COVID-19 Litigation Roundup

May 12, 2020
Alston & Bird LLP

Two weeks ago saw a significant increase in new litigation related to the pandemic, but this past week represents an even larger burst of new filings – approaching 200 new cases.  The number of new complaints increased in nearly all of the categories we’ve been tracking, most notably in the insurance coverage realm. 

Of significant interest this week is a number of court decisions in pending cases that may provide insight into how similar claims will be resolved.  Smithfield Foods prevailed on a motion to dismiss claims that it failed to adequately protect its meat-packing plant workers.  Another court dismissed a suit brought by nurses complaining of a lack of personal protective gear. 

3M secured injunctive relief against defendants who were misusing its brand name to promote respirators.  And a court blocked the implementation of the Massachusetts attorney general’s emergency regulation banning certain debt collection calls and lawsuits.  While many state courts remain shut down, the federal courts are addressing litigants’ pandemic-related concerns.

Also new is the growing number of suits related to the Paycheck Protection Program (PPP), with a series of lawsuits in California, Illinois and Alabama alleging that agents of banks who processed PPP loans were not properly paid.  Other suits target the eligibility criteria for the program and one suit seeks to strike down a term in a hotel’s financing agreement that arguably precludes it from seeking relief under the PPP. 

Another brand-new category of claim this week is defamation, with a suit brought by a McDonald’s restaurant against an Ohio newspaper that reported the restaurant was a “hot spot for flu-like symptoms.”   

We continue to see a significant volume of new consumer refund, insurance coverage, misrepresentation, and workplace suits.  Suits challenging stay-at-home and business closure orders continue to expand.  In the Pennsylvania case we discussed last week, the U.S. Supreme Court declined to stay the emergency order that shut down all “non-life-sustaining” businesses in Pennsylvania. 

Noteworthy COVID-19 Business Cases Filed Before May 7, 2020

Consumer Class Action Refund Claims

One of the most common types of pandemic-related suits continues to be class actions seeking refunds for services rendered impossible or impracticable by the COVID-19 pandemic.  New lawsuits keep targeting universities; ticker sellers; ski resorts; fitness studios and gyms; and airlines.  

New this past week were claims targeting the vacation rental industry, as well as a suit using the pandemic as an additional ground for alleging that the Houston Astros sold tickets under false pretenses.  Astros ticketholders demand ticket refunds, citing Dr. Anthony Fauci’s statement that he believes the only way professional sports will resume during the summer of 2020 is if no fans are in attendance. 

Even companies with generous offers of credits and discounts are being sued.  The organizers of the cancelled 2020 SXSW (or South by Southwest) event were sued despite offering ticket purchasers a deferral of their festival credentials for one of the next three festivals and a 50% discount in subsequent years; plaintiffs instead demand full cash refunds.

Misrepresentation/Fraud Claims

As we highlighted last week, the federal government is keenly monitoring all representations that a product can treat COVID-19.  For example, in United States v. My Doctor Suggests LLC, No. 2:20-cv-279 (D. Utah), the government alleges defendants fraudulently marketed silver products, including soap and lozenges, for the prevention and treatment of COVID-19.  States too are focused on whether merchants are accurately advertising COVID-19 related products.  In People of the State of California v. Applied BioSciences Corp., No. 20STCV16600 (LA Superior Court), California alleges defendants falsely advertised their home coronavirus test kits as FDA-approved.

The federal government is also keeping a close eye on fraudulent claims for relief submitted by merchants under the Paycheck Protection Program.  In U.S. v. Staveley, No. 1:20-mj-34 (D. R.I.), the government alleges that defendants sought a total of more than $500,000 in relief to pay employees at businesses that were fictitious, closed, or owned by someone else.

Actions Against Government Agencies

State and local “stay at home” and “shutdown” orders are increasingly being challenged in court.  Following up on the success of Representative Darren Bailey, RC Outfitters has challenged Illinois’ closure of “non-essential” businesses in state court.  Similar challenges have been filed in Missouri and Alabama

We noted last week that the U.S. Supreme Court had indicated interest in DeVito v. Wolf, No. 19A1032 (U.S.), which seeks a stay of Pennsylvania’s emergency order that shut down all “non-life-sustaining” businesses.  This past week, without comment, the Supreme Court denied the stay.  A petition to weigh the merits of the challenge is still pending.

