Category: reason

Richard Dodge & Shauna Guner of the Dentons law firm had a very interesting short piece on this, which they kindly agreed to let me repost:

As the coronavirus continues to spread in the United States, we’re beginning to witness the commercial effects, such as supply chain disruptions and cancellation of conferences and travel for business meetings. We’ve been counseling a number of clients who have been faced with these situations, and the question is always the same: Does the coronavirus excuse non-performance under the relevant agreement by either contracting party?

The short answer is that it depends on the specific terms of the agreement and the relevant facts. The first step is to review the terms of the relevant agreement. Does it contain a force majeure clause? This is a clause that excuses non-performance typically where circumstances make performance impossible. The clause could operate to allow the parties to suspend performance or terminate the agreement. The clause may also state a trigger, such as if a certain percentage of attendees are unable to travel to an event, or a government edict or natural disaster makes performance impossible.

Courts construe force majeure clauses narrowly. Under New York law, the party seeking to have its performance excused by force majeure must demonstrate the existence of a force majeure event and that it engaged in efforts to fulfill its contractual obligation but was unable to do so. Ordinarily, the force majeure clause must include the specific event that is claimed to have prevented performance. If the clause also includes a “catchall,” courts generally confine it to mean only things of the same kind or nature as the particular matters listed in the agreement. In addition, force majeure clauses apply only to events that neither party could reasonably foresee or guard against in the agreement.

If your agreement does not contain a force majeure clause, or the clause is too one-sided, or for some other reason is not triggered by the coronavirus, that should not end the analysis. The law provides additional defenses to non-performance, namely frustration of purpose and impossibility of performance, that may be available.

Again, using New York law as a reference point, the defense of frustration of purpose is available when a change in circumstances makes one party’s performance virtually worthless to the other, frustrating her purpose in making the contract. For frustration of purpose to excuse performance, the frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense. Courts limit the doctrine to instances where a cataclysmic and unforeseeable event renders the contract valueless to one party. The doctrine would not apply where performing under a contract would merely cause some degree of financial hardship.

Additionally, the law typically recognizes the defense of impossibility of performance. Under New York law, it applies where the destruction of the subject matter of the contract or the means of performance renders a party’s execution of its obligations objectively impossible. The impossibility must have resulted from an unanticipated, unforeseen event that the parties could not have guarded against in the contract.

We also note that the Uniform Commercial Code contains a provision that could come into play for contracts of sale that are disrupted by the coronavirus. Section 2-615(a) of the N.Y. U.C.C. provides that “[d]elay in delivery or non-delivery . . . is not a breach under a contract for sale if performance as agreed has been made impracticable by the occurrence of a contingency the non-occurrence of which was a basic assumption on which the contract was made or by compliance in good faith with any applicable foreign or domestic governmental regulation or order whether or not it later proves to be invalid.”

Finally, you should consider whether commercial insurance your company may have in place could apply and then provide timely notice thereunder.

Invoking the force majeure clause or the defenses of frustration or impossibility is risky at any time, but even more so when much remains unknown about the coronavirus and most domestic travel hasn’t yet been prohibited. We recommend that you seek legal advice, as improperly invoking the force majeure clause or another defense to non-performance could itself amount to a breach of contract, potentially entitling the other party to damages or the right to terminate the contact. Moreover, some contracts require that the party claiming force majeure give timely notice of the occurrence in order to invoke it as a defense to performance.

They will also have a webinar Friday on this subject, and have material posted here (going well beyond just U.S. law). I’ve also set up a tag on Coronavirus Contract Law and added it to some earlier posts, so you can click here to see what we have on the subject.

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For some reason, socialists have decided that now would be a good time gloat about empty supermarket shelves in capitalist countries. I had not realized that pointing out that life in emergency conditions in liberal capitalist democracies can look somewhat like life in ordinary conditions in an alternative political-economic regime could be used as a knock on capitalism, but there it is. Happily, the empty shelves in the United States will be restocked (and, indeed, my local grocer was restocking most goods as rapidly as the shelves were emptying).

