With the COVID-19 pandemic impacting nearly every aspect of business and society, there are an increasing number of COVID-19-related disputes yielding litigation. This should come as no surprise. Although this pandemic is unique in its breadth and our response, prior epidemics have similarly sparked wide-ranging litigation.
For example, following the Ebola outbreak in 2014, a nurse brought suit against a Texas hospital alleging that its negligence caused her to contract Ebola while caring for a patient. Similarly, an Ohio-based bridal shop sued the same hospital after the nurse shopped at its store, eventually causing it to close down. And, following the SARS outbreak in 2009, Canadian nurses and healthcare workers impacted by the virus claimed there were insufficient safeguards put in place to protect their health; they sued both their employers and the local government.
Now that it has been nearly a month since the President declared a national emergency concerning COVID-19, and almost four weeks since California became the first of many states to order a statewide lockdown, patterns are starting to emerge from the first wave of COVID-19-related litigation. These initial cases provide important lessons about what the future portends and could shed light on a given entity’s litigation risks.
Although this update does not address every case, it identifies some patterns in negligence actions, consumer protection cases, securities claims, and CARES Act litigation. It draws lessons from each and concludes with some general tips for the future.
Although one negligence case involves Florida residents suing the People’s Republic of China for failing to contain the virus, other COVID-19 negligence cases are not so novel. For example:
- Princess Cruises: Several putative classes have filed multimillion-dollar claims against Princess Cruise Lines. The classes allege the company negligently operated a cruise even after learning that prior passengers had symptoms of COVID-19. The cruise also allegedly allowed passengers from that prior trip to remain on board for the next voyage. The classes further allege intentional and negligent infliction of emotional distress arising from a quarantine imposed during the trip.
- Costa Cruises: Similarly, former passengers of Costa Cruises filed a proposed class action against the company for operating a trip with knowledge that a prior passenger was sick. The suit alleges the company did not fully sanitize the ship and told passengers they would not be refunded if they chose not to travel. The proposed class asserts claims for, among other things, negligence, negligent infliction of emotional distress, and intentional infliction of emotional distress.
Although the likelihood of success on this type of negligence claim is heavily fact- and jurisdiction-dependent (and potentially implicates specific carriage contracts or poses difficult questions about causation), one can easily imagine how a plaintiff could apply the theory in other contexts. As we move forward, and as businesses are permitted to re-open to the public, these cases will be important precedent for those in the hospitality and tourism industry and may speak to their specific obligations during this crisis. Likewise, these cases exemplify the potential risk – both now and in the coming months – to companies operating facilities where large groups of people congregate or reside, including sporting or entertainment venues, residential properties, and nursing facilities. And, difficult questions of duty and reasonableness may arise if there are conflicting national, state, and local actions lifting social distancing or other pandemic-related orders.
There has also been significant litigation implicating state consumer protection statutes. These cases have generally involve false claims, price gouging, and issues involving refunds:
- False Claims: One set of cases implicates allegedly false claims about a product’s ability to prevent or cure COVID-19. For instance, class actions have been brought against Target and, separately, Germ-X, for claims that their hand sanitizers prevent viruses like COVID-19. Similarly, Alex Jones is being sued for marketing a toothpaste that he promised would “kill the whole SARS-corona family.” And, the distributor of a product called “Silver Solution” is being sued for claiming it would cure the novel coronavirus.
- Price Gouging: There have also been recent cases alleging illegal price gouging (in addition to comparable state enforcement actions). These cases involve allegations that a given seller increased prices on necessary products, such as toilet paper or hand sanitizer.
- Failure to Refund: There have been an increasing number of cases in which consumers claim a company improperly failed to issue a refund for a cancelled product or service. For instance, class actions are pending against the Boston and New York Sports Clubs for allegedly violating state consumer protection laws by continuing to charge a monthly fee while their facilities are closed. Education First, a company operating educational tour experiences for students, is being sued for refusing a full refund for a cancelled trip. So, too, for United Airlines: passengers are suing the airline for allegedly refusing to issue refunds for cancelled flights. And, exemplifying the breadth of these cases, students have brought a putative class action seeking reimbursement of certain fees from Liberty University. Even though the school remained open, the students allege that the school dramatically reduced the available services.
