Unprecedented: COVID-19 Litigation Trends - Issue 6

Spilman Thomas & Battle, PLLC

Spilman Thomas & Battle, PLLC

This sixth edition of Unprecedented, our weekly update on COVID-19 litigation, sees us reporting on many of the same types of cases. Consumers continue to seek refunds for goods and services that have been disrupted by the COVID-19 pandemic, with colleges and universities being a particular target. Consumers also have targeted retailers for alleged price-gouging behavior. And, we continue to see new cases involving disputes over the applicability of business interruption and civil authority coverage to COVID-19 shutdowns.

Two types of cases, however, dominated the past week. The first type of cases involves challenges to government-ordered shutdowns and stay-at-home orders. Although we highlight only a few here, at least a dozen such cases are pending across the country, with several receiving support from the Department of Justice and one prompting the first action from the Supreme Court of the United States. We anticipate the legality of these shutdown and stay-at-home orders to prompt further litigation, even as we expect plaintiffs to shift their focus from injunctive relief to damages as the country opens back up. The second type of cases involves wrongful death and occupational safety claims. And though one of those cases already has been dismissed, we anticipate a significant uptick in these claims as Americans return to work and social activities.

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

Who will win the showdown over shutdown orders?

Over the past several weeks, Americans living under shutdown orders have received an education on constitutional law. Challenges to shutdown orders have raised a host of constitutional issues:

  • Limitations on laws impairing contractual obligations
  • Rights to a republican form of government
  • First Amendment rights to free speech
  • First Amendment rights to freedom of assembly
  • First Amendment rights to freedom of religious exercise
  • First Amendment rights to petition the government
  • Second Amendment rights to keep and bear arms
  • Fourth Amendment rights to be free from unlawful searches and seizures
  • Fifth Amendment protections against takings of private property without just compensation
  • Eleventh Amendment sovereign immunities
  • Fourteenth Amendment rights to privileges and immunities
  • Fourteenth Amendment equal protection rights
  • Fourteenth Amendment due process rights

In one way or another, however, most of the complaints allege the same thing: the government has unlawfully treated the plaintiffs differently than others and forced them to bear the cost of mitigating COVID-19’s spread. And though we reported plaintiffs finding success under the Second Amendment in previous weeks, this week it was plaintiffs raising First Amendment free exercise claims that found the most success.

In a request for a stay pending appeal brought by Maryville Baptist Church and its pastor, the U.S. Court of Appeals for the Sixth Circuit enjoined Kentucky officials from enforcing a ban on drive-in religious services. In doing so, the Sixth Circuit rejected the Commonwealth’s argument, adopted by the lower court, that there was no such ban in effect. And from that finding, the Sixth Circuit held that the Church and its pastor were likely to prevail on their claims that Kentucky’s order violated the Kentucky Religious Freedom Restoration Act ("RFRA"), which prohibits the Commonwealth from substantially burdening a person’s religious exercise without clear and convincing evidence that it used the least restrictive means to further a compelling government interest. The Sixth Circuit held that, by refusing to allow drive-in religious services while allowing in-person business meetings and parking for essential businesses, the Commonwealth had not met its burden. The Sixth Circuit also held that Kentucky’s order would be subject to strict scrutiny under the First Amendment and fail for the same reasons it failed under the RFRA. The silver lining for the Commonwealth was that the Sixth Circuit declined to permit in-person religious gatherings, stating its discomfort with granting any broader relief on short notice. The Sixth Circuit’s opinion is available here.

Only two days after the Sixth Circuit issued its stay in the Maryville Baptist Church case, the U.S. District Court for the Eastern District of Kentucky enjoined the travel ban components of Kentucky’s shutdown orders. The Court held that the travel bans did not survive the strict scrutiny applying to the fundamental right of travel because, among other things, they would impose self-quarantine requirements based purely on geographical boundaries without any relation to actual risk. The Court declined, however, to also enjoin restrictions on in-person religious services, interpreting the Sixth Circuit’s decision in Maryville Baptist Church as being limited to restrictions on drive-in religious services. The Court’s opinion is available here.

In a case pending in the U.S. District Court for the District of New Jersey, a Catholic priest and Orthodox Jewish rabbi hope to replicate Maryville Baptist Church’s success. The plaintiffs allege New Jersey Governor Murphy has infringed upon their First Amendment rights to freedom of speech, assembly, and free exercise of religion, as well as their Fourteenth Amendment rights to equal protection, by limiting their ability to hold in-person gatherings while imposing no similar limitations on a number of so-called essential businesses. The plaintiffs’ amended complaint is available here.