Others have suggested more broadly that “there are no libertarians in an epidemic.” It seems particularly weird to hold up the actions of the Trump administration as evidence of that, though perhaps it is in keeping with the odd fantasy that libertarians have been running the world for the past several decades. Whatever the Trump administration has been doing since 2017, it cannot generally be characterized as libertarian.

But laying aside the particulars of the current administration, can one be a libertarian in a pandemic? It is worth breaking the question down a bit.

One might ask whether there are any libertarian-friendly public policy proposals that are particularly useful in a pandemic. The answer is yes. Of course, a libertarian would say that. There is a long-running theme in politics of advocates urging “now more than ever” their long-held policy preferences should be implemented to address whatever the situation du jour might be. Even so, some libertarian policy proposals have particular relevance in the current situation. As some have pointed out, some libertarian initiatives would be helpful here. Some government constraints have proven counterproductive to the effort to combat COVID-19, and some loosening of regulatory constraints might facilitate private and state and local efforts to respond to the current situation. Even if some of those regulations make sense in more normal circumstances, they might be excessively burdensome now.

A traditional libertarian skepticism of big government solutions to social problems is still warranted. There is a tendency in any crisis for the crowd to yell “do something,” and for politicians to respond with “here’s something,” even if the something in question is wasteful, useless or even damaging. Libertarian skepticism about the purpose and design of immediate policy measures can be helpful in separating the wheat from the chaff in addressing even an emergency situation. The normal logic of political rent-seeking and incompetence does not magically disappear in a crisis, though we might have to be more tolerant of such political failings in order to deal with a fast-moving situation.

Libertarians have been particularly sensitive to the fact that crises have often proven to be moments that shift power and resources to the government that far outlive the crisis. In the midst of World War I, Randolph Bourne (no libertarian) observed that “war is the health of the state.” Emergency conditions like pandemics can do the same. The machinery of government can be vastly expanded and strengthened during these periods to the detriment of liberty and civil society in the future. We should be cautious about putting in place anything other than temporary measures for addressing the current crisis. If there are long-term reforms that need to be considered in the aftermath so as to better prepare for future epidemics, there will be time to carefully consider them later.

Libertarians should recognize that classical liberal principles rest on certain assumptions. Libertarians are not (generally) anarchists. They recognize that there is a need for the state to secure rights and address the wrongs that individuals can inflict on others. Where the government is needed to adequately secure rights and prevent harms, it should be competent and empowered to perform the task with which it has been entrusted. No one is well served by having a hulking but ineffectual state or an interventionist but incompetent government. Moreover, the control of the spread of infectious diseases is one of the classic things that we expect the state to do. It is in our long-term collective interest to accept restrictions on individual liberty that are necessary to contain the spread of a deadly disease and remedy its ill effects. Some limits on individual freedom are both necessary and proper in these circumstances that would emphatically not be necessary nor proper in more normal circumstances.

It is useful and necessary to question government action. There are bound to be reasonable disagreements on the best government action to take in particular circumstances. Some mistakes will be made along the way, and we should insist that those mistakes be identified and corrected whenever possible. But it neither a knock against libertarianism nor a sacrifice of libertarian principles to accept the fact that sometimes government action is needed, and a pandemic is one of times.

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The U.S. Centers for Disease Control and Prevention (CDC), an agency that is currently focusing on the core mission reflected in its name, until recently was darkly warning us about a very different kind of “epidemic“: an increase in e-cigarette use by teenagers, coupled with an outbreak of vaping-related lung injuries. The first concern did not involve any sort of disease; the latter did, but unlike COVID-19, the condition that the CDC dubbed “e-cigarette, or vaping, product use-associated lung injury” (EVALI) was not a contagious illness caused by a micoorganism. And contrary to the CDC’s misleading nomenclature and dangerously misguided initial advice, the two developments appear to be completely unrelated.

