By: S. George Alfonso, Of Counsel, Braumiller Law Group
On May 4th, 2020, the Department of Homeland Security (“DHS”) intelligence service issued an unclassified four page report which stated in part:
[DHS Intelligence Service] assess the Chinese Government [“Peoples Republic of China” (“PRC”)] intentionally concealed the severity of COVID-19 from the International community in early January while it stockpiled medical supplies by both increasing imports and decreasing exports,” the May 1 DHS report states. (emphasis added).
The DHS report stated that the PRC dramatically increased its imports of medical supplies while cutting exports of the same items — even as it played down the gravity of the epidemic to the rest of the world.
The DHS report further stated that the PRC substantially increased its import of surgical face-masks by 278 percent, surgical gowns by 72 percent, and surgical gloves by 32 percent and other items in January. The report in contrast, noted that in February, worldwide imports from China of critical medical supplies significantly declined.
Based on a comparison of global trade data on 38 types of medical supplies from October 2019 to February 2020 to the previous five years, the report stated that there is a 95% probability that the dramatic shift was not within the normal range. (Cardiff Prestige Property Inc. et al. v. People’s Republic of China et al. [U.S. District Court for the Central District of California]).
The DHS report concluded that the PRC attempted to cover up and hide its actions by publicly denying it had ever imposed export restrictions on masks and other medical supplies, and claiming to have not delayed the release of key trade data
In March, I examined the importance of well drafted and clearly defined events which could trigger a Force Majeure provision (“Force Majeure and the Coronavirus [COVID-19]: Definitions Matter”) As an example, I cited the present global pandemic as an instance where an event or situation may not have been sufficiently identified and defined in order to allow a party to invoke the contract’s Force Majeure provision.
In light of the DHS Intelligence Report and other related events and published allegations, I believe it is now necessary to re-evaluate and re-define how such findings may require a re-evaluation and possible re-defining of one of the most common Force Majeure terms of art; “Act of War”.
Will US Government Investigations and US Lawsuits Effectively Re-Define an “Act of War”?
The above-referenced DHS Intelligence Report directly and unequivocally states that the acts and omissions of the PRC further exacerbated the worldwide spread of the deadly coronavirus “COVID-19”. Can such a determination alone or compounded by future evidence ever be enough to satisfy the Force Majeure term of art of Act of War?
- GOP Senators Look to Hold China Liable for COVID-19 Pandemic
In April, two Republican Senators unveiled bills which seek to allow US plaintiffs to sue the PRC and the ruling and only authorized political party in the PRC, the Chinese Communist Party (“CCP”) and CCP officials. The bills also provide for the sanctioning of the PRC, CCP and CCP officials for their intentional withholding of information about COVID-19; actions which include the prevention of whistle-blowers within the PRC from releasing information to the rest of the world.
Senator Josh Hawley, R-Mo. introduced the “Justice for Victims of COVID-19 Act” which would remove the PRC’s sovereign immunity and permit U.S. citizens and businesses to sue the PRC for the suppression of truth, failure to act and intentional misrepresentations made by the government which delayed and retarded the global response to this pandemic. The proposed bill includes the establishment of a U.S. State Department task force that would further investigate how Beijing managed the outbreak and seek compensation from the PRC due to its above-referenced acts and omissions. Senator Hawley stated: “We need an international investigation to learn the full extent of the damage the [PRC and CCP have] inflicted on the world, and then we need to empower Americans and other victims around the world to recover damages”.
Also in April, Senator Ted Cruz, R-Texas, proposed a bill dubbed the “Ending Chinese Medical Censorship and Cover Ups Act of 2020” that would allow for the country’s officials to be sanctioned for censoring its own citizens’ attempt to release medical information about new diseases. In a statement regarding the bill, Cruz said that the Chinese government’s censorship of medical information has led to “catastrophic” consequences.
- US State Government Files Suit Against the PRC and CCP Liable
Governmental attempts to hold the PRC and CCP liable for their acts and omissions regarding COVID-19 are not limited to the federal government. Also in April, Missouri’s Attorney General (“AG”) Eric Schmitt, sued PRC’s government, the CCP and named government officials and institutes in Federal Court, claiming their intentional dissemination of misinformation regarding COVID-19 led to the global pandemic and loss of hundreds of Missouri lives and billions of dollars to the state.
