ANALYSIS

Class Actions and Mass Actions

As the impact of COVID-19 continues to unfold across all aspects of American society, class action lawyers are already beginning to file lawsuits. To be sure, the pandemic’s imprint on complex litigation has yet to fully emerge, but we can predict that COVID-19 will generate a deluge of class action and mass tort litigation spanning a host of areas, including employment, insurance, commercial, product liability and consumer fraud, among others.

The first wave of big-ticket lawsuits presages the litigation to come. For example:

• Bursor & Fisher has filed a nationwide class action against 24-Hour Fitness alleging its closure of 430 gyms across the United States due to COVID-19 is actionable because the company continues to charge monthly membership fees. The case asserts a host of claims, including fraud, false advertising, breach of contract and unjust enrichment;

• DiCello Levitt is suing the Arizona Board of Regents on behalf of a proposed class of university residents who have not been provided a full refund for their room and board expenses once the campus was closed due to COVID-19;

• Three firms have joined together to sue Norwegian Cruise Lines, alleging securities violations based on alleged misrepresentations regarding the potential impact of COVID-19 on the company’s financial health;

• The Berman Law Group has filed a proposed nationwide class action against the People’s Republic of China for causing the global pandemic. The suit seeks damages for personal injuries, deaths and other losses; and

• Media reports reveal how certain plaintiffs’ class action law firms have joined together to create a task force expressly devoted to pursuing COVID-19-related class litigation.

Against this backdrop, what can businesses anticipate in terms of future class action and mass tort litigation risks?

Business leaders should reflect now on how a plaintiffs’ class action law firm might view their operations. The following list of potential claims is not exhaustive, but it may provide a good framework for such an analysis.

• Contract-based claims: Suits alleging unlawful retention of money owed due to business interruption by COVID-19. The gym and university lawsuits described above are two examples. Other industries that may be vulnerable include travel agencies, ticket brokers, daycare facilities, dance studios, sporting and music event promoters, and businesses that sell 12-month discount plans.

• Negligence-based claims: Suits alleging a failure to protect employees, customers or third parties from COVID-19. These claims are likely to implicate a number of different industries, including hospitals, restaurants, nursing homes, delivery services, ride-share companies, cruise lines, churches and funeral homes.

• Product liability-based claims: Suits alleging that the claimed characteristics of the products are overstated or misrepresented. With regard to product liability claims, plaintiffs will seek to measure the knowledge of the risk against what’s known today, as opposed to what was known or foreseeable when the product was initially marketed. These claims are likely to be asserted against manufacturers of hand sanitizers, disinfecting products and personal protective equipment.

• Employment-based claims: Class action lawyers have already voiced their intention to pursue suits against a variety of businesses for failure to provide a safe workplace or appropriate personal protective equipment. The recent enactment of COVID-specific workplace regulations introduce additional expectations that could form the basis of class actions. For additional insights into COVID-19 employment considerations, please see Shook COVID-19 Client Primers 5 (Key Points for Employers Planning Layoffs), 6 (Employee Paid Leave Rights in the Families First Coronavirus Response Act) and 7 (Changes and Guidance in the National Employment Sphere).

• Biometrics claims: Certain state statutes provide robust penalties for improper collection of biometrics information. Businesses and employers screening for COVID-19 symptoms may face allegations of improper consent or allegations related to storage of personal information. For additional insights into data-related COVID-19 considerations, please see Shook COVID-19 Client Primers 2 (Cybersecurity and Health Information During the COVID-19 Pandemic) and 9 (Maximizing Teleconferencing Privacy).

• Coverage disputes: Businesses will be looking to their insurance carriers and other sources to cover losses caused by COVID-19. Force majeure provisions will be pivotal in these disputes. For additional insight into force majeure provisions, please see Shook COVID-19 Client Primer 1 (Is COVID-19 an Excuse for Your Performance?) and Shook's webinar "Force Majeure and COVID-19: Potential Business Implications."

• Price-gouging claims: Both brick-and-mortar and online retailers are likely to see class actions accusing them of price gouging and price antitrust violations as result of the pandemic. Indeed, at least one lawsuit has been filed that accuses a retailer of unreasonably increasing prices for toilet paper and hand sanitizer.

What steps can businesses take now to ward off, or at least minimize, the threat of aggregate litigation?

• Establish a COVID-19 Task Force to ensure that best practices are being followed in connection with the company's response to the pandemic.

• Stay informed on new laws that may provide additional protections for businesses. For example, qualifying circumstances may limit negligence liability. See Shook Client Primer 3 (New Federal Law Extends Tort Protections for Makers of Certain Products Used to Combat COVID-19). State legislatures are also considering insurance and other reforms that may apply to your circumstances.

• Review existing marketing materials and internal company policies in light of recent events. Consider whether changes in the state of knowledge about COVID-19 support revisions.

• Evaluate how remote work environments may have altered your document preservation obligations.

• Ensure that company statements regarding COVID-19 are made by designated spokespeople. Attempt to guard against unauthorized statements by employees.

• Review company statements to employees about COVID-19 to confirm that they are accurate and consistent with the company’s policies.

• Be mindful that the key to getting a class certified is showing the putative class experienced the issue more similarly than not. Adopting a case-by-case approach to how the company responds to situations and customer inquiries may provide evidence later that a class action is inappropriate.

If your business is named in a class action or mass action lawsuit involving COVID-19, what steps should be taken immediately?

• As with any lawsuit, notify your insurance carrier, determine when a response must be filed, ensure documents and information relevant to the lawsuit are being preserved, and issue a hold notice.

• Marshal the facts. A demonstration that plaintiffs’ claims are predicated on factually incorrect information can sometimes result in a dismissal. But, in any case, the company must assemble an accurate factual story in order to defend itself.

• Marshal the science. To the extent that plaintiffs’ claims rely on unfounded or inaccurate scientific assumptions, making such a showing to plaintiffs’ counsel can sometimes result in a dismissal.

• Retain a firm that is both knowledgeable regarding emerging COVID-19 laws and experienced in defending class and mass tort litigation so it can assist with these preliminary steps and provide case-specific strategic guidance.

The bottom line is that class actions and mass actions are attractive vehicles for pursuing large-scale litigation because they present the possibility of large damage awards. As courts and legal commentators have recognized, the losses of an individual plaintiff may be small, but the amount of an aggregate damage award can be enormous. Therefore, the threat of a class action should be considered along with the scores of other novel challenges spawned by the pandemic. Taking preventive measures now may alleviate or lessen a businesses’ exposure to class action or mass action liability.