The CDC’s switch from vaping to COVID-19 highlights the moral and practical differences between actual epidemics and metaphorical epidemics of risky behavior, both of which fall under the all-encompassing umbrella of “public health.” Even within that framework, which is built around minimizing morbidity and mortality, the CDC’s conflation of EVALI with vaping in general was counterproductive, impeding the harm-reducing shift from conventional cigarettes to nicotine delivery systems that are far less dangerous. By fostering confusion about the relative hazards of smoking and vaping, the CDC damaged its credibility on the eve of a public health crisis in which policy makers and the rest of us are expected to rely on its expertise.

Vaping is something people choose to do. In that respect it resembles many other phenomena that activists, politicians, bureaucrats, and academics have described as epidemics or public health problems, including smoking, overeating, using illegal drugs, riding a motorcycle or bicycle without a helmet, gambling, playing violent video games, and watching violent movies or pornography. COVID-19, by contrast, is something that happens to people. They do not consciously choose to be infected, although they can do things that increase or decrease that risk.

While there is plenty of room for debate about the legality, propriety, and effectiveness of specific policies aimed at curtailing the spread of COVID-19, there is a stronger argument for coercive measures when we are confronted by a potentially deadly disease that moves from person to person. That argument is much less compelling when we are talking about self-regarding actions that may lead to disease or injury but do not inherently endanger other people.

The habit of describing nearly anything that large numbers of people do as an epidemic, depending on whether it might compromise their health or whether others view it as pernicious, elides this crucial distinction. If protecting public health is presumed to be a legitimate function of government, an open-ended definition of that term is a prescription for constant political meddling in personal choices through taxes, regulations, and prohibitions as well as state-sponsored propaganda. Likening choices to contagious diseases invites the government to act as if those choices, and the personal tastes and preferences underlying them, morally matter as much as a virus’s evolutionary imperative to survive and reproduce by infecting human hosts.

Once a particular pattern of behavior has been defined as an epidemic, that framing can lead to policies that make no sense even if you accept the collectivist calculus at the heart of the “public health” mission. That is what happened with drug prohibition, which is ostensibly aimed at reducing the harm associated with drug use but in practice increases the hazards faced by people who defy it, exposing them not only to the risk of arrest but also to black-market violence, potentially deadly variability in quality and potency, and communicable diseases fostered by a legal environment in which sanitary injection equipment is hard to obtain and risky to possess.

That is also what happened with vaping, which the CDC was predisposed to view as problematic, a prejudice that colored its depiction of EVALI. Even though it was clear early on that vaping-related lung injuries overwhelmingly involved black-market cannabis products, the CDC repeatedly intimated that legal, nicotine-delivering e-cigarettes might kill you. That message endangered public health by implying that people—teenagers as well as adults—would be better off smoking, which is demonstrably not true.

Only belatedly did the CDC recalibrate its guidance to focus on the potential hazards of “THC-containing e-cigarette, or vaping, products, particularly from informal sources like friends, family, or in-person or online dealers.” It also foregrounded a warning that “adults using nicotine-containing e-cigarette, or vaping, products as an alternative to cigarettes should not go back to smoking”—advice that surely is equally sound for teenagers who are vaping rather than smoking.

We have to hope that the CDC’s COVID-19 recommendations are more scientifically grounded than its initial scaremongering about e-cigarettes. I assume they are. But when public health agencies stray beyond their central mission and allow moral panics to affect their advice, they undermine the public trust that is vital at a time like this.

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To ease the economic pain of the coming coronavirus-induced economic contraction, a growing and eclectic group of politicians are floating the idea of an emergency universal basic income (UBI), arguing that it’s the fastest, easiest way to get people immediate relief.

On Friday, gadfly anti-war presidential candidate Rep. Tulsi Gabbard (D–Hawaii) introduced a resolution in the House of Representatives calling for every American to receive $1,000 a month indefinitely until the current pandemic has passed.

“Too much attention has been focused here in Washington on bailing out Wall Street banks and corporate industries, as people are making the same old tired argument of how trickle-down economics will eventually help the American people,” Gabbard said in a video announcing her proposal. “Now is the time for action, to provide direct assistance and emergency relief to every single American through a universal basic payment of $1,000 a month to every American during this crisis.”

