[UPDATED 3/31] The First Coronavirus Class Actions

As expected, the number of coronavirus class action lawsuits filed in California and around the country continues to rise. I am continuing to update the list which incudes three primary categories: shareholder claims, consumer claims and employment claims.

SHAREHOLDER CLASS ACTIONS

  • Douglas v. Norwegian Cruise Lines, filed in the U.S. District Court for the Southern District of Florida, is a federal securities class action brought on behalf of shareholders who purchased or otherwise acquired securities of Norwegian. The Complaint alleges that the company violated its Code of Ethical Business Conduct with respect to its SEC filings and press release relating to its positive outlook in spite of the COVID-19 outbreak.
  • In McDermid v. Inovio Pharmaceuticals, Inc., filed in U.S. District Court of the Eastern District of Pennsylvania, plaintiff alleges that a biotechnology company “capitalized on widespread COVID-19 fears by falsely claiming that Inovio had developed a vaccine for COVID-19” which was materially false and deceived investors.

CONSUMER CLASS ACTIONS

  • Colleges and other institutions of higher education are facing class actions claims by students contending that they should not be charged for room and board in light of the closures. The first such class action was filed in the U.S. District Court for the District of Arizona in Rosenkrantz v. Arizona Board of Regents. The claims asserted are breach of contract, conversion and unjust enrichment. These claims will be brought against but public and private institutions. I would anticipate that, in many states, legislation providing for the types of refunds will be passed, which may make these claims moot.
  • A class action has been filed against a fitness club relating to the company’s refusal to suspend membership dues during the pandemic.  In Namorato v Town Sports International, filed in U.S. District Court for the Southern District of New York, the plaintiff claims that Defendants violate New York consumer protection laws and breach membership contracts by continuing to charge monthly fees when the facilities are not open. The Complaint quotes from SEC filings showing that Defendants have 605,000 members who pay monthly membership dues of $30 to $120 a month. Plaintiff estimates that monthly revenue wrongfully obtained by the Defendants is $30,250,000. The Complaint incudes references to other health and fitness clubs that have voluntarily suspended membership dues during the pandemic as well has several screen shots of social media reactions to Defendants’ practices. This lawsuit illustrates how companies’ responses to these types of consumer issues will be compared and contrasted with others in the industry.
  • In David v. Vi-Jon, Inc. dba Germ-X, filed in the U.S. District Court for the Southern District of California, plaintiffs allege that defendants made false and misleading advertising statements regarding the medicinal and virus preventative benefits of their hand sanitizers.
  • In Douglas v. EF Institute for Cultural Exchange, Inc., filed in California Superior Court, San Diego County, plaintiff alleges that California consumer protection statutes were violated in connection with “thousands of tours to various places all over the world sold by EF Defendants to various educational groups, specifically including, but not limited to, educational groups consisting of high school classes traveling with high school teachers who rely on EF Defendants to arrange for air travel, ground transport, hotels, food, sightseeing etc.” This lawsuit was then followed by another case, Grabovsky v. EF Institute for Cultural Exchange in which another class plaintiff makes similar allegations against the same parties in the U.S. District Court for the Southern District of California. (This illustrates why class action lawyers sometimes race to the courthouse as there will be a battle for lead case and lead counsel rights in these competing related cases.)
  • Another consumer fraud ticket case has been brought in California Superior Court, Los Angeles County, by the colorful Mark Geragos relating to the cancelation of a music festival. In Rutledge v. Do Lab Inc, plaintiff alleges that his ticket for the Lightning in a Bottle music festival included a refund provision that only allows for a credit in the event of a cancellation and does not allow a refund. He contends that this renders the contract illusory and subject to rescission.  He also alleges that the failure to issue a refund violates the Consumer Legal Remedies Act (Cal. Civ. Code Sec. 1750) and Unfair Competition Law (Cal. Bus. & Prof. Code Sec. 17200).
  • In what is certainly a harbinger of things to come, one of the first class actions alleging violations of price gouging statutes was filed in State Court in Florida in Armas v. Amazoncom Inc. This case will present an interesting question of whether Amazon can be liable under these statutes given that the prices for these products are set by the e-commerce entity that uses Amazon as its portal. I am doubtful whether liability can be imputed to Amazon for price gouging if it’s not the party setting the prices.

EMPLOYEE CLASS ACTIONS

  • In Verhines v. Uber Technology, Inc., filed San Francisco Superior Court, Plaintiff seeks unemployment benefits on behalf of drivers. An identical case was filed by the same firm against Lyft.
  • In Alaska State Employees v State of Alaska, filed in State Court in Alaska, a union of public employees have brought claims for injunctive relief relating to the State’s alleged (a) refusing to allow employees to enter into tele-commuting agreements, (b) failing to make changes to shift schedules to allow adequate social distancing, (c) not permitting teleconferencing and modification of work spaces; (d) failing to provide appropriate personal protective equipment to shield employees who have to interact with the public; (d) declining to follow CDC guidelines by allowing more than ten people to work together in small spaces.
  • The fact that there are only a handful of employee claims filed should not be read as indicative of a lack of future claims from employees. Conferring with my L&E and employee benefit partners, there is a general consensus that there will be many employee class actions.  The top six list of such claims that we’ve put together is as follows:
  1. WARN Act Claims: The announcement of layoffs will likely result in a number of claims relating to compliance with WARN Act and similar state laws, including questions of whether certain exemptions apply.
  2. Wage & Hour Claims: As a result of employees working remotely, standard operating procedures and controls relating to meal and rest breaks have been disrupted. A lack of adequate recordkeeping and oversight increases the risk of wage and hour claims, including overtime pay. The use of personal equipment for business purposes triggers questions and claims relating to companies’ reimbursement policies.
  3. Employee Safety and Claims: Companies have been required to balance urgent business needs with employee health and safety during the crisis. There will likely be class actions relating to exposures to the virus in the workplace. In addition, the stress of the pandemic and resulting mental health needs will increase the likelihood of individual as well as class claims.
  4. ERISA Claims: As the bottom falls out of 401ks and pension plans, there will likely be ERISA claims. Any down market prompts greater scrutiny of past fiduciary decisions. This is a risk even after Retirement Plans Committee of IBM v. Jander, (No. 18-1165)
  5. Employee Medical Privacy Claims: Employee privacy claims are likely to follow as the manner in which companies handled of sensitive information concerning employees’ medical diagnosis is questioned. This include internal as well as external reporting. If employee records, normally maintained on a secured server, are accessed and stored outside of the normal environment, there are risks relating to unauthorized access to private information and resulting privacy claims.
  6. Disparate Impact Layoffs: As companies address the need for layoffs and furloughs, the disparate impact of decisions on who is retained and who is terminated will face scrutiny, opening the door to possible claims for age discrimination.

There are a few other class action from the pandemic that bear mentioning even though not particularly relevant to corporate risks assessment.

Perhaps the most ambitious of all the coronavirus class actions is Alters v. People’s Republic of China, filed in the U.S. District Court for the Southern District of Florida. Plaintiffs seek “damages suffered as a result of the Coronavirus pandemic, against Defendants, the People’s Republic of China and its various government entities overseeing the response to the Coronavirus pandemic in China generally and within Hubei Province and the City of Wuhan.” A second case against China was filed in U.S. District Court for the District of Nevada in Bella Vista LLC v. Peoples Republic of China.