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Print articleUnprecedented: COVID-19 Litigation Trends: Issue 5
May, 2020 - Joseph V. Schaeffer, Niall A. Paul, Megan W. Mullins
Our updates about “The REAL Trending Litigation Topics Regarding COVID-19” are now called Unprecedented to reflect the development and adaption of legal theories to address the unprecedented impact from COVID-19. Although the name is new, Unprecedented will continue to bring you the most up-to-date trends in COVID-19 litigation each week.
With the first full month of government-imposed shutdowns behind them, some parts of the country are starting to gradually reopen. But many businesses are taking a cautious approach out of concerns about how to ensure worker and customer safety. Their concerns are not misplaced. Healthcare and meat processing workers sued their employers last week over allegedly inadequate workplace protections, and plaintiffs in a proposed class action sued the Pennsylvania Department of Health for allegedly inadequate nursing home inspection procedures. We expect these types of lawsuits, as well as standard negligence lawsuits, to pick up in number as businesses reopen and Americans return to work.
We also identified a number of new lawsuits—and even decisions—over the legality of shutdown orders. Most of those cases to have been decided so far have upheld the shutdown orders, although a recent restraining order issued against Illinois Governor Pritzker offers plaintiffs some hope of future success. We expect these to continue as affected businesses and citizens seek redress, even as we expect most claims for injunctive relief to disappear in favor of damages claims as society reopens.
Finally, we continue to see a number of new insurance coverage claims, refund claims, and Paycheck Protection Program claims. And judges have even found time to provide legal professionals with lessons about how to adapt (and not adapt) to work-from-home environments.
We hope you find these cases, and the questions they raise, to be informative.
How will the courts approach “safe workplace” standards and causation in COVID-19 related workers’ compensation lawsuits?
In what could be a precursor to an onslaught of possible tenuous workers' compensation claims or injury claims, a nurses' union in Ohio has filed an OSHA complaint against The Ohio State University. The union for 4,000 nurses at the OSU’s Wexner Medical Center accused the hospital of endangering its members, mostly targeting its complaints at PPE availability and information transparency. The hospital has not responded to the complaint, but issued a statement noting its commitment to its staff and patients as well as the public. In addition to following evolving guidelines from the CDC, the hospital noted it had “taken numerous steps to keep everyone safe and support our front line staff: Since the beginning of the outbreak, we have been following the evolving guidance of the Centers for Disease Control and Prevention on the appropriate isolation of COVID-19 patients and the requirements for personal protective equipment for our staff. We continue to work tirelessly to purchase PPE and maximize usage of those we have. We have postponed elective procedures to conserve PPE. We’ve partnered with Battelle to use an FDA-approved process to sterilize N-95 masks.” The complaint and subsequent litigation should be followed for important developments in employee “injury” claims as well as claims by the public and/or patient plaintiffs who can track the same allegations in relationship to exposure at the hospital and in “household” exposure cases. News coverage of the lawsuit is available here.
Another lawsuit alleging endangerment of employees has been filed in Missouri against the world’s largest pork producer, Smithfield Foods. The lawsuit comes after hundreds of workers have tested positive for COVID-19 in its nationwide meat processing plants, with many test results still pending. The complaint alleges the company is not doing enough to protect its workers, who allegedly were not provided with adequate PPE or given enough time to wash their hands, blow their noses, or engage in other hygiene measures. Since the lawsuit was filed, President Trump issued an executive order requiring meat processing plants such as Smithfield to stay open, which some suggest is an effort to limit exposure of large companies in the face of the pandemic. Indeed, many employers continue to urge their governments to explore liability immunity in order to continue to operate without fear of a lawsuit. News coverage of the lawsuit is available here.
What is the government’s liability when regulated entities allegedly employ inadequate procedures for addressing COVID-19?
The Pennsylvania Department of Health has been named in a class-action lawsuit over nursing home inspection procedures. The lawsuit alleges that the Department did not regularly inspect a Beaver County facility, which has seen 248 positive tests and 58 resident deaths due to COVID-19. The complaint also alleges the facility used an experimental treatment of hydroxychloroquine and zinc on residents without their consent, and the Department did nothing to intervene. The suit seeks an injunction to force Pennsylvania to resume regular nursing home inspections and prevent them from performing experimental procedures. News coverage of the lawsuit is available here, here, and here (with a link to the complaint).
