The REAL Trending Litigation Topics Regarding COVID-19: Week of April 20
Is the administration of the Paycheck Protection Program giving rise to new liabilities?Even before the funds under the Paycheck Protection Program were exhausted, lawsuits were being filed about its administration. Expect those lawsuits to increase as businesses, frustrated by their inability to take advantage of this program, vent their anger against lenders and the government.
One of the earliest lawsuits was filed by a putative class of businesses that alleged Bank of America had violated the CARES Act by requiring applicants for the Paycheck Protection Program to have a pre-existing borrowing relationship with the bank. The District Court of Maryland denied the plaintiffs’ request for a temporary restraining order and preliminary injunction that would have required Bank of America to accept their applications, holding that the CARES Act does not create a private right of action and nothing under the CARES Act prohibits Bank of America’s policy. The plaintiffs already have appealed to the Fourth Circuit Court of Appeals.
Another putative class action was recently filed against the Small Business Administration and other governmental defendants by women- and minority-owned “non-employee businesses”: that is, those businesses that do not have W-2 employees. The plaintiffs allege women and minorities are disproportionately likely to operate non-employee businesses and the government defendants thus discriminated against them by deferring the application date for non-employee businesses until more than a week after the application date for employee businesses. The plaintiffs allege this caused most non-employee businesses to be able to submit applications before the Paycheck Protection Program funds were exhausted. The case is pending in the District Court of Maryland.
How will courts apply the expansion of family and medical leave under the Families First Coronavirus Response Act?
The Families First Coronavirus Response Act ("FFCRA") expanded family and medical leave for certain employees affected by the COVID-19 pandemic. In one of the first lawsuits to test the scope of those protections, a former Eastern Airlines executive alleges she was denied leave under the FFCRA to accommodate school closures affecting her minor son and was then fired. The case is pending in the Eastern District of Pennsylvania.
Do the Department of Labor’s regulations properly implement the Families First Coronavirus Response Act?
In an aggressive political and legal move, the New York Attorney General filed suit against the federal Department of Labor over recent regulations implementing the pandemic-inspired Families First Coronavirus Response Act. The Act requires paid sick leave and emergency family leave for employees impacted by COVID-19. New York’s argument is that the regulations issued April 1, 2020 are not faithful to FFCRA and restrict eligibility beyond the statutory terms and also demands documentation from employees that will be difficult to provide. While the DOL has not yet responded, we predict New York will have an uphill battle for a number of reasons, the least of which being that the FFCRA gives the Department of Labor discretion to formulate reasonable rules implementing the Act’s intent.
Are we seeing the tip of the iceberg for wage-and-hour claims?
State-mandated closures and an economic slowdown might just be the start of some businesses' worries. We’re seeing the first wave of wage-and-hour claims, including a recent proposed collective and class action complaint filed against a Florida-based restaurant group for allegedly failing to pay servers regular wages, overtime wages, and tips because of the COVID-19 pandemic. More lawsuits along these lines are sure to follow.
Are delivery services exploiting a monopoly power?
As more Americans order food using their smartphones, a lawsuit filed against GrubHub, DoorDash, Postmates, and UberEats alleges those meal delivery services have monopoly powers that they have used to impose unlawful price constraints and restrict competition.
Are resellers at risk of trademark liability based on their price-setting behavior?
Governments, businesses, and individuals have scrambled to secure supplies of N95 masks to protect themselves and their employees from the coronavirus. This surge in demand has unsurprisingly also led to higher prices. But the country’s leading manufacturer of N95 masks, 3M, is fighting back against vendors it alleges are reselling its masks at unconscionable prices. Perhaps 3M’s most interesting claim is that these vendors have violated trademark law by including 3M’s distinctive mark in bid proposals and implying a non-existent distributorship relationship with the company. Cases are pending in the Southern District of New York and Eastern District of California.
What rights do consumers have to refunds?
Last week, we discussed refund claims filed against fitness centers and the Arizona state university system. This week, a number of other businesses and universities find themselves as defendants for similar claims.
Like the gym members who alleged they are paying fees for gyms they could not use, season pass holders at Six Flags theme parks have sued for refunds, alleging they are prevented from receiving the benefit of their memberships during government-ordered shutdowns.
A proposed class action against the online ticket-reseller StubHub alleges the business took advantage of COVID-19 to change its refund policy, eliminating the refund guarantee StubHub had previously advertised to consumers.
Students at Purdue University, University of Miami (FL), Drexel University, and Liberty University all have sued for refunds of tuition, housing, and meal plan expenses. With some variation, they all allege they have been deprived the full value of their educations as a result of dorm closures and shifts to online instruction.
