Virtual Symposium Part VI: Jennifer Martin on UCC Problems, Part II

Non-performance Related to the COVID-19 Crisis Under UCC Article 2: Impracticability and a Role for Injunctions? Part II
Jennifer S. Martin

In Part I, I discussed the lessons from the Steves and Sons, Inc. v. Jeld-Wen, Inc., 2020 WL 1844791 (E.D. Va. Apr. 10, 2020) case and how it might be instructive to others asserting breach related to COVID-19, particularly where an injunction is desired. Here, I would like to highlight another case involving injunctions and a transaction for aircraft affected by COVID-19.

The case of Volga Dnepr UK Ltd. v. Boeing Company, 2020 WL 2850572 (W.D. Wash. June 2, 2020) presents another approach to a request by a buyer for an injunction, but in the context of a repudiation by the buyer. The buyer, Volga Dnepr UK Ltd. (Vulga), a cargo transport operation, contracted with the seller, Boeing Company (Boeing), for the purchase of five aircraft in 2006, with delivery of the aircraft occurring over multiple years, with the parties amending the contract multiple times. Volga initially notified Boeing that it would not be able to take the promised aircraft. Then in March 2020, Boeing notified Volga that it was suspending its own operations due to COVID-19. When global freight demands then increased on account of the pandemic, Volga requested the aircraft as promised and to retract its repudiation. Volga brought suit May 2020 and requested a temporary restraining order (TRO) to prevent Boeing from selling the aircraft at issue and requesting specific performance.

While Steves and Sons turned on both impracticability and a preliminary injunction, the Volga Dnepr UK decision takes up only the TRO. In sharp contrast to the buyer in Steves and Sons, the court concluded that Volga had not demonstrated a likelihood of success on the merits of its case where the facts indicated that it repudiated at least part of the contract (see §2-610). The court noted that while intention to repudiate must be unequivocal, Volga had written to Boeing “In this regard we hereby inform you of the impossibility to fulfill our obligations under the Purchase Agreement.” Even if there was doubt to that statement’s intention, Boeing clearly considered it a repudiation and told Volga as much and requested retraction. Yet, rather than retract at that point, Volga reaffirmed its position. Moreover, the court found that a party has a “limited window to retract their repudiation” or the retraction may be too late. The court, after rejecting other arguments made by Volga, found that the window for retraction closed when Volga failed to make required payments under the contract.

With this in mind, the court considered Volga’s argument that is would lose an important opportunity during an “international health crisis wherein [Volga] needs additional aircraft to fulfill customers’ air freight delivery needs.” Despite the potential truth to Volga’s assertion, the court was unwilling to use a TRO to assist a party that had repudiated of “its own accord” and “inflicted harm upon themselves.” As such, the balance of equities did not favor Volga and could actually damage Boeing’s “goodwill and reputation with other customers and reasonably impair its ability to market aircraft in the future.” Lastly, the court concluded that despite rising needs for freight worldwide due to COVID-19, there was no indication that the public was better served by Volga having the aircraft, as opposed to other buyers, or that granting Volga the relief it sought would have any impact in the “public’s ability to battle COVID-19.” As such the court denied the TRO.

The biggest takeaway from Volga Dnepr UK Ltd. v. Boeing Company would surely be that courts will not employ their power in equity to aid a perceived wrongdoer, even in a pandemic. The commercial nature of purchases still prevails in a world with COVID-19, such that contracting parties who do not help themselves will not find a receptive court. Moreover, COVID-19 affects many participants in a commercial marketplace. A contracting party that wants to assert that it is a more favored beneficiary of receiving goods should be able to prove it, or, as in the case of Steves and Sons, not be a breaching party. Both cases also demonstrate that while courts will entertain arguments regarding the impact of COVID-19 on performance of contracts, commercial parties are still expected to perform the deals they have made. A contracting party desiring to argue that it has been affected by COVID-19 or that it should be otherwise favored in litigation as a result of the pandemic better provide proof of such.