Jason A. Levine, Peter E. Masaitis, Gillian H. Clow, Debolina Das, and Kaelyne Wietelman, Alston & Bird LLP
The top three developments this past week: many more challenges to regulations and government enforcement; decisions in several cases seeking insurance coverage; and a major new securities lawsuit.
OVERVIEW
Challenges to government mandates took center stage again this past week. A lawsuit against Los Angeles Mayor Eric Garcetti challenges his threat to cut off utilities to Hollywood homes hosting large parties. New suits over mask mandates, a foreclosure moratorium, and hotel and bar closures were filed. Conversely, officials in North Carolina and Georgia took steps to dismiss claims they had previously filed against other state officials.
Courts issued important rulings in disputes over business-interruption insurance, with Missouri and Texas courts reaching opposite conclusions over whether the COVID-19 pandemic caused “direct physical loss” to businesses.
A putative securities class action was filed against Eastman Kodak Company, based in part on stock drops that followed statements that the company made about receiving a government loan to make ingredients for COVID-19 drugs and the later disclosure of a large stock option granted to the CEO.
Plaintiffs filed new suits against McDonalds and Tyson Foods alleging wrongful workplace exposure to COVID-19. California and one of its counties sued gyms and restaurants for reopening their indoor operations in defiance of state and local health orders.
On the price-gouging front, 3M settled one of its several trademark lawsuits against an alleged price-gouger, and Oregon sued two companies over the prices that they charged for masks.
Refund litigation heated up with American Airlines moving to dismiss and compel arbitration of a putative class action over non-refundable airline tickets. Plaintiffs also filed a new class action against Viagogo, the parent company of StubHub. More colleges were sued for refunds over their closures of in-person classes as well.
GOVERNMENT SUITS (Bookmark)
Challenges to Government Orders
Hollywood Hills homeowners brought a civil-rights lawsuit against Los Angeles Mayor Eric Garcetti for his threat to withhold water and electricity from citizens who host large parties in violation of his stay-at-home orders. Plaintiff alleges this threat is illegal and counter-productive to the enforcement of the social distancing orders.
In North Carolina, the Lieutenant Governor dropped a lawsuit over the Governor’s emergency powers. The suit had alleged that the Governor overstepped in issuing emergency orders in response to the pandemic. Georgia Governor Brian Kemp also says that he plans to dismiss his suit against Atlanta Mayor Keisha Lance Bottoms over the city’s more restrictive emergency measures, such as mandatory face masks.
Constitutional challenges to mask ordinances also continue, including one filed this week in Tulsa, Oklahoma. And in Florida, a group of parents sued the Hillsborough County School Board, alleging that its plan to require their children to wear face masks as a condition of returning to school violates their constitutional rights.
Recreation
Suits brought against local governments continue, alleging interference with businesses’ ability to operate. A group of hotels, for example, sued the Town Council of the Town of New Shoreham, Rhode Island, alleging that it illegally prevented them from holding outdoor events. A Texas suit challenges bar closures, alleging that they violate the Texas Constitution.
Government Operations
In South Carolina, the Greenville County Council has been sued for conducting meetings over Zoom video conferencing, but not allowing any public comment since its last in-person meeting, which has allegedly stifled public debate about the mask mandate and how to spend federal emergency funds.
And in Oregon, various banks and the Oregon Bankers Association have sued the Attorney General and Director of the Oregon Department of Consumer and Business Services, claiming that they unlawfully attempted to interfere with the banks’ ability to make and manage real estate loans via a statewide foreclosure moratorium.
INSURANCE (Bookmark)
As in prior weeks, a steady stream of business interruption cases were filed across many different industries. New this week, courts issued important and contradictory rulings on key coverage issues.
In Missouri, a federal judge denied Cincinnati Insurance Company’s motion to dismiss, ruling that a group of hair salons and restaurants alleged a covered “direct physical loss” and thus may proceed with their proposed class action for business interruption. But in Texas, a district court granted State Farm’s motion to dismiss, ruling that the company is not obligated to cover business interruption claims brought by a group of barber shops because there was no covered “direct physical loss.”
Also this week, travelers who had to cancel their trips because of the pandemic filed a putative class action in the Eastern District of Texas alleging that their travel-insurance company unlawfully refused to pay out on policies.
