Class Action Litigation

Business closures, layoffs, financial losses, negligence, physical injuries and event cancellations created an unprecedented risk to corporations unlike any other event in American history. The chaos of the pandemic opened the door to opportunistic litigators seeking the chance to file class action lawsuits on behalf of employees, consumers, patients and injured citizens who allege they were disproportionately harmed by the COVID-19 pandemic. As no industry appears to be litigation proof, corporations must prepare for exhaustive legal battles in both the private and public sectors.

A.    Categories of lawsuits.

            There are several industries at high risk of COVID-19 class action lawsuits. Lawsuits have already been filed in each of the six (6) major industries identified below.

First, class action lawsuits against insurers. Insurance providers arguably have the highest risk for COVID-19 class action lawsuits.[1] Insurers have seen a high volume of class action cases since the start of the pandemic arising from force majeure and other contractual claims.[2] These insurers have a heighted risk to these types of claims because of their presence across a plethora of industries and situations.[3]

Second, class action lawsuits against travel and event providers. Travel agencies, entertainment venues and attractions, and ticket brokers face litigation for event-related cancellations and travel.[4] It appears that the U.S. airlines industry has been hit especially hard with class action lawsuits against four (4) major airliners.[5] United Airlines, Delta Air Lines, American Airlines and Southwest Airlines have all been sued by customers for claims involving COVID?19-related cancellations, limited flight booking dates and refund-related complaints.[6]

In the Delta Air Lines class action lawsuit, Plaintiffs allege the airliner participated in unfair and deceitful practices by failing to honor its ticket refund policies and requests from passengers during the coronavirus outbreak.[7] According to Plaintiffs, Delta Air Lines’ (“Delta”) Contract of Carriage states that, if the airline cancel or change a flight time by more than ninety (90) minutes, passengers are entitled to the option of a full refund.[8] Delta is alleged to have violated its policy by only issuing travel credits instead of full refunds to its customers.[9] Further, Plaintiffs claim Delta’s website had a “Coronavirus Travel Updates” banner and a large red button to entice consumers to “Change or Cancel” their flights, yet did not include or provide easy access to the full refund request form.[10] The lawsuit against Delta seeks refunds on original ticket purchases, punitive damages and injunctive relief for cancelled flight reimbursement.[11]

Third, class action lawsuits against financial institutions and debt collectors. COVID-19 has sparked civil action against lenders and debt collectors to prevent punitive measures being taken against terminated and furloughed employees unable to pay their expenditures.[12] The United States government stepped in to provide temporary relief to debtors, but inevitably foreclosures and debt collections have led to substantial litigation against financial institutions seeking to recover on past-due loans and mortgages.[13]

Fourth, class action lawsuits against retailers who price gouge products during the pandemic. From the early days of the COVID-19 outbreak in the United States, opportunistic retailers took advantage of the national crisis as a money-making scheme.[14] High-demand items such as hand sanitizer, toilet paper, face masks, digital thermometers, and surgical gowns were sold at dramatic markups.[15] The inflation rates of some essential items became so severe that President Trump issued an Executive Order making it illegal to hoard and price gouge critical medical supplies needed to combat COVID-19.[16] Already, consumers have filed legal action against major retailers who have participated in price-hiking tactics. For example, Amazon.com has been sued for its alleged price gouging of toilet paper and hand sanitizer at the beginning of the coronavirus pandemic.[17] E-commerce giant, eBay Inc., has also been sued in a class action lawsuit by consumers who are alleged to have paid upwards of $585.00 for a three-pack of N95 masks, the same product that sold for less than $10.00 prior to the virus outbreak.[18] Consumers also stated they paid $227.50 for a five-pack of Lysol spray cans and almost $50.00 for twelve (12) rolls of Cottonelle toilet paper.[19] These examples are just two of the dozens of major retailers facing civil litigation for price gouging during the national crisis.[20]

Fifth, class actions against manufacturers and/or retailers of professional protective gear and products. The maker of Purell hand sanitizer is facing two class action lawsuits by consumers claiming the manufacturer made misleading claims when it advertised that its product killed “99.9 percent of illness-causing germs.”[21] The Plaintiffs alleged the claims are not based in scientific fact and that Purell made substantial profits during the pandemic while breaking the public’s trust.[22] This is not the first instance where Purell has been accused of playing off the fears of the public by alleged misrepresentation of its product’s effectiveness against diseases like the coronavirus.[23] On January 17, 2020, Purell was warned by the U.S. Food and Drug Administration that it needed to refrain from advertising unsubstantiated claims that its products effectively killed the flu and many infectious diseases.[24] As the products will be in high demand for the foreseeable future, it is likely this will become a heavily litigated industry by decade’s end.

