As the Spread of Coronavirus Slows, a Contagion of Class Actions Has Only Begun
Companies continue to reel from business disruptions caused by the spread of coronavirus, and in many cases have struggled to navigate the swiftly changing landscape in which they are required to operate (or not operate). At the end of the first full month of the crisis, as infections appear to plateau in epicenters like New York City, class actions seeking to remedy consumers’ losses during the pandemic are spreading rapidly.
As of April 30, 2020, more than 150 class actions have been filed directly relating to or stemming from the pandemic. Tens of millions of individuals have filed for unemployment, and the plaintiffs’ bar is eager to “help.” No amount of social distancing, and no impending treatment or vaccine, can insulate companies from the threat of class litigation.
While the specific factual circumstances underlying these claims are novel, the types of claims being asserted – and the jurisdictions where such actions are being filed – are not. Companies should stay on top of the following pandemic-related class action trends and, wherever possible, get ahead of or try to prevent the additional strain of a class action during these already difficult times.
Millions of people throughout the United States hope to receive refunds for events and services that have been cancelled or postponed as a result of coronavirus-related bans on large gatherings, stay-at-home orders and travel restrictions. The strength of these cases will ultimately turn upon the specific cancellation, force majeure and limitation of liability clauses in the relevant contracts, with courts turning to common law doctrines of impossibility and impracticability where the contracts do not address these specific issues.
Rapid and widespread event cancellations have understandably tested companies’ abilities to fulfill their obligations. For many companies that act as intermediate platforms for transactions—such as tickets to events and rental of vacation properties—handling refunds on such a scale is not manageable or even possible given that money consumers pay is often forwarded to venues, festival promoters and other clients, who often control potential rescheduling. These circumstances have led to a series of class action lawsuits against ticket sellers, educational institutions, subscription fitness, sport, and health companies, and ski areas and theme parks who offer season ticket memberships.
Getting there can be difficult too. While air travel has not been suspended entirely, cancellations and postponements, and general advisories against “non-essential” travel, have stretched airlines’ cancellation policies. There has been a surge of litigation against nearly every major airline concerning refund policies during the pandemic.
Companies not only must navigate how to deal with existing liability, but how to reopen their business and charge their customers who return balancing compliance with written policies, supporting their customers and maintaining a good public image, and remaining financially solvent. Examination of potential ways to maintain cash-flow, through government incentives, customer credits against future transactions, and other means, is an important first step.
Negligence in Addressing the Threat of Coronavirus
Class actions have also been filed alleging negligence and inaction to respond to and prevent harm arising from the coronavirus pandemic. Thus far, these actions have largely been focused on cruise lines, alleging that the ships maintained business as usual despite increasing knowledge of the danger posed to passengers and crew, but it is easy to imagine additional lawsuits against companies that continued operations as the coronavirus spread (or were forced to continue throughout the shutdown). It is also expected that similar allegations will arise as the economy reopens and people resume their normal activities. Companies must design and implement a careful plan to minimize risk when they resume operations—by not opening too soon, providing adequate protective equipment and training to staff, and effectively warning customers of ongoing risks despite the business reopening.
False Advertising of Health Benefits
With consumers anxiously seeking products that can help them protect themselves during this public health crisis, it is important that companies are mindful of claims that may potentially overstate the effectiveness of a given product in treating or preventing the virus. A number of companies have already seen warning letters from federal agencies or class action lawsuits concerning the alleged lack of evidence that hand sanitizers can effectively prevent the spread of disease, including coronavirus. These lawsuits, asserting claims for consumer warranty and unfair competition, will likely spread from hand sanitizers to other products. It is unclear how courts will evaluate the objective “reasonable consumer” under present circumstances. Thus, companies should closely examine their existing advertising claims (both express and implied) to ensure they are not misleading in light of the “new normal.”
Another area where class actions have been slow to file, but are expected to increase, is price gouging. The pandemic has caused sharp spikes in demand for disinfecting products, basic necessities, and essential food staples and empty shelves—both in brick and mortar stores as well as online shops—have increased consumer’ willingness to pay a premium for these types of products. While there is no federal law with strict guidelines for price gouging, more than half of the states have laws the prohibit charging excessive prices on certain products after a triggering event, such as a declaration of a state of emergency. Companies should closely monitor the prices they charge, both during the crisis and after it resolves, to ensure that any increases to their prices comply with applicable law. And while third party sellers like Amazon may be able to pass liability through to the ultimate seller in certain circumstances, it may be wise to actively monitor the pricing activities of their sellers and try to curb price gouging activity before getting hit with litigation.
To alleviate the pains of social distancing, companies, schools, and families have turned to video conference apps to stay connected. As usual, with increased popularity comes increased scrutiny and, unfortunately, increased litigation.
Popular videoconferencing apps Zoom and Houseparty have already been hit with several class actions challenging their privacy practices. Not surprisingly, these actions have been filed in California, where the California Consumer Privacy Act (“CCPA”) went into effect earlier this year. While the CCPA only provides for a private right of action under limited circumstances, these actions demonstrate consumers’ ability—or at least attempt—to use other provisions of the CCPA as underlying statutory violations to support other California consumer protection claims, such as California’s Unfair Competition Law.
Technology companies whose platforms have seen a surge in popularity during the pandemic should closely monitor potential vulnerabilities and reexamine privacy protections that may no longer be adequate in this new virtual economy.
Securities Class Actions
Shareholder class actions have also been filed challenging both affirmative representations and omissions relating to the pandemic. These include actions against cruise lines that allegedly downplayed the risk of coronavirus to investors, pharmaceutical companies that allegedly overstated their ability to develop a treatment or vaccine, and technology companies that allegedly withheld privacy concerns that have come to light with increased use. These early cases illustrate why publicly traded companies must exercise great care when discussing their products and business both to the public and to their investors. It remains to be seen how defenses deflecting blame for decreases in stock prices to the pandemic (similar to those asserted in the wake of the mortgage crisis) will play out.
With court closures and delays throughout the country, the evolution of class action litigation relating to the coronavirus may take some time to come into focus. We expect the above described categories of cases to proliferate, and expand in scope as different issues arise from the reopening of the economy. We will continue to monitor these cases and provide regular updates as to the types of claims being asserted and any decisions that come out. For a more in-depth treatment of these cases and for a comprehensive collection of case citations, click here.