COVID-19 and Unprecedented: Litigation Insights - Issue 10, 2020

Spilman Thomas & Battle, PLLC

This tenth edition of Unprecedented, our weekly update on COVID-19-related litigation, finds us reporting fewer shutdown-related cases than in previous weeks, suggesting that these cases are winding down as the country opens back up. By contrast, our prediction that workers' compensation and personal injury cases would begin to pick up with reopening appears to have borne out, with this week bringing the first reported “household exposure” claim. A high-profile dispute between Gap and Simon Properties also indicates that a wave of commercial lease disputes might be on the horizon. And, we continue to see any number of insurance disputes, refund claims, and Paycheck Protection Act claims.

We hope you find these cases, and the questions they raise, to be informative.

Are online college classes the same as in-person education?

In a case filed in the Northern District of Illinois, a plaintiff brings suit on behalf of herself and a class of similarly situated individuals who paid Loyola University Chicago for tuition and fees for students to attend on-campus courses. In her 24-page complaint, she alleges that the class of students, families of students, and student guarantors are out millions of dollars in tuition and fees because responses to the global pandemic resulted in unused services or a decreased instructional value. Further, the plaintiff alleges the university received more than $10 million in government funding from the CARES Act, but refused to refund or reimburse the plaintiff and other class members any portion of the already paid tuition and fees. Before March 2020, the university offered online bachelor's programs at a significant tuition and fee discount from its in-person programs, which according to the plaintiff, signals the university’s understanding that those services have a lesser value when compared to the touted "Loyola Experience" of "an integrated, hands-on education in the vibrant city of Chicago." Finally, while the plaintiff alleges that her son, a student at the university, has received a partial refund for his room and board expenses, he has not received a refund for the tuition or for most of the mandatory fees for services to which he cannot access. (The university is alleged to have refunded part of one of the many mandatory fees, the "student development fee"). Click here for news coverage.  

What is the fate of incarcerations and increasing cases of COVID-19 positive prisoners?

Following the expiration of Colorado Governor Jared Polis’s executive orders grating corrections officials flexibility in reducing prison populations through early releases to combat the spread of COVID-19, the ACLU has filed a class-action lawsuit, asserting the Governor and Colorado’s Executive Director of Corrections have inflicted “cruel and unusual punishment” on inmates by failing to establish policies to protect the medically vulnerable. Prisons across the country are seeing surges in COVID-19 cases. The lawsuit cites a Colorado analysis that predicts as many as 16,000 individuals living or working in the state’s prisons could be infected if current policies are not changed. The putative class action has been brought by five named plaintiffs on behalf of all prisoners that are vulnerable to COVID-19. The plaintiffs seek an emergency order requiring the state to enact policies allowing for physical distancing of prisoners at high risk of COVID-19, prioritizing the potential release of medically vulnerable prisoners, implementing widespread testing of inmates and staff, enhancing sanitation procedures, and providing hygiene supplies and personal protective equipment. News coverage is available here.

What will be the result of the rise of lawsuits involving workplace infections? And, what about lawsuits that involve passing the virus on to family members?

A group of Amazon.com Inc. warehouse employees sued the online retail giant, claiming its working conditions put not only them at risk of contracting the coronavirus but also their family members, including one who died. Reuters has more here.

In what seems the first of its kind, an Amazon worker's family claimed "household exposure" caused a family member's death from COVID-19. As we warned would likely happen, plaintiffs are now arguing that not only are they exposed at work, but that families are exposed too. Here, Barbara Chandler alleges that she not only contracted COVID-19 at work, but that she took it home and her roommate—her cousin—got the virus from her and died a month later. While this suit does not seek wrongful death damages for anyone who died from COVID-19, it expressly attributes a non-employee family member's death from COVID-19 to the working conditions at this Amazon Distribution Center in New Jersey. Instead of wrongful death damages, this suit claims violation of public safety laws and the creation of a nuisance through providing "misinformation" and having "oppressive and dangerous" working conditions including work hours and discipline policies. The plaintiffs seek an injunction prohibiting these conditions and requiring more open communication of conditions. Amazon has responded in the press stating, "“From early March to May 1, we offered our employees unlimited time away from work, and since May 1 we have offered leave for those most vulnerable or who need to care for children or family members.” While this is not a wrongful death suit, it could be a harbinger of things to come. News coverage is available here.

