You might be aware that BYU just released the first two arbitration rulings last night (May 7th). They’re attached if you’d like to read them (as “Ruling #1” and “Ruling #2”), or Click Here to find them on BYU’s website. I was concerned that these rulings would be completely one sided. That was especially true after I read Ruling #1 that was in favor of the tenant, but then Ruling #2 came back in favor of the landlord. These rulings show that each case you’re dealing with should be evaluated on a case by case basis with these two rulings used as guidance.
Let me give our thoughts on what we noticed in the rulings.
Arbitration Panel and Rulings:
First – BYU normally handles these cases with an arbitration panel of three people (a representative from BYU, a student representative that’s usually a law student, and a landlord or property manager). However, the arbitration rules from BYU allow them to set a panel of between 1-3 arbiters. With the slew of cases that BYU is seeing, they decided to reduce the arbitration panel down to one single arbitrator (Anthony Schofield). He will decide the first few rounds of cases and issue several written rulings that are published in order to provide guidance for future cases.
Mr. Schofield spent 13 years as a district court judge in Provo hearing a variety of civil and criminal cases. He retired from the bench in 2007, but worked for a local law firm for several years after that. He has an excellent reputation in the legal community and is very well respected. I used him as a mediator several years ago and found him to be very compassionate, fair, experienced and knowledgeable. In his rulings he stated that he conducted the arbitrations via Zoom, reviewed all briefs of the parties, and 24 amicus briefs that were submitted by various groups.
Facts of the Cases:
The facts of any case dictate the end result. Several facts were nearly identical, but others were important distinctions:
Summary of Rulings:
These first two rulings weren’t completely one sided against the landlord or the tenant. Here are some of the deciding factors in the two rulings:
Legal Arguments and Theories:
Nearly all of these cases will focus on Paragraph 23B of the BYU lease, which states:
The Agreement may be automatically terminated, or terminated by the student, prior to its expiration, with all rental charges prorated through the last day of tenancy under the following circumstances and conditions…. If the student leaves school due to a verified unforeseeable and unexpected catastrophic loss or serious illness. In such instances, the termination of the Agreement is in effect after the landlord receives acceptable verification. Student shall forfeit security deposit and legal deductions.
Let me go through some of the important pieces of the rulings.
The landlords in both cases argued that “leave school” means withdraw from BYU. Both tenants argued “leave school” means “leave campus”. Instead of saying “leave school”, the announcement from BYU encouraged students to “leave campus” and continue via remote learning. Mr. Schofield stated “The difference [between “leave school” and “leave campus”] is without meaningful distinction.” Mr. Schofield found that leave school is geographical and means “leaving the area without withdrawing from enrollment at BYU.”
However, the student still has to prove more than they left school. They have to “leave school due to a verified unforeseeable and unexpected catastrophic loss or serious illness.” The rest of the rulings focused on evaluating the reasons that a student may leave school and whether those reasons satisfy terminating the lease under Paragraph 23B.
The two rulings are fairly consistent in their findings, but the “serious illness” issue is likely to be the most important distinction as you analyze your cases.
Both landlords argued that the “Tenant personally must be experiencing the illness”. The residents argued serious illness should extend to (1) the global pandemic generally, or (2) if someone close to them (such as a roommate or a family member) experiences an actual or threatened serious illness.
The rulings found middle ground in that “serious illness” is NOT limited to a serious illness by the tenant personally, but there still must be a direct link to the resident and a serious illness. The examples given by Mr. Schofield were: (1) a parent being diagnosed with terminal cancer, or (2) if a tenant “is personally and directly impacted by a virus, such as a family member or roommate experiencing the virus or virus-like symptoms.” He concludes: “Simply put, for a tenant to take advantage of the serious illness provision of 23B, the illness must have a direct, personal effect on the tenant, not just a generalized pandemic as now afflicting the world.”
Where Tenant #1 had a roommate with a serious respiratory illness who would not self-quarantine which created a personal concern for her health and safety, Mr. Schofield found that she had left school due to a serious illness. Because Tenant #2 only made general references to COVID-19 and did not show any direct link or concern, she did not leave school due to a serious illness.
“Unforeseeable and Unexpected”
Both rulings were quick to point out that when the leases were signed in January 2020 no one (landlord or tenant) foresaw or expected the speed or extent of the global COVID-19 pandemic.