What’s the standard of care in an environment where COVID-19 is present?
In yet another negligence lawsuit, plaintiffs for a proposed class claim that Royal Caribbean Cruises Ltd. exposed hundreds of crew members to COVID-19 by failing to follow safety precautions—despite knowing the virus was likely present on the ship. The complaint alleges crewmembers were not timely quarantined, were not provided masks, and were not made to observe social distancing measures. Instead, the complaint states the company threw a St. Patrick’s Day party for more than 1,000 crew members just four days after suspending future operations for passengers, and allowed them to eat in buffet-like settings. Included in the complaint are photographs of the party and crew member meetings, which show crew members within close proximity of one another. The class size is estimated to be more than 10,000. News coverage of the lawsuit is available here, and the complaint is available here.
How many more WARN Act claims are on the horizon?
A proposed class action complaint against Hertz alleges the company committed WARN Act violations when it laid off employees during the COVID-19 pandemic. Interestingly, the plaintiffs admit Hertz provided notice when they were laid off, but allege the notice was inadequate because Hertz knew several weeks earlier it would be forced to conduct mass layoffs. The plaintiffs also criticize the underlying decision to perform layoffs at all, arguing that Hertz had recourse to forgivable loans under the Paycheck Protection Program Act that would have allowed it to maintain payroll. For employers who hoped that providing any notice would avoid later WARN Act claims, this case should provide a stark warning and thus bears monitoring. The complaint is available here.
Will debt collectors succeed on their challenge to a Massachusetts rule limiting their collection activities during the COVID-19 pandemic?
Our last update reported on a lawsuit filed against the Massachusetts Attorney General by a group of debt collectors, in which the debt collectors alleged the Attorney General had unlawfully limited their collection activities. According to news reports from a hearing held in that case last Friday, the court expressed some sympathy for the debt collectors’ First Amendment argument and ordered the parties to submit further briefing by no later than today, with a ruling to follow shortly afterward. The complaint is available here, and news coverage of Friday’s hearing is available here.
Will plaintiffs succeed in enjoining government shutdown orders before they’re lifted?
The Michigan Court of Claims has denied a request for preliminary injunction brought by the same set of plaintiffs currently challenging the state’s shutdown order in federal court. In denying the request for an injunction, the court recognized the substantial rights at issue and the significant impact from the executive orders. But it held that the plaintiffs likely would not prevail on the merits because the state’s action had a real and substantial relation to the public health crisis, and it declined to perform a policy-making function by determining that there were less-restrictive means of achieving a similar result. News coverage of the order (with a link to the order itself) is available here.
A group of Los Angeles-area businesses has sued California Governor Newsom and a host of other officials over the constitutionality of state and local shutdown orders. Among the federal constitutional claims are alleged violations of the right to travel, procedural and substantive due process, takings requirements, and equal protection. At the heart of the plaintiffs’ complaint, however, is the assertion that they could have continued to operate in compliance with CDC guidelines and that, by restricting their operations as non-essential businesses, California officials have acted arbitrarily and taken their property without just compensation. The complaint is available here.
Governor Newsom also is facing legal challenges to his order directing all Orange County beaches to close effective May 1. One lawsuit, led by the cities of Huntington Beach and Dana Point, alleges Governor Newsom overstepped his powers under the state constitution. Another emergency application for mandamus relief similarly alleges Governor Newsom and other officials have overreached while going further to argue Governor Newsom is retaliating against Orange County because of local officials’ disagreement with the need for continued restrictions.
As a bright spot for plaintiffs alleging that shutdown orders constitute government overreach, an Illinois state court judge entered an order temporarily restraining Illinois Governor Pritzker from enforcing the shutdown order against plaintiff Darren Bailey, a Republican lawmaker. News coverage of the order (with a link to the order itself) is available here. Although Governor Pritzker already has appealed the order to Illinois’ intermediate appellate court, another Republican lawmaker has filed a class-action complaint attempting to enjoin enforcement of the shutdown order against all Illinois residents. News coverage of Governor Pritzker’s appeal (with a link to appellate filings) is available here, and the class-action complaint is available here.
