14 Wake Forest L. Rev. Online 92

Gregory Scott Crespi[1]


Parties to a contract sometimes invoke divisibility arguments in an attempt to recharacterize the contract as being two or more separate contracts. This is often done in order to limit the justified non-performance consequences of a breach of contract on their part. This short article considers the often-overlooked symmetrical possibility of a non-breaching party attempting to recharacterize two or more facially separate but closely related contracts as a single contract, expanding the scope of their justified non-performance rights after one contract is breached. I describe two complementary arguments justifying such a single-contract recharacterization of the relationship as the “reverse divisibility” and “subsequent modification” arguments. Under some circumstances, they have substantial merit and may prove advantageous to the person asserting them.


One of the basic concepts that all law students learn about in their introductory contract law course or courses is “divisibility”—the idea that what appears to be a single contract can sometimes be recharacterized as two or more related but separate contracts among the contracting parties.[2] A person who has breached a contract can sometimes successfully argue that the agreement should be recharacterized as consisting of multiple contracts with the various obligations of each party compartmentalized into separate paired exchanges.[3] An important consequence of invoking divisibility is that it may limit the scope of the non-performance of contractual obligations by a non-breaching party that is justified by a contractual breach.[4]

A contractual breach can have harsh consequences for the breaching party, not only liability for damages but also sometimes justifying the non-performance of the other party or parties’ contractual obligations altogether,[5] resulting in a substantial forfeiture of the value of benefits that have been conferred by the breacher prior to the breach. But if the contract is regarded as divisible into multiple separate contracts, then the non-breaching party or parties would only be justified in terminating (at most)[6] their performance of those obligations that are paired with the breached obligations in that particular breached contract and not justified in terminating their contractual performances under the other contracts.[7] This will often significantly reduce the forfeiture consequences imposed upon the breaching party.

The basic principles of divisibility that define the circumstances under which a single contractual agreement can be recharacterized as multiple separate contractual agreements are well established.[8] However, in my experience, little if any attention is paid in law school, case law, or in lawyerly advice to the possibility of a person arguing for what one might call “reverse divisibility,” a recharacterization of a set of closely related (although facially separate) contracts among two or more parties as being a single contract.[9]

Sometimes a set of separate agreements among parties are simultaneous or nearly so in their execution and are so interrelated in their obligations that it obviously makes no sense to view them in isolation from one another; instead, they are best regarded as a single contractual agreement. And just as some might wish to invoke divisibility arguments to limit the justified non-performance consequences of a breach of contract on their part, others may wish to have a set of facially separate but closely related contracts recharacterized as being a single contract to expand the scope of their justified non-performance rights after another party breaches the contract.

The costs avoided by a justified termination of performance by a party after a breach of the contract by another party would be offset from the damages that the party recovers from the breaching party.[10] Therefore, under some circumstances, there would be no net benefit to an injured person, with regard to the amount of their recovery, in expanding the scope of their justified non-performance through obtaining a single contract characterization of the relationship since any increase in their costs thereby avoided would then be offset against their damages award. However, in those instances where the avoided costs from a justified termination of performance will exceed the amount of damages that are both awarded and are recoverable as a practical matter—and particularly in those many instances where the breaching party has no resources at all available to pay a damages award—being able to terminate one’s performance without liability will be the only way for the non-breaching party to reduce their losses resulting from the breach. Under those circumstances, their obtaining a single contract characterization of the relationship justifying their non-performance of all their remaining obligations will prove advantageous to them.

Virtually all of the many judicial opinions addressing divisibility issues do so in the context of arguments regarding whether a facially single contract can be properly recharacterized as being multiple separate contracts and not whether multiple facially separate related contracts can be recharacterized as a single contract.[11] But there is nothing that prevents considering the same factors used to assess the divisibility of a single contract into separate contracts, so as to limit the scope of justified non-performance after a breach, in the context of arguments to combine facially separate contracts into a single contract so as to expand the scope of justified non-performance. There is also some related authority supporting a set of closely related contracts being characterized as a single contract under some circumstances for contract interpretation purposes,[12] as well as in certain specialized contexts where a set of facially separate agreements being characterized as a single contract can have other important practical consequences unrelated to contract interpretation or the application of the doctrine of conditions.[13]

Under some circumstances, one could also justify reaching a single contract characterization regarding a set of facially separate contracts without asserting a reverse divisibility theory. One could instead concede that there are two or more separate contracts but then argue that the earlier of these contracts was then modified in a purely supplementary manner by the immediately subsequent contract, resulting eventually in a final contract that embodied all of the terms of each of the separate contracts. This would be essentially the same single contract characterization that could be achieved through a reverse divisibility theory.

There is a well-established body of law governing the modification of contracts that applies parol evidence rule principles to determine which terms of a prior agreement will survive the modification agreement and carry forward into the new, modified contract.[14] If two or more separate contracts between the same parties each address related aspects of the same subject matter, and if they do not contradict each other in any way, then after the first contract has been formed, the second contract entered into could be regarded as the new “final” agreement and viewed as a partially integrated agreement that can be supplemented by the terms of the first contract that had been entered into, which would now be regarded as a parol agreement with regard to that second contract.[15] Thus, the two agreements would then be regarded as a single contract embodying all of the terms contained in either agreement.[16] If a third contract addressing the same subject matter is entered into, then the second contract that now embodies the terms of the first and second contracts would be regarded as a parol agreement with regard to that third contract, again supplementing its terms.[17] Once again, the final result of this series of contractual modifications would be a single contract embodying all of the terms of each agreement.

Both the subsequent modification-based theory and the reverse divisibility-based theory as to why there is only a single contract formed by facially separate agreements would be easier for courts to embrace when each of the separate agreements contains an explicit or at least an implicit reference to the other agreements. But this may not be necessary if the close relationship between the agreements is otherwise apparent. Moreover, there is no reason that the reverse divisibility and subsequent modification arguments could not be advanced together as alternative justifications for a single contract recharacterization of a set of facially separate agreements.

Let me provide one illustrative example of a practical situation where a person might wish to advance a single contract characterization of two facially separate but very closely related contracts so as to expand the scope of that person’s justified non-performance rights after the other party breaches one of the contracts.[18] Assume that Persons A and B have entered into a contract under which Person A will allow Person B to list goods for sale on Person A’s online auction website, with Person B then having sales commission payment obligations to Person A for any sales made through that website. Assume also that the parties have near-simultaneously also entered into a separate non-competition agreement under which Person A has agreed not to attempt to solicit from any vendors from which Person B acquires goods for resale on Person A’s website any agreements under which Person A will later list those vendors’ goods for auction on the website in direct competition with Person B’s listings. Assume also that Person B then later materially breaches its commission payment obligations and is insolvent or near-insolvent, and Person A then contacts Person B’s vendors and agrees to list its goods on Person A’s website in competition with Person B’s listings.

Consider now if Persons A and B now enter into litigation, with each party claiming that the other party has breached a contract. Under a separate contract characterization of the situation, they would each have a valid claim. Person A’s claim would be for Person B’s failure to meet its commission payment obligations under the auction listing agreement, and Person B’s claim would be for Person A’s violation of its obligations under the non-competition agreement. Each party’s damages would have to be determined, and then the damages awards would have to be netted out to determine the final payment obligation.

However, Person A could and should argue for a single contract characterization of the two agreements in either or both of two ways, and its arguments would be quite strong. First, Person A could point out that the non-competition agreement between the parties made no sense except in the context of the parties having entered into a closely related online auction agreement, which justifies a single contract characterization of the two agreements on reverse divisibility grounds. Second, Person A could also argue that since the two agreements are consistent with one another, and since each agreement, while arguably complete enough to be regarded as a freestanding contract, is really an incomplete expression of their arrangement without consideration of the other agreement, then the second agreement that was executed should be regarded as being a modification of the first agreement that carries forward its original terms into the now meaningfully complete agreement.

Under this single contract characterization, however it is justified, only Person B would have breached the contract since Person A’s subsequent non-performance of its contractual non-competition obligations would be justified by Person B’s prior material breach—B’s failure to meet its commission payment obligation. So, Person B would not be entitled to any damages for Person A’s non-performance.[19] And since Person B is insolvent or near-insolvent, Person A’s avoided costs from its justified non-performance would reduce its losses in a way that a partially or wholly uncollectable damages award against Person B probably would not.

One can easily envision numerous other contexts where a single contract characterization of a set of facially separate but closely related contracts could have important consequences for expanding the scope of justified non-performance by the non-breaching party or parties, thereby allowing them to reduce their losses from the breach more than a damages award would alone.


I recommend that contract law instructors take a little time to include in their coverage of basic divisibility principles the idea that divisibility is, in an important sense, a symmetrical concept. Those principles sometimes allow for making plausible arguments for combining facially separate but closely related contracts into a single contract, as well as arguments for dividing a contract into separate paired exchanges. Such a single contract characterization of facially separate agreements can sometimes have important consequences for the scope of justified non-performance after a contract breach.

Instructors should also make clear to their students the flexibility that sometimes exists to characterize certain contracts as being supplementary modifications of prior agreements, rather than as free-standing separate contracts, and that this is another possible approach for achieving the same single contract characterization result.

I also recommend that practicing lawyers note for future reference the availability and persuasiveness of these reverse divisibility and subsequent modification arguments for providing their clients possible grounds for a justified non-performance defense to breach of contract claims or counterclaims that may arise in the context of multiple agreements among the same parties.

