Top Developments in COVID-19 Litigation

April 26, 2021

Jason A. Levine, Ryan Martin-Patterson, and Stephen Tagert, Alston & Bird LLP

OVERVIEW

This week’s top COVID-19 litigation developments are: securities fraud class actions filed against vaccine manufacturer Emergent BioSolutions over undisclosed production problems, and against a Chinese bitcoin manufacturer over pandemic-related supply chain disruptions; a class action against Bank of America over the technology used in its California unemployment benefit debit cards; and a contract suit filed against a testing company that charged $600,000 to perform just 40 COVID-19 tests.

1. Vaccine Manufacturer Emergent BioSolutions Faces Securities Class Action.

Overview: On April 19, 2021, a putative class sued vaccine manufacturer Emergent BioSolutions Inc. and several of its officers and directors for securities fraud.

The Complaint: Emergent is a vaccine developer and manufacturer headquartered in Maryland.  The complaint alleges that Emergent received approximately $875 million from Johnson & Johnson and AstraZeneca, and $628 million from the federal government as part of Operation Warp Speed, to manufacture COVID-19 vaccines.  According to the complaint, Emergent allegedly failed to disclose manufacturing issues it encountered in the production process, including improper substitutions of ingredients between the Johnson & Johnson and AstraZeneca vaccines.  These errors caused Emergent to discard millions of doses of both vaccines, which supposedly caused Emergent’s stock price to fall approximately 15% between March 31 and April 5, 2021.  The complaint alleges that Emergent did not disclose its production issues, in violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5, and that the individuals who contributed to the non-disclosure violated Section 20(a) of the Exchange Act.

Our Take: This likely will not be the last securities class action related to errors involving COVID-19 vaccine production.  Vaccine manufacturing, design, and distribution all have taken place at an accelerated pace, and there is always the potential for error.  Because the stock prices from all companies involved in vaccine development have fluctuated wildly, we would expect the securities plaintiffs’ bar to file suit whenever one of the companies encounters a significant drop in its share price.

2. Bank of America Sued Over Technology Used in COVID-19 Relief Program Debit Cards.

Overview: Plaintiffs Jonathan Smith and Alex Yuan filed a putative class action lawsuit in California federal court against Bank of America (“BOA”), alleging that it used outdated debit cards for certain COVID-19 relief program benefits, which allowed hackers to commit widespread fraud.

The Complaint: The complaint alleges that California’s Employment Development Department (“EDD”) has facilitated payment of pandemic-related unemployment benefits through debit cards associated with accounts at BOA, which holds an exclusive contract with EDD.  BOA allegedly issued the debit cards with easy-to-hack magnetic strips rather than EMV chips, which led to the cards becoming a target for widespread fraud.  BOA then allegedly froze the accounts of roughly 350,000 cardholders and reversed credits on many fraudulent withdrawals, supposedly denying many cardholders their unemployment insurance benefits.  In contrast, the complaint asserts that BOA uses EMV chip technology in all its other cards – except the EDD debit cards.  The complaint posits causes of action under the California Consumer Privacy Act, the federal Electronic Funds Transfer Act, and the California Unfair Competition Law, as well as state contract and negligence law.

Our Take: During the pandemic, unemployment benefits have been critical for many displaced workers.  This lawsuit essentially seeks to set a particular technological standard for the provision of benefits as a matter of law, which could have significant ramifications for private partners in future benefit programs.  We will follow this case closely.

3. Manufacturer of Bitcoin Mining Machines Sued for Securities Fraud.

Overview: On April 15, 2021, a putative class filed suit against Canaan, Inc., a company incorporated under the laws of the Cayman Islands and headquartered in China, whose ADRs trade on the New York Stock Exchange, and several of its executives, for securities fraud.

The Complaint: According to the complaint, Canaan manufactures and sells machines that mine bitcoin.  Canaan primarily sells these machines in China.  During the fall and winter of 2020, Canaan allegedly faced severe supply chain disruptions because of the continued COVID-19 pandemic, which it allegedly did not disclose to the market.  These disruptions supposedly caused Canaan’s fourth quarter sales to fall 93% year-over-year and caused its net revenues to decline by an order of magnitude.  The plaintiffs, a putative class of Canaan ADR purchasers, allege that the company failed to disclose the COVID-related supply chain disruptions in violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5.  Plaintiffs also allege that that certain executives violated Section 20(a) of the Exchange Act.

Our Take: More than a year into the pandemic, companies have grown accustomed to supply-chain disruptions caused by COVID-19.  Still, in the interest of avoiding securities suits, publicly traded companies should take care to disclose material disruptions caused by the pandemic and communicate them clearly to shareholders.  Otherwise, any drop in share price will likely be met with a suit for securities fraud.

4. California Company Sued for Charging Over $600,000 for Just 40 COVID-19 Tests.

Overview: FN Logistics, LLC sued The Compliance Firm LLC in California federal court, alleging that it provided COVID-19 tests to only 40 individuals despite receiving $600,000.

The Complaint: FN Logistics sought to offer COVID-19 tests to its warehouse employees and retained The Compliance Firm to handle the testing.  Instead of providing services quickly, the complaint alleges that The Compliance Firm went through a time-consuming and expensive process of building COVID-19 testing infrastructure from scratch, passing all costs on to FN Logistics, and ultimately charged over $600,000 to perform just 40 tests.  FN Logistics asserts several state-law claims related to its contract.

Our Take: Although we do not know the truth of the allegations asserted here, we have recounted several cases on this blog of individuals and businesses having taken advantage of the pandemic to enrich themselves through fraudulent or dubious activity related to COVID-19 testing.  Because COVID-19 testing and vaccination regimes will likely continue to be important for the foreseeable future, companies should protect themselves by ensuring that the parties with which they contract have adequate infrastructure and procedures in place before entering into agreements.

Jason Levine is a commercial and antitrust litigation partner in the Washington, D.C. office of Alston & Bird LLP.  Ryan Martin-Patterson and Stephen Tagert are associates at the firm.