On June 8, 2020, Level 10 Construction, LP (“Level 10”), a construction company hired by Sea World San Diego (“Sea World”), filed a Complaint in California federal court alleging that Sea World is withholding over $3.2 million dollars in payments from Level 10. In the Complaint, Level 10 alleged that Sea World has declined to issue payments until the Sea World park reopens. Sea World has remained closed since March 2020 due to COVID-19.
Sea World contracted with Level 10 in June 2019 to build what is believed to be the new Emperor Dive Coaster at the Sea World San Diego park. In its Complaint and a later Motion for Issuance of Writ of Attachment filed on June 25, 2020, Level 10 alleged that it completed all of its work necessary under the contract until Sea World asked Level 10 to stop its work on the project. Sea World also allegedly advised that it “would not process outstanding payments until the parks open.” Level 10 maintained that under its contract with Sea World, Level 10 would be paid for furnishing labor, materials, equipment, and services. Further, Level 10 claimed that nothing in the contract conditioned payment to Level 10 upon “Sea World San Diego’s theme park being open for business to the public.”
Based on the Complaint, there does not appear to be a dispute that Level 10 performed the work, that Sea World has withheld payments from Level 10, or that Sea World will continue to do so until its parks reopen. Indeed, in an Orlando Sentinel article from April 8, 2020, Sea World was quoted saying that it would withhold payment during its temporary shutdown due to COVID-19: “We have communicated to [our vendors, suppliers, contractors and subcontractors] that during the temporary closures . . . payments may be delayed.” Thus, the issue may ultimately come down to whether Sea World can find relief by turning to its contractual force majeure clause if one exists in the contract. Under typical force majeure clauses, the party relying on the clause may be granted schedule relief from performing under the contract if certain events render its performance untenable or impossible.
The Court may have to wrestle with several questions like whether the COVID-19 pandemic qualifies as a force majeure event, and whether Sea World may rely on its contractual force majeure clause, if applicable, to delay payments to Level 10. Whether these issues come up in the litigation, and how the court ultimately decides these issues remains to be seen. However, there is little doubt that those in the construction industry will want to keep their eyes on these developments. How the court comes down on these potential issues described above could impact not only owners, but contractors and subcontractors alike.
The information above is for informational purposes only and is not intended to serve as providing legal advice. If you have further questions or seek advice based on your specific fact situation and contractual provisions, please reach out to any members of the Troutman Pepper Construction groups. In addition, Troutman Pepper maintains a COVID-19 Dedicated Resource Center to help guide clients through the challenges presented by COVID-19.