  1.  Homer R. Mitchell Endowed Professor, Dedman School of Law, Southern Methodist University. J.D., Yale Law School, Ph.D., University of Iowa.
  2.  “If the performances to be exchanged under an exchange of promises can be apportioned into corresponding pairs of part performances so that the parts of each pair are properly regarded as agreed equivalents, a party’s performance of his part of such a pair has the same effect on the other’s duties to render performance of the agreed equivalent as it would have if only that pair of performances had been promised.” Restatement (Second) of Conts. § 240 (Am. L. Inst. 1981). In symmetrical fashion, a party’s non-performance of their duties under such a paired performance apportionment would only justify the other party’s non-performance of their paired duties, not their other duties.
  3.  Id.
  4.  Id.
  5.  Commonly, the conditionality of obligations under a contract is implied as a matter of law rather than express or implied on the basis of evidence of the parties’ intent. Under these circumstances, a person attempting to justify their non-performance based on the other party’s breach would generally be required to demonstrate that the other person failed to “substantially perform” their obligations, i.e., that their breach was “material.” See, e.g., E. Allan Farnsworth, Contracts 548 (4th ed. 2004).
  6.  Id.
  7.  See supra note 2.
  8.  See, e.g., Farnsworth, supra note 5, at 553­–56; John Edward Murray, Jr., Murray on Contracts § 106(D) (5th ed. 2011) (each treatise citing and discussing Restatement (Second) of Conts. § 240 (Am. L. Inst. 1981)).
  9.  The phrase “reverse divisibility” has sometimes referred to treating an entire contract as divisible to allow partial rescission or partial enforcement when there has been a breach. See, e.g., Keller v. Arrieta, No. 20-CV-0259-KG/SCY, 2022 U.S. Dist. LEXIS 87140 (D.N.M. May 13, 2022). I think that this is an inapposite use of the phrase, and I use this phrase in this article to instead refer to characterizing two or more facially separate but closely related contracts as a single contract.
  10.  Restatement (Second) of Conts. § 347 (Am. L. Inst. 1981).
  11.  See, e.g., In re Nickels Midway Pier, LLC, 255 F. App’x. 633, 636 (3d Cir. 2007). But see, e.g., United States v. Bethlehem Steel Corp., 315 U.S. 289, 298 (1942) (“Whether a number of promises constitute one contract or more than one is to be determined by inquiring ‘whether the parties assented to all the promises as a single whole, so that there would have been no bargain whatever, if any promise or set of promises were struck out.’” (quoting Williston on Contracts, § 863 (Rev. Ed.))); Papago Parago Partners, LLC v. Three-Five Sys., No. CV 06-2448-PHX-FJM, 2007 U.S. Dist LEXIS 48041 (D. Ariz. July 2, 2007), at *6­­–7 (citing approvingly to Bethlehem Steel on this point); Harris v. Dial Corp., 954 F.2d 990, 993 (4th Cir. 1992) (stating that the intent of the parties at the time of the agreements determines whether there is one or instead two contracts, and holding the two agreements in that case were “inseparably intertwined” so that “there was only one contract” between the parties); Morgan v. Firestone Tire & Rubber Co., 201 P.2d 976, 980 (Idaho 1948) (quoting 3 Williston on Contracts 2422 (Rev. Ed.)).
  12.  Indirect support for regarding such closely related agreements among the same parties as parts of a single contract is provided by the “one contract” principle of contract interpretation, under which closely related agreements are to be regarded as a single agreement for contract interpretation purposes, see Edward N. McConnell, The “One Contract” Rule – What It Is and How to Use It, Lombardi L. (2013), https://perma.cc/4LET-8H5L; see also David M. Gersten, Clause Challenge: Multiple Contracts, One Transaction, Daily Bus. Rev. (Oct. 13, 2014, 10:00 AM), https://www.law.com/dailybusinessreview/almID/1202673179791/ (discussing cases that support this proposition).
  13.  Generally accepted accounting standards require certain contracts that were entered into simultaneously among the same parties, with a single business objective, to be regarded as a single contract for revenue recognition purposes. See Steve Quinlivan, Drafting Contracts under the New Revenue Recognition Standard, Stinson (Apr. 27, 2017), https://www.dodd-frank.com/2017/04/drafting-contracts-under-the-new-revenue-recognition-standard/. In addition, seemingly separate insurance contracts are sometimes regarded as aspects of a single contract when they are designed to achieve an overall commercial effect. See IFRS, Staff Paper (May 2018), https://www.ifrs.org/-/media/feature/meetings/2018/may/trg-for-ifrs17/ap01-combination-of-insurance-contracts.pdf.
  14.  Under the parol evidence rule, if a contract is regarded as only a “partial integration,” a final agreement as to some but not all of the terms of the contract, then it can be supplemented by the terms of prior or contemporaneous agreements that are consistent with its terms. Farnsworth, supra note 5, at 418–20.
  15.  Id.
  16.  Id.
  17.  Id.
  18.  This example is drawn from a matter that I was involved in as an expert witness.
  19.  Let me note this argument would only work for Person A if it could establish that Person B’s breach of its commission payment obligation preceded its own non-performance of its non-competition obligation. Otherwise, Person B could then offer justified non-performance arguments of its own against being held liable for breach. The question of who materially breached first is obviously critical under a single contract characterization of such a situation.

13 Wake Forest L. Rev. Online 59

Clare Magee


Russia’s 2022 invasion of Ukraine catalyzed a waterfall of political and economic upheaval across a world already reeling from the continuing COVID-19 pandemic. According to the World Bank, global trade in oil and natural gas from Russia and agricultural products from Ukraine suffered immense setbacks.[1] The Russian invasion and subsequent response from Western nations, in particular, disrupted numerous commercial agreements, many of which were directly impacted by the imposition of economic sanctions by the United States government.[2] A 2022 congressional report suggests that these economic sanctions resulted in hundreds of billions of dollars lost for the Russian economy, as well as a mass exodus of foreign companies from the Russian market, resulting in political and economic instability.[3]

Russia’s military offensive will likely result in a host of contractual legal issues coming to the fore over the next several decades. Russia-Ukraine sanctions-related commercial litigation governed by United States law is already slowly trickling into United States courts.[4] However, given that many commercial contracts customarily include mandatory arbitration provisions, courts will not have occasion to fully evaluate these claims for several years.[5] Instead, arbitrators will be met with the foreseeability problem that accompanies invocation of force majeure clauses and other common law defenses to breach of contract.

Part I of this Comment briefly discusses the legal foundation for economic sanctions both under United States and international law. Next, Part II explains how force majeure clauses operate in the background of contract disputes. Part III introduces the “foreseeability problem” generally, and details different analyses courts employ to evaluate force majeure depending on whether the jurisdiction has adopted a requirement that the force majeure event be foreseeable. Then, Part IV explores common law defenses to nonperformance of a contract complicated by economic sanctions that could be workable altneratives to force majeure clauses. Finally, Part V analyzes the contours of the “foreseeability problem” in the specific context of cases involving economic sanctions.

Ultimately, this Comment argues that while courts tasked with evaluating breach of contract cases arising out of economic sanctions may choose to adopt a straightforward approach to force majeure interpretation, the complications of a foreseeability approach could have costly implications for global commercial contracts. This Comment thus argues that until courts have occasion to reach the issues discussed below, litigants should focus their breach of contract defenses on the common law defenses of illegality and public policy.

I. Overview of Economic Sanctions

At the outset, it is important to explore how international economic sanctions operate at both a domestic and international level. Sanctions in the international context are a proverbial stick used to penalize states, individuals, or other actors that “endanger [the issuing entity’s] interests or violate international norms of behavior.”[6] International sanctions most often take the form of economic sanctions, which “are defined as the withdrawal of customary trade and financial relations for foreign- and security-policy purposes.”[7] Economic sanctions vary in type and scope, but may include travel bans, asset freezes, arms embargoes, capital restraints, foreign aid reductions, and other restrictions on trade and economic activity.[8]

The scope of this Comment is limited to economic sanctions issued by the United States government. While a brief overview of the broad international and domestic legal authorities for economic sanctions follows, it should be noted that the legitimacy, enforceability, and mass use of economic sanctions are expansive topics of legal and political scholarship that are well beyond the scope of this Comment.

A. Sanctions Under International Law

To begin, there is no general prohibition against economic sanctions in international law.[9] In fact, examples of economic sanctions have existed in international relations since 432 B.C. “when Athens imposed a trade embargo on its neighbor Megara.”[10] The modern international legal order is often considered to have begun after World War I with the formation of the League of Nations, which continued to promulgate sanctions as a tool of international relations.[11] For example, the League imposed a sweeping economic sanctions package against Benito Mussolini’s Italy after his invasion of Ethiopia in 1935.[12] The sanctions included an arms embargo, freeze on financial transactions, and significant export and import restrictions.[13] Various sanctions regimes have continuously been promulgated since 1935, and the recent trend has been towards issuing sanctions known as “smart sanctions” designed to “minimize the suffering of innocent civilians.”[14]

Today, the international legal authority for sanctions is largely grounded in the United Nations Charter, which contemplates the imposition of sanctions as collective security mechanisms available both to member states and to the UN as an international body.[15] Article 2 of the Charter lays out the expectations and rights of UN member states.[16] A majority of scholars do not believe that economic coercion through sanctions fall under Article 2(4)’s prohibition against “the threat or use of force” that is “inconsistent with the purposes of the United Nations.”[17] This is a logical interpretation given that any other reading would render later articles of the Charter inconsistent.[18] Article 41 of the Charter explicitly illustrates permissible uses of unarmed force, including “complete or partial interruption of economic relations and of rail, sea, air, postal, telegraphic, radio, and other means of communication.”[19]

However, the evolution of customary international law does impose some guardrails on sanctions. Generally, lawful sanctions imposed against an actor should include five components: (1) the actor must have violated or continues to violate a primary rule of international law, (2) good faith efforts have been attempted to deter or induce the actor to cease its violation, (3) the sanctions are proportional to the violation, (4) the sanctions are appropriately tailored or limited, and (5) the sanctions are terminable upon the actor’s cessation of its violation.[20]

The general acceptance of proportional and appropriately applied sanctions does not mean that actors view all sanctions as legal, however. For example, Iran–which has recently been the target of expansive economic sanctions regimes–has attempted to challenge the legality of sanctions under treaty law and other international legal principles.[21] Iran has a lawsuit before the International Court of Justice (“ICJ”) which suggests that in addition to the general customary rules of sanctions, there may also be treaties, UN General Assembly resolutions, and general principles of international law that inform the legality of sanctions.[22] For the purposes of this Comment, however, international economic sanctions as a general economic concept are assumed to be valid under international law and capable of interrupting contractual relationships.

B. Economic Sanctions Under United States Law

Within the United States, international economic sanctions are governed by a patchwork of legal authorities including acts of Congress, executive orders, decisions of agencies, and the Constitution itself. As a nation-state under international law, the United States’ jurisdiction to prescribe law includes “certain conduct outside its territory by persons not its nationals that is directed against the security of the state or against a limited class of other state interests.”[23] This constraint of international law on the United States, paired with the Constitution’s provisions on prescriptive jurisdiction, form the legal basis of the United States’ authority to promulgate economic sanctions.[24] Article 1 of the Constitution vests legislative powers in the Congress of the United States and authorizes Congress to make laws related to economic sanctions, while Article 2 outlines the authority of the Executive to do the same.[25]

One foundational authority governing sanctions promulgated by the United States is the International Emergency Economic Powers Act (“IEEPA”). IEEPA was enacted in 1977 “to govern the President’s authority to regulate international economic transactions during wars or national emergencies.”[26] IEEPA forms the basis of most–if not all–Executive action related to sanctions.[27] On average, 1.5 IEEPA emergencies are declared every year, which may result in sanctions targeting thousands of persons or entities.[28] IEEPA also includes the power to impose “secondary sanctions” on individuals and entities who are outside U.S. jurisdiction and cannot be legally required to adhere to sanctions.[29] These secondary sanctions are broadly applicable to those “suspected of transacting with sanctioned or sanctionable entities.”[30] Further, IEEPA sanctions often last for decades, which means that once sanctions regimes are imposed, they are not quickly undone.[31] Congress can also crystallize executive orders imposing sanctions by codifying them to ensure they are not revoked later on.[32]

In addition to legal authorities governing imposition of sanctions, there are also authorities governing execution and monitoring of sanctions. Once sanctions are imposed, the Office of Foreign Assets Control (“OFAC”) in the Department of the Treasury “administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals.”[33] OFAC maintains and publishes lists of “individuals and companies owned or controlled by, or acting for or on behalf of, targeted countries,” as well as groups that are “designated under programs that are not country-specific.”[34] Sanctions that are country-based may be (1) comprehensive, which means they cover “all transactions with the country and its nationals,” or (2) limited, which means they prohibit “only certain types of transitions with the target country or with certain persons in the government of that country.”[35] Activity-based sanctions “address particular actions, and the targets can be anywhere in the world.”[36]

While United States companies and individuals are expected to immediately abide by sanctions, foreign entities may also be prohibited from engaging in transactions with sanctioned countries, individuals, or groups if they have sufficient “contacts” with the United States or “conduct their transactions in U.S. dollars.”[37] OFAC exercises its discretion to claim jurisdiction over foreign companies and individuals broadly, increasing the power of United States sanctions regimes.[38] Thus, the impact of economic sanctions is far-reaching and can create challenges in a number of legal relationships, including in contractual obligations.