AG Schmitt cited various news stories from multiple sources, including the New York Times and CNN and alleges a widespread and intentional cover-up and campaign of misinformation by the PRC and CCP and its officials during the critical first few weeks and months after the discovery of the virus in Wuhan. AG Schmitt stated that this cover-up led to the unnecessary spread of the virus, and that the PRC/CCP and officials were bound by certain international laws to accurately report the threat the virus posed to the world community but failed to do so. AG Schmitt alleges that the result of these intentional failures to effectively communicate the nature and risk of the virus was a violation of various Missouri laws, including creating a public nuisance and breach of duty, which has resulted in over 6,000 confirmed COVID-19 cases in his state and over 180 deaths.
The AG’s complaint includes a timeline using various media outlets as sources to claim that the PRC, CCP and officials knew or had evidence suggesting there was a new lethal coronavirus rapidly spreading in Wuhan through human-to-human contact in December and January but nevertheless repeatedly publicly denied this fact until at the earliest January 20th, 2020. The AG’s complaint includes the PRC/CCP run bio-weapons laboratory, the Wuhan Institute of Virology (“Wuhan Lab”) as a defendant. The Wuhan Lab is located only 20 miles from the Wuhan city center and the complaint also alleges that the bio-weapons may in fact be the source of the virus.
Julian Ki, a professor at the Maurice A. Deane School of Law at Hofstra University, recently tweeted that there are “[L]ots of jurisdictional obstacles facing this lawsuit; the main one being that the Chinese govt is generally immune under US law from lawsuits in US courts. But the Missouri AG has tried some interesting attempts here to get around this law.” To this end, AG Schmitt has sued the CCP itself, which may not be entitled to immunity since it is technically not part of the PRC state.
- Non-Governmental Litigation has also Commenced to Hold PRC and CCP Liable
AG Schmitt’s lawsuit is not the first to take aim at the PRC, CCP and it officials for their act and omissions regarding COVID-19. Several other lawsuits have been filed against the PRC and other entities and officials recently regarding COVID-19. Each action claims the PRC is liable for injuries and damages in the U.S. caused by the virus. It is a likelihood that additional lawsuits will follow.
The first three referenced complaints cite a series of instances where the PRC and its CCP and government officials failed to timely report the virus, intentionally under-reported the severity of the virus and relate deaths, failing to effectively contain the outbreak within the country, destroyed data regarding the virus, misled the World Health Organization (“WHO”), about the virus, censored social media references to the disease, prevented doctors and the press from reporting about the virus, and made misleading and false public statements about the status and severity of the outbreak in China. The complaints further aver that the PRC admitted that several of its actions were wrong or misleading. The complaint also allege that the Wuhan Lab sold lab animals to the market after experimenting with them, instead of cremating the infected animals, as required by law.
It should be noted that the “Foreign Sovereign Immunities Act” (“FISA”), provides for immunity to foreign countries, including their agencies and instrumentalities, from suit in the U.S., but does include some exceptions. The complaints allege that two exceptions apply: 1.) Defendants’ misconduct relates to a commercial activity that caused a direct effect in the U.S., and; (2) Defendants’ officials or employees committed non-discretionary tortious acts while acting within the scope of his or her office or employment. Neither exception is easily established. But should any exception apply, personal and subject matter jurisdiction will be automatically conferred on the courts.
In order to establish one or both of the exceptions, expert testimony and modeling of the spread of the disease, and further research into its history and its origins will be required, which means that more and more information, despite the best efforts of the PRC, the CCP and its officials, will come to light. What that information eventually confirms is a substantial unknown as, discussed herein vis-à-vis Force Majeure provisions.
The Cardiff Prestige complaint (see footnote No. 7.4) involves two California real estate companies and some small businesses which have filed a proposed federal class action against China on behalf of all American small businesses seeking at least $8 trillion in compensatory damages plus punitive damages for what they allege to be the PRC’s culpability in the COVID-19 pandemic, including as defendants, the PRC National Health Commission and the government of the city of Wuhan.
