracticability because it applies when circumstances have intervened to essentially destroy the expected value of the contract, even when performance is technically still possible. The doctrine is generally defined as follows:

Where, after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made, his remaining duties to render performance are discharged, unless the language or the circumstances indicate the contrary.

In Arizona, there are four factors that must exist before the doctrine applies:

  1. The purpose that is frustrated must have been a principal purpose of that party;
  2. The frustration must be substantial, i.e., so severe that it is not to be regarded as within the risks assumed under the contract;
  3. The non-occurrence of the frustrating event must have been a basic assumption of the parties when they formed the contract;
  4. The contract does not place the risk of the frustrating event on the party seeking relief.

In conclusion, the applicability of these doctrines and/or any force majeure provision is going to be very fact specific, and will require a careful analysis of the contract language, the purpose of the contract, the obligations and intended benefits of the parties, and how the COVID-19 pandemic has impacted all of these elements. If you find yourself dealing with a breach of contract related to COVID-19, contact your attorney.

[i] 184 Ariz. 341, 347, 909 P.2d 408, 414 (Ct. App. 1995)

About the Author: Michael Rolland is a member of the civil litigation and commercial transactions practice groups with the law firm of Engelman Berger, P.C. Michael has a special interest in the intersection of technology and the law, and writes on tech law issues. [email protected] | 602.222.4977

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.

Covid19 Blog Post William Anger


April 6, 2020

In the context of many contracts for services, potential exposure to the Coronavirus must be on the mind of both the service provider and the recipient of the services / customer.  The parties must consider liability allocation between one another, and, in addition, possible liabilities that could flow to third parties related to the provided services.

In light of the risks, the service provider and customer should carefully consider allocating risks at the inception of the contract, by included provisions for requirements and/or limitations as follows:

  • Holding one party or each other harmless and agreeing to indemnification provisions for liabilities/damages relating to the Coronavirus;
  • Disclaiming of warranties by service provider;
  • Requiring customer to deep clean area where services are to be performed;
  • If services require entering customer’s premises, requiring customer to provide premises in accordance with CDC guidelines related to the Coronavirus, such as ensuring social distancing when services are being performed;
  • Acknowledging that that premises where services being performed will not be made virus free;
  • Requiring that the Service Provider perform its duties in accordance with  CDC guidelines related to the Coronavirus;
  • Suspending obligations under the Agreement if Coronavirus makes it impossible or impractical to perform services;
  • Allowing either party to terminate the contract if their ability to perform the services or otherwise fulfill contractual obligations is or will be delayed for a prolonged time-period; and
  • Addressing other specific concerns or potential liabilities depending on the type and nature of the services being performed.

The Parties to a service contract also should examine any applicable insurance policies related to the services or the Premises where the services are to be performed, to determine if losses resulting from the Coronavirus are a covered risk.  However, it is common for insurance policies to exclude coverage for losses resulting from disease or pandemics.

About the Author: Bill Anger assists clients in structuring business, real estate, loan and water rights transactions. He also represents business and public clients as an advocate in litigation and appeals. Utilizing his more than 37 years of experience on both the buyer and the seller side of deals, Bill guides clients in structuring transactions that withstand the test of time. [email protected] | 602.222.4972

Disclaimer: This article is not legal advice and is only for general, non-specific informational purposes. It is not intended to cover all the issues related to the topic discussed. If you have a legal matter, the specific facts that apply to you may require legal knowledge not addressed by this article. If you need legal advice, consult with a lawyer.