Top Developments in COVID-19 Litigation

June 21, 2021

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

OVERVIEW

This week’s top COVID-19 litigation developments include: the dismissal of a suit filed by employees challenging two Texas hospitals’ workplace vaccination mandates; a securities fraud lawsuit filed by the SEC against a healthcare company over its claims about test kits and disinfectants; and an insurance coverage suit concerning the Marriott Boston Long Wharf hotel, the site of an early super-spreader event.

1. Texas Federal Court Dismisses Hospital Workers’ Lawsuit Over Workplace COVID-19 Vaccination Requirement

Overview: On June 12, a Texas federal court dismissed a proposed class action complaint filed by employees of The Methodist Hospital and Houston Methodist/The Woodlands Hospital over their policy requiring COVID-19 vaccination as a condition of on-premises employment.

The Order: The U.S. District Court for the Southern District of Texas held that the plaintiffs failed to state a wrongful termination claim under Texas law, which would require them to allege that the hospital had forced them to carry out a criminal act.  The court stated that receiving a COVID-19 vaccination is not illegal; therefore, the claim fails. The court also found meritless the plaintiffs’ argument that the vaccination requirements violate federal law, and noted that the EEOC had recently advised that employers are legally permitted to require employee vaccinations (with religious and medical exceptions).  Finally, the court chastised the plaintiffs for asserting that the vaccination requirement “violates the Nuremberg Code,” and for what the court described as their “reprehensible” attempt to equate the vaccination policy with the medical experiments performed on concentration camp victims during the Holocaust.   

Our Take: The court acted quickly on this complaint, which we noted two weeks ago.  We will watch to see if plaintiffs appeal the dismissal to the Fifth Circuit.  We will also monitor whether other courts faced with similar claims take a similar approach.  One such case is a lawsuit filed last week by a law student against New England Law, Boston for its vaccination requirement for students.

2. SEC Sues Nevada Company Over Claims About Test Kits and Disinfectants

Overview: On June 11, the Securities and Exchange Commission sued Wellness Matrix Group, Inc. and one of its executives in the U.S. District Court for the Central District of California for allegedly making materially false and misleading statements regarding COVID-19 at-home test kits and disinfectants.

The Complaint:  According to the complaint:  Wellness is a healthcare technology startup founded in 2009, with principal offices in Huntington Beach, California.  George Todt, also a named defendant in the suit, owns approximately 83% of Wellness’s common shares.  During the early stages of the pandemic, in February and March 2020, Wellness began marketing COVID-19 test kits and disinfectant products on websites affiliated with the company.  The SEC claims, however, that Wellness and Mr. Todt knew at the time that Wellness had no test kits or disinfectants to deliver to customers.  Mr. Todt allegedly made similar misrepresentations to an investor who purchased 5,000 Wellness shares, and Wellness’s share price increased.  National Public Radio aired a story on Wellness’s activities on April 2.  The SEC then suspended trading in Wellness shares on April 7 and filed suit on June 11.

Our Take: The SEC, along with other government agencies, has its hands full with COVID-19-related alleged frauds.  This is not the first time the SEC has shut down trading in a stock and sued the company because it allegedly defrauded investors regarding COVID-19 products, and it is unlikely to be the last.

3. Insurer Opposes Partial Judgment on the Pleadings in Business Interruption Coverage Case

Overview: On June 10, Endurance American Specialty Insurance Company opposed partial judgment on the pleadings in a coverage lawsuit filed by Sunstone Hotel Investors.

Background:  Sunstone sued Endurance for $40 million in November 2020, alleging that the insurer should reimburse it for losses sustained when Sunstone’s Marriott Boston Long Wharf hotel closed in February 2020.  The closure followed a conference at the hotel that, according to widespread reports, was eventually linked to more than 300,000 coronavirus infections worldwide.  The U.S. District Court for the Central District of California denied Endurance’s motion to dismiss on February 26, 2021, after which Sunstone moved for partial judgment on the pleadings.

The Brief: Endurance argues that, following discovery, it may be able to show that, following a deep cleaning of the hotel, the virus was no longer present there and the covered period ended at that time—even if operations remained suspended for other reasons, such as regulatory requirements. 

Our Take: This may be the highest-profile single-party COVID-19 insurance coverage dispute in the country, given the widespread reports on the closure that led to the suit.  Insurance companies and policyholders (and we) will be closely watching to see the outcome of the dispute.

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.