II. Force Majeure in Operation

With the aforementioned principles of sanctions in place, the remainder of this Comment turns to the interplay between contracts and economic sanctions – specifically, the role of force majeure clauses. Force majeure clauses are standard provisions that can be found in almost any contractual agreement.[39] These clauses typically cover “an event or effect that can be neither anticipated nor controlled,” including “both acts of nature (e.g., floods and hurricanes) and acts of people (e.g., riots, strikes, and wars).”[40]

Typically, what constitutes a force majeure “event” is determined by the language in the clause itself, which will delineate events the parties have included or excluded.[41] Parties might choose to negotiate specific events for inclusion or exclusion in order to dictate the application, effect, and scope of the force majeure clause.[42] For example, in Sage Realty Corp. v. Jugobanka, D.D.,[43] which involved a contractual dispute arising from the imposition of United States sanctions on Yugoslavian entities after the end of the Bosnian War, the relevant agreement’s force majeure clause contained the following exclusion:

[t]he obligation of Tenant to pay rent hereunder…shall in no way be affected, impaired or excused because Landlord is unable to fulfill any of its obligations under this Lease…by reason of any rule, order or regulation of any department of subdivision thereof of any government agency.[44]

More commonly, parties may opt for boilerplate or “catch-all” language that typically consists of: “acts of God, war, government regulation, terrorism, disaster, strikes (except those involving [a party’s] employees or agents), civil disorder…,” etcetera.[45]

As creatures of common law, force majeure provisions are governed by state law in the United States.[46] A court’s analysis of a force majeure clause thus can vary significantly by jurisdiction. Still, there are some foundational principles that courts tend to follow. For example, in breach of contract cases, the party invoking force majeure as an affirmative defense bears the burden to prove that the event causing the breach: (1) qualifies as a force majeure event, and (2) was not caused by the party’s own fault or negligence.[47]

Courts typically construe force majeure clauses narrowly and will “only excuse a party’s nonperformance if the event that caused the party’s nonperformance is specifically identified.”[48] Importantly, force majeure clauses do not excuse a party’s nonperformance “dictated by economic hardship” or because of a “mere increase in expense.”[49] Rather, the party asserting the force majeure clause as a defense must prove that an event within the clause “was beyond its control and without its fault or negligence.”[50] However, one aspect of force majeure interpretation that remains unclear is whether and to what extent courts include a “foreseeability” component.

III. The Foreseeability Problem

Because force majeure interpretation has evolved through common law, courts’ analyses reveal different approaches to whether a force majeure event must have been foreseeable or unforeseeable for the clause to adhere.[51] For example, Alabama and Maine have limited case law on force majeure clauses, with the primary analysis in reported decisions centering on the definition of force majeure with no evaluation of foreseeability.[52]

Conversely, consider the variance in states that have directly addressed foreseeability. Alaskan courts tend to require unforeseeability for force majeure events in certain types of contracts like oil and gas leases.[53] California and Florida have robust force majeure case law reflecting the most common practice where foreseeability is typically only an issue for catch-all or boilerplate language, and the rule is that “unless a contract explicitly identifies an event as force majeure, the event must be unforeseeable at the time of contracting to excuse performance.”[54] In Idaho, even if a force majeure clause does not expressly use the word “foreseeability,” courts are expected to engage in a foreseeability analysis.[55] By contrast, in New York and Ohio, courts do not read foreseeability issues into contracts that are otherwise silent on foreseeability.[56]

As illustrated by case law, courts may not have robust or consistent jurisprudence on the issue of foreseeability if it has not been frequently litigated.[57] But as one author notes, “Courts who have addressed this question can be placed into two categories.”[58] On one side are courts who import a force majeure clause’s “common-law significance” and “tend to impose an unforeseeability requirement upon the force majeure event.”[59] This means that in order for the court to allow the force majeure clause to excuse a party’s nonperformance, the event contemplated by the clause must have been truly unforeseeable. On the other side are courts who “regard the words of a self-defined force majeure clause as controlling and permit common-law notions to fill in the gaps.”[60] These courts are more likely to “not impose an unforeseeability requirement on enumerated force majeure events.”[61]

This variance in approach is mirrored not only from state to state, but system to system. Federal courts “have expressly advocated for an interpretive presumption that parties intend common-law components of force majeure, such as unforeseeability, to be read into a contract.”[62] But various state courts “allow the terms of an enumerated force majeure clause to control the scope and application of a force majeure analysis.”[63]

Yet another differentiating factor dividing courts’ analyses is whether the force majeure event that a nonperforming party bases its defense upon is explicitly listed in the clause or not. Given the potential implications of this difference for litigation arising out of economic sanctions, and because there is an apparent circuit split on enumerated force majeure clauses, this Part focuses on different courts’ analyses on force majeure events depending on whether they are explicit or not explicitly identified.

A. When Force Majeure Event is Explicit

At least two circuits have come to different conclusions about whether, and under what circumstances, a force majeure event that is explicitly included in the clause must be unforeseeable for the clause to adhere.[64] The Third Circuit and the Fifth Circuit have each had occasion to address whether “specifically listed” events require a showing of unforeseeability, coming to opposite conclusions.[65]

In Eastern Air Lines v. McDonnell Douglas Corp.,[66] the Fifth Circuit addressed an appeal for damages for breach of contract in favor of an airline against a jet plane manufacturer.[67] The lower court was unconvinced by the manufacturer’s argument that the delays leading to its breach of contract were the result of “escalation of the war in Vietnam,” finding in part that “any excusing event must have been unforeseeable.”[68] The Fifth Circuit disagreed and explained that underlying general contract principles is an understanding that “a promisor can protect himself against foreseeable events by means of an express provision in the agreement.”[69] Thus, argued the court, “when the promisor has anticipated a particular event by specifically providing for it in a contract, he should be relieved of liability for the occurrence of such event regardless of whether it was foreseeable.”[70] The Fifth Circuit concluded that the lower court erred in finding that “specifically listed” events “must have been unforeseeable at the time the contracts were entered into.”[71] This holding set up a foreseeability clash with the Third Circuit several years later.

In Gulf Oil Corp. v. FERC,[72] the Third Circuit adopted a “showing of unforeseeability” requirement.[73] Gulf Oil breached its obligations to deliver daily oil supplies to a Texas gas corporation under a contract which included among its enumerated list of twenty-seven force majeure events mechanical breakdowns, equipment downtimes, and maintenance repairs.[74] The Third Circuit held that Gulf Oil could not invoke the use of force majeure absent a showing that “the events which delayed its performance were unforeseeable and infrequent.”[75] Explaining its reasoning, the Third Circuit noted that “it is possible to accurately describe an event at its initial occurrence as unforeseeable and later because of the regularity with which it occurs, to find that such a description is no longer applicable.”[76] The court determined that the mechanical repairs which interrupted Gulf Oil’s delivery of gas had become so frequent and predictable that they could no longer be considered an excuse to nonperformance, even if they were specifically enumerated within the force majeure clause.[77] Importantly, the court articulated the insufficiency of arguing that “because the mechanical repairs were listed in the contract, they were force majeure events.”[78]

B. When Force Majeure Event is Not Explicitly Identified

The majority of states appear to read a foreseeability requirement into force majeure clauses only when the force majeure event is not explicitly enumerated or a catch-all provision is used.[79] One recent appellate case from Texas provides an illustrative discussion.[80] TEC Olmos, LLC v. ConocoPhillips[81] involved breach of an oil and gas drilling contract as the result of changes in global supply and demand for oil.[82] The contract included a force majeure clause that explicitly listed several events as well as a “catch-all” provision.[83] Drawing on common law principles, the court imported an “unforeseeability” requirement to ‘fill the gaps’ in the [catch-all] force majeure clause.”[84] The court explained:

To dispense with the unforeseeability requirement in the context of a general “catch-all” provision would, in our opinion, render the clause meaningless because any event outside the control of the nonperforming party could excuse performance, even if it were an event that the parties were aware of and took into consideration in drafting the contract.[85]

Key to the court’s reasoning was its concern for avoiding an “overly broad definition of force majeure” in accordance with traditional common law principles.[86]

Courts in California follow the same rules of construction and also read a foreseeability requirement into boilerplate or catch-all force majeure clauses.[87] In granting a motion to dismiss a breach of contract claim based on a force majeure defense, a United States District Court applied California law and held that “unless a contract explicitly identifies an event as a force majeure, the event must be unforeseeable at the time of contracting to qualify as such.”[88]

However, there are some state courts who have reached different conclusions as to the relevance of foreseeability when force majeure events are not explicitly listed.[89] For example, in a case involving a breach of contract arising out of an alleged “trade war” between the United States and China, a Michigan appellate court suggested that the court could find no Michigan cases to “support a conclusion that the foreseeability of a force-majeure event is relevant to the interpretation of a force-majeure clause.”[90] There, the litigant invoking force majeure argued that the case should have been allowed to proceed to discovery so “the issue of the foreseeability of China’s alleged illegal actions in the solar market and the parties’ intent with regard to allocation of risk [could] be explored.”[91] The court disagreed and construed the force majeure clause narrowly, rejecting any foreseeability arguments where the force majeure event was not explicitly listed.[92]

These cases illustrate the uncertainty awaiting litigants who have already included or might consider including sanctions-related force majeure clauses in their contracts. Basic contract principles favor giving meaning to the parties’ intentions as explicitly expressed in their written agreement, so conventional wisdom suggests that litigants who fear their contracts may be disrupted by sanctions in the future should negotiate force majeure clauses with explicit coverage for sanctions. However, if litigants do so and are met with a breach of contract action in a court that shares the Third Circuit’s attitude towards foreseeability in explicit force majeure clauses, they may be subject to an unwelcome holding.

On the other hand, litigants may not contemplate the possibility of sanctions and thus may rely on catch-all force majeure language to defend against breach of contract arising out of sanctions. The trouble with this approach, however, is that courts are more likely to include a foreseeability requirement in their analyses.[93] This opens litigants up to judges acting as political and foreign policy analysts who opine as to whether the parties should have foreseen a deterioration in relations between states leading to the imposition of sanctions. And while Supreme Court Justices have historically been asked to wade into the depths of foreign policy as a consequence of their rulings on multi-dimensional economic and political questions, there should be a measure of wariness towards granting such consequential authority to district and state court judges who may lack the expertise and time to carefully engage in such an analysis.[94]

Faced with these options, or perhaps by sheer mistake, litigants may end up without a sanctions-related force majeure provision entirely. Without such a provision, there are still some common law defenses available to litigants, such as impracticability/impossibility, illegality, or public policy. However, these defenses do not entirely dispense with—and in some cases actually enhance—the problem of the foreseeability requirement.

IV. Other Defenses
A. Impracticability and Impossibility

The shared common law origins of force majeure and impracticability (sometimes called impossibility) plays a key role in understanding how foreseeability can complicate a court’s analysis of alternative common law defenses. Impracticability and force majeure are similar but separate defenses to nonperformance. Impracticability excuses either “contracting party from performance in the fact of an act of God” such as “natural planetary elements or unforeseen, dramatic events.”[95] Even though it often covers “acts of God,” a force majeure clause is intended to relieve liability where “nonperformance is due to causes beyond the control of a person who is performing under a contract.”[96]

The clearest distinction between the two defenses is most easily understood temporally—when and how they are raised. As a contractual provision, a force majeure clause can only be invoked if the contract actually includes the clause.[97] Conversely, impracticability is a common law defense available to litigants even when a contract contains no force majeure clause.[98]

Foreseeability is the key aspect of the impracticability defense to breach of contract, which has three general requirements:

(1) the occurrence, or nonoccurrence, of the event causing the impracticability was unexpected; (2) performance of the duty by the promisor would be extremely difficult and burdensome, if not impossible; and (3) the promisor did not assume the risk of the event’s occurrence or nonoccurrence.[99]

Thus, in cases where litigants raise an impracticability defense, the court will almost always investigate the foreseeability of the event alleged to have caused the breach. One interesting example comes from the Fifth Circuit opinion in National Iranian Oil Co. v. Ashland Oil.[100] While National Iranian Oil Co. occurred in the context of an arbitration dispute, it revealed the court’s foreseeability analysis when determining whether a party can assert impossibility or impracticability.[101]

Beginning in 1973, Ashland Oil contracted with the state-owned National Iranian Oil Company (“NIOC”) to supply Ashland with crude oil.[102] Following the takeover of the United States Embassy in Tehran in 1979, then-President Carter issued several executive orders imposing sanctions against Iran, including banning imports of Iranian crude oil.[103] When Ashland refused to pay NIOC under the agreement, NIOC attempted to compel arbitration proceedings, which resulted in the Fifth Circuit’s opinion quoted in part at the outset of this comment.[104] Among the court’s evaluation of the arbitration claims is a helpful discussion of foreseeability as it relates to the defense of impossibility or impracticability.