Over the weekend, a group of plaintiffs consisting of Maryland residents and businesses sued Governor Hogan and other officials for an injunction against the enforcement of his various shutdown orders. Like the other challenges to shutdown orders filed so far, the plaintiffs bring several state constitutional claims and allege under federal law that the defendants have infringed upon their First Amendment rights to free speech, free exercise of religion, and peaceable assembly; have violated equal protection by treating them differently from other similarly situated groups; have taken their property without just compensation; and have unlawfully interfered with interstate commerce in violation of the federal constitution’s commerce clause. Three arguments, however, distinguish plaintiff’s complaint from others. First, the plaintiffs allege the defendants have violated the First Amendment establishment clause by favoring non-religious gatherings over religious gatherings. Second, the plaintiffs allege the defendants have violated their right to a republican form of government by adopting and enforcing rules that were not enacted by legislative officials elected by Maryland citizens. And third, the plaintiffs argue that U.S. Supreme Court precedent requires police powers, like those exercised here, to be limited to the strictest “necessity of the case”—thus offering a counter to the deferential review that has been applied to shutdown orders thus far. For all of these reasons, this case is one to watch for parties interested in constitutional challenges to shutdown orders. The complaint is available here.
Meanwhile, the Supreme Court of Wisconsin has set oral argument for Tuesday on a petition filed by the Wisconsin Legislature against Wisconsin executive-branch officials. In its petition, the Legislature challenges a shutdown order issued by the state Department of Health Services, alleging it violated state rule-making requirements, exceeded that department’s statutory authority, and arbitrarily and capriciously distinguished between permissible and impermissible activities. Although some of these claims will have limited relevance outside of Wisconsin, this case represents only the second case challenging a shutdown order to reach a state’s highest court and the first to receive oral argument. The Supreme Court of Wisconsin’s approach thus is likely to receive close attention from other courts where similar challenges are pending or are soon to be filed. The petition is available here.
Are there any business sectors that will NOT be hit with a COVID-19 related refund claim?
The Washington Sports Club, operated by Town Sports International, has announced it will suspend membership fees during the pandemic and will credit its clients for payments made while its gyms have been closed. This decision came soon after D.C. Attorney General Karl A. Racine sent a letter asking the group to stop charging members while the facilities are closed, and follows similar decisions made by gyms and fitness facilities across the nation. News coverage of Washington Sports Club’s decision is available here.
A group of Orthodox and conservative Jews have filed a class-action lawsuit alleging breach of contract by a kosher travel company, Kosherica LLC, after paying thousands of dollars in deposits to attend a Passover retreat, which was later canceled as a result of COVID-19 concerns. According to the complaint, the plaintiffs were offered a refund of only 65 percent or the opportunity to attend next year’s retreat. This lawsuit is one of many demanding refunds for canceled events, and raises the question of who should bear the loss caused by the pandemic, and whether a “credit” for a future event is sufficient reimbursement. News coverage of the lawsuit is available here.
Finally, yet more lawsuits have been filed in which students demand refunds from their universities, arguing they should not be charged the same fees for an online educational experience that they allege does not match the in-person experience that has been lost to the COVID-19 pandemic. Nor, the students allege, should they be charged fees for campus activities and services they can no longer access. The latest university defendants are Vanderbilt University, the California State University System, and the University of California System.
Are businesses that secured Paycheck Protection Program loans the next target for lawsuits by unsuccessful borrowers?
JPMorgan Chase and its client Ruth’s Chris Steak House are among the defendants named in a lawsuit filed by an Illinois popcorn seller alleging they unfairly “cheated” to receive funds under the Paycheck Protection Program meant for small businesses. The lawsuit, which seeks class action certification, argues that large restaurant chains such as Ruth’s Chris and other profitable clients do not need the forgivable loans under the PPP, but nevertheless received special treatment from their bank, such as allowing them to submit applications earlier than others. This practice, the complaint alleges, caused the PPP to be drained of funds before it could reach small businesses. Ruth’s Chris has announced it plans to return the $20 million received from the PPP, but the lawsuit argues that small businesses and their owners have already suffered irreparable damage. News coverage of the lawsuit is available here.
Are loan agents owed fees for assisting borrowers with applications under the Paycheck Protection Act?