Today, Sen. Mitt Romney (R–Utah) endorsed the similar if less open-ended idea of sending Americans a one-time check of $1,000.

Romney had already signed onto bipartisan legislation Thursday that would expand disaster unemployment benefits for those who have lost income because of coronavirus, including the self-employed and individual contractors. But targeted relief programs would still be difficult for many to navigate, said Romney today, arguing that direct, universal infusion of cash would be the best way to get people immediate aid.

“While expansions of paid leave, unemployment insurance, and SNAP benefits are crucial, the check will help fill the gaps for Americans that may not quickly navigate different government options,” reads a press release from Romney’s office.

Among @MittRomney‘s Coronavirus response proposals: “immediately send $1,000 checks to each American” adult pic.twitter.com/ZvITKmdQfs

— Phil Mattingly (@Phil_Mattingly) March 16, 2020

The senator is also calling for emergency grants to small businesses, an expansion of Pell grants for some students, deferrals of loan payments for others, and a requirement that insurance companies cover telemedicine costs.

The House passed an emergency economic relief package on Saturday. The Senate is currently working on its own version of that legislation.

Naturally, CNN contributor Andrew Yang, who ran a whole presidential campaign around the idea of giving every adult American a “Freedom Divided” of $1,000 a month, has been talking up the idea.

Putting money into people’s hands is the obvious thing to do in this situation. I hope Congress wakes up to this before it’s too late. Every day is enormous at this point.

— Andrew Yang???? (@AndrewYang) March 16, 2020

What exactly is the political downside of putting money into people’s hands? Get your shit together Congress and do the right thing.

— Andrew Yang???? (@AndrewYang) March 16, 2020

Seeing as the entire public health response is centered around getting people to stay at home and not go to work, cutting checks to people to do just that could seem like a good idea. It’s also true that many workers in the economy, including gig workers and the self-employed, will be ill-served by existing relief programs like unemployment insurance.

A UBI could also help forestall the need for more invasive policy interventions. If laid-off workers are getting $1,000 a month to make ends meet, ideas like eviction moratoriums, debt forgiveness, and corporate bailouts become less attractive.

It’s true that there are people suffering financially from the coronavirus who aren’t covered by standard government relief programs, says Michael Tanner, a senior fellow at the Cato Institute, who agrees that a UBI would cut through existing bureaucracies to get these people needed relief.

That said, he thinks there’s still “something of a tail wagging a dog here. The number of people who don’t require this influx of cash greatly outweighs the number of people who do.”

“People who have unemployment insurance, people who have their jobs still, salaried people who are being paid. Those people don’t need a UBI,” he tells Reason. The more money you spend on people who are still pulling paychecks or who are covered by existing programs, the less cash you have for the people who really need it, says Tanner.

And make no mistake, a UBI would be seriously expensive.

A Tax Foundation analysis of Andrew Yang’s $1,000-a-month proposal found that it would cost $2.8 trillion per year. A temporary proposal, limited to the duration of the COVID-19 pandemic, would be cheaper. But even Romney’s plan to cut a one-time $1,000 check to every adult American would cost roughly $230 billion.

There’s also a possibility that it could undermine public health as well. If people are flush with cash, they might decide to go out and spend that money when they should be at home, practicing social distance. (Granted, they could just order more deliveries too.)

We’re living in extraordinary times. Economic relief as part of a concerned public health response is not an ideal free market policy, but it’s probably necessary. But there’s a trade-off. A UBI would spend a lot of money on people who don’t require it, while leaving fewer resources for the people and programs that are being seriously impacted by the current pandemic.

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Thankfully, epidemics are no longer a routine feature of American life. The long struggle of learning how diseases worked, improving public health, and developing medical countermeasures have separated us from what was once taken to be a basic part of the human condition. Perhaps we are returning to an age in which major public health crises are not entirely unusual, but we are certainly out of practice in facing a threat like COVID-19.