More narrowly targeted challenges to the application of COVID-19 regulations are starting to reap fruit for plaintiffs.  For example, in ACA International v. Healey, No. 1:20-cv-10767 (D. Mass), an emergency regulation from the Massachusetts attorney general banning certain debt collection calls and lawsuits was blocked.  The court held that the measure violates the First Amendment rights of collection agencies without adding meaningful protections for consumers. 

Paycheck Protection Program Lawsuits

Disputes as to eligibility for PPP relief are ongoing.  In Zumasys Inc. v. U.S. Small Business Administration, No. 8:20-cv-00851 (C.D. Cal), plaintiffs challenge the legality of the April guidance from the Small Business Administration and U.S. Treasury Department warning that public and private companies with other means of financing themselves may not qualify for the PPP.  Plaintiffs allege the regulatory guidance overreaches and risks undermining the program’s mission of keeping workers employed.

This week brought a series of lawsuits alleging that agents of banks who processed PPP loans were not properly paid.  In A.D. Sims LLC, obo a class of similarly situated businesses and individuals v. Wintrust Financial Corp., 1:20cv2644 (N.D. Ill.), plaintiffs allege that financial institutions did not pay mandated agent fees, instead keeping all origination and processing fees for themselves.  Similar suits have been filed in California and Alabama federal court.

Companies have also begun to challenge the terms of existing contractual agreements with financial institutions in order to access PPP funds.  In Beechwood Lakeland Hotel LLC v. U.S. Bank NA, No. 8:20-cv-1022 (M.D. Fl.), Beechwood alleges that it wants to apply for relief under the PPP, but the hotel’s loan agreement with defendant bank does not allow for additional debt. Since the funds from the government program are forgivable, Beechwood seeks a declaratory judgment that the contractual restrictions do not apply.

Force Majeure / Impossibility

Businesses around the country are seeking to be excused from lease obligations based on revenue loss due to government closures.  By way of example, in JR Park LLC dba Hyde Park Prime Steakhouse v. CP Commercial Delaware LLC, No. CV-20-932106 (Cuyahoga Cnty. Ct. Comm. Pl.), a steakhouse alleges that that it lost all revenue when it closed its dining room and bar pursuant to Ohio’s COVID-19 closure order.  The steakhouse seeks a declaration that it is excused from its lease obligations until it is permitted to reopen based on the doctrines of frustration of purpose, impossibility, and impracticability.

Workplace

Employee lawsuits continue to allege that employers failed to take sufficient protective measures, failed to give the requisite notice before layoffs, wrongfully denied leave under the Family First Coronavirus Relief Act, and wrongfully terminated employees who chose to self-isolate due to exposure to or symptoms of COVID-19.   But the employment litigation landscape continued to evolve with the filing or disposition of several novel cases.

Price-Gouging Litigation

As in previous weeks, price gouging cases related to the sale of eggs are continuing to surface.  But the scope of price gouging cases is expanding rapidly.  eBay, Inc. was hit with a putative price-gouging class action this week in Mercado v. eBay, Inc., No. 5:20-cv-03053 (N.D. Cal.).  Plaintiff alleges that eBay encourages sellers to hike up the prices of products like masks and hand sanitizers. 

Companies, rather than consumers, are also sparring over commodities made more valuable by the COVID-19 pandemic.  In Global Environmental Restoration Inc. v. Shore Corporation, No. 6:20-cv-547 (W.D. La.), plaintiff alleges that defendant is attempting to extort plaintiff by using the COVID-19 pandemic as leverage in refusing to ship significant quantities of product used to manufacture plaintiff’s disinfectant. 