The global pandemic is certainly “verified” in a general sense and has “dominated the daily news for weeks.” But the global pandemic by itself is insufficient to terminate the lease. The student must verify that they personally have suffered a serious illness (or threat of serious illness under Ruling #1) or catastrophic loss.
In Ruling #1 Mr. Schofield found that the student had verified a serious illness because of the known symptoms and issues within her unit from an ill roommate that had COVID-19 symptoms and refused to self-quarantine. In Ruling #2 Mr. Schofield found that the student failed to “provide any verification of illness personally impacting her in some fashion.” There was “neither assertion nor verification of some direct, personal impact of the serious illness.”
Tenant #1 focused on “serious illness” and did not assert in her termination notice to have suffered a “catastrophic loss”, so Ruling #1 does not address this issue in detail. Ruling #1 does, however, state that losing part-time employment “fails to meet even a non-legal definition of a catastrophe.”
Ruling #2 contains the more lengthy legal analysis on catastrophic loss and begins by stating:
There is no question there has been a significant change in circumstances for all of us, for Landlord, Tenant and each person residing in the United States, even all around the world. But is this pandemic a catastrophic loss as set forth in paragraph 23B? The simple answer is that there is no evidence of catastrophic loss.
This does not mean that no case could involve catastrophic loss; it just is not present in either of these cases. For a tenant to claim catastrophic loss the tenant must show what loss they have suffered and then the arbiter would decide whether the loss is catastrophic. While both tenants (and the world) have suffered some loss at the hands of COVID-19, the tenant has to articulate the specific nature of that loss and show it has been catastrophic. The primary loss asserted in these cases was a reduction or termination of employment. Mr. Schofield found that those circumstances are insufficient to show a catastrophic loss.
Ruling #2 also mentioned that many of the stay-at-home orders and other restrictions are being allowed to expire or are being modified. Mr. Schofield stated that:
Tenant [#2] still can return to her apartment and participate in the active life of a BYU student like 60% of the tenants in her complex have chosen to do. That she may have been gone for a few weeks, as occurs at Christmas time, between semesters and at other times, does not render the lease any less valid.
While the landlords in both cases prevailed on the issue of catastrophic loss, these rulings leave open the possibility of others providing evidence of a catastrophic loss. However, I believe it would take a unique set of facts to qualify for catastrophic loss.
Common Law Claims – Frustration of Purpose, Impossibility, & Impracticability.
Ruling #2 addressed other common law legal theories that the tenants were using to terminate the lease while Ruling #1 was silent on these theories. Ruling #2 quickly dismissed both (1) impossibility and (2) impracticability, but spent considerable time focusing on frustration of purpose.
One particular case from the Utah Court of appeals in 2000 addressed frustration of purpose in detail. Tech Ctr. 2000 LLC v. Zrii, LLC, 2015 UT App 281, ¶32, 363 P.3d 566. Under Zrii, the doctrine of frustration of purpose applies when, “after a contract is made, a party’s principal purpose is substantially frustrated without his fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made.” The application of this doctrine “depends on the total or nearly total destruction of the purpose for which, in the contemplation of both parties, the transaction was made.” Id. ¶32.
Ruling #2 then addressed two primary questions (and provided answers) related to frustration of purpose:
The tenant argued that the purpose of the contract was more broad – “to provide space for a tenant to live in order to be able to enroll in and attend daytime classes on campus at BYU.” The ruling continued that it was clear Tenant #2 would be attending BYU, but that was an individual purpose of Tenant #2, not a general purpose of the lease. “The principle purpose of the contract was to provide a BYU approved place for Tenant [#2] to live.”
While COVID-19 has caused problems worldwide, Ruling #2 states that “Performance of the lease is still possible for both parties. Indeed, large numbers of other tenants remain in their residences in the complex. … But where performance under the contract remains possible, even completely doable, I cannot find that for Tenant to continue to reside in the apartment and pay rent after BYU closed its campus was so pointless as to cause the total or nearly total destruction of the contract purpose.”
Rulings of Both Cases
After walking through this analysis, Mr. Schofield issued the following rulings:
What About Your Case?
Several sections in the rulings state that these cases are being decided on the specific facts of these cases. The closer your set of facts is to these rulings, the more helpful (or detrimental) these rulings will be. Regardless, each ruling gives a statement that future cases will be decided on their own facts and merits. Use these rulings as guides, but do not ignore the facts in your circumstances that are different from these cases.
Questions or Concerns?
As stated above, every case is different but should be considered under the guidance of these two rulings. Contact our office if you need legal representation.