This 13th edition of Unprecedented, our weekly update on COVID-19-related litigation brings new developments in everything from constitutional law to tort liability. Shutdown cases show no signs of slowing down, and it seems probable that more will follow as some states reverse reopening plans in response to coronavirus outbreaks. Indeed, the restrictions are likely to hit businesses particularly hard, and a recent lease dispute filed by the couture manufacturer Valentino shows that even high-end retailers are not immune. And even where permitted to reopen, businesses are being forced to decide how to protect customers and employees with little in the way of consistent guidance and the prospect of liability protection stuck in Congress. All signs are thus pointing to a litigious summer.
We hope you find these cases, and the questions they raise, to be informative.
Will shutdown litigation ever slow down? All signs so far point to no.
Fitness and gyms continue to push back against the shutdown.
States across the country have taken different approaches to how, or whether, to operate gyms and fitness centers in light of COVID-19. A federal court in Michigan ruled that gyms may reopen in a modified manner as of June 25. In a lawsuit filed by the League of Independent Fitness Facilities and Trainers, Inc. and 22 individual businesses alleging violations of the U.S. Constitution, the court entered a preliminary injunction enjoining Michigan from enforcing an executive order requiring that gyms remain closed. The Court found that the arguments put forth by the state in support of the executive order amounted to little more than a “blanket ‘trust us’ statement” that was insufficient to uphold the executive order. The Court instructed that, when gyms reopen, they must still follow the state’s requirements for reopening. Click here for news coverage (with a copy of the court’s opinion embedded).
Gym World, Inc., which operates 11 gyms under the name Best Fitness, including five locations in Massachusetts, filed suit against the Governor of Massachusetts on June 18, 2020. According to interviews, when open, the five gyms in Massachusetts make around $15 million in annual revenue, employ around 310 people, and cost Gym World, Inc. around $135,000 per month in rent, regardless of whether the fitness centers are open. Governor Baker's March Executive Order made fitness facilities non-essential and closed them down for months in hopes of containing the COVID-19 virus. Fed up with paying rent on space without netting any revenue, Gym World, Inc. has filed suit against the Massachusetts Governor claiming a violation of its Fifth Amendment rights (the Fifth Amendment contains a prohibition on private property being taken for public use without just compensation). The complaint also questions whether the overall health benefits associated with physical fitness warrant gyms being classified as essential, thus exempt from COVID-19 related closures. The Governor's four-phase reopening plan called for each phase to last three weeks. However, due to the trends in COVID statistics, Governor Baker announced on June 19 that phase 3 (including reopening indoor gyms), once set to begin as early as June 29, would be pushed back at least a week, maybe further. Click here for news coverage.
The village of Orland Park, Illinois, along with two village residents and a tavern, filed a lawsuit in the U.S. District Court for the Northern District of Illinois challenging Governor J.B. Pritzker’s reopening plan. The plaintiffs allege that the COVID-19-related restrictions are an overstep of authority by Governor Pritzker, and violate the due process and equal protection clauses of the Constitution. The lawsuit comes after the Orland Park Village Board asserted in a May resolution that the village would take legal action if Governor Pritzker did not accelerate the reopening process by June 1. Orland Park presented its own proposed reopening plan to Governor Pritzker in April, which would allow businesses to reopen roughly two weeks earlier than Governor Pritzker’s plan. Orland Park has projected that revenue will fall roughly $4.5 million this budget year. In a video message regarding the lawsuit, Orland Park’s Mayor stated, “We tried a dialogue with the governor and are getting nowhere.” News coverage of the lawsuit can be found here and here.
Lastly, in one of the Hawaii shutdown lawsuits we reported in last week’s Unprecedented, a federal judge pushed back at the United States’ offer of a Statement of Interest supporting the plaintiffs’ claims. Noting that it had raised Fourteenth Amendment privileges and immunities arguments that neither of the original parties had addressed, U.S. District Court Judge Otake ordered the United States to show cause as to why it should be permitted to participate in the litigation. The United States’ short response, filed the next day, claims the statutory right to participate in any case of interest to the federal government and gives its interest as protecting the fundamental right to travel between states. And though it seems likely that this response will be sufficient to ensure the United States’ continuing participation, the exchange is nonetheless noteworthy as the judiciary’s first pushback (or so we believe) against the United States’ intervention in shutdown litigation.
Will businesses continue to push back regarding leases? A recent lawsuit by Valentino suggests the answer is yes.
In August 2013, designer brand Valentino signed a 16-year lease with Savitt Partners LLC for the highly exclusive retail space in which its flagship store currently operates on Fifth Avenue. At the time, Valentino considered the expensive lease to be worth the price of residing next to other luxury boutiques in the famed stretch outside of Central Park. These expectations were sharply curtailed by the unexpected COVID-19 pandemic, which virtually eliminated foot traffic and a large part of Valentino’s customer base.