Finally, class action lawsuits against issuers. As discussed in greater detail in the Directors and Officers Liability section of this article, securities class action lawsuits are a major area of COVID-19 corporate litigation.[25] These lawsuits center around corporate mishandlings and deceitful behavior related to the pandemic and pandemic-related business decisions.[26] Corporations in industries across the country have received backlash in the form of securities class action lawsuits by shareholders for share losses sustained during the national crisis and allegedly due to the business decisions of directors and officers of corporations.[27]

B.    Available defenses to class action claims.

Several potential defenses are available to corporations facing COVID-19-related class action lawsuits. Specific defenses will be determined based on consideration of the legal contracts and agreements and the factual circumstances of subject litigation. The major areas of defense are discussed in detail below.

Personal jurisdiction. A defendant must determine if there are grounds to challenge personal jurisdiction at the commencement of the litigation.[28] Federal Rule of Civil Procedure 12(b)(2) provides that a party may assert the lack of personal jurisdiction defense before pleading. In a civil class action lawsuit, a defendant must look at each plaintiff’s cause of action and its specific connection to the forum to determine if the court has general or specific jurisdiction over the defendant for every individual claim.[29] If the nexus is insufficient, a defendant should file a motion to dismiss for lack of personal jurisdiction prior to filing its answer.[30] It is also vital to note that this defense must be asserted within a defendant’s first responsive pleading or the defense will be waived.

Lack of standing. Adequate substitution in a bargained-for exchange is a defense against civil action lawsuits for breach of contract. For example, events that were simply postponed during the shutdown and rescheduled during a time after the reopening of the economy provide acceptable substitutions for performance in many cases. Defendants should argue that plaintiffs have no standing in these circumstances as, in many scenarios, no injury ultimately occurred.

No breach. Class action defendants must consider if the relevant contracts contained provisions which allowed them to substitute services or reparation for equal/greater than contract price. These are common and enforceable provisions that offer an avenue to perform the contract in a different manner and effectively litigate a no-breach defense. 

Force majeure. Class action lawsuits resulting from breach of contract claims must raise the defense that COVID-19 constitutes a force majeure event rendering contractual performance impossible.[31] Force majeure provisions are found in several commercial agreements and provide a contractual defense that holds a party harmless when events from a “superior force” or “act of  God” render performance impossible.[32] In the United States, contractual interpretation and disputes are governed by state law; a defendant must look to prior catastrophic occurrences for legal precedent and guidance on how the court will rule on COVID?19 breach of contract claims.

Frustration of purpose or impossibility. If a contract does not contain a force majeure provision, a defendant may still argue that COVID-19 irreparably frustrated the purpose of its contract or simply made performance an impossibility.[33] If the contract is for the sale or lease of goods, then Uniform Commercial Code Sections 2.615 and 2A.405 are the best defense against the impracticability of the contract. For example, if an event planner contracted with a local tavern for beverage supply for a large St. Patrick’s Day event but the event was canceled due to the coronavirus outbreak, this would constitute a frustration of purpose of their contractual agreement.[34] If unforeseen circumstances render the purpose of the contract frustrated or impossible to perform, there are legal grounds for breaking the contract without liability for breach.[35]

Enforcement of class action waiver or arbitration provisions. It is common for employment-related agreements to contain waivers and provisions within the contract that prohibit class action litigation for alternative dispute resolution platforms such as arbitration.[36] Class action lawsuit waivers have been upheld by the United States Supreme Court and will undoubtedly be contested in several COVID-19 cases brought before the courts.[37] Defendants and employers will likely succeed in enforcing these waivers for the arbitration alternative based on legal precedent.[38]

Unenforceability due to changes in applicable law. Stay-at-home executive orders and government-mandated non-essential business closures made it impossible for certain service contracts and agreements to be fulfilled. Under these circumstances, class action defendants will succeed against claims of breach in contracts where performance was made illegal under COVID-19 executive orders.

Lack of causation. In class action lawsuits for intentional and negligent torts, plaintiffs must establish the nexus between the alleged harm and the defendants’ conduct. As discussed in the Directors and Officers Liability section of this article, the physical and economic devastation from the pandemic provides a strong intervening cause defense to the presumption that a class action defendant’s actions directly caused the alleged injury.