A group of plaintiffs owning short-term rental properties, as well as a rental agency, sued Florida Governor DeSantis over his order prohibiting short-term rentals during the COVID-19 crisis. The plaintiffs allege Governor DeSantis’s order targets their properties, causing them thousands of dollars in lost monthly income, while permitting similarly situated hotels and inns to continue operations. In addition to state constitutional claims, and the now-standard Fourteenth Amendment due process and equal protection claims, the plaintiffs allege Governor DeSantis’s order violates the federal constitution’s Contracts Clause while also implying First Amendment freedom of speech and Fifth Amendment takings claims. The plaintiffs’ corresponding request for a temporary restraining order, however, was immediately denied, with the Court stating it would consider only a fully briefed motion for preliminary injunction upon notice to Governor DeSantis. The plaintiffs’ complaint is available here.

Meanwhile, the Michigan Legislature has sued Michigan Governor Whitmer over her interpretation of her emergency powers for combatting the COVID-19 pandemic. At the heart of the Michigan Legislature’s complaint is the assertion that Governor Whitmer has acted outside her statutory authority and violated the state constitution’s separation of powers by usurping legislative functions. A similar challenge brought by the Wisconsin Legislature against that state’s Department of Health Services Secretary-Designee Palm was heard by the Wisconsin Supreme Court on May 5, with a decision expected any day. The Michigan complaint is available here, and the Wisconsin Court System’s article on the Wisconsin Legislature v. Palm case is available here.

And in a shutdown-adjacent case, a federal judge has directed New York to hold its democratic presidential primary after the state had canceled it amid COVID-19 concerns. The ruling comes after a lawsuit filed by former candidate Andrew Yang, and joined by former candidate Bernie Sanders, which argued that removing their names from the ballot and canceling the primary was a violation of their rights. Judge Analisa Torres agreed, and despite recognizing the importance of protecting the public from the spread of COVID-19, found that cancellation of the primary did not meaningfully advance that interest to the extent that would justify the rights violation suffered by the plaintiffs. News coverage is available here and here (with a copy of the complaint in the article).

How long before wrongful death lawsuits against the meat-processing and cruise industries expand to other business sectors?

As we discussed in two of our COVID-19 litigation webinars, employers are receiving ever-changing guidance from state and federal governments on how to maintain a “safe workplace.” Staying up-to-date on that guidance, specifically from the Occupational Safety and Health Administration ("OSHA"), as well as the CDC, can be key to not only maintaining a safe workplace but also to achieving a successful litigation outcome.

In a widely publicized public nuisance case against Smithfield, for instance, the Court dismissed the complaint, noting continuously changing guidance and deferring to the OSHA's ongoing investigation. The plaintiff, Rural Community Workers Alliance, had alleged that Smithfield had not done enough to keep the employees safe, whereas the company argued it had complied with all OSHA guidance. As a further twist, the federal government had ordered the Smithfield meat-processing plant to stay open—yet did not provide specific guidance on operations. In dismissing the complaint, the Court noted Smithfield already had taken many of the called-for steps, including screening production-line workers for symptoms and installing barriers between them. The dismissal order is available here.

Another lawsuit involving the meat-processing industry alleges Quality Sausage Company was responsible for a worker’s death from COVID-19. The complaint alleges Quality Sausage did not implement any COVID-19 policies and also ignored employees with COVID-19 symptoms. It specifically alleges the decedent, a fork lift operator, was compelled to come to work despite having COVID-19 symptoms. Although Quality Sausage Company no doubt denies the allegation, it has not commented on the case. It did, however, suspend all operations to assess its response to the public health crisis and to test all employees. It is not yet clear how Texas’s worker’s compensation system, which includes limited immunity for employers, may impact this litigation. It is also not clear if there is coverage for COVID-19 for employees of meat packing plant under Texas’ workers’ compensation law. Finally it is certainly not clear how the President’s order directing meat-processing facilities to stay open could impact such litigation. For all of these reasons, this is a case to watch. News coverage of the lawsuit is available here. The complaint is available here.

Turning to the cruise industry, an estate alleges that Carnival Corp. and its subsidiary, Princess Cruise Lines Ltd., are responsible for a passenger’s death as a result of having taken insufficient safety precautions. The lawsuit alleges the decedent’s death was “the direct and proximate result of his exposure to the virus on the ship due to Defendants’ failure to take any effective measures to prevent or mitigate the spread of COVID-19 onboard the Grand Princess.” Even though the cruise ship disembarked before states of emergency were declared, the plaintiff complains that passengers on this ship were not warned of the virus’s dangers while passengers on prior cruise were. Moreover, the plaintiff alleges the cruise line did not quarantine passengers until several days into the cruise. And even then, the complaint alleges the cruise line held at least one formal group dinner, with a vivid description of passengers handling the same buffet-line salt-and-pepper shakers without any sanitation measures. The plaintiff bases its alleged right to recovery under theories common law negligence and gross negligence, as well as under the Death on the High Seas Act. Carnival has not commented on the suit. News coverage of the lawsuit is available here. The complaint is available here.