As to the first element of the defense as articulated at the time—that the asserting party must not have been able to foresee the event—the Fifth Circuit held that it was “unimaginable” that the “NIOC–an instrumentality of the Republic of Iran–could not reasonably have foreseen” at the time of renewing their contract with Ashland that the agreement might be made impracticable by the deterioration of relations between Iran and the United States.[105] On the second element of the defense—that the event cannot have been the fault of the party asserting impracticability—the Fifth Circuit held that “as part of the revolutionary Government, NIOC certainly bears responsibility for creating the chain of events” that led to Ashland’s breach.[106]

Ashland Oil offers two principles that litigants should be aware of in choosing to invoke the impracticability defense, and potentially force majeure in jurisdictions where foreseeability is imported. First, depending on the political history and recency of conflict-ridden relations between the United States and foreign nations, a court may be willing to find that the imposition of sanctions was foreseeable, even if the parties did not contemplate them at the time of contracting. Second, litigants should be on notice that contracts with state- or quasi-state-owned entities may receive higher scrutiny on the foreseeability component since sanctions typically first target governments and government-owned enterprises.

B. Illegality and Public Policy

Illegality and public policy, which do not typically implicate foreseeability, provide a meaningful defense for nonperformance of a contract complicated by economic sanctions. As a general rule, illegality may be available to litigants as a defense against a breach of contract claim “whenever the performance of an act would be either a crime or a tort.”[107] Because parties cannot preemptively contract for something that would be illegal, the defense of illegality is available if, at the time the parties entered into the contract, the promise or obligation was not illegal but later became illegal.[108]

Public policy is an inherently ambiguous term, but courts are routinely asked to articulate what constitutes “public policy.”[109] They may define public policy as “that rule of law which declares that no one can lawfully do that which tends to injure the public, or is detrimental to the public good,”[110] “laws enacted for the common good,”[111] or policy and statutes that are established in the interests of the public or society.”[112] The Restatement (Second) of Contracts explains why courts may determine that a contractual promise is void as against public policy:

First, a refusal to enforce the promise may be an appropriate sanction to discourage undesirable conduct, either by the parties themselves or by others. Second, enforcement of the promise may be an inappropriate use of the judicial process in carrying out an unsavory transaction.[113]

In evaluating both illegality and public policy defenses, courts must often rely on the facts before them and the common law evolution of a court’s specific notions of what constitutes public policy, fairness, and illegality, meaning the success of either of these defenses is not automatic.

Unlike the impracticability or impossibility defense, courts do not typically import a foreseeability requirement into the illegality or public policy defenses. For example, Kashani v. Tsann Kuen China Enter. Co.[114] involved an American computer manufacturer entering an agreement with a Taiwanese corporation to establish a parts manufacturing plant in Iran.[115] Soon after the manufacturer began arranging financing, the Taiwanese corporation withdrew from the computer industry and refused to proceed with the agreement, arguing it had become illegal and against public policy because it violated executive orders issued by then-President Clinton to sanction Iran by restricting various business and financial transactions.[116] The California Court of Appeals held that the agreement was plainly illegal and violated public policy because the content of the agreement expressly violated the executive orders and other regulations imposing sanctions on Iran, so the corporation’s “actual and anticipated performance under the agreement were…prohibited.”[117]

Interestingly, the court distinguished between contracts that would be violative of domestic public policy versus international public policy in situations involving arbitration enforcement, indicating that the public policy defense might be evaluated differently in arbitration proceedings as opposed to court proceedings.[118] Ultimately, while the Kashani court acknowledged the public policy arguments, its decision was predicated on the more straightforward recognition that the agreement at issue violated an executive order and thus was illegal.[119]

Another example is a case from the United States Court of Federal Claims involving a motion to dismiss a breach of a government contract between the United States Agency for International Development (“USAID”) and Transfair International, Inc. to deliver humanitarian relief supplies to Eritrea.[120] In fulfilling its obligations under the agreement, Transfair subcontracted with a British company which ultimately hired Iranian aircraft to deliver the supplies.[121] USAID refused to pay the contract amount based on a defense that Transfair was in violation of OFAC sanctions. In response, Transfair filed a claim with the contract officer who found that “public policy considerations counseled against payment, which would be the equivalent of a transfer of government funds directly to an Iranian organization.”[122] The Court of Federal Claims reversed this decision at the motion to dismiss stage for two primary reasons: first, the court held that it must be determined whether a primary subcontractor should be held responsible for the illegal conduct of its subcontractor, and second, the court held that the illegality defense was not absolute, but rather subject to a fact intensive balancing test.[123] The court suggested that such a balancing test might weigh: (1) the promisee’s culpability, including what it knew about the alleged illegality, (2) the promisor’s corresponding culpability and knowledge of the illegality, (3) whether forfeiture would serve the public purposes at issue or serve as a deterrent against future violations, and (4) whether forfeiture resulting from nonenforcement of the agreement would be proportional to the illegality.[124]

These cases teach that when choosing among the available common law defenses to breach of contract, litigants can avoid the foreseeability problem by relying on illegality or public policy defenses. Impossibility or impracticability almost always require a court to inquire into the foreseeability of the event giving rise to the defense. Thus, if litigants are concerned about whether a court will read foreseeability into their force majeure clause, they should not expect to find a safe haven in the impossibility or impracticability defense. Thus, litigants should carefully consider whether the balancing approaches to illegality and public policy discussed above may instead be more advantageous to their position. Still, because of the canons of construction for contracts, if the litigants do have a force majeure provision that includes either explicit sanctions-related events or more general catch-all language, courts may begin and end their analyses with the force majeure clause, bringing litigants back to the foreseeability problem.

V. The Foreseeability Problem Redux: Sanctions Cases

The remainder of this Comment turns to cases which directly implicate force majeure or common law defenses in breach of contract cases arising directly out of sanctions. These cases do not appear to be often litigated to their full extent because of contractual arbitration provisions and the numerous other grounds on which a case may be decided or dismissed. Still, the cases that have been reported, combined with the general principles discussed above, provide a framework by which pending sanctions-related cases may be understood. As qualified previously, the discussion in this Part does not address the causation or culpability requirements of force majeure, or other elements of common law defenses. Instead, the focus is on the most unclear hurdle of them all: foreseeability.

A. A Straightforward Approach

Most likely, courts will adopt a straightforward approach to foreseeability in adjudicating sanctions-related litigation. In 1985, the Eighth Circuit reviewed an appeal from Iran after it lost a summary judgment motion to McDonnell, an American aircraft parts manufacturer over a breach of contract dispute.[125] Ten years earlier, the parties had entered into an agreement which included a force majeure clause explicitly excusing the manufacturer from nonperformance caused by “acts of the United States Government and embargoes.”[126] After the Iranian Revolution in 1979, when the U.S. Treasury Department and State Department imposed limitations on commercial dealings with Iran, McDonnell stopped shipping parts to the Iranian government.[127] The Iranian government sued for breach of contract, and the Eighth Circuit held that the economic restrictions imposed by the United States fell within the force majeure clause and excused McDonnell’s nonperformance.[128] Similarly, the Southern District of New York concluded in a 1998 case that the language of a force majeure clause which said the parties’ obligations would not be excused by “any rule, order or regulation…of any government” included executive orders and OFAC sanctions imposed against Yugoslavian entities in the wake of armed conflict in the Baltics.[129]

The ease with which these courts came to a decision regarding force majeure clauses should not be lightly disregarded. These cases illustrate the straightforward approach available to courts evaluating contractual provisions under traditional canons of construction. If, as is the case when analyzing any disputed contractual provision, the court’s aim is to give meaning and effect to the parties’ intentions when interpreting a force majeure clause, the court can rely on the terms of the agreement and end its analysis.[130] This is just what the Eighth Circuit did in McDonnell and the Southern District of New York did in Sage Realty.

If courts uniformly adopted this approach, litigants who contract with states or entities that eventually become targets of economic sanctions could negotiate specific force majeure provisions with this in mind at the beginning of the contractual relationship.Litigants would then have at least some measure of confidence that if all other force majeure elements were proven, they would be successful in their affirmative defense. Yet, the foreseeability problem lurks as a still-unknown potential disruptor to this straightforward approach.

B. The Unknowns of a Foreseeability Approach

Alternatively, courts might import foreseeability into their analyses of sanctions-related litigation, resulting in unknown but potentially far-reaching ramifications. This author could not find a single reported case in the last three decades where a court had occasion to directly address whether they would read a foreseeability requirement into a force majeure clause related to breach of contract arising out of sanctions. However, recent COVID-19 litigation seemingly indicates that such a question on sanctions cases may be forthcoming.[131] Over the past two years, courts have become increasingly skeptical of parties attempting to invoke force majeure clauses to cover pandemic-related breach of contract, finding that the pandemic and its impact on contracts are now foreseeable.[132] Notably, this skepticism seems most common in cases involving catch-all provisions where litigants attempt to stretch the meaning of the force majeure clause to cover the non-explicitly listed pandemic event.[133]

Economic sanctions as a tool of international relations are becoming more prevalent and widespread, with the Russia-Ukraine sanctions among the latest to garner public attention.[134] If “what’s past is prologue,”[135] there is a sound argument to be made that, when faced with questions about force majeure applicability to breach of contract arising out of sanctions, courts will look to cases like McDonnell and Sage Realty to interpret how litigants’ force majeure clauses apply to their claims. But in a world where courts have imported foreseeability requirements into force majeure cases like TEC Olmos and Gulf Oil, and where the recent COVID-19 litigation indicates that courts may consider the relative foreseeability of the force majeure event giving rise to contractual breach, it is possible that courts will turn to state common law and the foreseeability requirements of other common law defenses to read a foreseeability requirement into future force majeure litigation.

This approach could have costly implications for a range of contracts in a variety of industries given the nature of fully globalized trade. Imagine, for example, what would happen if a party today entered into a contract with a Chinese-owned entity that later became the target of United States sanctions. Could a court rationalize its opinion in state common law importation of foreseeability requirements that a force majeure clause and the common law defense of impracticability were unavailable because the sanctions were foreseeable given the slow devolution of relations between the United States and China since the end of the Cold War? While such a hypothetical might seem far-fetched and does not consider the potential relevance of common law defenses, there is certainly case law discussed in previous Parts that could support this reasoning if the facts and arguments were analogous enough.


The question of whether and to what extent foreseeability will impact sanctions-related litigation involving breach of contract claims is uncertain. Though courts will most likely rely on traditional canons of interpretation in evaluating force majeure events that litigants invoke as a shield against sanctions-involved breaches, the divide across state common law over importing a foreseeability requirement into force majeure interpretations lurks as a threat that raises more questions than it answers. Until courts are given an opportunity to develop a coherent body of case law on this question, litigants in cases involving breach of contract arising out of sanctions may be best served by adopting one of the following approaches. First, litigants could deliberately include sanctions in the force majeure clause and negotiate a favorable choice of law provision to ensure the force majeure clause is interpreted under the straightfoward approach adopted by the Eighth Circuit and Southern District of New York. Second, if their dispute reached a court, litigants could emphasize their public policy and illegality common law defenses in an attempt to avoid the question of foreseeability altogether.

  1. . See Russian Invasion of Ukraine Impedes Post-Pandemic Economic Recovery in Emerging Europe and Central Asia, The World Bank (Oct. 4, 2022), https://www.worldbank.org/en/news/press-release/2022/10/04/russian-invasion-of-ukraine-impedes-post-pandemic-economic-recovery-in-emerging-europe-and-central-asia.

