Idaho: Litigation: General Commercial
From everyday consumer purchases to large-scale mergers, commercial law impacts such a broad diversity of situations that it seems difficult to succinctly define this area of legal practice. An event such as the COVID-19 global pandemic further illustrates the pervasive nature of commercial law as lawyers and their clients work through the impacts of supply chain interruptions, production shortfalls, newly exposed vulnerabilities, changes in consumer habits, lease and payment defaults, facility shutdowns, protection of intellectual property and confidentiality as employees are laid off or move to home offices, barriers to contract performance, contract renegotiations, new operating procedures, rapid changes in financial conditions and market shares, new or lost prospects for mergers/acquisitions or reorganization, insurance coverage uncertainties, and changes in the way we manage employees, interact with customers and conduct business dealings. Even in Idaho, where many commercial operations were exempted from the Governor’s stay-at-home orders and early infection rates were lower than in most other states, the pandemic has provoked commercial legal issues that will likely linger at the forefront well into the next fiscal year. There are ongoing uncertainties surrounding the pandemic’s future course and the ability of businesses to adapt and maintain profitable commercial operations amidst pandemic-related restrictions and societal behavior.
Just months before the emergence of COVID-19, Idaho was reportedly the fastest growing state in the nation with population growth of 2.1%. According to the Idaho Technology Council, the total dollar volume of disclosed business deals that the council was able to identify within the state grew from $1.65 billion in 2018 to $4.42 billion in 2019 (it is suspected that these figures are underestimated due to incomplete data collection), and Idaho’s real GDP growth outpaced the national growth by 0.5% during that same time period. Average wages and cost of living in Idaho have remained below the national average, which is attractive to businesses. Although it is too early to know the pandemic’s full impact on these statistics for the year 2020, the Idaho business community and commercial clients have reported significant economic and operational fallout from the pandemic in the first half of the year, along with mixed predictions regarding the commercial climate moving into 2021.
Idaho businesses experienced delays and increased costs on multiple fronts relating to commercial development and construction in office/industrial/retail space, as well as in-demand multi-family housing developments. Shocks to the credit markets in early March 2020 froze sources of financing, which caused delays in several large-scale developments. For ongoing projects, developers and contractors have been required to work together and amend contracts to address payment delays and extended completion dates. Even though construction was defined as an essential service that was allowed to continue operations under the Governor’s stay-at-home orders, interruptions in interstate and international supply chains, as well as labor force disruptions, made it difficult to advance work on projects.
There have also been numerous bankruptcy filings and permanent closures, particularly in the retail and restaurant industries, resulting in contract terminations for new construction and tenant improvements. Businesses able to avoid bankruptcy have nonetheless faced hardships making their lease and loan payments and have sought concessions from their landlords and lenders, such as early lease terminations, loan forbearance, nonpayment penalty or late fee waivers, and renegotiated lease terms. In instances where good landlord-tenant relationships were maintained before the pandemic, landlords generally have been willing to work with their commercial tenants to avoid termination of leases for missed payments. Businesses and their attorneys have also had an amplified interest in the interpretation and operation of force majeure clauses and potential business interruption insurance coverage as they seek ways to reduce their immediate financial obligations and minimize losses.
Second only to the materials and resources industry, Idaho’s technology and software industry has accounted for 21% of the known commercial deal flow in the state over the past decade, according to Idaho Technology Council’s 2019 Deal Flow Report. This figure includes public offerings, private placements, mergers and acquisitions. As tech-based companies such as Twitter embrace long-term work-from-home arrangements, there has been speculation that demand for new office space could drop off in some industries whose business models are conducive to a remote workforce. There is no concrete data to indicate whether that will become a trend in Idaho, although there are suggestions that employees from West Coast cities who have newfound freedom to work from anywhere are eying inland states such as Idaho to take advantage of the lower cost of living and other benefits of smaller-city or small-town lifestyles. If this prediction holds true, Idaho could see a surge in tech talent, changing the landscape of competition for labor within the state and continuing the need for housing development and commercial service expansion to accommodate the growth of a population sector that earns top-end salaries.
The felling of geographical obstacles to employment also carries implications for the protection of intellectual property and for other legal issues that can arise where the line between commercial law and employment law begins to blur. One example is the enforceability of a covenant not to compete, which traditionally depends at least in part on the reasonableness of the covenant’s geographical scope. Employers hiring or renegotiating terms of employment for employees living in or moving to Idaho may also be interested in ways to implement employment law concepts unique to or more readily enforceable in Idaho. A covenant not to compete is again a good example here, insofar as such a covenant is generally unenforceable between an employer and employee under California law but is permitted for certain employees under Idaho law. And Idaho’s trade secret legislation and associated court decisions may be more, or less, favorable to employers than their home state’s version. Companies making connections with Idaho through contracts should also consider that contract terms restricting any party from enforcing its rights in Idaho tribunals are considered void as against Idaho’s public policy, which could impact contract decisions regarding choice of forum.
Commercial litigation also experienced unwelcome delays resulting from the pandemic and associated courthouse restrictions, which are expected to have a ripple effect into 2021 on the ability to advance and resolve lawsuits. In early 2020, the Idaho Supreme Court reduced staffing at courthouses statewide and vacated all civil jury trials for a six-month period ending in September 2020. The cancellation of civil trials was later extended to December 2020. It is difficult to imagine how Idaho courts’ already-busy dockets will accommodate resetting a nine-month backlog of trials, especially since the issue could be compounded by future courthouse shutdowns in the event of resurgent infection rates. These delays and uncertainties surrounding how long commercial litigants will have to wait for their literal 'day in court' could influence businesses to more heavily consider alternative dispute resolution, such as diverting existing legal disputes to arbitration under Idaho’s Uniform Arbitration Act or including arbitration and mandatory mediation clauses in future contracts.
In the face of new and unexpected challenges, Idaho’s business community and commercial lawyers have shown resiliency, adaptability and enduring optimism regarding the future of doing business in Idaho. As before the pandemic, commercial law is sure to be a busy practice area in Idaho as the state’s population continues to grow and its business environment continues to develop.