Nearly 5,000 banks and lenders are facing claims of unfair business practices and unjust enrichment from processing fees collected during the first round of funds distributed under the Paycheck Protection Program. The proposed class lawsuit alleges that the financial services agents who assisted small businesses in receiving the loans are entitled to approximately 19.14 percent of all administrative fees paid to the defendant banks, which amounts to $3.8 billion. The lawsuit asks the court to declare that these fees should be deposited into a fund within 60 days, to then be distributed to the agents who facilitated the loans. News coverage of the lawsuit is available here, and the complaint is available here.
Will COVID-19 related coverage disputes end up before an MDL?
A Pittsburgh-based Italian restaurant and pizzeria has sued their insurance carrier to establish coverage under the business interruption and civil authority forms of their “all risks” policies. Like nearly every other coverage case that we have seen so far, the plaintiffs allege they have experienced damage to property because the novel coronavirus “infects and stays on the surfaces of objects and materials for prolonged periods.” The complaint is available here.
Thor Equities, a commercial real estate owner with assets across the world, sued its carrier last Thursday over a COVID-19 related coverage dispute. Unlike most other coverage lawsuits, Thor’s dispute with its carrier focuses not so much on whether coverage exists, but rather on whether coverage is limited to the policy’s $1,000,000 “communicable disease” sublimit or whether other coverages with higher limits also have been triggered. Perhaps most notable, however, is Thor’s allegation it has experienced at least $20 million in COVID-19 related losses so far—thus signaling the significant financial stakes for both sides. The complaint is available here.
Meanwhile, lawyers representing plaintiffs who have filed federal court lawsuits asked the Judicial Panel on Multidistrict Litigation (“JPML”) to consolidate the pending lawsuits in front of a single judge. They argue that each case presents essentially two issues: whether the novel coronavirus causes “physical damage to property” under the applicable insurance policies, and whether coverage is triggered when the novel coronavirus is present on or near the policyholder’s property. Not all plaintiffs agree that consolidation is appropriate, however, and even those that do disagree over the district where the cases should be referred. The only certain takeaway is that the early push to establish an MDL reflects an expectation that the current crop of lawsuits represents just the start. News coverage of the requests for an MDL is available here.
Are companies opening themselves up to securities claims when they make public statements about COVID-19?
A class action lawsuit has been filed against SCWorx on behalf of those who purchased securities from the company between April 13, 2020 and April 17, 2020. The claims, brought under the Securities Exchange Act of 1934, allege SCWorx made materially false and/or misleading statements, and failed to disclose material adverse facts about its supplier for COVID-19 rapid antibody tests. SCWorx recently disclosed in a regulatory filing that its supplier had canceled its purchase order for the tests because it would be unable to fulfill its obligations to obtain approval from the FDA for commercialization. The lawsuit claims SCWorx overstated or entirely fabricated this purchase order, and as a result, its statements were materially misleading and/or lacked a reasonable basis. News coverage of the lawsuit is available here.
Is the Department of Education garnishing the wages of delinquent student loan borrowers in violation of the CARES Act?
A class action filed last week claims that Education Secretary Betsy DeVos is garnishing wages of around 285,000 federal student loan borrowers who have fallen behind on their payments, even though the CARES Act temporarily suspended the practice until September 30, 2020 due to the COVID-19 pandemic. According to the lawsuit, employers of class plaintiffs still have not been notified by the Education Department to stop withholding payment to their employees, and are continuing to do so. The Education Department has indicated it has taken immediate action to ensure employers are notified, and it will refund all wages taken by the government since a national emergency was declared on March 13, but the consumer advocacy groups responsible for the lawsuit say this is not enough, and continue to pursue claims on behalf of the affected borrowers. News coverage of the lawsuit is available here, and the complaint is available here.
Are legal professionals getting a little too comfortable working from home?
From the realm of COVID-19 litigation comes some life lessons for the professionals involved in the litigation itself. First, there are reports from a variety of jurisdictions that a number of Judges are pushing dockets and asking litigants to get creative in pursing their claims. Using video technology for depositions is not new, although the deponent unaccompanied by a lawyer or court reporter is likely new to many. On the other hand, using video technology for meetings, negotiations, mediations and even adversarial proceedings is likely a bit more unfamiliar to lawyers and clients alike. The legal community is developing a new set of etiquette and expectations to meet the current crisis, although some basic rules surprisingly have required emphasis. The following article, for instance, highlights a Judge’s letter to attorneys, asking them to get out of bed and put on a shirt before attending Zoom hearings—probably good advice for any business conducted via Zoom. Oddly, however, the Judge’s letter emphasizes the need for employers to set explicit guidelines for their employees’ participation in such meetings before they are confronted with shirtless co-workers or employees conducting their affairs from under the covers.
