COVID-19 Litigation Round-Up

June 22, 2020

Jason A. Levine, Peter E. Masaitis, Alex Akerman, Gillian H. Clow, Debolina Das, Kaelyne Wietelman, Alston & Bird LLP

This week in COVID-19 litigation features claims involving a televangelist and a movie star-turned-producer, enforcement actions by EPA, private enforcement efforts by 3M, several interesting suits against business closure orders, and colorful defamation and failure-to-protect complaints.

OVERVIEW

The state of Arkansas sued televangelist Jim Bakker over his efforts to sell an allegedly ineffective colloidal silver product as a cure for COVID-19. Fraud claims also reared their head against the distributor of a Mel Gibson film. 

The EPA joined the DOJ and the FTC in seeking to protect consumers from COVID-19 related fraud.  Invoking two environmental statutes, the agency targeted several online market platforms that third parties allegedly used to sell unapproved products that claim to be effective against the spread of COVID-19. In a similar vein, 3M filed another case against a reseller that, 3M alleges, falsely claimed an affiliation with the company for purposes of selling N95 masks at a huge markup.

Several state governments have also been sued over their COVID-19 related orders.  In Texas, plaintiffs sought an injunction to prevent the government from contact-tracing on privacy grounds.  Music and comedy festivals are also suing Ohio over its ban on public gatherings, claiming that its enforcement against them – but not against recent police-brutality protestors – was selective in nature and thus infringed their First Amendment rights.

On the defamation front, the owner of a regional chain of gas stations sued an individual for creating a derogatory website that claimed the company had failed to take proper COVID-19 safety precautions.  And in another hairy safety-related situation, a well-known chain of casual restaurants was sued for allegedly failing to protect customers.  Why?  The plaintiff found a hair in a breakfast sandwich while employees supposedly did not wear face masks. The relief demanded includes testing the hair for coronavirus. 

In addition, this week saw a continuation of trends we have previously covered.  Myriad lawsuits were filed for refunds over cancelled events, and new claims were filed for securities fraud by companies working on coronavirus vaccines.  Workplace claims were filed against brand-name companies for allegedly failing to protect their employees.  There were also new cases related to the Paycheck Protection Program and the Americans With Disabilities Act.  Disputes over business-interruption and travel insurance coverage proliferated as well.

REFUND/CANCELLATION

Suits seeking refunds for monies paid for services made impossible or impractical by COVID-19 show no signs of slowing down. This week saw more actions filed against airlines, universities, conferences, resorts, summer camps, and ticket-sellers for refunds.

MISREPRESENTATION/FRAUD

Misrepresentation and fraud claims continue to provide the basis for a slew of different actions in multiple sub-categories.

Marketplace Liability for Products Sold by Third Parties.  There are new efforts to hold marketplaces directly liable for products sold by third parties that make unproven COVID-19 claims.  The EPA ordered Amazon and eBay to stop allowing third parties to sell EPA-unapproved products that claim to be effective against the coronavirus on their respective platforms. In announcing the orders, the EPA asserted an expansive reading of federal law, claiming that allowing these sales by third parties constitutes a potential violation of the Federal Insecticide, Fungicide, and Rodenticide Act and the Toxic Substances Control Act. The EPA’s theory of liability is similar to that asserted in a new class action lawsuit filed by private plaintiffs alleging that Google profited during the COVID-19 crisis by allowing the sale of “Pine-Sol” brand surface cleaning products advertised as capable of killing “99.9% of germs.” Plaintiffs allege that statement lacks scientific support.

Federal and State Enforcement Actions. Federal and state governments remain vigilant, bringing actions against defendants they believe to be deceptively advertising products to exploit consumer COVID-19 fears. For example, the FTC brought false advertising claims against a merchant that sent out a flyer purporting to be related to COVID-19 economic stimulus information, but was in fact a car sale advertisement. Arkansas has also sued televangelist Jim Bakker, alleging that he “exploited Arkansans’” fears “by falsely claiming that [a]  colloidal silver product” could “cure, eliminate, kill or deactivate Covid-19 when there is, in fact, no vaccine, pill, potion, or other product available to treat or cure the virus.”

New Film Industry Litigation.  Last, as the film industry begins to reopen, litigation arising from investor injury caused by the shutdown of the Nation’s movie theaters could become common.  This week brought our first glimpse of this kind of case. Investors in a new Mel Gibson film allege that the film’s distributor misrepresented its intent to honor the parties’ agreement when it refused to distribute the film when movie theaters began to reopen.

