The Coronavirus (COVID-19) pandemic creates unprecedented risk for class action exposure for companies. This article identifies the first wave of class actions we anticipate arising out of the COVID-19 pandemic.
The COVID-19 pandemic has already sparked a flurry of litigation activity. Parties and courts are feeling the immediate impact of the virus in the form of extensive postponements of trials and other court deadlines. With the spate of business closures, layoffs, financial losses, physical injuries and event cancellations, class action filings are likely to rise swiftly in the coming months. In fact, opportunistic class action litigators are already targeting companies for lawsuits relating to COVID-19.
Class Actions Against Financial Institutions and Debt Collectors
We anticipate heightened risk of class actions against debt collectors and servicers, as well as against banks to prevent foreclosure proceedings. Many states are suspending private companies‘ ability to collect debts. One such action to prevent foreclosures was filed against Bank of America. (See James L. Shuff, et al. v. Bank of America, et al., Case No. 5:20-cv-00184, in the US District Court for the Southern District of West Virginia).
Plaintiffs also filed a putative class action against Northstar Education Finance Inc., d/b/a Total Higher Education, related to the student loan provider’s suspension of an interest-rate reducing benefit program during the COVID-19 pandemic. The complaint, filed in federal court in Minnesota, alleges that the defendant unlawfully suspended a repayment bonus program citing “changes in economic conditions.“ (See Oksenendler v. Northstar Education Finance, Inc., Case No. 20-cv-00805, Dkt. No. 1, ¶ 5, March 26, 2020). Plaintiffs allege violation of loan agreements, a previous settlement agreement, and deceptive business practices because the suspension of the repayment bonus allegedly increased the interest rates on the plaintiff-borrowers‘ loans.
Class Actions Against Manufacturers and Retailers of Hand Sanitizers, Disinfectants and Protective Gear
We anticipate class action litigation alleging that manufacturers and retailers of hand sanitizers, disinfectants and protective gear misrepresented the products‘ level of protection against various viruses and bacteria. Similarly, class action lawsuits likely will be filed alleging that products did not keep users safe. These would include product liability class actions by healthcare workers (or consumers) against manufacturers of personal protective equipment (PPE), such as protective gowns, gloves and N95 masks.
Consumers filed one of these class actions against Germ-X. (See David et al. v. Vi-Jon Inc., Case No. 20-cv-424, complaint filed, 2020 WL 1082551 (S.D. Cal. Mar. 5, 2020). The plaintiffs asserted claims against Germ-X for false advertising and violations of other laws for allegedly making false statements about Germ-X’s effectiveness against influenza and COVID-19. Similar suits were filed against the manufacturer of Purell (Gonzalez v. Gojo Indus. Inc., Case No. 20-cv-888, complaint filed, 2020 WL 560911 (S.D.N.Y. Feb. 1, 2020)) and Target (Taslakian, v. Target Corporation, et al., Case No. 20-cv-02667, complaint filed, 2020 WL 1367461 (C.D.Cal., March 20, 2020)).
Class Actions Against Employers
We expect a huge surge in class action litigation surrounding adverse employment actions due to the COVID-19 pandemic. Two recent examples were class actions filed in the Superior Court of California, County of San Francisco, against Uber and Lyft. The two cases, Verhines v. Uber Technologies, Inc., and Rogers v. Lyft, Inc., seek injunctions declaring that rideshare drivers are employees under California Assembly Bill 5 such that the drivers can be eligible for state-mandated sick pay. The firm bringing the actions, Lichten & Liss-Riordan, P.C., stated that it planned to bring similar actions in Massachusetts.
We also expect class actions to be filed against employers arising out of layoffs, furloughs, medical leaves and other business interruptions. Another potential set of claims could be brought by employees for the alleged failure to keep workplaces safe from the pandemic.
Securities Class Actions Against Issuers
We anticipate increased securities class actions based on companies‘ disclosures and responses to the COVID-19 pandemic. Some such cases are already being filed as the stock market continues to drop. Plaintiffs filed at least two such cases recently: one against Norwegian Cruise Lines and one against biotech company Inovio. The Norwegian Cruise Lines case asserts that the defendant provided customers with false assurances of safety relating to COVID-19. (See Douglas v. Norwegian Cruise Lines, Case No. 20-cv-21107, complaint filed, 2020 WL 1226410 (S.D. Fla. Mar. 12, 2020)).
The Inovio case alleges that Inovio’s CEO made false or misleading statements about a potential vaccine for COVID-19. (See McDermid v. InovioPharm. Inc., Case No. 20-cv-1402, complaint filed, 2020 WL 1227260 (E.D. Pa. Mar. 12, 2020)). We anticipate additional class action litigation related to new vaccines or other drugs purporting to cure or treat COVID-19.
We also anticipate similar claims by ESOP investors.
Class Actions Against Retailers for Price Gouging
We anticipate that class action lawsuits accusing retailers of price gouging will increase as a result of the COVID-19 pandemic. Price increases on toilet paper, hand sanitizers, protective masks and other essential products could create substantial risk for retailers. One such class action was filed against Amazon shortly after the Coronavirus outbreak. (See Armas v. Amazon.com Inc., Case No. 104631782, in the Eleventh Circuit Court in and for Miami-Dade County, Florida (alleging price gouging related to toilet paper and hand sanitizer)).
Class Actions Against Travel Agencies, Ticket Brokers, Subscription Service Providers and Entertainment Venues for Travel and Event Cancellations
We anticipate class actions against vacation real estate brokers because rental property owners fail to provide refunds of booking or service fees to guests who cannot travel due to the pandemic. Additionally, we expect plaintiffs to target event ticket aggregators for cancelled concerts and other live entertainment related to COVID-19. Moreover, subscription services for live events (such as streaming of live sports or events) could result in class action exposure. Season ticket holders for sporting events could form putative classes for cancelled games or whole seasons. Colleges and universities are now being sued for failure to provide tuition or room and board reimbursement to students. (See Rosenkrantz et al v. Arizona Board of Regents, Case No. 2:20-cv-00613-JZB in the U.S. District Court of the District of Arizona.)
Similar cases could be brought against cruise lines, airlines, hotels and other travel companies for allegedly failing to create a safe environment or for alleged damages relating to delays or cancellations.
Class Actions Against Insurers
The pandemic heightens class action exposure for insurers, including travel insurance and business interruption insurance, for denial of claims based on force majeure or other contractual clauses. Manufacturers, distributors and retailers are facing business disruption as companies in the supply chain are unable to provide goods. They will certainly be reviewing their policies for some relief.
Potential class claims could also be brought by providers or subscribers against health insurers for denials of coverage for new vaccines and treatments for COVID-19 as experimental and investigative or not medically necessary.
Class Actions Against Healthcare Providers
Class claims likely will be brought by residents (or heirs of deceased residents) of nursing homes for negligent management of the COVID-19 pandemic. Hospitals and other providers of healthcare could get named in similar lawsuits.
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COVID-19 is causing unprecedented disruption and injuries to our communities. A significant risk to businesses is responding to a wave of class actions that may be filed relating to the pandemic. McDermott is well positioned to give strategic advice to clients to try to avoid these lawsuits and to defend them once filed. For an in-depth discussion of any given issue or for customized preventative measures, contact the authors or your McDermott attorney contact for full access to McDermott’s capabilities.