The Class Action Fallout from COVID-19: A Proliferation of New Disputes

Securities Class Actions

Among the first suits to be filed, and certainly a hotbed of future disputes, are securities class actions involving COVID-19. At least two securities cases have already been brought. One, Douglas v. Norwegian Cruise Lines, No. 1:20-cv-21107 (S.D. Fla.), was brought against Norwegian Cruise Lines on behalf of investors who bought or acquired stock between February 20, 2020, and March 12, 2020. The plaintiffs claim that the cruise line made false statements in its February Security and Exchange Commission filings, which touted the company’s strong financial performance despite the coronavirus outbreak and the company’s confidence in its preventive measures to reduce exposure and transmission of the virus. The plaintiffs claim these statements about the cruise line’s business and operations were false because, at the time it made them, the company was employing sales tactics that provided customers with unproven and false statements about COVID-19 to entice them to purchase cruises. The plaintiffs argue that the deceptive acts inflated Norwegian’s stock price and, had investors known, “they would not have purchased Norwegian securities at the artificially inflated prices that they did, or at all.”

Another other securities class action, McDermid v. Inovio Pharmaceuticals, No. 2:20-cv-01402 (E.D. Pa.), was brought against Inovio Pharmaceuticals on behalf of investors who bought or acquired the company’s stock between February 14, 2020, and March 9, 2020. The plaintiffs allege that they bought the company’s stock at artificially inflated prices resulting from false statements by Inovio’s chief executive officer that the pharmaceutical company had developed a vaccine for COVID-19. After these statements, Inovio’s stock price increased dramatically. According to the plaintiffs, however, it was eventually revealed that Inovio had not developed a vaccine, and Inovio’s stock price plummeted as a result.

These two suits are prime examples of the types of securities class actions businesses can expect in the coming months. The stock market has taken a drastic downturn since early March, with no clear end in sight. Thus, there is little doubt that securities class actions based on companies’ disclosures or responses to the COVID-19 pandemic will proliferate. Companies like Norwegian Cruise Lines could face suit if they falsely downplayed the effects of the Coronavirus on their business and operations and thereby caused artificially inflated stock prices. Likewise, companies like Inovio could face suit if they falsely tout their capacity to provide goods or services needed for a more effective response to the virus. To be sure, the situation is different than that following the 2008 crash, which led to a decade of securities litigation. Here, there are no claims that a systemic deception led to the crash. Nevertheless, there will be securities suits against companies that try to hide bad news or overplay their capabilities to respond to the crisis.

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Employment Class Actions

Uber Technologies is among the first to face an employment class action involving COVID-19 in Verhines v. Uber Technologies Inc., No. 3:20-cv-01886 (N.D. Cal.). Consistent with similar complaints against the company, the complaint alleges that Uber misclassifies California drivers as independent contractors and therefore owes workers paid sick leave. The plaintiffs claim that the COVID-19 pandemic renders Uber’s failure to provide drivers with state-mandated sick leave particularly harmful. Specifically, because Uber does not acknowledge drivers as employees entitled to paid sick leave, the drivers “will feel the need to continue working in order to support themselves, even if they feel ill.” Thus, the plaintiffs conclude that Uber’s failure to comply with California’s labor law creates an immediate danger to both drivers and the general public.

The suit against Uber is not unique. Businesses across the country face the prospect of sick employees who should not be coming into work. Although many businesses are closed, there are still millions of people working in businesses considered essential and that therefore remain open to the public. Where the lack of paid sick leave leads employees to continue working in order to support themselves, companies could be blamed for putting their employees (or even the public at large) at risk. While the federal government has recently enacted a statute that grants paid leave to many employees, the act excludes employees of companies that have fewer than 50 or more than 500 employees—about 71 million people. Whether through theories of misclassification like in the Uber suit or through other, more unique, theories of liability, businesses with employees who lack paid sick leave should be poised for an increase in related class claims.

Consumer Class Actions

The field of consumer rights is another hotbed of class litigation arising from COVID-19. Indeed, several consumer class actions are already pending. Two are against the makers of the hand sanitizers Purell and Germ-X, respectively: Gonzalez v. Gojo Industries, Inc., No. 1:20-cv-00888 (S.D.N.Y), and David v. Vi-Jon Inc., No. 3:20-cv-00424 (S.D. Cal.). The suits are brought on behalf of all purchasers of the products in the relevant jurisdictions (New York and California) and allege that the defendants falsely advertised their hand sanitizer as being effective at preventing the flu and other viral diseases. According to the complaints, there are no reliable studies to support these representations, which the plaintiffs claim allow the defendants to unlawfully increase their sales. Similar suits involving deceptive trade practice claims are likely to abound. The most likely class suits to expect are those against the makers of health supplements who are alleged to have misled consumers into believing that their product can prevent or treat viral diseases.