Also noteworthy is a case brought by the Online Merchants Guild, which represents online retailers.  The suit seeks an order that the state’s attorney general cannot constitutionally apply Kentucky’s price gouging laws against online retailers selling hand sanitizer and personal protective equipment on Amazon.com during the pandemic.  See Online Merchants Guild v. Cameron, No. 3:20-cv-29 (E.D. Ky.).

3M continues its price-gouging/trademark infringement litigation strategy, securing a temporary restraining order and a preliminary injunction (here and here) against defendants to prevent them from using 3M’s trademarks in connection with their promotion of 3M-brand N95 respirators.  3M also filed four more federal trademark lawsuits this week against companies it claims are reselling its N95 masks at drastically increased prices, bringing the total to 10 cases filed during the COVID-19 pandemic.  3M Company v. 1 Ignite Capital LLC, No. 4:20-cv-00225 (N.D. Fla); 3M Company v. Puznak, No. 1:20-cv-01287 (S.D. Ind.); 3M Company v. King Law Center, No. 6:20-cv-00760 (M.D. Fla.); 3M Company v. TAC2 Global LLC, No. 8:20-cv-01003 (M.D. Fla.).

Securities

This week saw cases filed by shareholders targeting alleged pandemic-related misrepresentations and omissions.  In Wandel v. Gao, No. 1:20-cv-03259 (S.D.N.Y.), plaintiff alleges defendant failed to disclose to investors that it was experiencing financial problems due to fallout from the pandemic with its Wuhan, China-based tenants.  In Yannes v. SCWorx Corp., No. 1:20-cv-3349 (S.D.N.Y.), plaintiff alleges that defendant misled investors by fraudulently claiming it received a purchase order of two million COVID-19 rapid testing kits per week for over six months (a value of $35 million per week).

Insurance

The biggest increase in new filings this week occurred in the insurance coverage realm.  Notably, the plaintiffs’ firm of Lieff Cabraser Heimann & Bernstein LLP has filed the first of what they claim will be many lawsuits on behalf of restaurant owners.  The first lawsuit, filed on behalf of Michelin-starred San Francisco restaurant Coi, and Los Angeles’ Alta Adams restaurant, alleges breach of contract, bad faith denial, and fraud as a result of the insurers’ denial of plaintiffs’ business loss claims. 

While not quite of Michelin-star caliber, similar claims were brought against insurers by various fast casual restaurants inside Las Vegas resorts and casinos, in Project Lion LLC v. Badger Mutual Insurance Co., No. 2:20-cv-768 (D. Nev.), which joins the COVID-19 Business Interruption Protection Insurance Litigation MDL.  Finally, in Rowland Heights Medical Center, Inc. v. Amguard Insurance Co., No. 20STCV16781 (Los Angeles Superior Court), the medical center seeks a declaration that the COVID-19 shutdown order constituted a prohibition of access to plaintiff’s insured premises by a civil authority, as defined in the policy.

Debt Collection

In the foreclosure realm, lawsuits allege that efforts to foreclose on properties are improper because trustees’ sales violate shelter in place and social distancing orders. In Garnicki v. Anchor Loans LP, No. CGC-20-584236 (San Francisco Superior Court), the plaintiff alleges defendant tried to conduct a trustee’s sale in a public auction that was ultimately shut down by sheriff’s deputies because the sale violated social distancing requirements.

Defamation

It is also worth mentioning that periodicals covering the pandemic have not been spared from the surge in litigation.  In Golden Alliance Inc. v. Barberton Herald Hostings LLC, No. CV-2020-04-1346 (Summit County Common Pleas Court, Akron, Ohio), a McDonald’s restaurant owner brought a defamation action against a local Ohio newspaper, The Barberton Herald, alleging the newspaper sensationalized the COVID-19 pandemic by calling the McDonald’s restaurant a “hot spot for flu-like symptoms.” 

Jason Levine is a commercial and antitrust litigation partner in the Washington, D.C. office of Alston & Bird LLP. Peter Masaitis is a product liability and toxic tort litigation partner in the firm’s Los Angeles office.  Alex Akerman, Fiona O’Carroll, and Gillian Clow are litigation associates at the firm.