COVID-19 Litigation Roundup

October 19, 2020

Jason A. Levine, Peter E. Masaitis, Gillian H. Clow, Giles Judd, Ryan Martin-Patterson, and J. Stephen Tagert, Alston & Bird LLP

OVERVIEW

Pandemic-related case filings jumped noticeably this past week, with significant new litigation across many industries asserting a wide variety of claims.

In the insurance space, several insurers were sued for business interruption coverage and for charging “windfall” premiums.  On the employment front, workers sued many companies for wrongful termination after complaining about inadequate COVID-19 safeguards, while others – including the AFL-CIO – filed suits seeking damages for insufficient workplace protections. 

Claims against colleges for charging full tuition despite campus closures continued to mount, and an analogous claim for lease rescission was filed by a major retailer over its lease in once-prime New York City office space.  In the fraud category, several entities were sued over supposed protective equipment, and a theme park chain faces a class action for continuing to charge membership fees despite closing its parks.  New fraud claims were also filed over Paycheck Protection Program (“PPP”) funds. 

Finally, plaintiffs in several States filed yet more lawsuits challenging mask ordinances, a law firm in New York sued Mayor DeBlasio and Governor Cuomo over a recent “cluster action initiative,” and private strip clubs in Omaha, Nebraska sued the city over its order closing them due to the pandemic.

INSURANCE

A group of companies that own over 120 Wendy’s, TGI Friday’s, Marriott, and Hilton franchises has sued a Zurich American Insurance Co. subsidiary, alleging that it should cover the companies’ pandemic-related loss of business – of more than $40 million. A café in Walnut Creek, California has filed a proposed class action against State Farm, claiming that it has charged exorbitant “windfall” premiums during the pandemic.  And in New York, NetDiligence, a networking conference provider, alleges that its insurance broker failed to secure communicable disease coverage, which plaintiff needed once its conferences were cancelled.

Austin Mutual Insurance Co. has argued that an Illinois federal judge should find it has no obligation to defend McDonald’s and two of its franchise owners in a proposed class action.  The insurer asserts that the underlying complaint alleges unsafe working conditions due to COVID-19 and seeks remedial measures that are not covered under the relevant policies.

Finally, in Florida, a federal judge dismissed a business interruption coverage dispute brought by a beer distributor that provides beer to Disney’s theme parks, finding that the insurer was not obligated to cover the claims because the pandemic itself did not cause the surplus beer to spoil.

EMPLOYMENT

A slew of corporations were sued for wrongful termination after allegedly firing employees who complained of inadequate or unsafe procedures related to COVID-19 workplace safety.  Examples include SoCal Empowered LLC in California, NFI Industries in California, Springdale Automotive in Kentucky, Century Bakery in New Jersey, True Blue Car Wash in Illinois, and Urban Yarns in Vancouver, Canada.

In addition to complaints relating to insufficient COVID-19 precautions, Northcentral Technical College, part of the Wisconsin Technical College System, was sued by a former teacher who alleges that she was terminated for not wearing a face mask despite her numerous health issues, including lupus, fibromyalgia, and Lyme Disease.

The AFL-CIO sued the U.S. Departments of Health and Human Services and Homeland Security for failing to provide personal protective equipment to essential workers.  A similar class action was filed by an employee against General Logistics Systems. 

A purported class of employees sued a group of luxury car dealerships in Morristown, New Jersey, alleging that they were insufficiently compensated during the pandemic.

Finally, in California, a federal judge granted a motion to dismiss brought by the Board of Directors of the Motion Picture Industry Health Plan in an ERISA case.  The court ruled that plaintiffs – two cinematographers who contend they could not qualify for benefits after the health plan’s board of directors allegedly breached its duties to relax plan rules in response to COVID-19 – could not state a claim for benefits under ERISA.

UNFAIR TRADE PRACTICES AND FRAUD

The Duke University Health System sued a group of defendants for fraud and unfair trade practices, alleging that they enticed the plaintiff into fronting money for the purchase of N95 masks without having masks available to sell and without having identified a reliable way to procure masks.  Similarly, the United States Attorney’s Office for the Western District of Texas obtained a civil injunction against an El Paso man to prevent him from selling allegedly fraudulent COVID-19 prevention treatments through his business website and Facebook page.