Another consumer class action on file is that of Shuff v. Bank of America, No. 5:20-cv-00184 (S.D. W. Va.), a lawsuit brought on behalf of all West Virginia homeowners who face foreclosure during the national emergency caused by COVID-19. In the complaint, the plaintiffs seek an injunction to stop foreclosures by Bank of America during the crisis. The plaintiffs argue that, in light of the COVID-19 pandemic, “it is inappropriate to conduct non-judicial foreclosure sales because the public auctions cannot be conducted consistent with the principles of an appropriate time, place and manner of a commercially reasonable public auction, as required under West Virginia law and the parties’ contracts.” Both the contract on the bank’s loans and West Virginia law provide that any foreclosure sale has to be conducted at a public auction, and the plaintiffs claim that these requirements cannot be met during the coronavirus outbreak. The plaintiffs also allege that because citizens are asked to self-quarantine and practice social distancing, commercial sales of foreclosed homes cannot meet commercially reasonable standards.

Since the filing of this suit, the administration has announced steps to halt foreclosures on government-backed mortgages. But, like the mortgages provided by Bank of America, many Americans do not have government-backed mortgages. Thus, suits similar to Shuff could proliferate on behalf of citizens of other states and against other mortgage providers. And the theory does not just stop at mortgages—it could potentially apply to loans secured by anything that must be sold at public auction, such as cars, boats, recreational vehicles, and more.

Other types of consumer class actions are also likely. Vendors, such as hotels and ticketing agencies, may refuse to reimburse consumers who have prepaid for various events and programs that were canceled due to COVID-19. While individual force majeure provisions will have a varying impact on the viability of these suits, the option of rescission could provide class-wide relief for consumers seeking refunds on their payments. Various facilities housing the sick or elderly could face claims alleging they did not take adequate measures to prevent the spread of the disease, putting the lives of all the residents at risk. And businesses at large could face class exposure for data breaches, which are likely to increase as a result of greater use of remote access systems with security vulnerabilities arising from the pandemic. Ultimately, given the implications of the pandemic, cases involving consumer rights are likely to comprise the greatest number of class actions related to COVID-19.

Governmental Class Actions

Finally, there is no question that various governmental entities will face class actions arising from COVID-19. Perhaps the most attenuated of the class suits filed thus far is that of Alters v. People’s Republic of China, No. 1:20-cv-21108 (S.D. Fla.), brought against the People’s Republic of China and various other Chinese governmental entities. The plaintiffs allege that the defendants “knew that COVID-19 was dangerous and capable of causing a pandemic, yet slowly acted, proverbially put their head in the sand, and/or covered it up for their own economic self-interest.” The plaintiffs further expound that China’s failure to report and contain the COVID-19 virus more quickly, or disclose the actual number of cases, created “essentially a giant Petri dish” in the region near Wuhan, sparking the global COVID-19 outbreak. Thus, the plaintiffs conclude, the defendants’ conduct caused and will continue to cause personal injuries and deaths, as well as other damages.

Domestically, an inmate at a Colorado prison brought a class action against the facility’s warden and the U.S. Federal Bureau of Prisons on behalf of all current and future prisoners in the Bureau of Prisons, Nelson v. Barnhart, No. 1:20-cv-00756 (D. Colo.). According to the complaint, although prisons are “a known hotbed for infections and viral pandemics,” neither the warden nor the U.S. Federal Bureau of Prisons took measures to protect inmates and staff from the spread of coronavirus. Specifically, the plaintiffs allege that isolation and social distancing measures have not been implemented and that, instead, inmates are “packed in close quarters, housed with other prisoners, with multiple cells in a single pod, sharing meals multiple times per day.” Thus, the plaintiffs conclude that the defendants “are knowingly risking the lives of every prisoner” in the federal system, and they seek declaratory and injunctive relief to reform these practices.

The Nelson suit could certainly be duplicated by inmates across the country. Likewise, similar to the theories alleged in Alters, individual counties or states could face class exposure for not taking adequate measures to prevent the spread of COVID-19, putting additional lives at risk and creating an additional burden on local health care providers. Even the Centers for Disease Control and Prevention could face exposure for its heavily criticized testing guidelines,  as in the class suit filed against it with respect to its alleged suppression of a diagnostic test for Lyme disease. Whichever direction the suits go, it seems likely that the Nelson and Alters suits are only the beginning of class claims seeking to hold governmental entities responsible for the fallout of COVID-19.

Conclusion

As the discussion above demonstrates, class claims arising from COVID-19 are only in their infancy. As the weeks and months go by, and as the consequences of the pandemic deepen and evolve, new cases and new theories will arise. Companies should therefore take stock of their potential vulnerabilities and consider steps that can be taken to prevent or minimize the risk of class exposure in the world of a global pandemic. 

Erica Rutner is a partner at Lash & Goldberg LLP in Fort Lauderdale, Florida.

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