Facing a drastic reduction in sales and profitability, Valentino has now filed suit to terminate this lease, citing the impracticability of the lease contract. Valentino’s lawsuit relies, in part, on a provision in the lease contract about how Valentino would use the space “consistent with the luxury, prestigious, high-quality reputation” of Fifth Avenue—a business objective that Valentino claims has been rendered impossible by the pandemic. Valentino is not alone in raising this type of COVID-19-related claim. Other famous brands and companies such as Victoria’s Secret, Roc Nation, and even the National Basketball Association have become ensnared in lease disputes and rent-related lawsuits directly resulting from the COVID-19 pandemic. While it remains to be seen which landlords and/or tenants will emerge victorious from these lawsuits, all commercial entities negotiating lease agreements would be well-advised to consider the enforceability provisions within these contracts in the event of future pandemics or other unprecedented circumstances. News coverage can be found here.
Will employee and customer liability litigation continue to rise? Without a doubt.
Shopping malls, retail outlets, restaurants, and other stores have taken it on the chin during COVID-19 shut-downs and restrictions. As we discussed in an earlier issue of Unprecedented, some large national retailers have had to choose between (1) paying millions of dollars of rent to their landlords, despite being unable to open their stores due to state-imposed restrictions, or (2) facing multi-million dollar lawsuits for breaching their leases. Now that restrictions are easing and stores are starting to re-open, retailers now face a new dilemma: minimizing the potential for liability in case of infection. If an employee is infected, it could lead to a potentially costly workers’ compensation claim. It is not clear whether workers' compensation insurance will cover such a claim, though many state legislatures have taken action to clarify the answer to that question. Regardless, the risk of a widespread infection looms large. A mass infection could result in a class action lawsuit. If an employee or customer dies as a result of an infection contracted at the store, a wrongful death lawsuit is also possible.
If retail owners decide to re-open, they are advised to follow all federal, state, and local guidelines closely, and to exceed them if possible. Some Los Angeles-area shopping malls have implemented procedures that exceed guidelines, such as turning off water fountains, closing dressing rooms, installing plexiglass shields around check-out areas, and instituting cleaning and sanitizing schedules to sanitize surfaces several times per day. These procedures will likely reduce the chance that an employee or customer will be infected and, at a minimum, will also bolster a store or mall owner’s defense if an employee or customer seeks to impose liability on a store or mall owner after the employee contracts the disease. News coverage can be found here.
As various parts of the United States are relaxing COVID-19 restrictions, business-owners are looking for ways to open their stores, restaurants, and service industries without risking new lawsuits or legal liability related to the disease. With several states experiencing sharp increases in infection rates, business-owners are increasingly (and justifiably) worried about how to run their businesses without getting employees or customers sick, and how to avoid getting sued if someone does get sick. So far, there is no unified plan, giving way to a patchwork attempt to mitigate businesses' legal liability relating to COVID-19 exposure. The most expansive option would be federal legislation. It has been widely discussed that some sort of business-owner immunity could be part of a second COVID-19 stimulus. The existence or limits of that immunity, however, are up for debate. Republicans (led by Senate Majority Leader Mitch McConnell) favor broad protections to encourage more businesses to re-open, while Democrats (led by Speaker of the House Nancy Pelosi) worry that broad protections will prevent workers or customers from pursuing litigation if an employer or business jeopardizes their health by not complying with recommended protections. Advocacy groups, ranging from industry leaders to labor unions, are weighing in as well. As a result, federal legislation for immunity may be on the horizon, but it is still hazy. In this void, some states have passed state-level legislation to provide liability limitations on businesses. Some, like New York or Arizona, have laws that provide immunity from COVID-19 litigation for businesses in the health care industry, while others, like Iowa, have laws limiting who can file civil lawsuits against businesses for COVID-19 related reasons, and raising the legal standard for what makes a business liable for exposure. Add in the fact that businesses are also beginning to require customers or visitors to sign "liability waivers" (which at least six states currently recognize via legislation or executive order), and a single business' exposure to COVID-19 lawsuits can be complex even if it is taking all recommended precautions. To aid businesses in making sense of this ever-changing topic, Spilman will continue to monitor the state and federal initiatives regarding COVID-19 liability limits for businesses. Click here, here and here for news coverage.
Will cancellation refunds cause more and more litigation? Yes.
COVID-19 has forced all of us to cancel or postpone events scheduled for this summer, and concerts are no exception. Ticketmaster, the online ticket sales and distribution company, has recently been sued in a class-action lawsuit alleging that it has not provided refunds for postponed or rescheduled events. The plaintiffs claim Ticketmaster “sought to retroactively change their policies for refunds . . .” and “quietly force their buyers to endure the financial losses.” As parts of the country begin to re-open, it seems likely that we will continue to see more refund-related class actions filed against various companies in the entertainment industry who have been forced to postpone or reschedule summer events due to COVID-19. Click here for news coverage.