Any questions?
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.
Link to article
With the first full month of government-imposed shutdowns behind them, some parts of the country are starting to gradually reopen. But many businesses are taking a cautious approach out of concerns about how to ensure worker and customer safety. Their concerns are not misplaced. Healthcare and meat processing workers sued their employers last week over allegedly inadequate workplace protections, and plaintiffs in a proposed class action sued the Pennsylvania Department of Health for allegedly inadequate nursing home inspection procedures. We expect these types of lawsuits, as well as standard negligence lawsuits, to pick up in number as businesses reopen and Americans return to work.
We also identified a number of new lawsuits—and even decisions—over the legality of shutdown orders. Most of those cases to have been decided so far have upheld the shutdown orders, although a recent restraining order issued against Illinois Governor Pritzker offers plaintiffs some hope of future success. We expect these to continue as affected businesses and citizens seek redress, even as we expect most claims for injunctive relief to disappear in favor of damages claims as society reopens.
Finally, we continue to see a number of new insurance coverage claims, refund claims, and Paycheck Protection Program claims. And judges have even found time to provide legal professionals with lessons about how to adapt (and not adapt) to work-from-home environments.
We hope you find these cases, and the questions they raise, to be informative.
How will the courts approach “safe workplace” standards and causation in COVID-19 related workers’ compensation lawsuits?
In what could be a precursor to an onslaught of possible tenuous workers' compensation claims or injury claims, a nurses' union in Ohio has filed an OSHA complaint against The Ohio State University. The union for 4,000 nurses at the OSU’s Wexner Medical Center accused the hospital of endangering its members, mostly targeting its complaints at PPE availability and information transparency. The hospital has not responded to the complaint, but issued a statement noting its commitment to its staff and patients as well as the public. In addition to following evolving guidelines from the CDC, the hospital noted it had “taken numerous steps to keep everyone safe and support our front line staff: Since the beginning of the outbreak, we have been following the evolving guidance of the Centers for Disease Control and Prevention on the appropriate isolation of COVID-19 patients and the requirements for personal protective equipment for our staff. We continue to work tirelessly to purchase PPE and maximize usage of those we have. We have postponed elective procedures to conserve PPE. We’ve partnered with Battelle to use an FDA-approved process to sterilize N-95 masks.” The complaint and subsequent litigation should be followed for important developments in employee “injury” claims as well as claims by the public and/or patient plaintiffs who can track the same allegations in relationship to exposure at the hospital and in “household” exposure cases. News coverage of the lawsuit is available here.
Another lawsuit alleging endangerment of employees has been filed in Missouri against the world’s largest pork producer, Smithfield Foods. The lawsuit comes after hundreds of workers have tested positive for COVID-19 in its nationwide meat processing plants, with many test results still pending. The complaint alleges the company is not doing enough to protect its workers, who allegedly were not provided with adequate PPE or given enough time to wash their hands, blow their noses, or engage in other hygiene measures. Since the lawsuit was filed, President Trump issued an executive order requiring meat processing plants such as Smithfield to stay open, which some suggest is an effort to limit exposure of large companies in the face of the pandemic. Indeed, many employers continue to urge their governments to explore liability immunity in order to continue to operate without fear of a lawsuit. News coverage of the lawsuit is available here.
What is the government’s liability when regulated entities allegedly employ inadequate procedures for addressing COVID-19?
The Pennsylvania Department of Health has been named in a class-action lawsuit over nursing home inspection procedures. The lawsuit alleges that the Department did not regularly inspect a Beaver County facility, which has seen 248 positive tests and 58 resident deaths due to COVID-19. The complaint also alleges the facility used an experimental treatment of hydroxychloroquine and zinc on residents without their consent, and the Department did nothing to intervene. The suit seeks an injunction to force Pennsylvania to resume regular nursing home inspections and prevent them from performing experimental procedures. News coverage of the lawsuit is available here, here, and here (with a link to the complaint).
What’s the standard of care in an environment where COVID-19 is present?