SECURITIES

Misrepresentation claims also continue to form the basis of investor actions, which allege that false promises regarding the efficacy of products (such as a previously-covered case involving a COVID-19 diagnostic test advertised to produce 100% accurate results) led to drops in stock prices.  Previously-covered Inovio Pharmaceuticals is now facing a new derivative lawsuit asserting that it artificially inflated the company’s stock price by publicly announcing that it could start human trials on a COVID-19 vaccine as early as April 2020. Stock prices soared, from $4.15 per share up to $19.36. However, the complaint asserts that these representations were false, and that Inovio only had a vaccine construct available, not a full vaccine. Once this became clear, the complaint alleges, the stock price plummeted to $5.70 in just two days. Shareholders are now suing for breach of fiduciary duty, unjust enrichment, abuse of control, and other claims.

GOVERNMENT

The legality of any state-administered “test and trace” system is highly relevant to private businesses hard at work on developing plans to safely resume business amid the ongoing pandemic.  This week brings a first challenge to the legality of a state-implemented test and trace system.  Texas plaintiffs are seeking an injunction to prevent Texas from tracking who has come into contact with infected Texans through their cellphones and notifying them they may have been exposed to the virus. Plaintiffs argue such a program is an invasion of privacy.

This week also brings a novel challenge to a state stay-at-home order.  A music festival and a comedy festival are claiming Ohio’s ban on public gatherings infringes their free speech rights because they will be unable to host outdoor music and comedy festivals this summer.  The plaintiffs claim unequal treatment of their speech, as the bans allegedly have not been enforced against protestors for weeks.

Last, as COVID-19 restrictions on economic activity loosen, more landlords are challenging COVID-19-related government regulations on raising rent and evicting tenants.  As our economy moves closer to “normal,” we expect more of these kinds of challenges to COVID-19 specific restrictions on market activity.

FAILURE TO WARN/PROTECT

As businesses are opening up, more cases are being filed alleging negligence for failure to warn or protect. Dollar Tree is being sued for allegedly failing to implement proper safety measures in compliance with California law. Plaintiffs claim that Dollar Tree did not provide proper protective equipment and materials, policies, trainings, and communications to prevent the spread of COVID-19 in its stores. Similarly, MPI Jet and Prestige Aviation are facing a lawsuit because its crew members on a private plane allegedly did not wear masks and gloves at all times, despite representing to the public that they would.

Restaurants are also dealing with COVID-19 related lawsuits. A Tim Horton’s has been sued because its employees allegedly did not wear face masks as required during the COVID-19 pandemic. A customer was eating a breakfast sandwich and supposedly discovered a string of hair inside it. The customer plaintiff fears that the sandwich may have been contaminated with the COVID-19 virus and seeks testing of the hair as well as punitive damages.

WORKPLACE

This week saw more lawsuits against McDonald’s and Amazon, a new workplace suit against the State of New Jersey, and a novel set of facts in Ohio.

As the preliminary injunction hearing in the Illinois lawsuit against McDonald’s culminated following four days of Zoom testimony, the franchise was hit with another suit over a COVID-19 outbreak in Oakland, California. Employees brought an action for public nuisance and other public-health related claims under state and local law, claiming the company’s COVID-19 precautions were not adequate and led to an outbreak among employees and their family members. Amazon also saw another lawsuit from employees, this time in San Francisco. Plaintiffs allege that the company did not take adequate precautions to protect fulfillment center workers called “Pickers” against COVID-19, allegedly requiring them to wear full-body suits used by multiple workers each day without sanitizing the suits between uses.

In a variation on the usual lawsuits against companies, an employee of the State of New Jersey claims he was fired from his public health position in retaliation for filing an internal ethics complaint after being asked to provide COVID-19 tests for the relatives of the Chief of Staff to Governor Phil Murphy. The state claims the firing was the result of plaintiff failing to disclose a second outside job. According to news reports, leaked recordings from state officials suggest the firing may have been motivated by the Murphy administration’s belief that plaintiff was leaking confidential information to news organizations about the state’s response to the pandemic. Plaintiff denies that he leaked any confidential information.

A novel case also emerged from the Southern District of Ohio. A restaurant server claims that defendants have implemented a new policy paying tipped employees higher hourly wages to maximize the amount of money that can be treated as forgivable under the Paycheck Protection Program, yet refuses to let the servers retain their tips, which are aggregated into a pool and distributed in a set amount regardless of hours worked. The putative class action brings various claims under the Fair Labor Standards Act and state law.

AMERICANS WITH DISABILITIES ACT

Further, as businesses determine how to safely reopen, they need to reckon with the ADA and similar state laws that may provide protections for certain classes of customers and workers disparately impacted by COVID-19 protections. For example, a new case against Walmart challenges the company’s procedures for determining which customers may shop during designated hours for “Seniors and Customers with Compromised Health.”  In a suit filed in the U.S. District Court for the District of Columbia, plaintiffs allege that the company’s requirement that security officers at the front door identify shoppers with “compromised health” has led to discriminatory enforcement in violation of the D.C. Human Rights Act and the ADA.

