Event Cancellation Due to COVID-19July 2, 2020 – Article
As the consumer, this was your year of fun. You saved and planned and finally scored tickets to the elusive event a year in advance. The event has been sold out for just as long and some people were selling their tickets to the sold-out event for some significant profit.
As the event organizer, this was another banner year for yet another legendary show, not to mention profits and future goodwill. You immediately put to use the revenue from ticket sales towards necessary, albeit non-refundable, deposits related to the show. Then, out of nowhere, COVID-19 happened. One by one, states declared states of emergency, causing the country to come to an eventual standstill. Everything is now canceled or postponed, including that “event of the year,” for both consumers and organizers. So, now what?
Consumers made their first move with class action lawsuits cropping up across the country to secure not only refunds but attorneys’ fees and punitive damages. Organizers are now racing to determine whether they can salvage their event by postponing it, what their refund policies are, whether they have the funds available to issue refunds, and whether to issue refunds (as opposed to issuing a credit for a future event).
In this article, we explore the arguments made by consumers, actions taken by organizers, and what that may all mean. One thing that we know for certain is that this is unprecedented and the courts will likely be sorting this out for quite some time.
CANCELLATION, POSTPONEMENT, AND REFUNDS
To prevent the spread of COVID-19, most, if not all, concerts, festivals, and other events were canceled, rescheduled, or postponed indefinitely. There was no way to anticipate or plan for this kind of worldwide crisis. Many of these festivals were set to happen “rain or shine,” so there was no contingency plan for postponements, let alone cancellations, in the face of a global pandemic. There was also no guidance - legal, historical, or otherwise - to aide organizers in determining how to respond or consumers in determining what to expect. The result is an ongoing struggle of trial and error with different organizers and events taking different approaches.
For example, Coachella Valley Music and Arts Festival was moved from April 10-12 and April 17-19 to October 9-11 and October 16-18, respectively. Thereafter, the October 2020 dates were cancelled. As offered with the first postponement, consumers have the option for a full refund, or they can transfer their passes to the 2021 event.
Similarly, Stagecoach Country Music Festival was rescheduled from April to October and then was subsequently cancelled. Like Coachella, pass holders have the option of either using their 2020 passes in 2021 or requesting a refund.
On the other hand, the film, music, and tech festival, South by Southwest (“SXSW”), which was scheduled to run from March 13 to March 22 in Austin, TX, was outright canceled. SXSW did not offer refunds; instead, ticket purchasers can apply their 2020 festival credentials to gain admission into a future SXSW event. Similarly, the Life is Beautiful event is also cancelled for 2020 and will resume in 2021 without any mention of refund of the 2020 event or credits for the 2021 event.
Meanwhile, the organizer for Lightning in a Bottle Art & Music Festival originally canceled the event with no refund available to ticket purchasers. Thereafter, the organizer offered ticket purchasers three options: (1) forego a 2020 ticket refund and donate the cost as a gift; (2) transfer the 2020 ticket to a 2021 or 2022 ticket; or (3) sign up to join a “refund pool,” with the hope that full refunds or at least partial refunds can be provided based on the number of people utilizing the first option.
This is uncharted territory for consumers, organizers, and vendors alike. The varying approaches as it relates to the availability of refunds to consumers appear to stem from how pre-paid ticket revenue is used by the organizer for an event. Typically, these funds are immediately used to cover event location, equipment, and personnel. The organizer’s ability, perhaps, to secure their own refunds in turn impacts whether they can offer refunds (e.g., Coachella Valley Music and Arts Festival, Stagecoach Country Music Festival) or credit to a future event (e.g., SXSW, Life is Beautiful, Lightning in a Bottle). The latter organizers will likely become the target for consumer plaintiff attorneys.
COVID-19 PANDEMIC A VALID DEFENSE?
Consumer plaintiff attorneys began targeting organizers who have not provided refunds to their ticket purchasers for canceled or postponed events. For example, two lawsuits were filed against the organizer of Lightning in a Bottle in the U.S. District Court for the Central District of California, claiming that the organizer has not refunded any consumers despite canceling its festival. The organizer for SXSW faces a similar lawsuit filed in the U.S. District Court for the Western District of Texas Austin Division.
Although organizers will refer to various provisions in the ticketing documents (e.g., class action waivers or arbitration agreements), such provisions will unlikely yield much success, and the cases will likely proceed. The strongest defense then relies on force majeure provisions, which under California law is a “contractual provision allocating the risk of loss if performance becomes impossible or impracticable, esp[ecially] as a result of an event or effect that the parties could not have anticipated or controlled.” Stated another way, the principle of force majeure includes events “which human vigilance and industry can neither foresee nor prevent.” Force majeure is not necessarily limited to the equivalent of an act of God. Rather, the test is “whether under the particular circumstances there was such an insuperable interference occurring without the party’s intervention as could not have been prevented by the exercise of prudence, diligence and care.” Such an event must also be the proximate cause of non-performance.
Dealing with a global shutdown in the modern world will truly be a matter of first impression. While we may be familiar with recent epidemics like Zika, H1N1, Ebola, and SARS, none resulted in society coming to a complete standstill and cancellation of events at levels currently seen. How will courts apply the principle of force majeure in this context? The courts have, in the past, excused cancellation of a performance in a national park as a result of a power outage that endangered the lives of 6,500 ticket holders. The court recognized that the impracticability defense could be invoked because the unexpected power outage could have threatened public safety. The courts have also found that a party can be excused if there exists “extreme and unreasonable difficulty, expense, injury, or loss involved.” Thus, the inquiry moving forward will be whether COVID-19 threatens the health and safety of participants or causes extreme and unreasonable expense, which will of course be driven by the specific facts of each case and our ultimate understanding of COVID-19, the medical aspect of which is still very much in its infancy.
Another consideration is how public policy can shape these arguments. The above examples involved one-off type events. What happens when the decision impacts many events spanning the course of a year (or more) and hundreds of thousands of consumers? While the world is in agreement that the COVID-19 pandemic is a force of nature that no one could have foreseen, how will courts balance the public interests? Who is in the better position to bear the costs when there is no fault? While in a different context, it is worth reminding that Justice Traynor pointed out in a consenting opinion applying the doctrine of res ipsa loquitur that the cost of injury is more appropriately borne by the manufacturer who can in turn distribute the cost to the public as a cost of doing business, even when the manufacturer is not negligent. Will the same public policy be applied here?
As a result of COVID-19, organizers will undoubtedly begin looking into pandemic insurance, re-evaluating how they use their pre-paid ticket revenue, and strengthening the provisions contained on their ticketing documents with consumers. In the meantime, we are left with numerous questions:
- Will force majeure be a valid defense excusing repayment obligations because vendors have spent the advanced revenue from ticket sales?
- Will consumers be forced to accept credits for future events or nothing at all?
- Will organizers ultimately file for bankruptcy leaving consumers without a refund or future credit?
It is also unclear whether the legislature will get involved at some point to protect event organizers from declaring bankruptcy as a result of these class action lawsuits and/or protect the consumers during this pandemic/financial crisis. What we do know for sure is that courts will be untangling COVID-19 related cancellations for years to come.
Authors: Macy M. Chan (Deputy Partner-in-Charge, Los Angeles), Fred B. Lee (Associate, Los Angeles) Editor: S. Christopher Collier (Senior Partner, Atlanta)
Hawkins Parnell & Young's national litigation team is helping businesses across the United States navigate unprecedented legal challenges arising from the COVID-19 pandemic. Visit our COVID-19 Resource Center for the latest insights and guidance.
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