Jason A. Levine, Gillian H. Clow, and Giles Judd, Alston & Bird LLP
OVERVIEW
This week’s top COVID-19 litigation developments include: a securities lawsuit accusing biotech executives of overhyping their company’s COVID-19 treatment while simultaneously selling stock at newly-inflated prices; Amazon’s motion to dismiss a suit by hourly employees seeking compensation for time spent on workplace COVID-19 screenings; a purported class action challenging Target’s effectiveness claims for its hand sanitizer; and a ticket company’s effort to block certification of a nationwide class of ticket purchasers in a refund suit.
1. Biotech Executives Sued for Allegedly Inflating Stock Price by Overhyping a COVID-19 Treatment and Then Selling Shares
Overview: In a derivative lawsuit filed in the Western District of Washington on June 4, stockholders allege that executives of CytoDyn, Inc. overhyped a COVID-19 treatment while simultaneously selling millions of shares of company stock.
Allegations: According to the complaint, CytoDyn is focused on developing a drug for HIV patients, but changed direction in the advent of the pandemic and hailed the drug as a COVID-19 treatment. This led the company’s stock price to increase from less than $1 per share in 2019 to $10 per share in June 2020, at which time company executives allegedly sold millions of their own shares. Plaintiffs allege that this supposed scheme began to fall apart when it was reported in August 2020 that CytoDyn was not being considered for “Operation Warp Speed,” the federal program that accelerated production of COVID-19 vaccines. Plaintiffs’ suit asserts claims for breach of fiduciary duty, waste of corporate assets, unjust enrichment, and violations of sections 10(b) and 21D of the Exchange Act.
Our Take: As the COVID-19 pandemic has receded, cases addressing companies’ efforts to survive this period are starting to emerge. Although this case could be a one-off matter, narratives about businesses’ struggles to survive – or profit from – the pandemic may continue to yield securities cases that further define the line between “puffery” and actionable misstatements.
2. Amazon Seeks Dismissal of Lawsuit Over Pay for Time Spent on Workplace COVID-19 Screenings
Overview: Amazon has been sued in the Eastern District of California for a proposed class and collective action alleging that Amazon did not pay its hourly employees for the time they spent on COVID-19 screening measures that they were purportedly required to take before their shifts began.
Background: Two former Amazon workers filed suit in February, alleging that Amazon required them to arrive at work before their shifts for COVID-19 screenings that would take 10-15 minutes each day. Plaintiffs claim they were not compensated for the time spent at the screenings, in purported violation of state and federal labor laws.
Amazon’s Motion: Amazon’s motion to dismiss argues that the workers need not be paid for the COVID-19 screenings because they were not company policy or work-related, but were mandated by the state of California and followed guidance from the CDC. Amazon also asserts that the time the employees spent in the screenings was de minimis, and that the company did not exercise the level of control over the employees necessary to deem the time compensable.
Our Take: The intersection of COVID-19 safety measures and labor and employment laws poses a new challenge for employers. Suits like this one merit careful attention from employers who are required to comply with health requirements (whether mandated by federal, state, or local agencies or entities) that could give rise to similar claims. .
3. Proposed Illinois Class Action Challenges Effectiveness of Target Hand Sanitizer
Overview: A proposed class of Target consumers filed suit against the retail giant in the Northern District of Illinois, alleging that its company-branded hand sanitizer does not kill “99.99%” of “germs,” as the product label suggests.
Allegations: The Complaint states that Target’s labeling is misleading because “alcohol-based hand sanitizers . . . are incapable of killing many types of germs,” such as the norovirus, which “causes more than fifty-eight (58) percent of foodborne illnesses in this country.” Although the container’s back label includes a disclaimer, which states that the sanitizer is “[e]ffective at eliminating 99.99% of many common harmful germs and bacteria,” the Complaint contends that this still fails to inform the consumer that the product is “unable to kill the most relevant and prominent germs.” The Complaint posits violations of the Illinois Consumer Fraud and Deceptive Business Practices Act, breaches of express and implied warranties, negligent misrepresentation, common law fraud, and unjust enrichment.
Our Take: Although the Complaint does not specifically reference the coronavirus, it asserts that the Target label would mislead consumers into believing that the product was effective against “relevant and significant germs.” If this case moves forward, we will see whether COVID-19 plays a role. This case may also set the stage for an uptick in lawsuits alleging that other store-brand sanitizers misled consumers as to their effectiveness against the backdrop of the pandemic.
4. Ticket Exchange and Resale Company Opposes Certification of Nationwide Class of Ticket Purchasers in Refund Suit
Overview: In the Middle District of Florida, Viagogo, the London-based ticket exchange and resale company, filed an opposition to a consumer’s motion to certify a nationwide class of ticket purchasers who allege that the company did not provide timely refunds for events canceled due to the COVID-19 pandemic.
Background/Opposition: The named plaintiff seeks to represent a nationwide class of individuals who bought tickets to events that were later canceled but “did not receive a refund within 30 days.” Viagogo contends that once an event is canceled, buyers receive an email notifying them of the availability of a voucher worth 125% of the original ticket’s purchase price. The email further informs buyers that they may request a refund in lieu of the voucher by clicking on a hyperlink. According to Viagogo, named plaintiff “understood that email, knew that she could click the link to request a refund, but refused to do so.”
Viagogo also sets forth multiple reasons why class treatment is inappropriate, including: (1) the need for individual inquiries into whether each buyer preferred “receipt of a voucher or retention of valid tickets in lieu of a cash refund”; (2) “fundamental conflicts” between the named plaintiff and the absent class members, because “she seeks to force them to give up something of value” – i.e., the 125% voucher – which may be contrary to their individual preferences; (3) plaintiff’s damage theory that assumes the 125% voucher and tickets to postponed events are “inherently worth nothing,” which would require individual inquiries into each class member’s preferences; and (4) the named plaintiff’s lack of standing to sue over canceled events for which she did not purchase a ticket, because she cannot establish injury in connection with those cancellations.
Our Take: Although many refund suits have been filed in the wake of the pandemic, this case is different from some other suits because it presents the question whether a company must affirmatively provide a refund for canceled events, or whether it is inadequate for some reason for the company to offer consumers the option to request a refund. In this respect, it differs from many of its predecessor cases, and may break new ground.
Jason Levine is a commercial and antitrust litigation partner in the Washington, D.C. office of Alston & Bird LLP. Gillian Clow and Giles Judd are litigation associates at the firm.
