Get Ready for a Tsunami of Pandemic Lawsuits Over Broken Deals

Donald J. Trump v. Deutsche Bank Trust
N.Y. Supreme Court Case #26841/2008

(Bloomberg Businessweek) -- ① THE ORIGIN*
An oldie but goodie: The year is 2005. A developer with a checkered past persuades Deutsche Bank AG to lend him $640 million to build a luxury hotel and condo high-rise in Chicago. To help ensure that it gets its money back, the bank insists the developer personally guarantee $40 million of the loan. The developer’s name? Donald J. Trump, of course.

② THE LAWSUIT
Trump is supposed to pay back the loan in November 2008. Some $334 million is outstanding. But the future president has no intention of repaying the money—and he uses the financial crisis as his excuse. Three days before the loan is due, in an act of Trumpian chutzpah, he sues Deutsche Bank in New York State Supreme Court for $3 billion, claiming it’s “one of the banks primarily responsible for the economic dysfunction we are currently facing.”

③ THE ARGUMENT
Trump’s lawyers unveil a second, even more novel argument: The loan should be voided because of the force majeure clause in the loan agreement. Force majeure usually means an unforeseen act of God, such as a flood or a hurricane. But Trump is claiming that the financial crisis itself is an act of God. (After all, notes one of Trump’s lawyers, didn’t former Fed Chairman Alan Greenspan call the crisis a “credit tsunami”? And isn’t a tsunami an act of God?) Meanwhile, the bank sues Trump to at least get back the $40 million he personally guaranteed. Its argument is more straightforward: Trump owes the money, and he can easily afford to pay it.

④ THE OUTCOME
Trump’s $3 billion suit gets thrown out of court, but Deutsche Bank’s countersuit lingers until 2012. He finally pays back the $40 million with some of the money he borrows (believe it or not) from Deutsche Bank to buy the Doral, a famous golf resort in Miami. But the seemingly ridiculous force majeure claim has never been ruled on. Eight years later, Trump’s empire—and many other businesses—will likely be suing over a less frivolous version of the same question: Does a pandemic count as an act of God?

Is an outbreak an act of God?

Hard to say. Ever since the 1891 Supreme Court decision Gleeson v. Virginia Midland Railway, courts typically have viewed such things as severe natural disasters as force majeure events. Pandemics are a different kind of disaster, so judges would be going against that precedent.

That didn’t take long

Have force majeure lawsuits been filed already? You bet! In Houston, Star Cinema Grill is suing Cinemex Holdings USA Inc. for reneging on a deal to purchase some Star Cinema locations. Third Wave Farms, a Kentucky cannabis company, sued to get out of a contract with a processor. Get used to it.

Nocera is a columnist for Bloomberg Opinion.

*Thanks to David Enrich, whose book Dark Towers lays out the juicy details of this lawsuit.
 

©2020 Bloomberg L.P.