COVID-19 Litigation Roundup

May 19, 2020
Alston & Bird LLP

The wave of litigation related to the COVID-19 pandemic grew this past week, with surging volume in most of the categories we’ve been tracking.  The most important developments involved challenges to statewide stay-at home orders.  The Wisconsin Supreme Court struck down Governor Tony Ever’s order in an action filed by the state legislature.  As a result, Wisconsin’s restrictions on businesses and gatherings have been lifted, although school closures remain intact.  A similar lawsuit has also been filed by the Michigan legislature against that state’s stay-at-home order.  On the private challenger front, Tesla has sued to invalidate an Alameda County, California order that closed its factory, and went so far as to reopen the factory in defiance of the order.  Many other private challenges to state, county, and city orders have been filed across the country. 

Businesses are beginning to face lawsuits over policies designed to protect customers and employees against COVID-19.  This past week, customers brought discrimination claims against retailers’ protective practices.  One class action against several major retailers asserts that requiring face masks inside stores discriminates against individuals with chronic respiratory conditions who cannot wear masks, in violation of the Americans with Disabilities Act (“ADA”).  This would certainly appear to present a Catch-22 for retailers.  Another suit challenges the legality of a retailer’s prohibition on admitting children under the age of 16 due to COVID-19.  Lawsuits like these may begin to test the outer boundaries of discrimination law amid the pandemic. 

Another prominent area of litigation this past week involved privacy suits against Zoom Video Communications.  The company was hit with two new complaints, one involving the alleged “Zoombombing” of a religious gathering by a hacker who displayed pornographic material to the assembled congregants.  Eight other lawsuits against Zoom were also consolidated in a California court.

Cases involving the Paycheck Protection Program (“PPP”) increased this past week as well.  Several lawsuits challenge the restriction on PPP loans to “adult entertainment” establishments, and others contend that banks failed to pay fees to agents that submitted applications on behalf of small businesses.  Another lawsuit challenging banks’ supposed prioritization of large company applications was filed as well.

Finally, many new cases were also filed in the other categories we have been tracking.  Refund suits continued to multiply against universities, ticket sellers, airlines, gyms, and convention sites.  Individual-plaintiff suits for fraud and misrepresentation in connection with supposed protective products, and pandemic-related business practices, also arose.  Claims for insurance coverage, loan forebearance, failure to warn or protect, and various flavors of employment-related violations continued apace as well.  There appears to be no end in sight for business litigation related to COVID-19.  

Noteworthy COVID-19 Business Cases Filed Before May 14, 2020

Consumer Class Action Refund Claims

There has been no slowdown in class actions seeking refunds for services rendered impossible or impracticable by the COVID-19 pandemic.  New lawsuits keep targeting universities; ticket sellers; convention sites; vacation rentals; fitness studios and gyms; and airlines.  Even amusement parks have not escaped these types of suits.  Seaworld has been sued for allegedly continuing to charge monthly membership fees to season pass holders despite being closed due to the pandemic.

The cascade of refunds issued over the past two months has triggered related litigation arising from downstream consequences of refunds.  New this past week were claims related to commissions paid by businesses to sales agents related to cancelled events.  For example, in 3DD LLC d/b/a 3D Cruise Partners v. Creative Visions Inc., No. 2020-L-4984 (Cook Cnty. Cir. Ct., Il.), Cruise Partners brought an action for defendant’s alleged failure to repay pre-paid commissions that defendant received for a cruise event later cancelled due to COVID-19.  We may see cases like this proliferate as refunds for cancellations are issued.

Misrepresentation/Fraud Claims

This week brings an interesting case that highlights tension between certain restaurants and food delivery businesses.  Freshcraft, a Denver bar and restaurant, alleges that Grubhub has been running a false advertising campaign telling customers that non-partner restaurants are closed during the coronavirus pandemic in order to redirect those customers to its partner restaurants. CO Craft LLC dba Freshcraft v. Grubhub Inc., No. 1:20-cv-01327 (D. Col.).  Freshcraft contends that when “Freshcraft delivery” is entered into Google, Grubhub’s page comes up, before the restaurant’s own site, and the Grubhub page informs customers that Freshcraft is not taking online orders; customers are then directed to look at Grubhub partner restaurants. 