In another case involving the cruise industry, an employee’s estate has sued Royal Caribbean Cruise Line for wrongful death. The plaintiff alleges that conditions after passengers left the ship did not meet CDC or industry standards and, moreover, employees were made to work without social distancing and without masks. Both measures, the plaintiff argues, could have prevented the employee’s death from COVID-19. Federal law provides a form of “workers' compensation” in these cases, and so typically, the estate would file a Jones Act claim for compensation if the employer’s negligence caused the cruise ship worker’s injuries. Royal Caribbean has not commented on the lawsuit, but has issued a statement saying it is working with the CDC to ensure employee safety. News coverage of the lawsuit is available here. The complaint is available here.

Will debt collectors hold on to their victory over the Massachusetts Attorney General?

In our last issue of Unprecedented, we reported on a preliminary injunction hearing held on a lawsuit that a group of debt collectors had filed over the Massachusetts Attorney General’s emergency rule limiting their collection activities. Since then, the U.S. District Court for the District of Massachusetts enjoined the rule’s enforcement, holding it unlawfully infringed on First Amendment protections for free speech and petitioning activity. Although an appeal seems likely, the Court’s order represents a significant blow to government’s efforts to justify restrictions on business activities by reference to the COVID-19 pandemic. Indeed, we could see landlords, who largely have been prohibited from initiating eviction proceedings, bring challenges to similar orders in reliance on the Court’s opinion. A copy of that opinion is available here.

Will any college or university avoid a refund lawsuit?

Boston University, Brown University, Duke University, George Washington University, Seton Hall University, and University of Southern California have joined the ranks of colleges and universities sued over their refund policies for students who have moved from on-campus to remote instruction. With lawsuits being filed regardless of whether or not the college or university adopted a refund policy, it seems likely these claims will extend to every American institution of higher education.

Will Paycheck Protection Act litigation outlive the program?

A group of information technology companies has sued the Small Business Administration ("SBA"), U.S. Treasury Department, and two government officials in the U.S. District Court for the Central District of California. The plaintiffs allege the SBA issued guidance documents that offer evolving interpretations of the Paycheck Protection Program ("PPP"). Making matters worse, the plaintiffs allege, this guidance has undermined Congressional intent for the PPP to give small businesses a lifeline during the COVID-19 pandemic and has left businesses worse off than if they had never taken the funds. At the heart of the plaintiffs’ complaint is the assertion the SBA unlawfully re-imposed a “credit elsewhere” requirement waived by Congress when it stated that private companies with “access to other sources of liquidity” likely could not make a good-faith certification of need for a PPP loan. A copy of the complaint is available here.

We expect the PPP to remain a fertile ground for litigation. In addition to this rulemaking claim, plaintiffs have raised claims challenging the SBA’s administration of the program and alleging wrongdoing by banks and loan recipients.

Are employers going to face lawsuits over their use of funds under the CARES Act?

United Airlines is facing a lawsuit from a labor union alleging the company violated the CARES Act. According to the complaint, the airline received $5 billion in April under the Act, and in turn agreed to “refrain from conducting involuntary layoffs or furloughs, or reducing pay and benefits.” After receiving the funds, however, United unveiled its plans to reduce full-time workers’ hours, a move the union alleges violated the Act. After the lawsuit was filed, United announced it would reduce hours on a voluntary basis, and the workers who volunteered for the reduction would still retain their full-time status and corresponding benefits. Still, United maintains its prior plan was in compliance with its obligations under the CARES Act and did not violate the union’s collective bargaining agreement. News coverage of the lawsuit is available here and here.

Which companies were the most recent targets of price-gouging lawsuits?

One of the most recent price-gouging lawsuits focuses on eggs. A recent class action complaint filed in a California federal court accuses Amazon, Walmart, Trader Joe’s, and others of unfairly raising the price of eggs in the state. The group of consumers who filed the suit are accusing the retailers of using the COVID-19 pandemic and Governor Newson’s state of emergency declaration to increase egg prices as demand goes up, since more and more people are opting to cook at home. A similar lawsuit has also been filed in a Texas district court by Texas Attorney General Ken Paxton, which alleges egg producer Cal-Maine Foods, Inc. of raising the price of eggs three times the standard price. News coverage of the California lawsuit is available here (and the complaint is available here), and news coverage of the Texas lawsuit is available here (and the complaint is available here).