In yet another negligence lawsuit, plaintiffs for a proposed class claim that Royal Caribbean Cruises Ltd. exposed hundreds of crew members to COVID-19 by failing to follow safety precautions—despite knowing the virus was likely present on the ship. The complaint alleges crewmembers were not timely quarantined, were not provided masks, and were not made to observe social distancing measures. Instead, the complaint states the company threw a St. Patrick’s Day party for more than 1,000 crew members just four days after suspending future operations for passengers, and allowed them to eat in buffet-like settings. Included in the complaint are photographs of the party and crew member meetings, which show crew members within close proximity of one another. The class size is estimated to be more than 10,000. News coverage of the lawsuit is available here, and the complaint is available here.
How many more WARN Act claims are on the horizon?
A proposed class action complaint against Hertz alleges the company committed WARN Act violations when it laid off employees during the COVID-19 pandemic. Interestingly, the plaintiffs admit Hertz provided notice when they were laid off, but allege the notice was inadequate because Hertz knew several weeks earlier it would be forced to conduct mass layoffs. The plaintiffs also criticize the underlying decision to perform layoffs at all, arguing that Hertz had recourse to forgivable loans under the Paycheck Protection Program Act that would have allowed it to maintain payroll. For employers who hoped that providing any notice would avoid later WARN Act claims, this case should provide a stark warning and thus bears monitoring. The complaint is available here.
Will debt collectors succeed on their challenge to a Massachusetts rule limiting their collection activities during the COVID-19 pandemic?
Our last update reported on a lawsuit filed against the Massachusetts Attorney General by a group of debt collectors, in which the debt collectors alleged the Attorney General had unlawfully limited their collection activities. According to news reports from a hearing held in that case last Friday, the court expressed some sympathy for the debt collectors’ First Amendment argument and ordered the parties to submit further briefing by no later than today, with a ruling to follow shortly afterward. The complaint is available here, and news coverage of Friday’s hearing is available here.
Will plaintiffs succeed in enjoining government shutdown orders before they’re lifted?
The Michigan Court of Claims has denied a request for preliminary injunction brought by the same set of plaintiffs currently challenging the state’s shutdown order in federal court. In denying the request for an injunction, the court recognized the substantial rights at issue and the significant impact from the executive orders. But it held that the plaintiffs likely would not prevail on the merits because the state’s action had a real and substantial relation to the public health crisis, and it declined to perform a policy-making function by determining that there were less-restrictive means of achieving a similar result. News coverage of the order (with a link to the order itself) is available here.
A group of Los Angeles-area businesses has sued California Governor Newsom and a host of other officials over the constitutionality of state and local shutdown orders. Among the federal constitutional claims are alleged violations of the right to travel, procedural and substantive due process, takings requirements, and equal protection. At the heart of the plaintiffs’ complaint, however, is the assertion that they could have continued to operate in compliance with CDC guidelines and that, by restricting their operations as non-essential businesses, California officials have acted arbitrarily and taken their property without just compensation. The complaint is available here.
Governor Newsom also is facing legal challenges to his order directing all Orange County beaches to close effective May 1. One lawsuit, led by the cities of Huntington Beach and Dana Point, alleges Governor Newsom overstepped his powers under the state constitution. Another emergency application for mandamus relief similarly alleges Governor Newsom and other officials have overreached while going further to argue Governor Newsom is retaliating against Orange County because of local officials’ disagreement with the need for continued restrictions.
As a bright spot for plaintiffs alleging that shutdown orders constitute government overreach, an Illinois state court judge entered an order temporarily restraining Illinois Governor Pritzker from enforcing the shutdown order against plaintiff Darren Bailey, a Republican lawmaker. News coverage of the order (with a link to the order itself) is available here. Although Governor Pritzker already has appealed the order to Illinois’ intermediate appellate court, another Republican lawmaker has filed a class-action complaint attempting to enjoin enforcement of the shutdown order against all Illinois residents. News coverage of Governor Pritzker’s appeal (with a link to appellate filings) is available here, and the class-action complaint is available here.
