COVID-19 Litigation Roundup

May 26, 2020
Alston & Bird LLP

New COVID-19 related filings continued to pour in last week, along with some interesting decisions.  The filings demonstrated both expansion and maturation of COVID-19 related claims.  McDonald’s employees and their family members brought a new theory of liability against the restaurant, claiming that the allegedly unsafe environment in certain Chicago-area McDonald’s restaurants constitutes a public nuisance.  In another novel lawsuit, students brought a putative class action against the College Board, alleging that remote test-taking procedures and glitches with the submission of test results warrant $500M in damages and an injunction requiring the Board to accept mailed-in responses for AP exams.

Last week saw new victories for challengers of stay-at-home orders in Ohio and Oregon, with new challenges filed in Connecticut, Minnesota, Missouri, New Mexico, New York, and Tennessee. 

Other expanding categories of claims include the familiar refund class action, which this week saw a filing against Weight Watchers, even though the company continued to offer all of its services other than in-person meetings.  Suits involving rent continue to expand, with a medical supply company preemptively filing multiple suits against its landlords alleging that it was the landlords’ closure of the company’s workplaces that caused the company’s inability to pay rent.  Government actions enforcing false advertising laws continue to be prominent, as do suits for exposure to the virus. 

Insurance coverage claims continue to multiply, and one has now made its way up on appeal to the Second Circuit.  In an interesting twist, another insurance coverage claim was dismissed, with the plaintiff committing to work together with its insurer to get through this difficult time cooperatively.  We can, nonetheless, expect other suits to take the place of that one.

Noteworthy COVID-19 Business Cases Filed Before May 21, 2020

Consumer Class Action Refund Claims

Class actions seeking refunds for services rendered impossible or impracticable by the COVID-19 pandemic continue to be the “bread and butter” of the plaintiff’s bar’s new filings.  Lawsuits filed this week continue to target universities; resorts; and airlines.  

Even Weight Watchers has found itself in the crosshairs.  A class action against Weight Watchers filed in the Southern District of New York highlights that any change to services previously provided by a company risks a “refund” lawsuit.  Plaintiffs allege that Weight Watchers wrongly kept charging membership fees after it stopped its in-person workshops due to the pandemic, even though it continued many of its other services. 

Misrepresentation/Fraud Claims

This past week provides further evidence that the federal government is actively monitoring the accuracy of claims related to COVID-19 related goods and services.  The SEC filed two complaints against defendants for making alleged misrepresentations:  In SEC v. Applied Biosciences Corp., No. 1:20-cv-3729 (S.D.N.Y.), the SEC alleges that defendant misleadingly announced that it would sell coronavirus “Home Test Kits” for the general public and touted results in under 15 minutes using only a finger prick. The SEC claims that the company planned to only allow purchases for use by nursing homes, schools, the military, and first responders, and only in consultation with a medical professional.  Likewise, in SEC v. Turbo Global Partners Inc., No. 8:20-cv-1120 (M.D. Fla.), the SEC alleges that defendants sent press releases falsely claiming their company developed technology to scan large crowds for fevers associated with COVID-19, in order to solicit investors.

Actions Against Government Agencies

Challengers to “stay at home” orders had another victory this past week. This time an Ohio Court sided with 35 gyms across the state in a lawsuit against Ohio Health Director Amy Acton, allowing them to reopen immediately. The order granted a preliminary injunction against “imposing or enforcing penalties solely for non-compliance with the director’s order.”  The court wrote that Acton “acted in an impermissible arbitrary, unreasonable and oppressive manner without procedural safeguards” because she “quarantined the entire people of the state of Ohio for much more than (the standard) 14 days” and “has no statutory authority to close all businesses including plaintiffs’ gyms, which she deems non-essential for a period of two months.”  Likewise, an Oregon judge enjoined Oregon’s stay at home orders as applied to business and churches this week, though the Oregon Supreme Court stayed the injunction while it considers Oregon’s appeal.

As many states begin to reopen, similar challenges to state orders continue to be filed in ever greater numbers.  This week challenges were filed against Connecticut, Missouri, New Mexico, New York, and Tennessee.

Lastly, another lawsuit has been filed against the People’s Republic of China for its role in the COVID-19 pandemic, this time in North Carolina federal court.

Lease/Rent and Tenancy Disputes

This week brings an interesting case in an area of litigation that is likely to grow in the near term. As offices reopen around the country and workers go back to work, tenants and landlords may disagree on exactly what COVID-19 safety measures landlords must take.  This is just the situation in Skechers U.S.A., Inc. v. Onni Manhattan Towers Limitied Partnership. Sketchers brought suit against its landlord seeking specific performance of COVID-19 prevention measures, which it alleges are required under the lease and necessary for the health and safety of Sketcher’s personnel and visitors.