Six Flags Theme Parks, Inc., faces another putative class action for purported violations of the Illinois Consumer Fraud and Deceptive Business Practices Act.  The named plaintiff holds a monthly Gold Plus membership, which allows him access to the theme parks.  However, plaintiff alleges that, from the months of March to at least July 2020, Six Flags continued to charge his and other members’ credit cards for monthly membership fees, despite the fact that the parks were closed due to COVID-19 concerns.   

Tomax, a capital management firm, urged a Florida federal court to dismiss fraud claims asserted by Adventist Health System over a $57.5 million deal to buy protective face masks that did not come to fruition.  Tomax says that its law firm managed an escrow account for various deals for personal protective equipment involving Tomax and other hospitals, but used its funds to pay refunds owed to hospitals for their deposits.  Tomax argues that it never held Adventist’s money or conspired with the law firm to keep the money from Adventist.

PRIVACY

Amazon is facing a lawsuit in Illinois state court filed by a former employee who claims that, beginning in June 2020, the company required workers to provide a facial scan and possibly other biometric information, as part of a wellness check to access their jobs at an Illinois fulfillment warehouse, without the consent or knowledge of the workers.  Plaintiff alleges that this violated Illinois’s Biometric Information Privacy Act, which provides damages of at least $1,000 for negligent violations and at least $5,000 for intentional or reckless ones. 

CARES ACT/PPP

Three nursing homes sued General Electric Credit Union (“GECU”) for conversion for refusing to release $550,000 of PPP funds.  The nursing homes allege that GECU will not hand over the funds because they do not have deposit accounts with GECU.

A banking institution, Adirondack Trust, sued 10 businesses as well as an individual and his mother, who are shareholders and officers in the businesses, for using PPP loans to pay personal instead of business expenses.  Adirondack Trust also alleges the individuals attempted to hide the money from various creditors. 

GOVERNMENT

Many state governments continue to face new lawsuits brought by single plaintiffs alleging that requiring masks in public violates their First Amendment rights.

In New York, a Brooklyn law firm has filed suit against the Mayor and Governor, seeking to vacate New York City’s “cluster action initiative” that allows it to designate certain sections of the city as COVID-19 hotspots where it can apply increasing restrictions.  Plaintiff contends the criteria are arbitrary, and because the firm is located in a hotspot-designated “red” zone, the office has been forced to close, disrupting its client work.

COVID-19’s reach has extended so far as to affect adult entertainment establishments in Omaha, Nebraska.  There, a group of private strip clubs contend the city has attempted to criminalize their establishments by, among other things, refusing to allow them to operate even if they satisfy social distancing requirements.

REFUND / BREACH OF CONTRACT

The Central District of California issued an Order dismissing a proposed class action against Deutsche Lufthansa AG, for its alleged failure to provide refunds to consumers whose flights were canceled due to the pandemic.  The Court found that the lead plaintiff’s claims were rendered moot when she received a refund from Lufthansa.  The dismissal was without prejudice, however, giving plaintiff “one further opportunity” to demonstrate that the amount of time taken before issuance of the refund was unreasonable. 

Continuing the trend of lawsuits against colleges and universities, the University of Southern California now faces a putative class action brought by current students for breach of contract and various tort claims.  The campus is closed, but the Complaint alleges that the university still requires all students to pay “full pre-shutdown tuition and fee obligations,” depriving them of the benefit of their bargains. 

LEASES

In response to several recent suits for nonpayment of rents filed by Related Companies against its retail tenants in the Time Warner Center, Hugo Boss Retail, LLC has fired back by countersuing for a declaration that the lease should be rescinded under the doctrines of frustration of purpose and impossibility due to the pandemic.  Hugo Boss colorfully asserts that the pandemic and resulting shutdowns have rendered New York “a veritable ghost-town, compared to its once reputation as the city-that-never-sleeps.”  As such, the retailer claims that the monthly rent of roughly $700,000 is no longer justified.  The countersuit paints a grim picture of the city’s future:  “There is simply no ‘switch to flip,’ that will return the parties to their pre-COVID posture and suddenly cause eager shoppers to appear in the corridors of the Columbus Circle mall.”

PRICE-GOUGING

In California state court, an online medical and emergency supply company faces a putative class action bringing claims for violations of California’s Unfair Competition law, Consumer Legal Remedies Act, and unjust enrichment based on allegations that it sold hand sanitizer at nearly a 300% markup in April at the onset of the pandemic.

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.  Gillian Clow, Giles Judd, Ryan Martin-Patterson, and J. Stephen Tagert are litigation associates at the firm.