The plaintiffs claim, on behalf of the estimated 32 million small businesses in the United States, that the PRC engaged in a misinformation campaign during the early stages of the COVID-19 outbreak, and also suggested that a Wuhan [bio-weapons] Lab could be the source of the virus.
Plaintiffs allege that the PRC’s “[F]ailure to be transparent with the public, and failure to confront the COVID-19 crisis by ordering a quarantine for almost two months, was central to a pandemic occurring because the infection spread in an exponential manner[.]” The complaint continues in stating that “According to scientists almost 99% of the world’s infections could have been avoided if the defendants had acted properly in early December, 2019.” (emphasis added).
As with AG Schmitt’s Federal complaint, the Cardiff Prestige lawsuit sets forth a detailed timeline, listing what it claims were key missteps or misstatements by one or more of the defendants the time the virus first appeared in Wuhan patients in or around November, 2019 and March 22, 2020, when the PRC and other defendants declared the virus was under control despite evidence the illness was still widespread across China.
The Cardiff Prestige lawsuit includes counts of negligence, public nuisance and strict liability for conducting ultra-hazardous activity and as with other lawsuits noted herein, the last count alleges that the Wuhan Lab may be the genesis of COVID-19.
Can Gross Negligence Possibly Satisfy the Definitional Requirements of Act of War?
The DHS Intelligence Report along with multiple related allegations against the PRC and sister defendants in lawsuits paint at best – acts and omissions which amount to gross negligence. In light of the loss of life and global economic disaster this pandemic has wrought, how far-fetched and beyond the pale would it be to argue that this level of gross negligence, in and of itself, constitutes an “Act of War” under a contract’s Force Majeure provision.
Traditional Instances of Acts of War or Acts of Aggression in the 21st Century
Traditionally, an Act of War or Act of Aggression was self-evident, often immediately recognizable. Such immediate examples which come to mind are the attack on Pearl Harbor or the terrorist attacks of September 11th, 2001. As this article is being written, in May, 2020, other potentially defined Acts of War or Acts of Aggression significant enough to trigger a Force Majeure Clause – if sufficiently clearly drafted, could be the PRC’s aggressive moves – if not outright coup d’etat in Hong Kong – or its acts of aggression on the Indian border – in which troops of the Peoples Liberation Army (“PLA”), clashed with Indian soldiers near the Pangong Tso lake in Ladakh on May 5th, this year. [https://foreignpolicy.com/2020/05/23/india-china-border-skirmishes]
Although not as immediate as the above-referenced examples, should, as reported by the DHS and pled in these lawsuits, facts become established of intentional acts and omissions by the defendants which created, loosed the virus or furthered the spread of the virus and/or limited/prevented other nations from more timely responding in December, such intentional acts and omissions may very well satisfy in any number of contracts’ “Act of War” definition in the Force Majeure provision.
How May Government Actions and US Litigation Affect a Force Majeure Provision?
With the announced intentions of the US Federal government, at least the state of Missouri and the current and future plaintiffs to aggressively research and investigate not only the origins of the virus but the acts and omissions of these defendants, such conclusions are far from being realized.
As such, a review of your company’s commercial contracts’ Force Majeure provisions is advisable now. Typically, events which will facilitate the implementation of Force Majeure are immediately self-evident. In this instance however, facts which may support the invoking of an Act of War claim are slowly but inevitable evolving. The knowledge learned over the coming months (and even years), may at some point, eventually trigger a party to seek to invoke its Force Majeure provision at a date far later than would traditionally be contemplate. The possibility of invoking a contract’s Force Majeure provision at a later date (if not effectively invokable presently) is at least a negotiating card when looking to restructure current contracts with one or more contracting party(ies) who are threatening litigation (or arbitration) to claim breach of contract.
It is also important to note that some Force Majeure provisions include a “Notice Deadline” which requires the “Invoking Party” to notify the other party(ies) (“Non-Invoking Parties”) within a specific time period. This standard requirement becomes far more problematic than anticipated as what is presently a set of facts which may not come close to satisfying the Act of War provision, may at some point subsequently, become established facts upon which such an assertion may be made.