The initial increased demand for certain COVID-19 related goods continues to spur fraud lawsuits as well. Hand sanitizer is an excellent example.  In Reach Companies LLC v. David Serata dba Newsert, No. 0:20-cv-1129 (D. Minn.), plaintiff alleges that defendant ordered $6.7 million in hand sanitizer, but after paying $500,000 for the first shipment, defendant refused to receive or pay for any more orders.  Conversely, in in Mark Pearson v. Vi-Jon Inc. dba Germ-X, No. 20SL-CC02431 (St. Louis Cnty. Cir. Ct., Mo.), plaintiff alleges that defendant falsely advertises that its hand sanitizer prevents the spread of the flu and viruses such as COVID-19.

Actions Against Government Agencies

Challengers to “stay at home” orders had their biggest win this past week. The Wisconsin Supreme Court struck down Governor Tony Evers’ order — marking the first time a statewide order of its kind has been knocked down by a state court of last resort.  In a divided ruling, the Supreme Court sided with the Wisconsin legislature, which challenged the order, in a remarkable intra-governmental claim.  The ruling immediately lifted all state restrictions on businesses and gatherings imposed by the order, but keeps in place the closure of schools until fall.  Notably, the Michigan legislature now has taken action in suing its own Executive Branch as well. 

Private industry is also spearheading high profile challenges to shut-down orders. Tesla is challenging an order issued by Alameda County, California that mandates the continued closure of its automobile factory.  Tesla asserts that the county wrongly determined which businesses could remain open, and argues that a statewide order took precedence over the conflicting county order.  Concurrent with filing suit, Tesla reopened its factory in defiance of the Alameda County order.  The parties are now in negotiations over the status of the factory. Similar challenges to state, county, and city orders have been filed in by others in California, Maine, Nevada, and Pennsylvania.  For their part, counties in Missouri and Ohio are initiating litigation to enforce their orders against business that refuse to stay closed.

Lastly, lawsuits continue to be filed against the People’s Republic of China for its role in the COVID-19 pandemic, with the most recent suit filed by a sheriff in Mississippi. 

Paycheck Protection Program Lawsuits

As we discussed last week, disputes over eligibility for PPP relief are heating up.  Some of these disputes are coming to a boil.  For example, a Michigan adult entertainment establishment called the Diamond Club won a preliminary injunction against a Small Business Administration (“SBA”) rule excluding from PPP loan guarantee eligibility a wide range of businesses – including banks, political lobbying firms, certain private clubs with restrictive admissions practices, and sexually oriented businesses that present entertainment or sell products of a “prurient” (but not unlawful) nature.  SBA appealed to the Sixth Circuit and asked for an emergency stay of the injunction.  Two similar adult establishments have also won preliminary injunctions in Wisconsin; SBA appealed and ultimately won an emergency stay in the Seventh Circuit.   Another similar suit has been filed in Illinois federal court.

            The plaintiffs’ bar has begun to weaponize the conditions attached to PPP loans into grounds for employee lawsuits as well.  A United Airlines employee filed a proposed class action in Illinois federal court alleging the company breached its agreement to receive $5 billion in federal payroll support funds when it informed all management and administration employees they had to take 20 unpaid days off.  Plaintiff argues that United’s move violates the express terms of its agreement with the federal government, of which United’s employees are intended third-party beneficiaries.

This week also brought two new lawsuits alleging that agents of banks who processed PPP loans were not properly paid, and another lawsuit challenging financial institutions’ alleged failure to process loan applications on a first-come, first-served basis.