Perhaps we can chalk up some of the reaction to our current situation to unfamiliarity. Despite the warning to change social norms and engage in social distancing, the president continues to gather with his task force in front of a single microphone to offer public updates on administration efforts to fight the disease and young adults continue to pack themselves into nightclubs and bars.

We are also seeing unfamiliar exertions of government power. Wall Street Journal opinion writer Matthew Hennessey tweeted,

I didn’t realize we lived in a country where a local political official could order private businesses closed.

— Matthew Hennessey (@MattHennessey) March 16, 2020

 

I regret to inform you that we have always lived in a country in which political officials can order private businesses closed.

A key constitutional foundation of the American system of federal powers is that the national government is one of enumerated powers specified in the text of the written Constitution but that state governments are ones of general jurisdiction who hold the residual of public power, lacking only the exceptions that have been specifically carved out by written constitutions. Traditionally, this doctrine was known as the “police powers,” which was conventionally understood to include the power of the state to make all necessary laws to protect the welfare, safety, morals and health of the community.

This general background of police powers underwrites myriad routine restrictions that state and local governments put on social life. It is what allows local governments to authorize health inspectors to examine the kitchens of restaurants and order them to close if they discover problems. It is what allows fire marshals to limit the number of people who can occupy a public venue. It is what allows police officers to arrest people for urinating in the street. It is what allows government officials to prevent you from just accumulating mounds of garbage in the backyard of your suburban home. It is what allows government officials to tell you that you cannot keep a Bengal tiger as a pet in your house. It is what allowed states to ban free-standing billiard halls or bowling alleys as contributing to public disorder.

Notably, American courts long insisted that the police powers limited as well as empowered government officials. Legislatures possessed a lawmaking power to act in the public interest, but that could not properly be understood to possess a lawmaking power to exercise public force to advance favored private interests. My sometimes coauthor Howard Gillman has a magnificent book outlining the rise and decline of the police powers jurisprudence that state and federal courts once used to emphasize the constraints on government power. Courts once emphasized that state legislatures could not, under the guise of the police powers, simply declare that a previously lawful business was now illegal and all of its inventory was now contraband that could be seized by the government (as states did during the first wave of alcohol prohibition in the early nineteenth century). Courts informed legislatures that they could not simply prohibit individuals from pursuing their non-noxious vocations in the private residences. While governments could, in the name of public safety, regulate whether bakeries unsanitary conditions in their work space, they could not regulate how many hours per week a baker could work.

States often enough abuse the police powers, and courts frequently do not stand in the way of such abuses. It was also the police power that underwrote Progressive eugenics measures like the forced sterilization of those deemed mentally deficient by the state and racist measures like the ban on interracial marriages. But the larger point is that American constitutional jurisprudence has long recognized a vast authority on the part of the states to regulate private social and economic activity in the name of the public welfare.

Dramatic measures to address the spread of disease has long been a part of those police powers, and we have long recognized that extraordinary circumstances could justify extraordinary state actions. When incorporating the village of Brooklyn, for example, the state legislature of New York authorized the creation of a “board of health” empowered “in the case of the prevalence of any such [pestilential or infectious] disease in any part of the village, to inclose and shut up such infected part, so as to prevent all intercourse therewith.” The state of New Hampshire authorized local “health officers” to “remove any person infected with the small pox, the malignant cholera or other malignant pestilential disease, to some suitable house, to be by them provided for that purpose . . . and make such regulations respecting such house, and for preventing unnecessary communication with such persons or their attendants, as they may think proper.” The state of Massachusetts directed town leaders “when the small pox, or any other disease dangerous to the public health, is found to exist in any town” to “use all possible care to prevent the spreading of the infection, and to give public notice of infected places to travelers, by displaying red flags at proper distances, and by all other means, which in their judgment shall be most effectual for the common safety.”

Government officials might misuse their discretion or make bad policy choices about how best to combat the spread of an infectious disease. But drastic governmental action to stop an epidemic has long been understood to be an appropriate limit on individual liberty in order to protect public safety.

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