The Turlock family has now filed a wrongful death lawsuit against Safeway after they say their loved one contracted COVID-19 at a distribution center and died. In what is becoming a familiar pattern, in addition to allegations about lack of PPE and social-distancing, the plaintiff alleges that arduous and strict sick day or absenteeism policies push employees to come to work even when sick. Consistent with a general pattern in COVID-19 wrongful death suits, part of the allegation is a lack of transparency by the facility owner or employer. Here, the plaintiff alleges Safeway told its employees that you could not get COVID-19 from person-to-person contact and that there were no social distancing guidelines in the workplace until 51 employees became sick with COVID-19. Safeway counters that, "We continue to reinforce with all associates the importance of social distancing as the most effective tool we have to combat the spread of COVID-19." It also now has policies and procedures where it supplies employees with masks, hand sanitizer, and has increased cleanings within the center. News coverage is available here.

Employers are starting to see new litigation from employees who claim they did not receive the protections afforded by the Families First Coronavirus Response Act and the Emergency Paid Sick Leave Act. Former Barrier Technologies LLC employee Tracey Graham filed suit in the Southern District of Florida on June 2, 2020, alleging that her employment was terminated in April after she took sick time at her doctor’s direction following the onset of symptoms consistent with COVID-19. She further claims that Barrier failed to pay her for any of the sick leave she took at the direction of her doctor. Ms. Graham’s complaint can be found here

Employers in Pennsylvania and Ohio have also been accused of violating laws enacted by Congress in response to COVID-19, with claims alleging that they failed to provide leave to employees who need to care for a child in the event of school or daycare closures as a result of COVID-19 and that they retaliated against employees who requested leave under the EPSLA. These types of claims are likely to increase as employers continue to respond to issues created by the spread of COVID-19.

The estate of a worker at a meat-processing facility filed suit against the worker’s employer, JBS Souderton, Inc., and four related JBS defendants for their negligence, fraudulent misrepresentations, and intentional misrepresentations that allegedly caused the worker’s wrongful death from COVID-19 complications. On June 2, 2020, JBS USA, one of the JBS defendants, removed the case from the Court of Common Pleas for Philadelphia County, Pennsylvania, to the United States District Court for the Eastern District of Pennsylvania. JBS USA relies on both diversity jurisdiction and federal question jurisdiction in support of removal.

JBS USA’s argument for diversity jurisdiction is complicated by the fact that the worker and his employer, JBS Souderton, Inc., are not diverse. Yet, JBS argues that the plaintiff fraudulently joined the former employer because Pennsylvania's Worker's Compensation Act bars all tort claims—including intentional tort claims. The Eastern District of Pennsylvania will determine whether Pennsylvania’s Worker’s Compensation Act bars employee’s claims against an employer for intentionally misleading workers of the risk posed by COVID-19.

In support of federal question jurisdiction, JBS USA argues that the plaintiff's state-law claims implicate significant federal issues that permit jurisdiction in federal court. JBS USA relies on President Trump's April 28, 2020 Executive Order, which directed meat and poultry producers to continue operations during the COVID-19 pandemic. Exec. Order No. 13917, “Delegating Authority Under the Defense Production Act With Respect to Food Supply Chain Resources During the National Emergency Caused by the Outbreak of COVID-19,” 85 Fed. Reg. 26313 (Apr. 28, 2020). With rapidly changing and sometimes-conflicting federal guidance, employers may finally receive guidance on the importance of these federal guidelines. Click here for the notice ore removal.

Will more lawsuits be filed against state governors for over-reaching powers?

A group of Massachusetts business owners, educators, and religious leaders have sued Governor Baker over his statewide shutdown orders. In addition to the now-typical state and federal constitutional claims under due process and peaceable-assembly clauses, the plaintiffs include what we believe to be the first claim alleging that private school closures violate the fundamental right to education. Perhaps most interesting, though, is the allegation that Governor Baker has usurped legislative powers and acted ultra vires by claiming authority under the Cold War-era Civil Defense Act rather than the older Public Health Act—similar to the disputes we have reported from Michigan and Wisconsin. The case is pending in Massachusetts state court, and the complaint is available here. News coverage is available here.

A federal judge has set an expedited schedule for a lawsuit filed against Pennsylvania Governor Wolf by local businesses and four southwestern Pennsylvania counties. The court’s order was not a total victory for the plaintiffs, however. The court held that their declaratory judgment claims challenging the Commonwealth’s waiver process for non-essential business and allegedly uncompensated takings were not brought under the proper framework. Nevertheless, the court agreed to fast-track the plaintiffs’ constitutional claims challenging restrictions on religious exercise, peaceable assembly, and business operations. The case is pending in the U.S. District Court for the Western District of Pennsylvania, and the Order is available here.

Are face covering mandates unconstitutional?

