Businesses Beware: COVID-19 Litigation Is Coming

April 29, 2020

Businesses understandably are focusing more today on health and safety issues, regulatory compliance, employment matters, and other day-to-day operational issues as COVID-19 spreads across the country. Because of this, commercial law firms are preparing for what they anticipate will be a wave of class action and other coronavirus-related litigation initiated by plaintiffs’ attorneys. Indeed, plaintiffs’ lawyers are beginning to file lawsuits targeting businesses’ responses and reactions to the virus. Although the precise impact that the pandemic will have on such litigation remains unclear, companies should expect a wide variety of novel litigation to flow from this “novel” virus.

Consumer Claims

Several lawsuits seeking to recover payments made by consumers for services that could not be rendered because of the virus already have been filed around the country. For instance, claims have been asserted against 24-hour fitness gyms that continue to charge membership fees even though the gyms are not accessible to their members because of COVID-19 restrictions. Colleges and universities are being sued for tuition and room and board refunds because campuses have been closed for safety reasons. Additionally, lawsuits have been filed seeking refunds from airlines and other travel-related businesses for canceled trips, as well as from promoters and organizers for canceled events and concerts. Many of these claims are being asserted as putative class actions on behalf of the defendants’ customers.

Plaintiffs are also filing price-gouging lawsuits against businesses allegedly trying to take advantage of the crisis by charging exorbitant prices for various consumer products. For example, a putative class action was recently filed in the Eleventh Circuit Court in Florida alleging that Amazon allowed the sale of hygiene products at significantly higher prices during the pandemic (e.g., $199.00 for a 2-pack of 1L hand sanitizer, and $99.00 for a 36-pack of toilet paper). “Copycat” cases against other businesses that have raised prices during the pandemic will undoubtedly follow.

Further, some lawyers believe that there may be an increase in claims against companies that, albeit not responsible for a direct COVID-19 impact, have garnered a higher profile during the pandemic. For instance, Zoom Video Communications has been sued in a putative class action for allegedly failing to protect its users’ personal information that was shared in connection with previously unnecessary virtual meetings. Would Zoom still have been sued if the effects of the virus had not enhanced its profile? We will never know for sure, but Zoom’s enhanced business as a result of COVID-19 probably made it a much more attractive target for litigation.

In short, an assortment of consumer lawsuits is already being filed, and the number of new cases likely will rise due to the COVID-19 pandemic. The types of claims asserted in these cases will be bound only by the limits of plaintiff lawyers’ imaginations.

Business and Contract Claims

The impact that COVID-19 is having on commercial transactions is becoming readily apparent. Supply chain parties cannot obtain needed materials or supplies, distribution and shipping channels have been disrupted, shortages in the workforce have occurred, and some businesses have closed. There have been many reports now of companies not honoring their contractual obligations due to a sheer inability to pay. Many contracting parties must either look for ways to excuse or delay their performance or, inversely, to obtain performance from the other party to the contract.

The starting point for determining whether a contracting party can be excused from its contractual obligations as a result of the coronavirus is the contract itself. If the agreement contains a force majeure clause or other provisions excusing performance if epidemics or pandemics occur, it is likely performance prevented by consequences of the virus will be excused. A force majeure clause is a contractual provision that excuses the performance of contractual obligations – either wholly or for the duration of the force majeure – upon the occurrence of a covered event that is beyond the control of either contracting party. The events covered by such a clause depend upon the specific language of the contract, with some covering a wide range of events and others being more narrowly tailored. Indeed, it is not unusual now for a force majeure provision to expressly include “epidemics” or “pandemics” among the list of events encompassed by the clause.

However, if the contract lacks such provisions, or is ambiguous regarding the impact of an epidemic or pandemic, excusing performance due to COVID-19 becomes more questionable. Although other arguments exist under Florida law that might provide an “out” to the non-performing party (i.e., the impossibility of performance, commercial impracticability, frustration of purpose) courts outside of Florida have not been uniform in how they have treated such arguments in the context of epidemics or pandemics, and Florida courts have not yet addressed these defenses in this context. The bottom line is that there is room for both sides to argue for or against excused contractual performance under the current state of Florida law.

Product Liability Claims

The COVID-19 pandemic is also likely to spawn a litany of product liability lawsuits. Plaintiffs’ firms, no doubt, are already planning to sue manufacturers and sellers of personal protective equipment (PPE) for their alleged production or distribution of defective supplies or for the foreseeable misuse of their products. Additionally, lawsuits will likely be filed against manufacturers and sellers of products that were marketed to reveal whether a person is or has been infected with the virus. Already, some of our nation’s top scientists are claiming that many of the so-called “antibody tests” are not reliable and might cause people to believe they are immune even when they are not.