  2. . Peter Neger & Bryan Woll, Applying U.S. Contract Law Amid Ukraine-Related Sanctions, Law360 (Mar. 24, 2022, 5:44 PM), https://www.law360.com/articles/1476924/applying-us-contract-law-amid-ukraine-related-sanctions.

  3. . Cong. Rsch. Serv., IFI2092, The Economic Impact of Russian Sanctions, https://crsreports.congress.gov/product/pdf/IF/IF12092 (last updated Dec. 13, 2022).

  4. . See, e.g., Joe Schneider, Carlyle Aviation Sues Insurers Over Seized Planes Leased to Russian Airlines, Ins. J. (Nov. 1, 2022), https://www.insurancejournal.com/news/international/2022/11/01/692558.htm.

  5. . Marco P. Falco, Business Contract Arbitration Clauses: Why the Words Matter, Law360 Canada (May 18, 2023 2:07 PM), https://www.law360.ca/articles/46864/business-contract-arbitration-clauses-why-the-words-matter?category=analysis.

  6. . Jonathan Masters, What Are Economic Sanctions, Council on Foreign Rel., https://www.cfr.org/backgrounder/what-are-economic-sanctions (last updated Aug. 12, 2019, 8:00 AM).

  7. . Id.

  8. . Id.

  9. . Syed Ali Akhtar, Do Sanctions Violate International Law?, Econ. & Pol. Wkly. (Apr. 27, 2019), https://www.epw.in/engage/article/do-sanctions-violate-international-law.

  10. . Uri Friedman, Smart Sanctions: A Short History, Foreign Pol’y (Apr. 23, 2012, 2:33 AM), https://foreignpolicy.com/2012/04/23/smart-sanctions-a-short-history/.

  11. . IMF, The Sanctions Weapon, Finance & Development (June 2022), https://www.imf.org/en/Publications/fandd/issues/2022/06/the-sanctions-weapon-mulder.

  12. . Id.

  13. . Id.

  14. . Masters, supra note 6.

  15. . See U.N. Charter art. 2, ¶ 5–6; see also U.N. Charter arts. 39–51.

  16. . U.N. Charter, art. 2.

  17. . J. Curtis Henderson, Legality of Economic Sanctions Under International Law: The Case of Nicaragua, 43 Wash. & Lee L. Rev. 167, 180 (1986).

  18. . Id. at 181.

  19. . U.N. Charter, art. 41.

  20. . Anthony D’Amato, Groundwork for International Law, 108 Am. J. Int’l. L. 650, 670 (2014).

  21. . See Certain Iranian Assets (Iran v. U.S.), Application Instituting Proceedings, 2016 I.C.J. (June 14) (arguing that U.S. sanctions violate the Treaty of Amity and international law).

  22. . See id. See generally Henderson, supra note 17, at 187–93.

  23. . Restatement (Third) of Foreign Rel. L. of the U.S. § 402 (1987).

  24. . Id., cmt. j.

  25. . U.S. Const. art. I §§ 1, 8; id. art. II.

  26. . Barbara J. Van Arsdale, Annotation, Validity, Construction, and Operation of International Emergency Economic Powers Act, 50 U.S.C.A. §§ 1701 to 1707, 183 A.L.R. Fed. 57 (2003).

  27. . Andrew Boyle, Checking the President’s Sanctions Powers, Brennan Center for Justice 3 (June 10, 2021), https://www.brennancenter.org/sites/default/files/2021-06/BCJ-128%20IEEPA%20report.pdf.

  28. . Id.

  29. . Id. at 8.

  30. . Id.

  31. . Id. at 3.

  32. . Abigail A. Graber, Cong. Rsch. Serv., R46738, Executive Orders: An Introduction, at 19 (Mar. 29, 2021).

  33. . Office of Foreign Assets Control, U.S. Department of the Treasury, https://home.treasury.gov/policy-issues/office-of-foreign-assets-control-sanctions-programs-and-information (last visited Nov. 20, 2023).

  34. . Id.; Office of Foreign Assets Control, Specially Designated Nationals List – Data Formats & Data Schemas, U.S. Department of the Treasury, https://ofac.treasury.gov/specially-designated-nationals-list-data-formats-data-schemas (last updated Nov. 17, 2023).

  35. . Boyle, supra note 27, at 7.

  36. . Id.

  37. . Id. at 8.

  38. . Id. at 8 (discussing OFAC’s claim of jurisdiction “over a Taiwanese company that transferred oil to an Iranian company, simply because that Taiwanese company had previously filed for bankruptcy in U.S. court”).

  39. . See J. Hunter Robinson et. al., Use the Force? Understanding Force Majeure Clauses, 44 Am. J. Trial Advoc. 1, 8 (2020) (explaining that “[f]orce majeure clauses may be found in any contract,” particularly construction and real estate contracts.

  40. . Force Majeure, Black’s Law Dictionary (11th ed. 2019).

  41. . 30 Williston on Contracts § 77:31 (4th ed.).

  42. . Id.

  43. . No. 95 CIV. 0323, 1998 WL 702272 (S.D.N.Y. Oct. 8, 1998).

  44. . Id. at *4.

  45. . Williston, supra note 41.

  46. . Robinson et. al., supra note 39, at 4 (“the application of force majeure principles can vary from jurisdiction to jurisdiction and case to case.”).

  47. . Williston, supra note 41.

  48. . Id.

  49. . Id.

  50. . Id.

  51. . TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176, 181 (Tex. App. 2018) (explaining that “foreseeability of force majeure events is rooted in the common law of the force majeure doctrine”). See generally Robyn S. Lessans, Comment, Force Majeure and the Coronavirus: Exposing the “Foreseeable” Clash Between Force Majeure’s Common Law and Contractual Significance, 80 Md. L. Rev. 799, 809–10 (2021).

  52. . See Practical Law Commercial Transactions, Key Issues When Invoking a Force Majeure Clause: State Law Chart, https://1.next.westlaw.com/Document/I1e7ec4ae774e11ea80afece799150095/View/FullText.html?transitionType=SearchItem&contextData=(sc.Search) (last visited Nov. 20, 2023).

  53. . Alaskan Crude Corp. v. State Dep’t of Nat. Res., Div. of Oil & Gas, 261 P.3d 412, 420 (Alaska 2011) (stating the rule that “Force majeure clauses extend [mineral] leases only when the nonperformance is ‘caused by circumstances beyond the reasonable control of the lessee or by an event which is unforeseeable at the time the parties entered into the contract’”).

  54. . Free Range Content, Inc. v. Google Inc., No. 14-CV-02329, 2016 WL 2902332, at *6 (N.D. Cal. May 13, 2016); see also In re. Flying Cow Ranch HC, LLC, No. 18-12681, 2018 WL 7500475, at *3 (Bankr. S.D. Fla. June 22, 2018)(finding that a force majeure event that was not explicitly listed in the clause was subject to a foreseeability analysis).

  55. . Roost Project, LLC v. Andersen Constr. Co., 437 F. Supp. 3d 808, 821 (D. Idaho 2020).

  56. . See Drummond Coal Sales Inc. v. Kinder Morgan Operating LP “C”, 836 F. App’x 857, 867 (11th Cir. 2021) (applying New York law); see also Sabine Corp. v. ONG W., Inc., 725 F. Supp. 1157, 1170 (W.D. Okla. 1989).

  57. . See, e.g., Kyocera Corp. v. Hemlock Semiconductor, LLC, 886 N.W.2d 445, 451 (Mich. Ct. App. 2015) (explaining “[t]his Court has previously observed that there is a paucity of Michigan cases interpreting force-majeure clauses…and that remains the case today”).

  58. . Lessans, supra note 51, at 810.

  59. . Id.

  60. . Id.

  61. . Id.

  62. . Id.

  63. . Id. at 812.

  64. . TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176, 182 (Tex. Ct. App. 2018).

  65. . Id.

  66. . 532 F.2d 957 (5th Cir. 1976).

  67. . Id. at 961.

  68. . Id. at 980.

  69. . Id. at 992.

  70. . Id.

  71. . Id.

  72. . 706 F.2d 444 (3d Cir. 1983).

  73. . Id.

  74. . Id. at 448–49 n.8, 453.

  75. . Id. at 454.

  76. . Id. at 453.

  77. . Id. at 453–54 (explaining that “[t]he element of uncertainty that defines unforeseeability is negated by the regularity with which the events occurred.”).

  78. . Id. at 454.

  79. . Compare Roost Project, LLC v. Anderson Constr. Co., 437 F. Supp. 3d 808, 821 (D. Idaho 2020) (explaining that courts should engage in a foreseeability analysis for events that are not expressly listed in the force majeure provision), with Kyocera Corp. v. Hemlock Semiconductor, LLC, 886 N.W.2d 445 (Mich. App. 2015) (finding that courts need not engage in a foreseeablity analysis to interpret a force majeure provision).

  80. . See TEC Olmos, 555 S.W. 3d at 182–85.

  81. . Id.

  82. . Id. at 179–180.

  83. . Id. at 179.

  84. . Id. at 184 (quoting Sun Operating LTD. P’ship v. Holt, 984 S.W.2d 277, 283 (Tex. App. 1998)).

  85. . Id.

  86. . TEC Olmos, LLC v. ConocoPhillips Co., 555 S.W.3d 176, 185 (Tex. App. 2018).

  87. . Free Range Content, Inc. v. Google, Inc., No. 14-CV-02329, 2016 WL 2902332, at *6 (N.D. Cal. May 13, 2016).

  88. . Id.

  89. . See, e.g., Morgan St. Partners, LLC v. Chicago Climbing Gym Co., No. 20-CV-4468, 2022 WL 602893, at *5 (N.D. Ill. Mar. 1, 2022) (rejecting a plaintiff’s argument that “foreseeability is paramount” for evaluating a force majeure clause that did not explicitly mention the COVID-19 pandemic).

  90. . Kyocera Corp. v. Hemlock Semiconductor, LLC, 886 N.W.2d 445, 454–55 (Mich. App. 2015).

  91. . Id. at 455.

  92. . Id. at 456.

  93. . Lessans, supra note 51, at 810.

  94. . See Noah Feldman, When Judges Make Foreign Policy, The New York Times Magazine (Sept. 25, 2008), https://www.nytimes.com/2008/09/28/magazine/28law-t.html.

  95. . 30 Williston on Contracts § 77:31 (4th ed.), Westlaw (database updated May 2023).

  96. . Id.

  97. . Id.

  98. . See 30 Williston on Contracts § 77:1 (4th ed.), Westlaw (database updated May 2023).

  99. . Id.

  100. . 817 F.2d 326 (5th Cir. 1987).

  101. . Nat’l Iranian Oil Co., 817 F.2d 326.

  102. . Id. at 328.

  103. . Id.

  104. . Id.

  105. . Id. at 333.

  106. . Id.

  107. . 5 Williston on Contracts § 12:1 (4th ed.), Westlaw (database updated May 2023).

  108. . See id.

  109. . Id.

  110. . Calvert v. Mayberry, 440 P.3d 424, 430 (Colo. 2019).

  111. . In re Santiago G., 121 A.3d 708, 722 n.17 (Conn. 2015).

  112. . See In re Estate of Feinberg, 919 N.E.2d 888, 894 (Ill. 2009).

  113. . Restatement (Second) of Contracts ch. 8, intro. note (Am. L. Inst. 1981).

  114. . 118 Cal. App. 4th 531 (2004).

  115. . Id. at 536.

  116. . Id. at 536–37.

  117. . Id. at 548.

  118. . See id. at 555 (explaining that “[t]here is an ‘important distinction between domestic and international public policy…According to this distinction what is considered to pertain to public policy in domestic relations does not necessarily pertain to public policy in international relations…’”) (internal citations omitted).

  119. . Id. at 548.