Over the weekend, a group of plaintiffs consisting of Maryland residents and businesses sued Governor Hogan and other officials for an injunction against the enforcement of his various shutdown orders. Like the other challenges to shutdown orders filed so far, the plaintiffs bring several state constitutional claims and allege under federal law that the defendants have infringed upon their First Amendment rights to free speech, free exercise of religion, and peaceable assembly; have violated equal protection by treating them differently from other similarly situated groups; have taken their property without just compensation; and have unlawfully interfered with interstate commerce in violation of the federal constitution’s commerce clause. Three arguments, however, distinguish plaintiff’s complaint from others. First, the plaintiffs allege the defendants have violated the First Amendment establishment clause by favoring non-religious gatherings over religious gatherings. Second, the plaintiffs allege the defendants have violated their right to a republican form of government by adopting and enforcing rules that were not enacted by legislative officials elected by Maryland citizens. And third, the plaintiffs argue that U.S. Supreme Court precedent requires police powers, like those exercised here, to be limited to the strictest “necessity of the case”—thus offering a counter to the deferential review that has been applied to shutdown orders thus far. For all of these reasons, this case is one to watch for parties interested in constitutional challenges to shutdown orders. The complaint is available here.
Meanwhile, the Supreme Court of Wisconsin has set oral argument for Tuesday on a petition filed by the Wisconsin Legislature against Wisconsin executive-branch officials. In its petition, the Legislature challenges a shutdown order issued by the state Department of Health Services, alleging it violated state rule-making requirements, exceeded that department’s statutory authority, and arbitrarily and capriciously distinguished between permissible and impermissible activities. Although some of these claims will have limited relevance outside of Wisconsin, this case represents only the second case challenging a shutdown order to reach a state’s highest court and the first to receive oral argument. The Supreme Court of Wisconsin’s approach thus is likely to receive close attention from other courts where similar challenges are pending or are soon to be filed. The petition is available here.
Are there any business sectors that will NOT be hit with a COVID-19 related refund claim?
The Washington Sports Club, operated by Town Sports International, has announced it will suspend membership fees during the pandemic and will credit its clients for payments made while its gyms have been closed. This decision came soon after D.C. Attorney General Karl A. Racine sent a letter asking the group to stop charging members while the facilities are closed, and follows similar decisions made by gyms and fitness facilities across the nation. News coverage of Washington Sports Club’s decision is available here.
A group of Orthodox and conservative Jews have filed a class-action lawsuit alleging breach of contract by a kosher travel company, Kosherica LLC, after paying thousands of dollars in deposits to attend a Passover retreat, which was later canceled as a result of COVID-19 concerns. According to the complaint, the plaintiffs were offered a refund of only 65 percent or the opportunity to attend next year’s retreat. This lawsuit is one of many demanding refunds for canceled events, and raises the question of who should bear the loss caused by the pandemic, and whether a “credit” for a future event is sufficient reimbursement. News coverage of the lawsuit is available here.
Finally, yet more lawsuits have been filed in which students demand refunds from their universities, arguing they should not be charged the same fees for an online educational experience that they allege does not match the in-person experience that has been lost to the COVID-19 pandemic. Nor, the students allege, should they be charged fees for campus activities and services they can no longer access. The latest university defendants are Vanderbilt University, the California State University System, and the University of California System.
Are businesses that secured Paycheck Protection Program loans the next target for lawsuits by unsuccessful borrowers?
JPMorgan Chase and its client Ruth’s Chris Steak House are among the defendants named in a lawsuit filed by an Illinois popcorn seller alleging they unfairly “cheated” to receive funds under the Paycheck Protection Program meant for small businesses. The lawsuit, which seeks class action certification, argues that large restaurant chains such as Ruth’s Chris and other profitable clients do not need the forgivable loans under the PPP, but nevertheless received special treatment from their bank, such as allowing them to submit applications earlier than others. This practice, the complaint alleges, caused the PPP to be drained of funds before it could reach small businesses. Ruth’s Chris has announced it plans to return the $20 million received from the PPP, but the lawsuit argues that small businesses and their owners have already suffered irreparable damage. News coverage of the lawsuit is available here.
Are loan agents owed fees for assisting borrowers with applications under the Paycheck Protection Act?
Nearly 5,000 banks and lenders are facing claims of unfair business practices and unjust enrichment from processing fees collected during the first round of funds distributed under the Paycheck Protection Program. The proposed class lawsuit alleges that the financial services agents who assisted small businesses in receiving the loans are entitled to approximately 19.14 percent of all administrative fees paid to the defendant banks, which amounts to $3.8 billion. The lawsuit asks the court to declare that these fees should be deposited into a fund within 60 days, to then be distributed to the agents who facilitated the loans. News coverage of the lawsuit is available here, and the complaint is available here.
