Jason A. Levine, Gillian H. Clow, Ryan Martin-Patterson, Giles Judd, and Stephen Tagert, ALSTON & BIRD LLP
Before delving into recent developments in COVID-19 litigation, we have an announcement. We have decided that this blog has fulfilled its mission, and this will be our last post. After 82 installments over the past nearly two years, we have reported on a wide array of lawsuits, court decisions, and regulations, chronicling the development of a new body of law. Our intent was always for the blog to be temporary, and to help our readers stay informed during a time of great upheaval in the legal system, which thankfully has stabilized into familiar patterns regarding COVID-19 litigation. The feedback we have received on the blog has been overwhelmingly positive, and we are gratified to have played some small role in helping to navigate the pandemic. We thank you for your readership, and we thank the U.S. Chamber Litigation Center for providing us with this wonderful platform. It has been a great run.
OVERVIEW
The top developments in COVID-19 litigation since our last post are: the Supreme Court’s decisions to stay enforcement of OSHA’s private-sector employer vaccine-or-test mandate, and to deny a stay of a similar mandate for healthcare facilities that receive Medicare and Medicaid funding; an investor lawsuit against a pharmaceutical company for alleged misstatements about a COVID-19 treatment; and another investor lawsuit against a healthcare provider that allegedly downplayed its costs related to COVID-19.
1. The Supreme Court’s Split Decisions on Enforcement of Vaccine Mandates
Overview: On January 13, 2022, the Supreme Court reached opposite conclusions in two emergency matters involving federal mandates. The Court stayed enforcement of the OSHA mandate, also known as the “vaccinate or test” mandate, that would have required vaccination or weekly testing for companies with over 100 employees. In contrast, the Court denied a stay of a vaccine mandate issued by the Centers for Medicare & Medicaid Services (“CMS”) for certain healthcare employers. Both cases will proceed on the merits in the lower courts and may later make their way back to the Supreme Court.
The Decisions:
OSHA Mandate: The Court blocked enforcement of the OSHA mandate in a 6-3 decision, with Justices Breyer, Sotomayor, and Kagan dissenting. The majority opinion, issued per curiam, held that the applicants’ requests for emergency relief would be likely to prevail. In its opinion, the Court noted that “[a]dministrative agencies are creatures of statute. They accordingly possess only the authority that Congress has provided.” And here, the Court concluded that OSHA’s mandate – which would compel 84 million Americans to either obtain a COVID-19 test or undergo weekly testing at their own expense – exceeds its statutory authority and was no “everyday exercise of federal power.” It was instead “a significant encroachment into the lives – and health – of a vast number of employees.” The dissenting Justices likened the mandate to a fire or sanitation regulation imposed by the agency and would not have stayed enforcement.
CMS Mandate: The Court decided in a 5-4 opinion, with Justices Alito, Thomas, Gorsuch and Barrett dissenting, that a basic function of CMS is to make sure healthcare providers who care for Medicare and Medicaid patients protect patients’ health and safety. In contrast to the OSHA mandate, the Court majority found that the CMS rule “falls within the authorities that Congress has conferred” upon it. The CMS mandate amends the conditions of participation in Medicare and Medicaid to include a new requirement that healthcare facilities ensure their covered staff are vaccinated.
Our Take: These two decisions likely do not mark the end of litigation about the scope of vaccine mandates. As the COVID-19 pandemic continues to shift, and with the recent emergence of the Omicron strain, the line between public health and civil liberties continues to shift as well. Moreover, while the Court’s stay of enforcement of OSHA’s mandate does not prevent private businesses from adopting a “vaccinate-or-test” policy, certain large corporations have already announced they are dispensing with this requirement for employees.
2. Pharmaceutical Company Sued by Investors for Alleged Misstatements About a COVID-19 Treatment
Overview: On January 18, 2022, investors sued NRX Pharmaceuticals (“NRX”), along with its CEO and CFO, for alleged misstatements regarding the likelihood of receiving emergency-use authorization by the FDA for a new COVID-19 treatment.
The Complaint: In their Complaint, a putative class of investors who purchased shares of NRX between June 1 and November 4, 2021 alleged that NRX made material misstatements in its SEC filings and other public statements regarding the likelihood that the FDA would approve the drug Zyesami, on an emergency-authorization basis, for the treatment of respiratory failure caused by COVID-19. Plaintiffs also alleged that NRX made material misstatements and omissions regarding the potential benefits and risks of Zyesami. According to the Complaint, when the FDA denied NRX’s application for Zyesami on November 5, 2020, NRX’s share price fell approximately 25%. Plaintiffs alleged violations of the Exchange Act and Rule 10b-5 and violations of Section 20(a) of the Exchange Act by NRX’s CEO and CFO.
Our Take: This shareholder suit against NRX is not novel, as pharmaceutical companies have faced many similar suits the FDA’s denial of approval for COVI-19 treatments. Companies in similar positions should take care to fully disclose the potential risks of their products and the risk that the FDA may not approve them, to avoid or mitigate similar shareholder suits.
3. Health Care Provider Sued by Investors for Allegedly Downplaying COVID-19 Costs
Overview: On January 6, 2022, a putative class of investors filed a complaint against Bright Health Group, Inc. (“BHG”), along with its officers and directors, for allegedly downplaying cost increases driven by COVID-19 in BHG’s filings with the SEC.
The Complaint: In their Complaint, a putative class of investors who purchased BHG’s common stock following its IPOalleged that BHG’s Registration Statement, filed in connection with its IPO, contained false and misleading statements regarding the potential impact of COVID-19 on BHG’s expenses. When BHG reported its Q3 earnings on November 11, 2021, which reflected larger-than-expected expenses due to COVID-19, BHG’s shares fell 32%. Plaintiffs alleged violations of the Exchange Act and Rule 10b-5, Section 20(a) of the Exchange Act, and Sections 11 and 15 of the Securities Act.
Our Take: Shareholder suits against companies that experience unexpected cost increases or disruptions due to COVID-19 now are fairly commonplace. To avoid similar suits, public companies should ensure that any risk of supply-chain disruption or expense increase due to COVID-19 is clearly stated in any SEC filings.
Jason Levineis a commercial and antitrust litigation partner in the Washington, D.C. office of Alston & Bird LLP. Gillian Clow, Giles Judd, Ryan Martin-Patterson, and J. Stephen Tagert are litigation associates at the firm.