  120. . Transfair Int’l, Inc. v. United States, 54 Fed. Cl. 78, 78 (2002).

  121. . Id.

  122. . Id. at 80.

  123. . Id. at 87.

  124. . Id. at 85.

  125. . McDonnell Douglas Corp. v. Islamic Republic of Iran, 758 F.2d 341, 343 (8th Cir. 1985).

  126. . Id.

  127. . Id. at 344.

  128. . Id. at 347–48.

  129. . See Sage Realty Corp. v. Jugobanka, D.D., No. 95 CIV 0323, 1998 WL 702272, at*1, *4–*5 (S.D.N.Y. Oct. 8, 1998) (discussing the reasonable foreseeability of sanctions for a related frustration of purpose defense).

  130. . Rocky Mountain Helium, LLC v. United States, 145 Fed. Cl. 92, 97 (2019).

  131. . Erin Webb, Analysis: No Longer Unforeseeable? Force Majeure and COVID-19?, BL (Nov. 1, 2021, 3:03 AM), https://news.bloomberglaw.com/bloomberg-law-analysis/analysis-no-longer-unforeseeable-force-majeure-and-covid-19 (stating that “[s]ome courts have found that the parties’ ability to name a risk—like a pandemic or a government shutdown risk—in a force majeure clause means that the risk was not only foreseeable at the time of contracting, but actually foreseen, defeating other defenses to nonperformance, such as impossibility of performance or frustration of purpose.”).

  132. . Id.

  133. . Ryan Franklin & Nicholas Wind, Force Majeure Clauses in the Aftermath of the COVID-19 Pandemic and the Implications for Government Entities, A.B.A. Blog (March 14, 2022), https://www.americanbar.org/groups/government_public/publications/pass-it-on/spring-2022/spring22-franklin-wind-forcemajeure/.

  134. . Nicholas Mulder, The Sanctions Weapon, Fin. & Dev., June 2022, at 20, 20–21. Conflict between Israel and Hamas began in October 2023, just as this Comment was published. While OFAC’s sanctions carefully target Hamas affiliates in an effort to avoid direct state-to-state sanctions against Iran, sanctions penalizing money transfers between “Iran-aligned” entities and Gaza provide yet another contemporary example of the increasing prevalance of economic sanctions as an international stick that businesses should not ignore in contract drafting. See Press Release, U.S. Dept. of the Treasury, Following Terrorist Attack on Israel, Treasury Sanctions Hamas Operatives and Financial Facilitators (Oct. 18, 2023) https://home.treasury.gov/news/press-releases/jy1816.

  135. . William Shakespeare, The Tempest 131 (Barbara A. Mowat & Paul Werstine, eds., Simon & Schuster Paperbacks 2015) (1623).

By Sam Kiehl

Anytime you are stuck in a relationship that you want out of, it’s tough. But that’s especially so when you’re only five hundred twenty-six days into a nineteen-year contract with an embattled cryptocurrency exchange that allegedly used customer funds to make risky trades and reportedly owes creditors more than $3 billion.[1]  Fortunately for Miami-Dade County, a federal bankruptcy judge recently terminated the naming rights agreement of the Miami area arena between the county and FTX.[2]

In March 2021, the Miami-Dade County Board of County Commissioners approved a $135 million deal with FTX for naming rights of what was formerly American Airlines Arena.[3]  While $2 million a year went to the Miami Heat, the professional basketball organization that uses the twenty-one thousand capacity arena as its home venue, approximately $90 million of the agreement was allocated to the county’s anti-poverty and gun violence mitigation program, known as the Peace and Prosperity Plan.[4]

In response to the announcement that FTX would initiate Chapter 11 proceedings, however, Miami-Dade County and the Miami Heat immediately sought to terminate the business relationship between the parties and find a new naming rights partner for the arena.[5]  On November 22, 2022, the county petitioned the U.S. Bankruptcy Court for the District of Delaware to remove FTX’s name from the venue.[6]  This request came just over a month after the arena had finally replaced the aircraft associated with the arena’s original sponsor, American Airlines, with FTX’s logo on the arena’s roof.[7]

Most recently, on January 11, 2023, Judge Dorsey of the bankruptcy court approved a stipulation ending the naming rights agreement between the two parties.[8]  The order, which is retroactive to December 30, 2022, terminated all licenses and other rights granted by FTX to Miami-Dade County in accordance with the original agreement under any trademarks or trade names, including naming rights.[9]  The order does not prevent FTX and the county from asserting additional damage claims under the agreement moving forward.[10]  This means that starting soon, if not already, all FTX signage and advertising will be removed from the arena, which will proceed under the name Miami-Dade Arena until a new naming rights partner is found.[11]  Removing signage is not a small undertaking.  This will include removing FTX’s logo from the arena’s roof, the basketball court, entrances into the stadium, and even the logo from the polo shirts worn by security.[12]

While a naming rights deal of this magnitude being terminated so quickly into its term is surprising, it is not unheard of.  Remember Enron?  Several years before the Houston-based energy company’s massive collapse in the early 2000s, Enron entered a thirty-year $100 million contract with the professional baseball team, the Houston Astros, to acquire naming rights to their stadium.[13]  Less than three years into the contract, the Astros sought to terminate the deal when the Enron scandal became household news.[14]  Unlike FTX, Enron had already paid for the year ahead.[15]  So, despite Enron’s bankruptcy filing, the company refused to consent to the Astros’ seeking a third party to replace Enron in the naming rights arrangement.[16]  Enron’s main argument was that the naming rights contract did not include a provision that allowed the Astros to terminate the contract based on the company’s bankruptcy filing.[17]  Ultimately, due to public pressure and bad optics, the Astros agreed to pay Enron’s creditors $2.1 million to buy back the naming rights in an out-of-court settlement.[18]

Miami-Dade County and the Heat avoided misfortune to the extent suffered by the Astros, as FTX was already in arrears due to a $5.5 million payment going unpaid on January 1, 2023.[19]  Beyond this, the county learned from the Astros mistake and included a provision in its contract with FTX that said in the event of a default, which included an “insolvency event,” FTX would still be liable to pay “all unpaid fees for the three contract years following the date of termination” within sixty days.[20]

An overarching question following this debacle is whether it leads to concerns for another arena that houses the professional basketball team, the Los Angeles Lakers.  The Lakers, following Miami’s lead, entered into a massive $700 million twenty-year contract for the naming rights of their arena with another crypto exchange, Crytpo.com.[21]  Miami-Dade County and the Lakers both entered into these contracts worth hundreds of millions of dollars stretching across decades with FTX and Crypto.com during the peak of cryptocurrency in 2021.[22]  Counties and professional sports organizations may have to ask, moving forward, how much consideration should go into assessing the financial creditworthiness and long-term viability of a partner in a naming rights deal?  Or are they just going to continue to ask, who can show me the money?

All in all, while dealing with this fractured partnership has assuredly been tough on Miami-Dade County and its residents, at the very least, they may find some solace knowing that Madonna will be performing at Miami-Dade Arena later this year.[23]

[1] Ryan Browne, Collapsed Crypto Exchange FTX Owes Top 50 Creditors Over $3 Billion, New Filing Says, CNBC (Nov. 21, 2022, 9:34 AM), https://www.cnbc.com/2022/11/21/collapsed-crypto-exchange-ftx-owes-top-50-creditors-3-billion-filing.html

[2] Dean Budnick, Miami Terminates FTX Arena Naming Rights Deal Following Crypto Exchange’s Bankruptcy, Variety (Jan. 15, 2023, 2:00 PM), https://variety.com/2023/music/news/ftx-arena-miami-naming-rights-terminated-bankruptcy-1235490252/; Christina Vazquez, Companies Already Inquiring with Miami-Dade County, Miami Heat Regarding Arena Naming Rights Deal, Local 10 (Jan. 17, 2023, 6:21 PM),  https://www.local10.com/news/local/2023/01/17/companies-already-inquiring-with-miami-dade-county-miami-heat-regarding-arena-naming-rights-deal/

[3] Budnick, supra note 2.

[4] Id.; Budnick, supra note 2.

[5] Miami-Dade County and Miami Heat Statement on FTX, NBA.com (Nov. 11, 2022, 6:47 PM), https://www.nba.com/heat/news/miami-dade-county-and-miami-heat-statement-on-ftx

[6] Budnick, supra note 2.

[7] Id.

[8] Julia Musto, FTX Bankruptcy Judge Terminates Miami Heat Arena Naming Rights Deal, Fox Bus. (Jan. 11, 2023, 2:38 PM), https://www.foxbusiness.com/economy/ftx-bankruptcy-judge-terminates-miami-heat-arena-naming-rights-deal

[9] Id.

[10] Id.

[11] Judge Terminates FTX Naming Rights Deal for Miami Heat Arena, CBS News (Jan. 11, 2023 9:32 PM), https://www.cbsnews.com/news/ftx-miami-heat-arena-naming-rights-deal-terminated/

[12] Id.

[13] Charles Bowles & Ed Flynn, Sports Stadiums: What’s in A Name?, Am. Bankr. Inst. J., July 2015, at 38, 38 (2015).

[14] Id. at 39.

[15] Id.

[16] Id.

[17] Id.

[18] Id.

[19] Judge terminates FTX naming rights deal for Miami Heat arena, supra note 11.

[20] Sam Reynolds, FTX Owes Miami $16.5M For Arena Sponsorship Cancellation, CoinDesk (Nov. 12, 2022, 1:07 AM), https://www.coindesk.com/business/2022/11/12/heres-how-much-ftx-owes-miami-after-arena-sponsorship-cancellation/

[21] Ronald D. White, FTX’s Downfall Casts a Shadow Over Other Sports-Rights Deals. What’s Up, Crypto.com Arena, L.A. Times (Nov. 18, 2022, 5:00 AM), https://www.latimes.com/business/story/2022-11-18/ftx-was-a-sports-sponsorship-mvp-its-collapse-is-roiling-the-sports-marketing-world

[22] Id.

[23] Madonna Announces ‘The Celebration Tour’, Madonna.com (Jan. 17, 2023), https://www.madonna.com/news/title/madonna-announces-the-celebration-tour.