A reeling airline industry has been hit with lawsuits alleging passengers are entitled to refunds for fares cancelled as a result of the COVID-19 pandemic. As the Washington Post reports, Southwest, United, and Spirit are among the airlines targeted.
What insurance coverage is available for pandemic-related shutdowns?
The Star Cinema Grill theater chain sued its insurance company after being denied business interruption coverage for COVID-19-related shutdowns. In contrast to most of the other coverage disputes we have seen filed, Star Cinema had an express “pandemic event” endorsement. Local news coverage is available here.
Well-known Hollywood attorney Mark Geragos and his businesses also have sued their insurance company after being denied business interruption coverage. In a twist, the plaintiffs also named Los Angeles Mayor Eric Garcetti as a defendant—almost certainly to preclude a later dispute over what the Los Angeles shutdown order required. The complaint filed by Geragos’ law firm is available here.
Will COVID-19 lead to new developments in environmental litigation?
In our webinar (link) on COVID-19 litigation, we predicted an uptick in environmental activism following the EPA’s announced enforcement discretion relating to emission exceedances relating to a reduced or compromised workforce due COVID-19. Two recent lawsuits bear out our prediction and suggest regulated businesses should be documenting the relationship between reduced workforces and environmental exceedances—and considering citizen or activist suits when assessing their legal liabilities.
A group of environmental organizations led by the Natural Resources Defense Council was the first to respond to the EPA’s new policy, and it did so by going right after the EPA. The groups claim the EPA’s enforcement policy will put those living near industrial facilities in danger by increasing pollution and decreasing the amount of publicly available information about emissions. This action came on the heels of at least 10 Attorneys General sending a letter to the EPA asking it to undo the new policy. The EPA has not filed a response to the suit, but has issued a statement saying its enforcement discretion policy does not allow or permit increases in pollution or emission and only temporarily acknowledges the possible impact of COVID-19 on the workplace. The EPA expects facilities to strive to meet permitted levels and document any exceedances.
COVID-19 also has given a new twist to citizens' suits. After the demolition of a coal-fired power plant left a Chicago community blanketed in dust, the residents sued the company and its contractors for a variety of tort-based claims—including unspecified increased health risks resulting from the demolition having been conducted during the COVID-19 pandemic.
Are pot shops and gun ranges “essential businesses” during a pandemic?
A Virginia gun range, joined by several advocacy groups, sued Virginia Governor Ralph Northam to enjoin the enforcement of his order closing indoor gun ranges. Although relying on the Virginia constitution rather than the Second Amendment, the plaintiffs allege the Governor’s order unlawfully restricts constitutional rights to keep and bear arms.
Meanwhile, a Massachusetts state court already has denied a request for injunctive relief against a shutdown order that closed down recreational marijuana businesses while allowing medical marijuana businesses to stay open. The court’s decision applied the lowest level of scrutiny to the plaintiffs’ constitutional claims and held that, although a similar public health benefit could be achieved while allowing recreational marijuana businesses to open, the Commonwealth had articulated a sufficient rational basis in its concern for larger-scale gatherings and increased “marijuana tourism” from neighboring states.
Are governments taking property by virtue of their shutdown orders?
A group of Florida property owners, including former Arkansas Governor Mike Huckabee, sued their county government after it restricted access to their private beachfronts. Among other claims, the plaintiffs allege these access restrictions have taken their property without just compensation in violation of the Fifth Amendment. A federal district court judge, however, recently denied their request for a preliminary injunction.
A Connecticut bar and its owners sued Governor Ned Lamont and their local mayor for depriving them of all economically reasonable use of their property by enforcing shutdown orders. Other tort-based claims are asserted against the mayor for allegedly falsely claiming the bar had remained open in violation of government orders when it had, in fact, voluntarily closed.
Led by a company owning three Las Vegas wedding chapels, a group of plaintiffs has sued Clark County and the State of Nevada over shutdown orders that do not allow exemptions for private wedding chapels. Because they are unable to hold weddings while the shutdown order is in effect, the chapel owners allege those governments have taken their property without just compensation.
At least one takings claim already has been resolved—and adversely to the plaintiffs, at that. Danny DeVito (no, not that Danny DeVito), led a group of plaintiffs challenging Pennsylvania Governor Tom Wolf’s order shutting down non-essential businesses. The Pennsylvania Supreme Court held the plaintiffs’ takings claim failed because it resulted in only a temporary loss of property until the shutdown order is lifted. The plaintiffs’ other statutory and constitutional challenges fared no better.
Spilman’s COVID-19 Task Force is monitoring litigation arising out of this pandemic to help keep our clients informed and in front of liability issues. Contact us with any questions or requests for tracking particular types of litigation arising out of the COVID-19 pandemic.