Similarly, 28 lawsuits have been filed against Giant Eagle in the Western District of Pennsylvania, alleging that the company’s face mask policy violates the ADA because it provides no exceptions for those with medical conditions that render them unable to wear a mask. The court granted Giant Eagle’s request to consolidate the suits. 

Finally, the Equal Employment Opportunity Commission has released new guidance that businesses cannot require workers to take COVID-19 antibody tests without violating the ADA. This answered an open question following recent guidance that allowed employers to test only for the active virus itself. 

PPP/CARES ACT

Lawsuits against financial institutions continue to mount, some related to alleged prioritization of larger borrowers over smaller ones in the PPP application process, and others to alleged failure to pay agent fees for submitting PPP loan applications.  Three dozen “agent fee” lawsuits have been filed to date, with a motion for consolidation now pending before the Judicial Panel for Multidistrict Litigation.

Litigation by Native American tribes concerning their right to access PPP funds continues to progress as well. The case covered in last week’s roundup by the Prairie Band Potawatomi Nation was implicated this week in a separate ongoing lawsuit by the Agua Caliente Band of Cahuilla Indians, when a D.C. federal judge ordered the Department of Treasury to pay out what remains of the $8 billion in COVID-19 relief funds owed to tribal governments. This was ordered over the objection of the Treasury Department, which wanted to hold back the funds in the event of an adverse decision in the Prairie Band Potawatomi Nation lawsuit. The court order indicated there was no authority to hold back funds which the tribal nations were entitled to in order to hedge against a loss in another lawsuit.

INSURANCE

As in previous weeks, we continue to see dozens of business interruption claims filed against insurers in various industries.  In Pennsylvania, one of the first proposed class actions filed against an insurer for loss of business coverage was dropped, just after a few weeks after it was removed to federal court.  Plaintiff HTR Restaurants, doing business as Seib’s Pub, alleged that its commercial general liability policy does not have a virus exclusion, and should cover losses from the governor’s stay-at-home order.  The pub voluntarily dismissed its complaint without prejudice.

This past week also brought a claim involving health insurance.  In the District of Columbia, the City of Chicago filed a suit for declaratory and injunctive relief against the Secretary of the U.S. Department of Health and Human Services and the Administrator of the Centers for Medicare and Medicaid Services.  The suit alleges that defendants failed to provide a special enrollment period for people to purchase health insurance on exchanges during the pandemic, and did so to comply with the President’s desire not to “prop up” the Affordable Care Act.  Plaintiffs contend that individuals need access to affordable, high-quality coverage given the risk of COVID-19.

Cruise ships make headlines again in a class action filed against Nationwide Mutual Insurance in Cook County, Illinois. There, plaintiff alleges that the company refused to pay her claim under the travel insurance policy she purchased for a Caribbean cruise, set to begin in late March 2020.  Plaintiff had symptoms of bronchitis before the start of the cruise and, in compliance with the stay-at-home order in effect, she did not go on the cruise.  Her insurance claim was denied, and she was allegedly told that the cruise line would refund her insurance costs but the policy would not be honored.  Ultimately, the cost for the cruise was reimbursed, but not the cost of airfare. 

DEFAMATION

In Nebraska, the owner of gas stations located in Nebraska, Illinois, and Texas known as “Bucky’s” or “Bucky’s Express” brought suit against an individual for defamation, alleging the defendant created a website called “buckysgasstationsucks.com” and used an auto-dialer to harass plaintiff. The owner alleges that defendant made various false statements, such as claiming that the owner put Bucky’s employees and customers at risk of contracting COVID-19 by failing to take proper safety precautions.

TRADEMARK

3M filed a new case this week in the District of Minnesota, alleging that defendant Legacy Medical Supplies (which formed in April 2020) claimed to be affiliated with 3M in order to secure orders for N95 masks at as much as a 267% mark-up. Specifically, defendant’s representatives claimed that they had a “personal relationship” with 3M’s CFO and were able to purchase large quantities of N95 masks, which were unavailable to others, for resale to governments and hospitals at a markup.  3M contends defendants’ scheme was designed to confuse the public into believing they had a relationship with 3M or were authorized distributors when, in fact, they had no relationship with 3M.

IMPACT ON COURTS

In the District of Connecticut, Chief Court Administrative Judge Patrick Carroll found himself enmeshed in a lawsuit when plaintiffs sued him in his official capacity for closing most operations of the Connecticut court system during the COVID-19 pandemic. Plaintiffs claim this made it difficult for them and their attorneys to file important motions in violation of their due process rights.

 

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,  Gillian Clow, Debolina Das, and Kaelyne Wietelman are litigation associates at the firm.