Financial Difficulties Due to COVID-19 Pandemic No Excuse for Failure to Pay Pursuant to Settlement Agreement

On June 9, 2020, Justice Schecter of the New York County Commercial Division issued a decision in Maesa LLC v. TPR Holdings LLC, 2020 NY Slip Op 34523, holding that the COVID-19 pandemic did not excuse a party’s performance under a settlement agreement, explaining:

There is no question of fact that defendant breached the settlement agreement (Dkt. 26) and owes plaintiff $2,435,699 plus pre-judgment interest from September 1, 2019. The only reason why this motion was necessitated was because the settlement agreement did not constitute an agreement for the payment of money only, and not because defendant has a meritorious defense (see Dkt. 22). The court did not overlook anything on the prior motion or set an unreasonable briefing schedule given the simplicity of the issues (see CPLR 2214[b]).

The pandemic does not excuse defendant's performance based on the doctrines of impossibility and frustration of purpose (see Lantino v. Clay LLC, 2020 WL 2239957, at *3 [SDNY May 8, 2020] ["financial difficulties arising out of the COVID-19 pandemic" does not excuse performance under pre-COVID settlement agreement], citing Kel Kim Corp. v. Cent. Markets, Inc., 70 NY2d 900, 902 [1987]; see also Butler v. Suria, 2020 WL 5105160, at *2 [SDNY Aug. 31, 2020] [same]). Indeed, defendant defaulted on its payment obligations before either party was obligated to produce and deliver additional goods (see 407 E. 61st Garage, Inc. v. Savoy Fifth Ave. Corp., 23 NY2d 275, 281 [1968] ["where impossibility or difficulty of performance is occasioned only by financial difficulty or economic hardship ... performance of a contract is not excused"], accord Urban Archaeology Ltd. v. 207 E. 57th St. LLC, 68 AD3d 562 [1st Dept 2009]). In any event, defendant submits no evidence or explanation of how performance was impossible by the June 15, 2020 cure date (see Dkt. 29 at 4), rather than being difficult due to the pandemic (see Warner v. Kaplan, 71 AD3d 1, 5 [1st Dept 2009] ["where performance is possible, albeit unprofitable, the legal excuse of impossibility is not available"]).

The attorneys at Schlam Stone & Dolan frequently litigate disputes related to the impact of the COVID-19 pandemic on litigants.

Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding whether theh COVID-19 pandemic impacts a party's legal rights.