Top Developments in COVID-19 Litigation
Jason A. Levine, Gillian H. Clow, and Giles Judd, Alston & Bird LLP
This week’s top COVID-19 litigation developments involve: the dismissal of a securities fraud class action against Norwegian Cruise Lines; a new “taxation without representation” lawsuit by restaurants and bars against the State of California and Santa Clara County; and the expiration of Texas guidelines for state courts regarding the CDC’s residential eviction moratorium.
Relatedly, this post marks the one-year anniversary of our COVID-19 litigation blog. We thank all our readers.
1. Securities Fraud Case Against Norwegian Cruise Line Dismissed
Overview: The Southern District of Florida granted Norwegian Cruise Line’s motion to dismiss a putative securities class action that alleged the company had violated the Securities Exchange Act by misrepresenting the impact of COVID-19 on its business.
Background: This case was one of the very first COVID-19 related lawsuits, filed in March 2020 (and covered in the first post of this blog a year ago). An investor sued Norwegian Cruise Lines and two of its officers, alleging that they made misleading statements in a press release, a conference call, and the company’s Form 10-K, about the company’s allegedly deceptive marketing strategies relating to COVID-19. The complaint alleges that these statements were false insofar as they omitted material facts relating to its allegedly deceptive marketing campaign.
Decision: Dismissing the complaint, the court found that complaint failed to plead any material misrepresentations or omissions, stating instead that “all the challenged statements constitute corporate puffery because they are vague and so broad that no reasonable investor would have relied on them to make a decision on whether to invest or not.” The court also noted that “at the time the alleged marketing scheme was taking place, then-President Donald Trump made similar statements regarding Covid-19 and therefore it is arguable that these statements were not even deceptive, insofar as they aligned with the pronouncements of our nation’s President.” The court further held that that many of the challenged statements were protected by the safe harbor for forward-looking statements, and that plaintiff also failed to plead intent to defraud.
Our Take: This opinion is significant. Symbolically, it marks the close of the first year of COVID-19 related litigation. It also reaffirms that more than “corporate puffery” will be required to maintain a claim for securities fraud, even with respect to public relations communications associated with the pandemic. That said, however, the COVID-19 climate in February 2020 looked very different than it did even a few months later, as the pandemic progressed, so we would expect courts to calibrate this decision’s precedential weight carefully when judging securities cases arising from statements made later in 2020.
2. Restaurants Challenge “Taxation Without Representation” in Proposed Class Action Against the State of California and Santa Clara County
Overview: A proposed class of Santa Clara County restaurants and bars, led by Protégé Restaurant Partners, LLC, has filed suit against the County of Santa Clara, its Department of Environmental Health, and the California Department of Alcoholic Beverage Control for their purported failure to refund permit and licensing fees collected during the 2020 fiscal year despite shutdown orders that required these businesses to cease or limit operations.
Allegations: The complaint asserts violations of: California’s Government Code § 53723, which prohibits the imposition of any general taxes without approval by majority vote of the local electorate; the California Constitution via Proposition 218, which guarantees citizens a “right to vote” on the enactment of taxes by local government; and Government Code § 815.6 and Business and Professions Code § 23320, for the purported breach of a mandatory duty to refund licensing and permit fees collected during the government-ordered closures. In addition, the complaint asserts common-law claims for unjust enrichment and “money had and received.” Plaintiffs seek to enjoin any “further collection of public health permit and licensing fees, and business license fees by the County,” as well as any “alcohol and beverage control fees and/or tax by the State.” The complaint characterizes the suit as raising a simple issue of fairness: if the government forces businesses to close or limit their operations, then it “must return the fees, taxes, and/or charges that it should have never been allowed to collect.”
Our Take: This action presents somewhat novel issues. It challenges taxes in the wake of shutdown orders, but not the shutdowns themselves. We will follow this case to see whether its concession that the shutdown orders were appropriate ultimately dooms its wrongful taxation claims. Given courts’ general propensity to reject Takings claims based on pandemic shutdown orders, a ruling for plaintiffs could give new life to businesses’ efforts to seek compensation, at least under California law.
3. Supreme Court of Texas Guidance on the CDC’s Eviction Moratorium Expires
Overview: On March 31, 2021, the Supreme Court of Texas allowed the expiration of its emergency order that provided guidance to local state judges on how to comply with the CDC’s nationwide moratorium on residential evictions during the COVID-19 pandemic. Texas courts may now proceed with eviction cases as a matter of state law, despite the recent federal extension of the moratorium through June 2021.
Background: In September 2020, the CDC issued its original order temporarily halting residential evictions in response to the growing pandemic and the increased need for quarantines to protect the public health. That order was later extended until June 30, 2021. Several federal courts, including in Texas, have held that the order is unconstitutional, although no nationwide injunction has been issued. Meanwhile, on January 29, 2021, the Supreme Court of Texas issued an emergency order that set forth guidelines for its state courts to follow in light of the federal moratorium, giving it continued force in Texas. The emergency order stated that it would expire on “March 31, 2021, unless extended by the Chief Justice of the Supreme Court [of Texas].” The Chief Justice did not issue an extension. Absent the emergency order compelling compliance, state law no longer requires local courts to enforce the federal moratorium.
Our Take: Since the emergency order expired, residential eviction cases in Texas have already increased. The stage is set for a showdown over the CDC’s eviction moratorium. Texas landlords must decide whether to risk federal prosecution if the federal government opts to enforce it, a decision that will undoubtedly be influenced by how confident they are that the moratorium would be held unenforceable in the event of such prosecution.