Litigation over unpaid rent is also becoming more common.  More lessees seek declaratory judgments that they don’t have to pay rent, while landlords are suing for payment of the rent they allege is due. 

In a novel legal twist in failure-to-pay-rent suits, a tenant preemptively sued its landlord, arguing that it wrongfully refused to permit customers to enter the tenant’s medical supply business and therefore should not be allowed to continue to demand rent payments, which shifts “the costs and consequences of its decision to its tenants.”  At issue in this case, captioned Scrubs & Beyond LLC v. JG Elizabeth II LLC, No. UNN-L-1577-20 (Union County Superior Court - Law Division), is whether the plaintiff’s medical supply business qualifies as a “necessary” business exempt from government closure orders, such that it should have been allowed to remain open.  Scrubs and Beyond has filed several similar lawsuits against shopping centers (here and here).

Workplace

This week saw many more employment lawsuits related to salaries, layoffs and PPE.

The most high-profile employment lawsuit filed this week targeted McDonalds. In Massey et al. v. McDonald’s Corp. et al., No. 2020CH04247 (Cook Cnty. Cir. Ct.), several McDonald’s workers and their families allege that various problems, including mismanagement of safety protocols and lack of clean PPE, in Chicago-area McDonald’s restaurants created an unsafe environment. Plaintiffs claim that this allegedly unsafe environment has created a public health risk rising to the level of an actionable public nuisance.

Additionally, the plaintiff in Flores v. Built Brands LLC, No. 200400681 (Utah County District Court), alleges that a nutritional supplements company failed to suspend plant operations for sanitization or provide proper PPE, as well as threatening that workers who “discussed anything related to” a COVID-19 infection at their facilities would be fired.

Finally, Lay v. Tyson Foods Inc., No. 2:20-cv-125 (N.D. Tex.), is a suit brought by the estate of an employee who allegedly died from exposure to COVID-19 at a Tyson’s plant.

Failure to Warn/Protect

The cruise industry continues to be battered by negligence lawsuits.  Two more claims were filed against cruise lines this week, including one against Princess Cruise Lines and one against Costa Cruise Lines.

This week brought two new cases against nursing homes, one on behalf of a resident and another on behalf of a certified nurse aid, both of whom allegedly died after contracting COVID-19.

Standardized Testing Litigation

A new category of claim arose this week, focused on problems with standardized testing procedures.  The College Board is facing a half-a-billion-dollar suit arising from its allegedly defective online testing procedures for at-home Advanced Placement tests.  A class action lawsuit filed against the College Board on May 19 alleges that the College Board moved to at-home testing despite being aware that at-home AP exams would not be fair to students with disabilities and under-resourced students who may lack access to a computer, the Internet, or a quiet workplace.  In addition to $500M in damages, plaintiffs seek injunctive relief requiring the College Board to accept any answers from last week’s tests which students were unable to submit due to alleged technical glitches.

Securities

COVID-19 has provided dissenting shareholders with new weapons to attack corporate mergers. In Local 464A United Food and Commercial Workers Pension Fund v. Antonellis, No. 2020-0376 (Del. Ch.), plaintiff, a union pension fund, filed a shareholder class action suit against the board of media technology company Xperi seeking to stop a merger with TiVo. The plaintiff alleges the merger does not make sense in light of the pandemic, in addition to advancing the more standard claims that the board did not consider a competing offer and that there were material misrepresentations and omissions in the companies’ proxy statements.

Insurance

New insurance coverage cases continued to mount across numerous industries last week.  Claims were brought by dental practices, music venues, restaurants, barber shops, and bed and breakfasts, among others, alleging their insurers are obligated to cover business losses.  In a new development, business interruption cases are beginning to make their way to appellate courts.  The plaintiff in Social Life Magazine Inc. v. Sentinel Insurance Co.  Ltd., No. 1:20-cv-03311 (S.D.N.Y. May 17, 2020), has filed an interlocutory appeal in the Second Circuit. 

Courts are still in the process of assessing how to manage this tidal wave of litigation.  For instance, in Dianoia’s Eatery, LLC d/b/a Dianoia’s and Pizzeria Davide v. Motorists Mutual Insurance Co., No. 2:20-cv-00706 (W.D. Pa.), a federal district court remanded a business interruption coverage case to state court, finding it lacked subject matter jurisdiction to consider the case.  The court held that even if defendant demonstrated diversity jurisdiction, it would still remand the case under the Declaratory Judgment Act because the complaint raises “novel insurance coverage issues under Pennsylvania law which are best reserved for the state court to resolve in the first instance.”

We’ll end with a twist.  After originally claiming its insurer wrongfully denied its claims for loss of business income, Magna Legal Services LLC announced it would withdraw its complaint, citing the need to work together to get through this period of uncertainty and explaining that it will continue to use Hartford for liability coverage.

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.