Another price-gouging lawsuit finds eBay at the center. The class action complaint filed in the U.S. District Court for the Northern District of California alleges that eBay’s business model allows, and even encourages, price-gouging by its sellers. According to the complaint, eBay directly benefits from the alleged price-gouging scheme by charging various fees, one of which is calculated based on a percentage of the final selling price. While eBay has made efforts to stop price-gouging from occurring on its platform, including a ban on “essential items” and a tool for reporting price inflations, the current lawsuit contends this has not been effective in preventing the illegal practice from occurring. News coverage of the lawsuit is available here, and the complaint is available here.

Meanwhile, in a case at the intersection of price-gouging and trademark law, a federal district court has issued an order blocking a New Jersey company from using 3M’s trademark to sell N95 masks at six times the regular cost. In its lawsuit, 3M argued the company, Performance Supply Co., was incorrectly claiming to be an authorized 3M distributor and used 3M’s logo to strike a deal with New York City’s Office of Citywide Procurement, whereby the company would provide seven million N95 masks at an inflated price of $45 million. Judge Loretta Preska agreed with 3M and ordered the company to stop using 3M’s trademark and deceptive means to sell the masks. News coverage of the order is available here, and the order is available here.

Where are the business interruption and civil authority coverage disputes headed?

Many of our past updates and webinars have noted the flood of coverage disputes involving the applicability of business interruption and civil authority insurance to COVID-19 related claims. While these cases continue to be litigated individually, there’s a push to move them into an MDL. And, meanwhile, multiple states are considering legislation that would preclude insurers from denying COVID-19-related business interruption claim—an approach certain to be challenged if adopted.

Until then, however, Lloyd’s of London has filed a motion to dismiss a claim brought by a Florida sports bar seeking coverage for lost business because of COVID-19 closure orders. The motion comes in response to a complaint filed on April 2, which sought to require the insurer to pay up to $200,000 under the bar’s policy to cover business interruption losses. Lloyd’s argues the lost business was not attributable to “direct physical loss or damage” to the insured’s property and any losses are purely economic. We expect this Lloyd’s response to be typical of insurers in most cases filed over these coverage disputes. News coverage of the motion to dismiss is available here, and the complaint is available here.

In related news, the D.C. Council has pulled legislation that would have compelled insurance companies to pay business interruption claims. The proposed provision would have prohibited insurance companies from denying claims made by businesses that were forced to close as part of the city’s order declaring a public health emergency on the grounds that the closures were not the result of physical damage to the property. The Council, however, ultimately nixed the provision after hearing concerns from insurance agencies and councilmembers, who worried that insurance costs would skyrocket, and the provision would be challenged in lengthy litigation. News coverage of the proposed legislation is available here.

What can the early force majeure cases teach us about where those cases are heading?

We anticipate a growing number of disputes over the applicability of force majeure provisions, with a major focus being on necessity versus convenience.

A lawsuit filed by pipeline company EFS Midstream LLC against driller Sundance Energy, Inc., for instance, accuses Sundance of breaching the parties’ contract by refusing to pay fees owed as a result of its failure to deliver the minimum revenue amount for a pipeline gathering system. EFS claims the deficiency fees are a condition of the agreement between the parties, and that Sundance failed to deliver the minimum revenue for 2019. As a result, EFS billed Sundance for the fees in February 2020. Sundance, however, argues it does not owe the accrued fees because it is owed $2.6 million in credits stemming from past issues with EFS. Notably, Sundance contends it cannot be on the hook for future fees either, because it argues the COVID-19 pandemic has triggered the force majeure clause included in the agreement. While it is unclear whether the pandemic falls under a force majeure event in this case, parties to contracts containing these types of clauses should review the provisions and prepare for the possibility of related claims. The complaint is available here.

Are more fraud and whistleblower complaints on the horizon?

The Justice Department has opened an investigation into Blue Flame Medical, a medical supply importing firm that signed contracts with both Maryland and California to provide masks and other PPE. After allegedly failing to deliver on its side of the bargain, the states canceled their multi-million dollar contracts, even after millions were transferred to the firm as a down payment. Now, federal investigators plan to probe the firm’s activities to determine whether it purposely attempted to exploit the COVID-19 pandemic, and whether filing charges is appropriate. News coverage is available here.

Additionally, a former top vaccine official has filed an 89-page whistleblower complaint alleging he was ousted from his position due to his pushback on the use of hydroxychloroquine. Rick Bright, who until last month was the director of the Biomedical Advanced Research and Development Authority, makes several allegations claiming he was retaliated against for his concerns about the drug’s safety. The Department of Health and Human Services has denied Dr. Bright’s allegations. A copy of the whistleblower complaint is available here.

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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