Will COVID-19 related coverage disputes end up before an MDL?
A Pittsburgh-based Italian restaurant and pizzeria has sued their insurance carrier to establish coverage under the business interruption and civil authority forms of their “all risks” policies. Like nearly every other coverage case that we have seen so far, the plaintiffs allege they have experienced damage to property because the novel coronavirus “infects and stays on the surfaces of objects and materials for prolonged periods.” The complaint is available here.
Thor Equities, a commercial real estate owner with assets across the world, sued its carrier last Thursday over a COVID-19 related coverage dispute. Unlike most other coverage lawsuits, Thor’s dispute with its carrier focuses not so much on whether coverage exists, but rather on whether coverage is limited to the policy’s $1,000,000 “communicable disease” sublimit or whether other coverages with higher limits also have been triggered. Perhaps most notable, however, is Thor’s allegation it has experienced at least $20 million in COVID-19 related losses so far—thus signaling the significant financial stakes for both sides. The complaint is available here.
Meanwhile, lawyers representing plaintiffs who have filed federal court lawsuits asked the Judicial Panel on Multidistrict Litigation (“JPML”) to consolidate the pending lawsuits in front of a single judge. They argue that each case presents essentially two issues: whether the novel coronavirus causes “physical damage to property” under the applicable insurance policies, and whether coverage is triggered when the novel coronavirus is present on or near the policyholder’s property. Not all plaintiffs agree that consolidation is appropriate, however, and even those that do disagree over the district where the cases should be referred. The only certain takeaway is that the early push to establish an MDL reflects an expectation that the current crop of lawsuits represents just the start. News coverage of the requests for an MDL is available here.
Are companies opening themselves up to securities claims when they make public statements about COVID-19?
A class action lawsuit has been filed against SCWorx on behalf of those who purchased securities from the company between April 13, 2020 and April 17, 2020. The claims, brought under the Securities Exchange Act of 1934, allege SCWorx made materially false and/or misleading statements, and failed to disclose material adverse facts about its supplier for COVID-19 rapid antibody tests. SCWorx recently disclosed in a regulatory filing that its supplier had canceled its purchase order for the tests because it would be unable to fulfill its obligations to obtain approval from the FDA for commercialization. The lawsuit claims SCWorx overstated or entirely fabricated this purchase order, and as a result, its statements were materially misleading and/or lacked a reasonable basis. News coverage of the lawsuit is available here.
Is the Department of Education garnishing the wages of delinquent student loan borrowers in violation of the CARES Act?
A class action filed last week claims that Education Secretary Betsy DeVos is garnishing wages of around 285,000 federal student loan borrowers who have fallen behind on their payments, even though the CARES Act temporarily suspended the practice until September 30, 2020 due to the COVID-19 pandemic. According to the lawsuit, employers of class plaintiffs still have not been notified by the Education Department to stop withholding payment to their employees, and are continuing to do so. The Education Department has indicated it has taken immediate action to ensure employers are notified, and it will refund all wages taken by the government since a national emergency was declared on March 13, but the consumer advocacy groups responsible for the lawsuit say this is not enough, and continue to pursue claims on behalf of the affected borrowers. News coverage of the lawsuit is available here, and the complaint is available here.
Are legal professionals getting a little too comfortable working from home?
From the realm of COVID-19 litigation comes some life lessons for the professionals involved in the litigation itself. First, there are reports from a variety of jurisdictions that a number of Judges are pushing dockets and asking litigants to get creative in pursing their claims. Using video technology for depositions is not new, although the deponent unaccompanied by a lawyer or court reporter is likely new to many. On the other hand, using video technology for meetings, negotiations, mediations and even adversarial proceedings is likely a bit more unfamiliar to lawyers and clients alike. The legal community is developing a new set of etiquette and expectations to meet the current crisis, although some basic rules surprisingly have required emphasis. The following article, for instance, highlights a Judge’s letter to attorneys, asking them to get out of bed and put on a shirt before attending Zoom hearings—probably good advice for any business conducted via Zoom. Oddly, however, the Judge’s letter emphasizes the need for employers to set explicit guidelines for their employees’ participation in such meetings before they are confronted with shirtless co-workers or employees conducting their affairs from under the covers.
Any questions?
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.
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