A lawsuit has been filed against San Diego Public Health Officer Wilma Wooten, Health and Human Services Agency Director Nick Macchione, and county Chief Administrative Officer Helen Robbins-Meyer over the recent mandate requiring face coverings in public. The lawsuit, filed by a San Diego resident, alleges that the order is overbroad, and thus violates both the United States Constitution and the California Constitution. The lawsuit bases its claim on allegations that evidence and data show face coverings do not prevent the spread of COVID-19. The lawsuit further states the order requiring face coverings in public is primarily to prevent asymptomatic carriers from spreading the virus to others, yet alleges that asymptomatic carriers are unlikely to be a source of transmission. San Diego county officials have yet to comment on the lawsuit, but have stated that face coverings can, in fact, be effective. See news coverage here and here.

Are there unequal treatments of reopenings based on the type of business?

Caymus Vineyards has been name-dropped by Mariah Carey (link to the name-dropping GTFO here) and has twice won Wine Spectator’s Wine-of-the-Year award for its flagship offering. But it is nonetheless has found itself subject to California’s restrictions on business operations, and now it is suing Governor Newsom and State Public Health Officer Angell.

Caymus’s allegations are similar to those made by other frustrated businesses across the country: its business is shut down, while other businesses, with greater opportunities for community spread, are allowed to remain open. Caymus’s specific issue is that California only will allow wine tasting rooms to reopen if they serve food, but Napa County prohibits its winemakers from doing so by local ordinances—thus forcing Caymus to remain closed while toy stores, restaurants, and florists are allowed to reopen. Like similar complaints filed before it, Caymus’s complaint alleges these restrictions violate the federal equal protection, due process, and takings clauses, in addition to similar clauses under the California constitution. The case is pending in the U.S. District Court for the Northern District of California, and the complaint is available here. News coverage can be found here.

Is there a case for MDLs related to PPP issues?

A group of litigants in multiple states are seeking to consolidate 11 cases across eight federal districts that involve the Paycheck Protection Program ("PPP") under the CARES Act. The litigants are seeking to move the litigation to the U.S. District Court for the Northern District of Georgia before Judge Leigh M. May, who presides over a related case. The alternative choice is U.S. District Judge Diane J. Humetewa in Arizona.

The suit is focused on the three stakeholders involved in the PPP—the borrowers, the lenders, and the agents. When the PPP was established, agents were supposed to play a critical role in making sure businesses in underserved and rural markets would receive money from the program. However, the plaintiffs claim that the major bank defendants instead focused on current and more lucrative clients and business that would provide a more substantial fee income from funding PPP loans. The plaintiffs also claim that the banks are simply refusing to pay some referral agents, without any legal authority to do so.

Under the CARES Act, lenders fees on PPP loans are paid by the Small Business Administration based on the amount of the loan: the larger the loan, the smaller the percentage that goes to lenders’ fees. The class action asserts that agents should be getting a certain amount from these lenders fees. The CARES Act mandates that an agent who assists in preparation of an application cannot receive a fee in excess of the fee limits established by the Small Business Administration. However, it is not clear from the statute what those “fee limits” for agents are. If the plaintiffs are correct, agents could be entitled to up to 0.25 percent for loans beyond $2 million. The motion seeking consolidation and transfer can be found here.

Is the secondary ticket marketing industry looking at lawsuits regarding scalped tickets?

Disgruntled concert-goers are seeking to transfer several similar class actions brought against major players in the secondary ticket market under one banner using Multi-District Litigation ("MDL"). In a motion filed May 29th, plaintiffs sought to have six different class actions (currently scattered amongst four different district courts) transferred to a single district court as MDL. The movants claim that these six class actions overlap in legal theories, defenses, facts, and potential discovery so that an MDL is the most efficient and fair method of administration.

Each of the six class actions was brought by plaintiffs who purchased tickets to concerts, sports games, or other events using the secondary ticket market like StubHub, Vivid Seats, or Seat Geek. According to these class actions, each of these secondary ticket marketers had "Money Back Guarantees" that promised ticket purchasers full refunds for any events that were cancelled. However, when the COVID-19 pandemic hit and public events were canceled in droves, StubHub, Vivid Seats, and Seat Geek retroactively canceled their "Money Back Guarantees" and offered ticket purchasers only expiring vouchers for future events. This retroactive cancelation was allegedly fueled by the industry-wide practice of purchasing tickets in advance from "brokers" or professional scalpers. This practice allegedly left StubHub, Vivid Seas, and Seat Geek with large volumes of valueless tickets and a cash flow problem, which they sought to fix by offering vouchers instead of refunds. Given the uniformity of this "broker" practice, the similarity in the "Money Back Guarantees" and subsequent vouchers policies, same defendants in the secondary ticket market, and overlapping canceled events, the movants argue that an MDL is the proper route for adjudication. If successful, this will be a large MDL with classes encompassing the entire nation and a large variety of canceled events. The complaint can found here.