SECURITIES (Bookmark)
Shareholders brought a derivative lawsuit against Eastman Kodak Co. for allegedly engaging in a fraudulent scheme to artificially inflate its stock price in violation of the Securities Exchange Act of 1934. According to the complaint, Kodak reported that it received a $765 million government loan to make ingredients for COVID-19 drugs, which caused its stock price to jump by 200%.
Then came a series of unfortunate developments. A few days after this announcement, a news article reported that Kodak’s CEO received an “unusual” 1.75 million share option because of an undisclosed understanding he had with the company’s board of directors. The next trading day, Kodak’s shares fell 32%. In a letter to the SEC, Senator Elizabeth Warren requested an investigation of Kodak and its directors; the company’s stock price dropped another 4%. Several Congressional committees then sent letters to the CEO to inquire about the loan, which ultimately led the government to pause the loan’s initial disbursement. Soon after, Kodak’s price fell another 28%. Plaintiff shareholder now brings a putative class action against Kodak for declaratory and compensatory relief.
WORKPLACE (Bookmark)
Lawsuits continued in the usual fields of wrongful termination and wrongful denial of benefits.
In a case we previously covered, a California judge issued a preliminary injunction order that would require a McDonalds in Oakland, California to increase its health and safety protocols to prevent any further COVID-19 exposure, including by providing employees “adequate and sufficient masks” and gloves. The workers’ complaint alleges that the restaurant exposed them to unsafe working conditions, including forcing them to wear “doggy diapers” as masks, resulting in workers and their family members contracting the virus.
A fourth lawsuit has been filed against Tyson Foods by the family of a worker who died from COVID-19 that he allegedly contracted during an outbreak at a company plant. The complaint claims that workers were required to work in tight spaces without social distance and without appropriate PPE. It also alleges that more than 1,000 other employees have contracted the virus and were enticed by bonuses to come to work despite having symptoms.
FAILURE TO PROTECT/NEGLIGENCE (Bookmark)
Some businesses are facing legal action for violating COVID-19 related state orders. A California county filed a complaint against a restaurant for permitting indoor seating despite the governor’s executive order directing all residents other than “essential” workers to stay home. The complaint asserts a claim for public nuisance and seeks injunctive and monetary relief of $1,000 per day that the restaurant allowed indoor dining.
Relatedly, the State of California filed a complaint against BSF Fitness II for continuing to operate an indoor gym facility in violation of state and local health orders. California seeks injunctive relief as well as a civil penalty of $2,500 for each alleged violation.
REFUND (Bookmark)
As refund suits continue to progress, some companies are pushing back on proposed class actions. Last week, in the Northern District of Texas, American Airlines moved to dismiss Plaintiffs’ claims and to compel arbitration. In the underlying suit, three named plaintiffs brought a putative nationwide class action claiming that they deserve refunds under American Airlines’ Conditions of Carriage. In defense, American asserts that the Airline Deregulation Act of 1978 preempts these claims, and that its contractual terms do not provide for cash refunds for non-refundable tickets. American also points out that one named plaintiff did not even travel on an American flight and his tickets were issued from a Chilean airline.
Following last week’s discussion of the consolidation of all federal cases against StubHub, its parent company Viagogo received a new class action complaint alleging violations of Florida’s Deceptive and Unfair Trade Practices Act, breach of contract, conversion, and unjust enrichment for refusing refunds.
Colleges and universities also continue to make frequent appearances on dockets nationwide, with students seeking refunds for tuition in light of the pandemic’s disruption of in-person classes.
PRICE-GOUGING (Bookmark)
In the 3M/N95 litigation, 3M has settled claims against KM Brothers Inc. (and related companies) in the Central District of California. 3M alleged the company sold “3M” products at a severely inflated rate. The terms of the settlement require the seller to pay 3M or a charity of its choice close to $200,000, stop selling 3M products, and admit to infringing its trademarks.
Oregon sued convenience stores 7-Eleven and Plaid Pantries, Inc. for unfair trade practices based on sales of face masks at allegedly inflated prices during the early stages of the pandemic.
Jason Levine is a commercial and antitrust litigation partner in the Washington, D.C. office of Alston & Bird LLP. Peter Masaitis is a product liability and toxic tort litigation partner in the firm’s Los Angeles office. Gillian Clow, Debolina Das, and Kaelyne Wietelman are litigation associates at the firm.