Keegan Hicks

As “part of an ongoing dialogue between the Delaware Supreme Court and the trial courts,”[1] Delaware Vice Chancellor Laster recently made a direct proposal that the Delaware Supreme Court “retreat from the concept of contractually specified incurable voidness.”[2] This blog post aims to explore the facts that motivated Vice Chancellor Laster’s suggestion, consider the law and his reasoning, summarize his proposed regime, and outline a few practical implications of the Delaware Supreme Court possibly considering this question.[3]

The Facts[4]

At its heart, this case is a dispute over Class B shares (“Disputed Shares”) in XRI Investment Holdings LLC (“XRI”). XRI is owned by Morgan Stanley, and co-founders Matthew Gabriel and Defendant Gregory Holifield.[5] Originally, the Disputed Shares were owned by Holifield, but to finance another company, Holifield—with the help of Gabriel—transferred the Disputed Shares to secure a 3.5-million-dollar loan from a third-party private equity fund (“Assurance”).[6] Specifically, Holifield transferred (“Blue Transfer”) the Disputed Shares into a newly formed LLC (“Blue Fund”) because XRI was already a Direct Creditor to the disputed shares.[7] This allowed Holifield to subordinate the creditor claims over the Disputed Shares—XRI would remain the only secured creditor of the shares, whereas Assurance became a general creditor over Blue Fund and could only claim as collateral the net proceeds that Blue Fund would receive in the event of a sale of the Disputed Shares.[8] Though XRI’s LLC Agreement (“LLC Agreement”) likely prohibited Blue Transfer as a “void” act against the no transfer provision, XRI made a business judgment to not originally not pursue disputing Blue Transfer under the LLC agreement.[9]    

XRI changed its position and decided to enforce the LLC Agreement almost a year after the loan had been secured when Holifield ran into financial struggles and was unable to perform on his loan from XRI.[10] Holifield attempted to renegotiate this debt and offered to sell part of the Disputed Shares, but asserts that XRI chose to pursue a strict foreclosure instead because the Disputed Shares were worth much more than the remaining balance of the loan.[11] Strict foreclosures are generally consensual agreements that relieve the debtor of her obligations, but only if the debtor surrenders the entirety of the collateral.[12]  XRI performed the strict foreclosure by taking advantage of a provision in the UCC that deems silence as acceptance of a strict foreclosure where the offer is made and the debtor fails to respond.[13] According Holifield, XRI intentionally sent a physical offer of the strict foreclosure to an address XRI knew Holifield had vacated.[14] When Holifield did not respond, XRI foreclosed on the Disputed Shares.[15] Holifield and Assurance brought an action in Texas courts to challenge XRI’s foreclosure, claiming that the foreclosure performed against Holifield was ineffective because Blue Fund, not Holifield, was the owner of the Disputed Shares.[16] XRI responded by bringing this action in Delaware Court seeking declaratory judgment that Blue Transfer was an act void ab initio[17] under the no transfer provision of the LLC Agreement. Under the doctrine of voidness, this would mean (1) that Blue Transfer was a legal nullity that never occurred; (2) that Holifield, not Blue Fund, was the owner of the Disputed Shares; and (3) that the Strict Foreclosure had correctly been performed against Holifield.[18]

The Law

Holifield primarily claims acquiescence, an equitable defense which bars XRI from claiming breach.[19] The Court found that “[t]aken as a whole, XRI’s initial actions, followed by a subsequent and lengthy period of inactive silence, clearly establish acquiescence.”[20] XRI responded by arguing that this defense was unavailable to Holifield, first asserting that equitable defenses were not available to actions at law; and second, that under CompoSecure, LLC v. CardUX, LLC II,[21] a binding Delaware Supreme Court precedent, the plain language of the XRI LLC agreement mandated a finding that any acts in violation of the no transfer provision of the LLC Agreement are void ab initio.[22]

The Court disagreed with XRI’s first assertion. After reviewing the centuries-long conflict between courts of law and courts of equity in old England, the Court held that “the reality is that whether a party can raise an equitable defense in response to a legal claim depends on the equitable defense.”[23] Specifically, the Court distinguished the “relief asserted [by equity courts] to defend against an action at law” called “equitable affirmative relief”[24] and the “equitable remedies” which courts of equity “issued when providing relief in [their] own right.”[25] The Court then asserted that fraud, mistake, illegality, and estoppel are all forms of equitable affirmative relief available against actions at law, and that laches and unclean hands were equitable remedies only available against equitable claims.[26] Because acquiescence is a special form of estoppel, the Court held that it is available against legal claims.[27]

The Court begrudgingly agreed with XRI’s second assertion. In CompoSecure, LLC v. CardUX, LLC II, the Supreme Court of Delaware held that “when an agreement states that a noncompliant act is ‘void,’ then the plain language of that provision trumps the common law and requires that a court deem the act void ab initio.”[28] Because the LLC Agreement defined wrongful transfers as ‘void,’ and because CompoSecure II was binding precedent, the Court found that Blue Transfer was void ab initio and held that acquiescence, although clearly proven, was unavailable to Holifield.[29]

The Proposed Regime

“On the facts of the case, [holding for XRI] is an inequitable result, and such an outcome is disquieting to a court of equity.”[30] For this reason, the Court argued that the Supreme Court should revisit CompoSecure II, respectfully proposing a new regime: that it would be preferable to treat  “the breach of a contractual provision as making a noncompliant act voidable, regardless of the language that the provision used.”[31] The Court made five primary arguments in support of its suggestion:[32]

1. The Court suggested that Delaware precedents made prior to CompoSecure II supported the Court’s proposed regime, positing that the CompoSecure II court was not briefed on these authorities and therefore did not consider them.

2. The Court noted that there was an active policy to steadily move away from incurable voidness in both contract and entity law because its application leads to harsh outcomes.

3. The Court then argued several aspects of contract law necessitated this new regime. First, the Court posited that to be consistent, Delaware should allow parties to argue all defenses generally available in breach of contract claims. Second, it argued that allowing parties to contract out of equity created poor contracting incentives. And finally, that parties cannot contract for certain remedies, because the courts determine remedies.

4. The Court then argued that “[a] range of authorities suggests that parties, courts, and legislatures do not regard the term ‘void’ as having a settled meaning of “void ab initio.’”[33] Because of this history of ambiguity, the Court stated that the term “lack[ed] the necessary semantic clarity to bear the weight of a rule of incurable contractual voidness.”[34]

5. Finally, the Court noted that the Delaware Constitution established a minimum jurisdiction that even the general assembly could not reduce. The Court argued that this was “intended to establish for the benefit of the people of the state a tribunal to administer the remedies and principles of equity.”[35] Because waiving a constitutional right through such a small contractual provision would be a “significant leap” from this purpose, the Court argued that it was preferable to only give incurable voidness a limited role in reducing equity.

Practical implications

Although the Court ultimately applied CompoSecure II, this Court’s proposal to consider an alternative approach suggests the following implications:

  • At a minimum, this opinion is just the latest in the ongoing push and pull between a formalistic, plain-meaning approach to contract interpretation and a more contextual approach. Because Vice Chancellor Laster’s suggestion favors the latter, practitioners should remember that the facts often outweigh the words of a contract.
  • This opinion puts deal lawyers on notice that contractual voidness provisions may not be enforced as intended.
  • Alternatively, should the Supreme Court ultimately reject Judge Laster’s proposal, it will be important for deal lawyers to recognize that a contractual voidness provision may not be a meaningless provision to be easily conceded in negotiations.
  • Furthermore, should the Supreme Court reject Vice Chancellor Laster’s proposal, that rejection would signal deal lawyers to consider whether that rejection means that parties can not only contract for recission, but other equitable remedies, namely specific performance.
  • To litigators, this opinion clarifies which equitable defenses are available against legal actions and which ones are not. Vice Chancellor Laster’s framework of equitable affirmative relief versus equitable remedies is helpful in determining whether an equitable defense is available in legal actions.
  • This opinion also serves as a basis for non-frivolous arguments against enforcing contractual voidness provisions. As Vice Chancellor Laster pointed out, CompoSecure II was, in part, likely decided the way it was because counsel readily conceded that an act would be void ab initio if the plain language of an agreement indicated as much in a remedy.[36] The Vice Chancellor lists several persuasive arguments that business litigators can use to stave off the harsh effects of incurable voidness.
  • Likewise, the rejection of Chancellor Laster’s regime offers a persuasive opportunity to argue and enforce remedies contractually specified within the four corners of an agreement.
  • Finally, practitioners should follow this case as it moves into an appeal posture. Because the Court was so plain in its dislike for the outcome,  both Plaintiff and Defendants have plenty to argue on appeal. Accordingly, practitioners should have their Westlaw and Lexis alerts turned on to see what happens next.

[1] XRI Invest. Holdings LLC v. Holifield, 2022 Del. Ch. LEXIS 240, at *138, n. 55 (Sept. 19, 2022).

[2] Id. at *174.

[3] On 10/03/2022 Final Order and Judgment were granted. Docket. No. 246. As of 10/04/2022, neither party in Holifield had appealed to the Supreme Court. Nevertheless, Title 10 Delaware Code § 145 provides 30 days to appeal from a final judgment, so watching the status of this case is paramount.

[4] Holifield, 2022 Del. Ch. LEXIS 240 at *11–56.

[5] Id. at *12–14.

[6] Id. at *16–38.

[7] Id.

[8] Id.

[9] Id. at *42–49.

[10] Id. at *46–52.

[11] Here, the parties contended that New York law governed the strict foreclosure. Accordingly, the decision summarized New York’s application of the UCC under N.Y. U.C.C. Law § 9–620(a). See Id. at *5–6, n. 1.

[12] Id.

[13] Id. at 5–7. Admittedly, the requirements for silence as acceptance in this context are more complex, but this explanation is sufficient for our purposes. See generally UCC 9-260.

[14] Holifield, 2022 Del. Ch. LEXIS 420 at *49–52.

[15] Id.

[16] Id. at *52–55.

[17] For the purposes of this blog post, ‘void’, ‘void ab initio’, ‘incurable voidness’, ‘incurable contractual voidness,’ and ‘legal nullity’ are synonymous.

[18] See Holifield, 2022 Del. Ch. LEXIS 420 at *56–59.

[19] See Holifield, 2022 Del. Ch. LEXIS 420 at *87. “The doctrine of acquiescence effectively works a[s] estoppel: where a plaintiff has remained silent with knowledge of her rights, and the defendant has knowledge of the plaintiff’s silence and relies on that silence to the defendant’s detriment, the plaintiff will be estopped from seeking protection of those rights.” Id. at *86-87 (quoting Lehman Bros. Hldgs., Inc. v. Spanish Broad Sys. Inc., 2014 Del. Ch. LEXIS 28, at *9 (February 25, 2014)).

[20] Id. at *87.

[21] CompoSecure, LLC v. CardUX, LLC II, 206 A.3d 807 (Del. 2018).

[22] Holifield, 2022 Del. Ch. LEXIS 420 at *87. Because the Court found that Blue Transfer did breach the LLC agreement, the primary issue before the Court then was whether Blue Transfer was an act void ab initio.  “The distinction between void [ab initio] and voidable is often of great practical importance. Whenever technical accuracy is required, void can be properly applied only to those [acts] that are of no effect whatsoever – those that are an absolute nullity.” Void, Black’s Law Dictionary (11th ed. 2019). In contrast, voidable acts are “valid until annulled,” and “are capable of being affirmed or rejected at the option of one of the parties.” Voidable, Black’s Law Dictionary (11th ed. 2019). Of particular import here, is that equitable defenses are unavailable to acts void ab initio. See Holifield, 2022 Del. Ch. LEXIS 420 at *124.  Thus, if the Court finds that Blue Transfer was void ab initio, as it was ultimately required to do under CompoSecure II, Blue Transfer was incurably void and equitable defenses do not apply. See id. at *84.

[23] Holifield, 2022 Del. Ch. LEXIS 420 at *102.

[24] Id. at 112. (citation omitted).

[25] Id.

[26] Id. at *119–124.

[27] Id.

[28] Id. at *13.

[29] Id. at *132–135.

[30] Id. at *10–11.

[31] Id. at *138.

[32] See Holifield, 2022 Del. Ch. LEXIS 420.

[33] Id. at *168.

[34] Id. at *172.

[35] Id. at 172–173 (quoting Du Pont v. Du Pont, 32 Del. Ch. 413 (Del. 1951)).

[36] Id. at 140–148.

Photo via Ekaterina Bolovtsova by Pexels


By: Mikhail Petrov

On February 19, 2016, in a published civil case of W.C. & A.N. Miller Dev. Co. v. Continental Casualty Co., the Fourth Circuit amended its decision from December 30, 2015, and affirmed the decision of the district court to deny W.C. & A.N. Miller Development Company (“Miller”) insurance coverage from its insurer, Continental Casualty Company (“Continental”). In 2006, Miller was sued in a contract dispute. Subsequently, Miller entered into a liability insurance contract with Continental. Miller was then sued again, in 2010, in a fraudulent conveyance action seeking recovery on the judgment entered in the 2006 lawsuit. Miller asked Continental to cover the 2010 suit. Continental, however, determined that the 2010 lawsuit was unrelated, and refused. In 2014, after Miller successfully defended the 2010 lawsuit, it sued Continental for breach of the insurance contract. The main issue was whether the 2006 and the 2010 disputes were interrelated, as defined by the insurance policy. The Fourth Circuit found that they are not.