The risk of litigation under a false claims theory is more significant for those offering products and services in the healthcare space; it is particularly acute for those who are selling products relating, in any way, to COVID-19. Further, given public and private actions related to price gouging (as we’ve discussed in earlier alerts), it is essential that companies selling goods and services follow best practices. Finally, the cases dealing with refunds could be the most widespread and are likely to be brought as putative class actions. These cases underscore the importance of balancing the contractual terms that govern a cancellation, with the practical reality that all Judges and jurors will likely be subjected to a cancellation (or otherwise have their life or plans altered in some way) because of the virus. And, given the limitations periods for these claims, we expect that some cases will not be filed for months, or even years, thus providing the benefit of hindsight and time to examine claims made, and actions taken, during the pandemic.
Class actions have also been filed in the securities space, in fairly diverse industries. For instance:
- Inovio Pharmaceuticals: Shareholders of Inovio Pharmaceuticals allege that the CEO made false claims about the Company’s development of a COVID-19 vaccine. They assert that public reports contradicted this claim, purportedly causing the stock price to decrease. In mid-March, these shareholders filed a putative class action against the Company anchored on these allegations.
- Norwegian Cruise Lines: Similarly, a shareholder filed a proposed class action against Norwegian Cruise Line Holdings, Ltd. The shareholder claims that the company made false or unproven claims to customers to entice continued purchases.
- Zoom: Telecommunications companies like Zoom have become daily fixtures for businesses operating in a remote environment because of COVID-19. But shareholders allege that Zoom made misleading statements about its encryption and data privacy practices. When those shortcomings were discovered, the Company’s stock suffered. And so shareholders have filed a securities claim against the Company.
The risk for public companies is heightened in this difficult and uncertain environment. This is true with respect to a company’s statements in SEC filings and other public-facing pronouncements. It is particularly important, as we detailed in a prior alert, to proceed with caution before making any such statements.
Although it is only the beginning of the effort to implement the various components of the CARES Act, litigation is already underway. Most notably, a small Maryland business recently filed suit against Bank of America regarding its lending under the Payment Protection Program (PPP). The plaintiff claims that the Bank is prioritizing customers with existing accounts when extending loans.
The plaintiff moved for a temporary restraining order (TRO) to require a change to the Bank’s practices. The parties disputed whether the CARES Act delegated authority to lending institutions to impose restrictions for applying for PPP loans. The parties also disputed whether the plaintiff had an implied right of action to even assert the claim.
Judge Stephanie Gallagher of the District of Maryland noted that this represented a “significant flaw” in the drafting of the CARES Act, but nonetheless denied the TRO. The Court agreed with the Bank, and concluded that the law did not provide a private right of action. Further, the Court concluded that the Act did not preclude the Bank from setting certain restrictions in the application process.
This is only the beginning for litigation involving the CARES Act. Financial services companies will want to pay particular attention to the Bank of America decision and talk with counsel to ensure compliance with the new law. For more information about the CARES Act, you can visit our COVID-19 information page, which contains numerous alerts about the law.
Given this initial COVID-19-related litigation, companies can start taking various steps, including the following:
- Consider Your Specific Type of Risk in Each of These Categories of Cases. We anticipate that this initial wave of litigation is only the beginning. As each case progresses, we suspect that analogous plaintiffs will draw on these precedents and assert similar claims in new settings. Given this – and the likelihood of other cases involving insurance disputes, trademark issues, and other breach of contract claims – businesses can and should work with counsel to evaluate their unique vulnerabilities. Entities that may experience increased risks upon re-opening, like those in the hospitality and tourism industry, should start putting plans in place to mitigate those risks.
- Carefully Evaluate and Follow Government Orders. It is particularly important that companies continue to pay close attention to any federal, state, and local orders, along with any implementation guidance. Complying with these orders could, depending on the circumstances, serve as a defense to various legal claims. Further, the guidance could speak (or be relevant) to determining an entity’s specific duties vis-a-vis its customers and employees. And, if national, state, and local governments start taking inconsistent approaches, companies will want to work with counsel to evaluate their best course of action.
- Consider Adopting Best Practices to Ensure a Healthy Environment. It is also essential that entities consider adopting best sanitation practices in their industry to ensure a healthy environment for their customers and employees. This will be particularly important as states begin to lift “shelter in place” orders, and for those entities operating facilities where people congregate.
- Understand Legal Hold Triggers. Where your litigation risk is so pronounced that litigation is reasonably anticipated, implement a legal hold process to ensure relevant information is preserved.
The situation involving COVID-19 continues to change rapidly and we anticipate additional COVID-19-related litigation in the future.