Economic loss doctrine. This defense is available when plaintiffs inflate their damages to unreasonable or unrealistic monetary value.[39] In Halcrow, Inc. v. Eighth Judicial District Court, the court ruled the economic loss doctrine barred the Plaintiff’s negligent misrepresentation claim against a general contractor for work performed by an undisclosed subcontractor.[40] The Harlow court reasoned that the economic loss doctrine is justified in order to properly protect parties from unlimited or inflated economic liability in professional negligent claims.[41] While the full scope of the doctrine is jurisdictionally dependent, defendants to class action claims must argue the economic loss doctrine to protect themselves against excessive plaintiff recovery.[42]

Lack of class commonality. Class action defendants must evaluate the legal and factual distinctions of plaintiffs’ claims in order to defeat class action certification. Legally, defendants must look for differences in the relevant timeframe and contractual language of each plaintiff’s claim. Factually, defendants may find distinct variations in the circumstances leading to the alleged harmful conduct. Defendants must evaluate this evidence to consider if there is a lack of commonality among plaintiffs sufficient to defeat the class action certification.

 

[1] See, e.g., Ed Treleven, Class-action lawsuit joins growing number over business interruption insurance denials amid COVID-19 pandemic, Wis. State J. (Apr. 30, 2020), https://madison.com/wsj/news/local/crime-and-courts/class-action-lawsuit-joins-growing-number-over-business-interruption-insurance-denials-amid-covid-19-pandemic/article_e9f48697-6a31-54fd-bd72-1c2d7a8b1f0d.html.

[3] Cruise lines, airlines and other travel companies have been sued for allegedly failing to maintain a safe environment and for alleged damages relating to delays or cancellations.

[5] Id.

[6] Id.

[7] Complaint, Daniels, et al. v. Delta Air Lines, Inc., No. 1:20-cv-01664-ELR (N.D. Ga. 2020).

[8] Id.

[9] Id.

[10] Id.

[11] Id.

[12] See, e.g., Complaint, Shu?, et al. v. Bank of Am., et al., No. 5:20-cv-00184 (S.D.W. Va. 2020).

[13] On March 27, 2020, President Donald J. Trump signed into law the Coronavirus Aid, Relief, and Economic Security (CARES) Act with a sixty (60)-day foreclosure moratorium covering most American residential mortgage loans. CARES ACT, H.R. 748 116th Cong. (enacted).

[15] See Id.; Jim Mustian, New York Man First Charged With Price Gouging Protective Equipment During COVID-19 Pandemic, Time (Apr. 24, 2020), https://time.com/5827333/coronavirus-ppe-price-gouging-arrest/.

[16] E.g., disposable masks, surgical gowns, ventilators, and other professional protective equipment. White House, President Donald J. Trump Will Not Tolerate the Price Gouging and Hoarding of Critical Supplies Needed to Combat the Coronavirus (Mar. 23, 2020), https://www.whitehouse.gov/briefings-statements/president-donald-j-trump-will-not-tolerate-price-gouging-hoarding-critical-supplies-needed-combat-coronavirus/.

[17] Complaint,  Armas v. Amazon.com Inc., No. 104631782 (11th Cir. 2020).

[19] Id.

[20] Costco, Walmart, Kroger and several other merchants are named retailers in class action lawsuits for the alleged price gouging of essential groceries such as eggs. Michael Batriromo, Costco, Walmart, Kroger ‘grossly inflated’ the price of eggs during pandemic, lawsuit claims, OzarksFirst.com (May 3, 2020), https://www.ozarksfirst.com/life-health/coronavirus/costco-walmart-kroger-grossly-inflated-the-price-of-eggs-during-pandemic-lawsuit-claims/.

[21] Miller, et al. v. Gojo Industries, et al., No. 4:2020-cv-00562 (N.D. Ohio 2020).

[22] Id.

[23] Letter from Nicholas F. Lyons, Director of Compliance, FDA, to Carey Jaros, President and CEO, GOJO industries Inc. (Jan. 17, 2020) (On file with the FDA).

[24] Id.

[26] See, e.g., Id.

[27] See, e.g., Id.

[29] Bristol-Meyers Squibb v. Superior Court, 137 S. Ct. 1773 (2017).

[30] Fed. R. Civ. P. 12(b)(6).

[32] See Id.

[33] Id. (emphasis added).

[34] See Id.

[35] See Id.

[36] Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018).

[37] See Id.

[38] See Id.

[39] Halcrow, Inc. v. Eighth Judicial Dist. Court, 302 P.3d 1148 (Nev. 2013).

[40] Halcrow, Inc. v. Eighth Judicial District Court, 302 P.3d 1148 (Nev. 2013)

[41] Halcrow, Inc. v. Eighth Judicial District Court, 302 P.3d 1148 (Nev. 2013)

[42] Gale Burns, TORTS: Economic Loss Doctrine as a Bar to Negligent Misrepresentation Claims, Nat. Legal Research Group Inc. (Dec. 30, 2013), http://www.nlrg.com/public-law-legal-research/bid/101458/TORTS-Economic-Loss-Doctrine-as-a-Bar-to-Negligent-Misrepresentation-Claims.