Lease/Rent

Litigation relating to rent unpaid due to the COVID-19 crisis is also picking up.  For example, in Palm Springs Mile Associates Ltd. v. Old Navy LLC, No. 1:20-cv-21929 (S.D. Fla.), plaintiff alleges defendant owes it unpaid rent, and has filed numerous other cases for unpaid rent against retailer tenants.  Likewise, disputes are arising over escrow deposits related to commercial real estate transactions that fell apart due to COVID-19. 

Customer Discrimination and Injuries

Retailers have been hit by a new category of lawsuits this past week.  Customers are challenging retail precautions designed to mitigate the risk of exposure, arguing that the policies are discriminatory.  Face masks are the subject of litigation in Lewis, King v. Walmart Corp., No. 20-cv-2836 (N.D. Ill.), a pro se Americans with Disabilities Act suit against Walmart, Walgreens, and Dollar General.  Plaintiffs allege that they cannot safely wear face masks due to their chronic respiratory conditions, and that defendants’ policy requiring customers to wear face masks denies them equal access.  Another retailer faces age discrimination claims in Burgess v. Menard Inc., No. 20-03248-CZ (Kent Cnty. Cir. Ct., Mich.).  The complaint alleges that Menards prohibits children under the age of 16 from entering the store due to the COVID-19 crisis and claims that a minor child was denied entry based on that policy.    

Workplace

Employment remains a hot area of COVID-19 related litigation.  This past week, anesthesiologists brought breach of contract claims for salary and bonus reductions, a restaurant worker claimed her employer threatened to remove her from work if she wore a face mask, and an assisted living facility’s medication technician sued for wrongful termination and denial of paid FMLA and sick leave. Additionally, an age discrimination lawsuit in New York alleges that the law firm defendant chose the 62-year old plaintiff to be the first employee fired as part of COVID-19 related layoffs because of his age.

A protective Plexiglas partition prompted the lawsuit in Homsy v. H-E-B, LP, No. 2020-28576 (Harris Cnty. Dist Ct., Tex.).  A Texas grocery chain installed the partition to protect its employees from exposure to COVID-19.  A customer filed suit, claiming that one partition was improperly installed, fell on her foot, and required her to have foot surgery.

Failure to Warn/Protect

In a twist on previously filed actions against senior care facilities, the Town of Cicero, Illinois has sued a local nursing home under a nuisance theory, alleging that the facility has failed to implement the required preventive measures, thereby threatening the lives of its residents and employees and risking the spread of the coronavirus to other residents of the town.  Additionally, several more lawsuits have been filed against cruise lines, including Princess Cruise Lines.

Another wrongful death case was filed last week by the family of a deceased meatpacking worker.  In Benjamin v. JBS S.A., No. 200500370 (Phil. Cnty. Ct. Comm. Pl., Penn.), plaintiff alleges that being forced to work in close proximity without adequate protective equipment resulted in the deceased contracting COVID-19.  Finally, in California, putative class actions were filed against Postmates and DoorDash alleging that these “gig economy” employers failed to allow for handwashing and social distancing and did not provide or reimburse couriers for personal protective equipment.

Force Majeure / Impossibility

Adverse impacts on businesses, from hotels to shoe stores to bowling alleys, continue to result in invocation of force majeure clauses in purchase agreements and leases.  Force majeure has also arisen in the context of cancelled international travel.  In W.L. Petrey Wholesale Company Inc. v. V2 Incentives LP, No. 4:20-cv-447 (N.D. Tex.), plaintiff contends that its customer incentive trip to the Highland Games in Scotland has been rendered impossible by government lockdowns and travel restrictions, and that the defendant—which has already been paid over $500,000 by plaintiff for the trip—should refund the money pursuant to the force majeure clause of the parties’ agreement.