Of course the Non-Invoking Parties will argue a failure by the Invoking Party to have satisfied any Notice Deadline, so it may be critical to closely follow not only the media, but the information obtained by the US government and the plaintiffs in litigation which may establish culpability sufficient to argue the PRC and its other entities and official’s acts and omissions did in the end constitute an Act of War.
. The Force Majeure concept, often referred to “Act of God” provision, confirms the parties’ agreement by identification (to some degree) of specific types of events (usually both natural and man made), all outside and beyond the parties’ respective control, that if occurred could result in one or more of the obligations under the contract being suspended (partially or in full). Typically such events include natural disasters such as tsunamis, earthquakes or tornadoes, but also typically include man-made actions such as “act of war”. The suspension of the obligations of a contracting party, may be for a period of time (before the party is again obligated under the terms of the contract), or may become a complete waiver, resulting in the permanent release from the obligations of the contract.
. As of April 2020, the global death toll from the virus has exceeded 130,000 cases, and the U.S. death toll has climbed to more than 35,000, according to the University of Virginia’s database.
. Included in the timeline is the allegation that Wuhan police detained eight doctors in early January who had been publicly discussing the virus, condemning them for making false statements. One of them, Dr. Li Wenliang, was forced to confess to a misdemeanor, prepare a self-criticism and agree not to commit any additional “unlawful acts,” according to Schmitt. It is reported that Wenliang died shortly, allegedly from COVID-19. AG Schmitt stated that “An appalling campaign of deceit, concealment, misfeasance, and inaction by [the PRC, CCP and officials] unleashed this pandemic”.
. The following lists and brief summarizes the noted non-governmental lawsuits:
- Logan Alters et al. v. People’s Republic of China et al., (U.S. District Court for the Southern District of Florida, in Miami). The lawsuit asserts claims for negligence, negligent and intentional infliction of emotional distress, strict liability for ultra-hazardous activity, and public nuisance against the PRC and its National Health Commission, Ministry of Emergency Management, and Ministry of Civil Affairs, as well as the People’s Governments of Hubei Province and Wuhan City, where the virus allegedly originated.
- Bella Vista LLC et al. v. People’s Republic of China et al., (U.S. District Court for the District of Nevada, in Las Vegas). This lawsuit is essentially a pared-down version of Logan, asserting claims for negligence, strict liability for ultra-hazardous activity and public nuisance against the same defendants. The plaintiffs seek to certify national and Nevada classes consisting of all small businesses that suffered injury, damage and loss related to the COVID-19 outbreak.
- Borque CPAs and Advisors Inc. et al. v. People’s Republic of China et al., (U.S. District Court for the Central District of California, in Los Angeles). This lawsuit repeats the claims set forth in Logan and adds two additional defendants: the Wuhan Lab and the People’s Liberation Army. The plaintiffs in Borque also seek to certify a nationwide and California class consisting of all small businesses that suffered financial loss due to COVID-19. All three suits allege the PRC coordinated a cover-up of the coronavirus pandemic in China generally, and in Hubei Province and the city of Wuhan in particular, causing the virus to spread around the world, including to the U.S. See also https://www.law360.com/articles/1261936?scroll=1&related=1?copied=1;
- Cardiff Prestige Property Inc. et al. v. People’s Republic of China et al. (U.S. District Court for the Central District of California). See also https://www.law360.com/articles/1262084?scroll=1&related=1 ;
. See Republic of Argentina v. Weltover Inc.
. The sources of the information in this lawsuit are often not included but, as with other lawsuits, appear to have been amassed my multiple media reports.
In light of the COVID-19 Pandemic, Braumiller Law Group, for a limited time, is offering “Flat Fee Counsel” regarding the review of potential rights and interests relative to a Force Majeure (“Act of God”) section, clause or terms which may be included in one or more of your company’s commercial contracts, invoices, purchase orders or insurance policies.
Please contact S. George Alfonso, Of Counsel to discuss further how you and your company can take advantage of this unique offer to review these terms to determine if additional rights are now available, for a Flat Fee. He can be reached at SGeorge@braumilllerlaw.com or by phone at (214) 878-2390.