The Facts

In the early 2000s, one of the principles of Miller founded the land development company Haymount Limited Partnerships. Miller owned more than 80% of Haymount at all relevant times. Haymount’s goal was to develop land in Virginia. In order to develop the land, Haymount needed financing. Haymount entered into an agreement with two companies to search for a third party lender, International Benefits Group (“IBG”) and American Property Consultants (“APC”). The company that introduced Haymount to the eventual third-party lender would receive a finder’s fee. Haymount secured a $14 million loan from General Motors Acceptance Corporation Residential (GMAC). Haymount then paid a finder’s fee to APC. Upon learning of the GMAC loan, IBG also sought payment of its fee and sent Haymount a list of lenders, which included GMAC, to whom IBG had introduced Haymount. Haymount refused to pay and IBG sued for breach of contract. The suit commenced in 2006, and on January 8, 2010, the district court entered judgement against Haymount, awarding $4,469,158 to IBG.

Eight months after the judgment in the 2006 lawsuit, on October 29, 2010, IBG again sued Haymount. The 2010 lawsuit alleged that the Haymount took actions to render itself judgment proof so that IBG could not collect on the judgment entered in its favor after the 2006 lawsuit. The causes of action asserted in the 2010 lawsuit included fraudulent transfer, fraudulent conveyance, common law and statutory conspiracy, and creditor fraud. The complaint included detailed information of the 2006 lawsuit, which gave rise to the judgement in favor of IBG.

Miller (Haymount’s parent corporation) entered into a liability insurance contract with Continental Casualty Company in 2010. Miller sought for Continental to cover the defense costs. Continental denied coverage as being outside the scope of the policy and Miller proceeded with the defense at its own expense and won. Miller then filed a lawsuit against Continental, alleging that Continental wrongfully denied coverage under the policy and should be required to pay the costs Miller incurred defending the 2010 lawsuit.

The policy, J.A. 35-75, provided that “More than one Claim involving the same Wrongful Act or Interrelated Wrongful Acts shall be considered as one Claim which shall be deemed made on . . . the date on which the earliest such Claim was first made. . . .” In other words, this provision stated that if more than one claim involving “interrelated wrongful acts” is made against Miller or its subsidiaries, the multiple claims are considered a single claim made on the date on which the earliest of the claims was made. Further, the policy expansively defined “interrelated wrongful acts” as “any Wrongful Acts which are logically or causally connected by reason of any common fact, circumstance, situation, transaction or event.” From this language, Continental reasoned that the acts alleged in the 2006 lawsuit and other acts alleged in the 2010 lawsuit were interrelated wrongful acts. The district court agreed with Continental and dismissed Miller’s claim.

Rules of the Case

The Fourth Circuit was tasked with determining whether the district court properly interpreted and applied the provisions of the insurance contract. Because the district court sat in Maryland, Maryland law applied to the case. Under Maryland law, insurance policies are interpreted in the same manner as contracts generally. There is no rule in Maryland that insurance policies are to be construed against the insurer. Catalina Enters., Inc. Pension Tr. v. Hartford Fire Ins. Co., 67 F.3d 63, 65 (4th Cir. 1995). Clear and unambiguous language, however, must be enforced as written and may not yield to what the parties later say they meant. Additionally, unless there is an indication that the parties intended to use words in a special technical sense, the words in a policy should be accorded their “usual, ordinary, and accepted meaning.” Bausch & Lomb, Inc. v. Utica Mut. Ins. Co., 625 A.2d 1021, 1031 (Md. 1999). However, where an insurance contract is ambiguous, “any doubt as to whether there is a potentiality of coverage under [the] insurance policy is to be resolved in favor of the insured.” Clendenin Bros. v. U.S. Fire Ins. Co., 889 A.2d 387, 394 (Md. 2006).


The Fourth Circuit concluded that the conduct alleged in the 2006 and 2010 lawsuits share a common nexus of fact and are, therefore, interrelated wrongful acts under the policy’s definition. The Court noted that the policy’s definition of “interrelated wrongful acts” is expansive. Additionally, the Court did not find the definition to be ambiguous and applied it in accordance with the ordinary meaning of the words used. Like the district court, the Fourth Circuit observed that the two lawsuits are linked by (1) a multitude of common facts: in particular, that Haymount did not pay IBG the finder’s fee; (2) a common transaction: the contract between Haymount and IBG; and (3) common circumstances: namely, Haymount’s attempts to secure financing for its land development project in Virginia. These elements logically and causally connected the two lawsuits. Absent Haymount’s breach of its contract and other alleged torts, IBG would not have sued for damages in 2006, nor would it have sued for enforcement of the 2006 judgment in 2010.

Miller attempts to avoid the Fourth Circuit’s straightforward conclusion by characterizing the allegations in the two lawsuits as alleging merely a “common motive” which is insufficient to establish the interrelatedness of the 2006 and 2010 lawsuits. The Fourth Circuit rejected this argument, citing back to the definition of “interrelated wrongful acts” within the insurance policy as broad and unambiguous. Additionally, the Court cited that both the 2006 and the 2010 lawsuits focus on the same issue, payment of the finder’s fee by Haymount to IBG.


The Fourth Circuit held that Continental was correct in refusing to cover Miller’s court expenditures for the 2010 lawsuit. Because the 2010 lawsuit and the 2006 lawsuit involve interrelated wrongful acts, they were part of the same claim under the policy. The Court affirmed the judgement of the district court.

Oil Pumps

By Daniel Stratton

Today, the Fourth Circuit issued a published opinion in the civil case K & D Holdings, LLC v. Equitrans, L.P. In K & D Holdings, the court held that an oil and gas lease granted to defendants, Equitrans and EQT, by plaintiff, K & D Holdings, was not divisible into separate components. In reaching that conclusion, the court reversed and remanded the case to the district court with instructions to enter judgment in favor of Equitrans and EQT.

The Terms of the Original Lease

In December 1989, Henry Wallace and Sylvia Wallace signed a lease granting Equitrans the oil and gas rights to an area of land covering 180 acres in Tyler County, West Virginia. Currently, K & D is the successor in interest to the Wallaces. Additionally, Equitrans L.P., the successor-in-interest to Equitrans Corp., subleased the rights to produce and store gas on the land to EQT Corp. Essentially, the terms of the lease now govern a relationship between K & D and EQT.

The terms of the lease grant EQT the right to use the land to explore and produce oil and gas, store gas, and protect stored gas. The lease’s initial term ran for five years and would continue on for as long as a portion of the land was used for “exploration or production of gas or oil, or as gas or oil is found in paying quantities thereon or stored thereunder, or as long as said land is used for the storage of gas or the protection of gas storage on lands in the general vicinity.” After taking control of the land, EQT never engaged in exploration, production, or gas storage, but has engaged in gas storage protection.  Equitrans owns the nearby Shirley Storage Field, a natural gas storage facility. The Federal Energy Regulatory Commission established a buffer zone of 2000 feet around the storage area for protection of the storage facility. The leased land falls within that buffer zone.

Due to EQT and Equitrans not using the leased land for gas or oil production, K & D sought to end the arrangement and enter into a more lucrative contract with another company. On September 20, 2013, K & D filed a lawsuit in state court against EQT, arguing that it was entitled to a rebuttable presumption under West Virginia state law that EQT had abandoned the land after not producing or selling gas or oil from the property for more than twenty-four months. EQT removed to the United States District Court for the Northern District of West Virginia. EQT and K & D filed cross motions for summary judgment.

On September 30, 2014, the court denied both cross motions. Acting sua sponte, the district court found as a matter of law that the lease was divisible. The court argued that because the lease had two primary purposes, (1) exploration and production and (2) storage and protection, the lease could be divided into two separate leases. The lease for exploration and production of oil and gas had expired in the district court’s view, because the initial five-year term had elapsed without EQT exploring for or producing oil or gas. The court held however, that the second lease, for storage and protection, was still in force because EQT had used the land for that purpose.

On January 21, 2015, the district court issued its final order, stating that K & D was entitled to drill exploration and production wells in areas that were not within the buffer zone of the Shirley Storage Field. EQT appealed.

West Virginia is for Lessors

Because this case was heard under diversity jurisdiction, West Virginia state law applies. Under West Virginia law, contract law principles apply equally to the interpretation of leases. The primary criterion for determining if a contract is severable is whether such an intention was reflected by the parties in the terms of the contract itself, the subject matter of the contract, and the circumstances giving rise the question.  A contract is not severable when it has material provisions and considerations that are interdependent and common to each other. Additionally, under West Virginia state law, there is a presumption against divisibility unless the contract explicitly states that it is divisible or the parties intent of divisibility is clearly manifested. As a general matter, West Virginia law regarding oil and gas leases are liberally construed in favor of the lessor, but only when there is ambiguity as to the lease terms.

A Lease Divisible Cannot Stand

On appeal, EQT made two arguments. First, it argued that the district court erred as a matter of law in holding the lease divisible. Second, EQT contended that the district court was wrong in determining that the exploration portion of the lease had terminated after its initial five-year term. Reviewing the district court’s findings of fact for clear error and its conclusions of law de novo, the Fourth Circuit agreed with both of EQT’s arguments.

Starting with its first argument, EQT pointed to the language of the lease itself. The lease’s use of the word “or” between each act required of EQT in order to continue the lease indicated that the acts were alternatives, and that only one would be required to keep the entire lease in effect. Applying West Virginia’s test for determining if a contract is severable, the Fourth Circuit concluded that the lease was intended to be entire and not divisible.  The Fourth Circuit applied the plain, ordinary meaning of the word “or,” holding that in this case it was a disjunctive and could not be considered to have the same meaning as the word “and.”

K & D argued that because EQT paid different rents depending on what activities it was engaging in, the lease was divisible. The court found this argument to not be persuasive, noting that the activities EQT could engage in under the lease were interrelated. Additionally, because the Fourth Circuit found no ambiguity in the lease, it did not need to liberally interpret in favor of the lessor.

Having decided that the lease was not divisible, the court then turned to the question of whether EQT had continuing rights under the lease. The terms of the lease dealing with renewal stated that the lease would continue beyond the initial five-year term if “(1) the lessee explores for or produces gas or oil; (2) ‘gas or oil is found in paying quantities thereon or stored thereunder’; or (3) the ‘land is used for the storage of gas or the protection of gas storage on lands in the general vicinity.” Again noting the use of the disjunctive “or,” the court found that because it was undisputed that part of the land was being used for protection, EQT continued to hold all rights under the original lease.

The Fourth Circuit Hold the Lease is Not Divisible and Valid; Reverses and Remands 

Having determined that the lease was not divisible and that EQT still held all rights under the original lease, the Fourth Circuit reversed and remanded the lower court’s decision, instructing that court to enter judgement in favor of EQT and Equitrans.

By Carson Smith

On February 12, 2015, the Fourth Circuit, in an unpublished opinion, affirmed the District Court of South Carolina’s dismissal in Holmes v. Moore due to lack of subject matter jurisdiction.

Holmes Argued that the Domestic Relations Exception to Subject Matter Jurisdiction Did Not Apply

Holmes brought a breach of contract and promissory estoppel action against her former husband. She brought the case in federal court based on diversity jurisdiction. However, the district court dismissed the case, ruling that Holmes suit fell within the domestic relations exception. This exception has traditionally relieved federal courts from involvement in matters of divorce, child care, and custody.

On appeal, Holmes argued that the domestic relations exception did not apply in this case because the “property settlement agreement that she [sought] to enforce [did] not involve issues related to the divorce decree.” Instead, she argued, the settlement agreement stood alone as an issue of contract law.

Fourth Circuit Found No Reversible Error and Affirmed the District Court’s dismissal

The Fourth Circuit reviewed the issue of law de novo. After reviewing the record, the Fourth Circuit found no reversible error and affirmed the district court’s dismissal based on the domestic relations exception.