
Michael J. Sheppeard
Partner
212-784-6939 msheppeard@sh-law.comFirm Insights
Author: Michael J. Sheppeard
Date: January 15, 2021
Partner
212-784-6939 msheppeard@sh-law.comA New York City auction house was well within its legal rights when it terminated an agreement to auction a painting by artist Rudolf Stingel in May 2020, according to New York district court judge. The court held that the COVID-19 pandemic and the resulting government shutdowns “fall squarely” under the contract’s force majeure clause.
In June 2019, plaintiff JN Contemporary Art LLC (JN) and defendant Phillips Auctioneers LLC (Phillips) entered into two agreements governing the auctioning of two paintings: one by artist Rudolf Stingel and another by artist Jean-Michel Basquiat. While the Basquiat Painting was sold at a public auction the same day the parties executed those agreements, the Stingel Painting was to be auctioned at an auction then scheduled to occur in New York in May 2020.
The Stingel Agreement provided that the Stingel Painting “shall be offered for sale in New York in our major spring 2020 evening auction of 20th Century & Contemporary Act currently scheduled for May 2020. “Subject to . . . any applicable withdrawal or termination provision,” Phillips guaranteed that JN would receive $5 million from the sale of the Stingel Painting at the New York Auction. The Stingel Agreement provided Phillips with a commission from JN equal to 20% of the amount by which the final bid price at the auction of the Stingel Painting exceeded the Guaranteed Minimum, among other things.
Paragraph 12(a) of the Stingel Agreement set forth a termination provision , which stated:
In the event that the auction is postponed for circumstances beyond our or your reasonable control, including, without limitation, as a result of natural disaster, fire, flood, general strike, war, armed conflict, terrorist attack or nuclear or chemical contamination, we may terminate this Agreement with immediate effect. In such event, our obligation to make payment of the Guaranteed Minimum shall be null and void and we shall have no other liability to you.
In light of the COVID-19 pandemic’s impact on New York in the Spring of 2020, Phillips terminated the agreement to auction the Stingel Painting and refused to pay JN the minimum price it was guaranteed in connection with the auction. JN filed suit seeking an order compelling Phillips to auction the Stingel Painting and pay it in accordance with the terms of the parties’ agreement.
U.S. District Judge Denise L. Cote of the Southern District of New York dismissed the suit. “The COVID-19 pandemic and the attendant government-imposed restrictions on business operations permitted Phillips to invoke the Termination Provision,” Judge Cote wrote. “The pandemic and the regulations that accompanied it fall squarely under the ambit of Paragraph 12(a)’s force majeure clause. That clause is triggered when the auction ‘is postponed for circumstances beyond our or your reasonable control.’”
In reaching her decision, Judge Cote found that “[i]t cannot be seriously disputed that the COVID-19 pandemic is a natural disaster.” In support, she cited the Oxford English Dictionary’s definition of a “natural disaster” as “[a] natural event that causes great damage or loss of life such as a flood, earthquake, or hurricane.” She also noted that the Second Circuit Court of Appeals has identified “disease” as an example of a natural disaster. “By any measure, the COVID-19 pandemic fits those definitions,” she concluded.
Judge Cote also found that a pandemic requiring the cessation of normal business activity is the type of “circumstance” beyond the parties’ control that was envisioned by the Termination Provision. As she explained:
The exemplar events listed in Paragraph 12(a) include not only environmental calamities events such as floods or fires, but also widespread social and economic disruptions, such as “general strike[s],” “war,” “chemical contamination,” and “terrorist attack.” The relevant government proclamations buttress this conclusion. Governor Cuomo’s Executive Orders declared a “State disaster emergency.” And, on March 20, the Federal Emergency Management Agency issued a “major disaster declaration” under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121 et seq., due to the COVID-19 outbreak in New York.
Judge Cote also rejected arguments that the Stingel Agreement required Phillips to exhaust all efforts to perform before invoking the force majeure clause, concluding that the argument is not supported by the terms of the parties’ agreement or by the law. “The parties did not contract for an online auction conducted in July from London. Nor is a party to a contract required to undertake alternative performance before invoking a force majeure clause,” she wrote. “Once the New York auction was postponed for circumstances beyond Phillips’ control, Phillips was entitled to terminate the consignment agreement,” Judge Cote added.
The ruling is good news for New York businesses that have been forced to terminate contracts in the wake of the pandemic and those that may be forced to do so as New York grapples with a second wave of the virus. The New York federal court decision is particularly important because it found that the COVID-19 pandemic fell under the agreement’s force majeure clause. In so ruling, the court notably found that the pandemic and the resulting shutdowns qualified as both a “natural disaster” and “social and economic disruptions” under the contract’s termination provision.
If you have any questions or if you would like to discuss the matter further, please contact me, Michael Sheppeard, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Special purpose acquisition companies (better known as SPACs) appear to be making a comeback. SPAC offerings for 2025 have already nearly surpassed last year’s totals, with additional transactions in the pipeline. SPACs last experienced a boom between 2020–2021, with approximately 600 U.S. companies raising a record $163 billion in 2021. Notable companies that went public […]
Author: Dan Brecher
Merging two companies is a complex legal and business transaction. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process that involves important corporate governance considerations. A short form merger, in which an acquiring company merges with a subsidiary corporation, offers a more streamlined process. However, […]
Author: Dan Brecher
The Trump Administration’s new tariffs are having an oversized impact on small businesses, which already tend to operate on razor thin margins. Many businesses have been forced to raise prices, find new suppliers, lay off staff, and delay growth plans. For businesses facing even more dire financial circumstances, there are additional tariff response options, including […]
Author: Brian D. Spector
Business partnerships, much like marriages, function exceptionally well when partners are aligned but can become challenging when disagreements arise. Partnership disputes often stem from conflicts over business strategy, financial management, and unclear role definitions among partners. Understanding Business Partnership Conflicts Partnership conflicts place significant stress on businesses, making proactive measures essential. Partnerships should establish detailed […]
Author: Christopher D. Warren
*** The original article was featured on Bloomberg Tax, April 28, 2025 — As a tax attorney who spends much of my time helping people and companies who have large, unresolved issues with the IRS or one or more state tax departments, it often occurs to me that the best service that I can provide […]
Author: Scott H. Novak
On January 28, 2025, the Trump Administration terminated Gwynne Wilcox from her position as a Member of the National Labor Relations Board (NLRB or the Board). Gwynne Wilcox, a union side lawyer for Levy Ratner, was confirmed to the Board for an original term in 2021 and confirmed again for a successive five-year term expiring […]
Author: Matthew F. Mimnaugh
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!