First Circuit Clarifies COVID-19 Contract Defenses: Frustration of Purpose Demands Fact-Intensive Inquiry

Introduction

In SMS Financial Recovery Services, LLC v. Samaritan Senior Village, Inc. (1st Cir. June 27, 2025), the United States Court of Appeals for the First Circuit revisited the reach of the common-law excuses of impracticability and frustration of purpose in the COVID-19 era. The dispute arose from two nearly identical three-year consulting contracts between Harmony Healthcare International (now assigned to SMS Financial) and two related New York long-term-care facilities (collectively “Samaritan”). When state pandemic visitation directives barred on-site access, Samaritan terminated the contracts citing impossibility. The district court granted Samaritan summary judgment, holding that the contracts were discharged under the doctrine of impracticability.

On appeal, the First Circuit partially reversed. Emphasising that the doctrines at issue are fact-sensitive, the Court held that unresolved factual disputes—chiefly whether Harmony could have performed most obligations remotely—precluded summary judgment. The decision establishes a notable precedent: “Pandemic-related frustration of purpose or impracticability defenses cannot be resolved on the pleadings where material facts remain contested; courts must defer to the fact-finder unless the record unequivocally supports discharge.”

Summary of the Judgment

• The district court’s blanket discharge of the contracts was reversed because genuine questions of fact existed regarding the extent to which remote performance was possible and whether the purpose of the contracts was truly defeated.
• The First Circuit clarified that, where a supervening event frustrates only a partial or temporary segment of contractual performance, the appropriate remedy is generally suspension, not termination.
• The Court affirmed dismissal of ancillary claims (implied covenant of good faith & fair dealing and Mass. Ch. 93A) for want of evidence.
• The matter was remanded for trial on the frustration/impracticability defenses and damages.

Analysis

Precedents Cited

The panel anchored its reasoning in a blend of Massachusetts and Restatement authority:

• Restatement (Second) of Contracts §§ 261 & 265 – Core definitions of impracticability and frustration of purpose.
• Le Fort Enterprises, Inc. v. Lantern 18, LLC, 199 N.E.3d 1257 (Mass. 2023) – The SJC’s modern articulation of both doctrines and its insistence that they are construed narrowly to preserve the “certainty of contracts.”
• Chase Precast Corp. v. John J. Paonessa Co., 566 N.E.2d 603 (Mass. 1991) – Interchangeability of the doctrines and the principle that the question is ordinarily for the factfinder.
• Inland Commercial Real Estate Services, LLC v. ASA EWC, LLC, 213 N.E.3d 604 (Mass. App. Ct. 2023) – COVID-19 shutdown orders generally do not per se discharge contracts, especially long-term leases.
• McKenney v. Mangino, 873 F.3d 75 (1st Cir. 2017) – Standard for viewing facts on summary judgment.

These precedents guided the Court’s two core holdings: (1) that frustration/impracticability turns on whether the supervening event renders performance “vitally different” from what was contemplated, and (2) that an impediment of limited duration seldom justifies total discharge.

Legal Reasoning

The Court undertook a two-step analysis:

1. Characterisation of Samaritan’s Defense – Although the district court used the label “impracticability,” the First Circuit noted that Samaritan’s theory better fit the companion doctrine “frustration of purpose,” because it sought to excuse its performance by pointing to impediments on the other party’s performance.
2. Applicability to the Facts – Applying Massachusetts law, the Court identified two disputed factual predicates: (a) whether on-site visits were indispensable to Harmony’s services; (b) whether the New York visitation ban was sufficiently long or severe to “substantially destroy” the contracts’ purpose. Testimony from Samaritan’s own VP (Baranello) that most services could be delivered remotely created a triable issue on both points.

Because the record was ambiguous and the doctrines are “constructed narrowly,” the Court concluded that summary judgment for either party was inappropriate. Furthermore, even if frustration applied, Massachusetts precedent prescribes mere suspension of duties for temporary impediments unless post-impediment performance would be materially more onerous—a question likewise unresolved.

Impact

The decision will reverberate across several dimensions:

• Pandemic Litigation – Courts confronting COVID-19 contract defenses must undertake granular, contract-specific fact-finding. Sweeping rules that pandemic restrictions automatically discharge performance will not survive appellate scrutiny in the First Circuit.
• Remote Performance Evidence – Parties relying on impossibility/frustration must address technological or alternative means of performance; evidence that services could be rendered remotely undermines the defense.
• Temporary vs. Permanent Impediments – The Court reaffirmed that only a long-term or permanent event can justify termination; shorter disruptions typically warrant contractual suspension or modification.
• Jury Role – The First Circuit emphasised the jury’s central role in evaluating whether a supervening event makes performance “vitally different.” Practitioners should prepare for trial-level determinations of these defenses rather than expect wholesale dispositive rulings.
• Contract Drafting – The opinion underscores the value of explicit force-majeure clauses addressing pandemics, regulatory closures, and the availability of remote services, thereby reducing the need to rely on common-law doctrines.

Complex Concepts Simplified

• Impracticability vs. Frustration of Purpose
  • Impracticability: A party is excused because its own performance has become excessively difficult or illegal.
  • Frustration of Purpose: A party is excused because an event has undermined the reason it entered the contract, even though performance is still technically possible.
• Summary Judgment: A procedural mechanism allowing a judge to decide a case without trial if no material facts are disputed. If genuine disputes exist, the case must proceed to a jury or bench trial.
• Force-Majeure Clause: A contractual provision allocating risk of extraordinary events (e.g., pandemics, natural disasters). Absent such a clause, courts resort to common-law doctrines like those discussed here.
• Suspension vs. Discharge: Suspension temporarily pauses contractual duties; discharge ends them entirely. Under Massachusetts law, frustration often yields suspension unless continuing performance would be significantly harder after the impediment ends.

Conclusion

SMS Financial v. Samaritan marks an important clarification of how the First Circuit views pandemic-era contract defenses. The Court:

1. Drew a sharp distinction between impracticability and frustration of purpose, labeling the latter as the proper framework where one party seeks discharge based on the other party’s alleged inability to perform.
2. Reasserted that these defenses hinge on fact-specific inquiry, commonly reserved for the jury.
3. Highlighted the principle that temporary regulatory obstacles rarely warrant outright termination— suspension is the default remedy.

Going forward, litigants invoking COVID-19 (or similar) defenses in the First Circuit must be prepared to prove—rather than merely assert—that a supervening event substantially destroyed the core purpose of the contract and that no reasonable alternative performance (such as remote delivery) existed. The decision reinforces the judiciary’s commitment to contractual stability while recognising legitimate common-law excuses under extraordinary circumstances.