Are there enough plaintiffs left to assert exposure-based claims against cruise liners?

Carnival Cruise Lines faces yet another lawsuit, this time filed in federal court in Los Angeles in early June. The target is Princess Cruises and Carnival, whose ship named the "Grand Princess" carried more than 2,500 passengers from San Francisco to Mexico in mid-February 2020. According to the recently filed class action complaint, Princess and Carnival failed to adequately protect their passengers from COVID-19. Specifically, this lawsuit states that Princess and Carnival failed to inform Grand Princess' passengers that prior occupants of the ship had tested positive for COVID-19, failed to properly sanitize the cruise ship in between voyages, and/or screen new or existing passengers for the disease. Instead, the class action alleges that the cruise ship owners encouraged passengers to "mingle" and engage in group activities. As a result of these actions, the class action claims that over 100 passengers from that single voyage to Mexico contracted COVID-19, two of which proved fatal after disembarking. This lawsuit is merely one in a long line of litigation that Carnival faces. A class action was filed in April by a group of different passengers on the Grand Princess cruise ship, this time for its voyage from San Francisco to Hawaii in late February 2020. This latest lawsuit alleges that, taken together, all of Carnival's cruise ships can be linked to 1,500 positive cases of COVID-19 and 40 deaths. News coverage can be found here.

Will denying insurance claims continue to plague the industry

Treasure Island LLC ("TI") has filed a lawsuit against its insurance company claiming it was wrongfully denied coverage for losses during the COVID-19 pandemic. The resort is reporting a loss of as much as $1.1 billion due to its closure, which began under Governor Steve Sisolak’s directive in mid-March. TI asserts that its $1 million insurance policy entities it to up to $850 million in property damage and $327 million in business losses due to the pandemic because the policy covers losses resulting from communicable diseases and cleanup of property.

TI's insurer rejected the initial insurance claim in March because there was no evidence that the virus was present at any covered location. The insurer also stated that no physical damage or loss to insured property had taken place as a result of the virus. TI's lawsuit indicates that TI last operated on March 17 and employs 2,000 workers, with 7,000 guests visiting the resort daily. The complaint can be found here.

On May 29, 2020, fast food chain In-N-Out Burger (“In-N-Out”) filed a breach of contract suit against its insurer, Zurich American Insurance Co. (“Zurich”), when Zurich denied coverage on In-N-Out’s claim for business interruption losses under an “all risk” policy.  In-N-Out alleges that its losses related to COVID-19 are covered by the policy, which, according to the complaint, covers “all risks of direct physical loss of or damage from any cause unless excluded.” In-N-Out asserts the policy does not contain an exclusion for viruses or infectious diseases. According to its complaint, In-N-Out first notified Zurich of its COVID-19 loss on April 20, 2020, and within a week Zurich informed In-N-Out that Zurich would not cover the loss. In-N-Out asserts that on May 29, 2020 a claims representative called to confirm denial of the claim. News coverage of this case can be accessed here, and coverage along with a copy of the complaint can be accessed here

Will we see a spike in malls suing tenants for unpaid rent?

Gap Inc. has been sued for $65.9 million of unpaid rent by Simon Property Group. The 390 locations that Simon leases to Gap Inc. account for approximately 10 percent of Gap Inc.’s total retail locations. Gap Inc. cites a 43 percent drop in its first-quarter revenue as the motivator for its refusal to pay rent, and admits that the dispute with Simon will be costly and have an uncertain outcome. Although Gap Inc.’s decision to stop paying rent may seem extreme, it is not the only money-saving step Gap Inc. has taken while attempting to manage a first-quarter loss of $932 million. Gap Inc. also has suspended cash dividends and share buybacks, reduced capital expenditures by around 50 percent, renegotiated payment terms with vendors, and secured new financing arrangements for its debt. Gap Inc. ended the quarter with more than a billion dollars in cash on its balance sheet, compared to $941 million at the end of the same quarter in 2019.

Not much information is publicly available yet about the finer points of the lawsuit or Gap Inc.’s intended defense to Simon’s claims. However, the dispute between Gap Inc. and Simon Property Group not only highlights the importance of including crystal-clear lease provisions that govern such circumstances as those experienced during the COVID-19 pandemic, but also serves as a harbinger of a wave of lawsuits between commercial landlords and tenants who were forced to shut down during this crisis. This area bears monitoring, as the federal government has already shown a willingness to financially assist businesses through the PPP. It will be interesting to see if the federal or state governments will be willing to offer assistance to companies that were under a contractual obligation to pay rent on store space during a time in which they were not permitted to use that space. Click here for news coverage.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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