Trademark

Healthvana, Inc., has asserted claims of trademark infringement, unfair competition, and false advertising against defendant Telebrands, a direct marketing company, and its affiliates in a suit filed in California.  Healthvana is a digital health platform that allows healthcare providers to communicate with patients, and was recently engaged by the City and County of Los Angeles to deliver test results at various COVID-19 testing centers.  Plaintiff alleges defendants used its trademark to sell “Healthvana” hand sanitizer at high prices, and that Healthvana, rather than defendants, faced backlash about the high prices.  Also in the Central District of California, Kinsley Technology Co. alleges that defendants infringed upon Kinsley’s registered mark, “Suncoo,” by associating their rival face masks with Kinsley’s Amazon Standard Identification Number on Amazon’s website. 

Securities

This past week, the district court in Douglas v. Norwegian Cruise Lines consolidated that case with Banuelos v. Norwegian Cruise Lines.  Both suits are federal securities class actions against Norwegian Cruise Lines brought on behalf of certain shareholders for violations of the Securities Exchange Act of 1934: one under Section 10(b) and Rule 10b-5, and another under Section 20(a).  The crux of plaintiffs’ allegations is that the cruise line downplayed the seriousness of the COVID-19 pandemic in its public filings and in marketing cruises to prospective customers.  Also this week, eight sets of investors filed motions to be appointed as lead plaintiff.  Those motions are pending, and Norwegian Cruise Lines has until May 26, 2020 to respond.

In the Middle District of Florida, the Federal Reserve Bank and Wells Fargo face a new lawsuit from a pro se plaintiff who alleges the defendants should be liable for losses from his Wells Fargo margin account due to the Federal Reserve’s “conscious decision not to close the Market during the uncertain times of COVID-19.” 

Insurance

A steady stream of loss of income coverage cases continue to be filed by plaintiffs from a wide array of industries, from dental practices, screen printing shops, restaurants, and day care centers.  This category of litigation shows no signs of slowing down.

Debt Collection

In state court in Palm Beach County, Florida, plaintiff Allegiance Spine and Orthopedic, LLC seeks an injunction establishing that it is entitled to defer loan payments to the defendant lender on its small business loan until June 1, in light of the COVID-19 pandemic.  Plaintiff alleges that the coronavirus “has halted plaintiff’s business, making it impossible . . . to make payments.” And while the loan agreement does not contain a force majeure clause, plaintiff alleges it “signed the contract while under duress, and that [the contract] is unilaterally drafted in favor of” the defendant lender.  

Privacy

While the Zoom videoconferencing service was in use before the COVID-19 pandemic, seemingly overnight the platform has found itself both a household name as well as the defendant in myriad privacy lawsuits.  Some plaintiffs have brought lawsuits after bad actors invaded a meeting hosted on the Zoom platform—a problem known as “Zoombombing.”  For example, this past week, a case was filed against Zoom in the Northern District of California, alleging that an intruder infiltrated a Bible study on the Zoom platform and displayed pornography to participants.  Saint Paulus Lutheran Church v. Zoom Video Communications, Inc., Case No. 5:20-cv-03252 (N. D. Cal.). 

In April, eight cases in the Northern District of California were consolidated because they all alleged violations of California privacy and consumer protection statutes.  A few days later, another case was filed against Zoom.  In Simins v. Zoom Video Communications, Inc., Case No. 5:20-cv-2893 (N.D. Cal.), plaintiff alleges privacy violations concerning end-to-end encryption, HIPAA compliance, privacy and security measures, and “Zoombombing.” 

In better news for Zoom, on May 7, the New York Attorney General’s office closed its inquiry into the company’s security practices, approved its new security features, and lifted the ban on Zoom use for educators.  On the same day, Zoom purchased security company KeyBase, a secure messaging and file-sharing service, to enhance security and privacy capabilities. Still ongoing is an investigation into Zoom by the Connecticut Attorney General, as well a lawsuit by the company’s investors and shareholders alleging that the company failed to disclose security flaws.  Drieu v. Zoom Video Communications, Inc.,, Case No. 5:20-cv-02353 (N. D. Cal.)

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, Fiona O’Carroll, and Gillian Clow are litigation associates at the firm.