Another fertile area for litigation will likely involve lawsuits against companies that allegedly have made unfounded claims of “cures” for COVID-19. For instance, businesses falsely touting that their products can cure or prevent contraction of the COVID-19 will probably face lawsuits claiming false advertising and violations of various consumer protection statutes. Similarly, the race to find a cure or vaccine for the coronavirus might result in at least some litigation against pharmaceutical companies. With so many products now apparently being rushed to the market, new lawsuits likely will be filed asserting that the products were inadequately tested and that manufacturers failed to warn about the potential hazards associated with their products.

Negligence Claims

In addition to consumer, contract, and product liability claims, businesses are also likely to see an array of more general negligence claims triggered by COVID-19 impacts. For example, individuals who contract COVID-19 probably will begin filing lawsuits alleging that their employer or some other business that they interacted with negligently failed to provide a safe workplace or a secure location for workers and business invitees. Whereas airlines, cruise lines, and other travel-related businesses might be particularly susceptible to such claims, any business that interacts with the public would appear to be at risk for such claims. Lawsuits of this nature might include allegations of an unsafe work environment or business location, failure to provide appropriate PPE, failure to sanitize adequately, and failure to require proper social distancing.

Care-giving institutions are particularly vulnerable to these claims. Hospitals were besieged with lawsuits after Hurricane Katrina, and there is no reason to believe that it will be any different with the coronavirus. Nursing homes in Seattle and Atlanta already have been sued for allegedly failing to take adequate virus-related precautions, and plaintiff law firms are aggressively advertising for more such suits.

Similarly, infected persons might begin suing others who they believe were the source of their COVID-19 infections. Claims of this type have been pursued previously in connection with AIDs and other sexually transmitted diseases. Although proving the actual cause of an individual’s infection would seem difficult in most cases, this evidentiary hurdle has not dissuaded plaintiffs’ lawyers from filing such lawsuits in the past.

Claims Triggered By “Reopening” Of the Economy

Once the COVID-19 restrictions are relaxed or lifted, and our economy is “reopened,” additional “opportunities” for litigation likely will follow. For instance, if employees contract COVID-19 after going back to work, infected employees might claim that they contracted the virus at work because their employers reopened too soon or failed to provide a safe workplace. Similarly, businesses might be sued for allegedly exposing customers or other business invitees to the virus because of an alleged failure to adequately protect their customers/invitees through appropriate social distancing, sanitation, PPE, and the like. Again, although proof of causation would seemingly be difficult, this “problem” will probably not deter some aggressive plaintiffs’ lawyers.

Securities Claims

Because significant losses have occurred in the stock market during the COVID-19 pandemic, it is also reasonable to anticipate that there will be an increase in “stock-drop” and shareholder derivative litigation seeking to recoup losses in the stock value of affected public companies. Allegations in such lawsuits might include that the companies failed to adequately disclose business risks associated with the pandemic or that directors and officers failed to adequately evaluate and respond to such risks. For example, in a case recently filed against Norwegian Cruise Lines in the Southern District of Florida, investors whose stock plummeted 26% during the pandemic claimed that the company submitted an SEC filing that provided a misleading and overly positive outlook concerning the likely impact of the virus on the business.

In addition to private securities litigation, businesses also probably can expect to see an uptick in government regulatory investigations regarding stock transactions, public disclosures, and other similar issues related to the impacts of COVID-19.

Whistleblower/Retaliation Claims

A new wave of False Claims Act litigation also is almost certain to follow the rising tide of pandemic-induced employment terminations. Specifically, businesses that dismiss employees after they express concern about the coronavirus face the risk that disgruntled employees will initiate whistleblower/retaliation litigation. For example, in a case recently filed in the Second Circuit Court in Leon County, Florida, the plaintiff claimed that she was improperly terminated after raising concerns with her employer about COVID-19 and asking to work remotely due to her preexisting autoimmune disease. In short, terminating employees after they raise issues about the coronavirus might create a risk of whistleblower/retaliation litigation.

Conclusion

Businesses already have plenty to worry about right now regarding the impacts of the COVID-19 pandemic on their finances, employees, and day-to-day business operations. But companies also need to be aware that creative and opportunistic plaintiffs’ lawyers are gearing up to pursue wide-ranging and probably expansive coronavirus-related litigation. The actions of businesses regarding their employees, customers, and other business invitees are likely to be scrutinized for any signs of purported wrongdoing associated with the pandemic.

Phelps’ lawyers possess extensive experience litigating and defending the types of cases that are likely to be filed as a result of the COVID-19 pandemic. We are here to help you with these and any other issues that might arise as a result of the virus. Please contact Mike Hooker, Guy McConnell, Seth Schimmel or Phelps’ Litigation team if you have any questions or need compliance advice and guidance. For more information related to COVID-19, please also see Phelps’ COVID-19: Client Resource Portal.