Jason A. Levine, Gillian H. Clow, and Giles Judd, Alston & Bird LLP
OVERVIEW
This week’s top COVID-19 litigation developments are all decisions on motions to dismiss. Courts dismissed a privacy class action against Zoom, a refund class action against Ticketmaster, a business interruption lawsuit based on a virus exclusion in the insurance policy, and a tuition refund class action against NYU. In the one bright spot for plaintiffs this week, a court also denied a motion to dismiss a different business interruption suit based on “standing” grounds.
1. California Court Dismisses Privacy And Security Breach Claims Against Zoom
Overview: A California federal judge dismissed claims in a putative class action that Zoom had violated users’ privacy rights by illegally sharing their personally identifiable information with third parties such as Facebook, and had failed to protect users from offensive and unauthorized security breaches by “Zoombombers.” However, the court did not dismiss plaintiffs’ claims for breach of contract, unfair competition, unjust enrichment, and other security breaches.
Decision: In her decision, Judge Lucy Koh held that plaintiffs failed to plead sufficiently that Zoom had shared their personal data with third parties in violation of California law and concluded that the economic loss doctrine barred their negligence claims. But the court granted plaintiffs leave to amend. With regard to claims that Zoom failed to protect its users from security breaches by “Zoombombers,” the court held that, under Section 230 of the Communications Decency Act, Zoom was immunized against content-related claims. The decision noted that such claims “lie against the ‘Zoombombers’ who shared heinous content, not Zoom itself.” Plaintiffs’ security breach claims arising from alleged “Zoombombing” were permitted to proceed so long as they did not challenge the content of the breaches. The court also allowed plaintiffs’ breach of implied contract claims to proceed, concluding that Zoom had not adequately established that plaintiffs had entered into, and were on notice that they had entered into, an express contract by accepting Zoom’s Terms of Service. Finally, the court dismissed plaintiffs’ statutory fraud claims for inadequate pleading, but allowed their claims of unfair conduct under California’s Unfair Competition Law and unjust enrichment to proceed.
Our Take: This is not the first time that Zoom has faced privacy-related claims during the pandemic. We previously reported on a consumer protection suit against Zoom which alleged that it falsely claimed that it used end-to-end encryption to maintain the privacy of its users. Although plaintiffs’ privacy allegations here fell short, Zoom still faces the possibility of an amended complaint. But this opinion confirms that Section 230 of the Communications Decency Act continues to provide Zoom some protection from liability for the conduct of third parties on the platform.
2. Class Action Refund Suit Against Ticketmaster Dismissed And Sent to Arbitration
Overview: An Illinois court has terminated a putative class action brought against Ticketmaster and its parent company, Live Nation Entertainment, Inc., for their purported failure to issue refunds for events that were postponed indefinitely due to the COVID-19 pandemic. The court held that Ticketmaster’s Terms of Use require arbitration of all claims and, on that basis, granted its motion to compel arbitration.
Decision: The court found that the Terms of Use on Ticketmaster’s website are unambiguous, and establish by “clear and unmistakable” evidence that the parties had delegated any threshold questions of arbitrability to the arbitrator. Further, the court rejected plaintiffs’ argument that the arbitration clause, which referenced a provision of the Illinois Ticket Sale and Resale Act, meant that the parties “also agree[d] to submit to the jurisdiction of the State of Illinois for any complaints involving a ticketed event held in Illinois.” The court held that the provision in question applied only to resale purchases.
Our Take: We previously reported on a California federal decision compelling the arbitration of similar pandemic-related refund claims against Ticketmaster, on the basis that the arbitration clause within the company’s Terms of Use was clear and conspicuous. This recent holding solidifies that federal courts will enforce such provisions, provided that the terms are unambiguous and prominently displayed.
3. New Jersey Court Denies Insurer’s Motion to Dismiss Chiropractic Center’s Proposed Class Action Related to Insurance Coverage for COVID-19 Losses
Overview: A federal court in New Jersey denied Sentinel Insurance Company’s motion to dismiss a proposed class action brought against it by a chiropractic center.
Background: Plaintiff Back2Health has an “all-risk” policy that covers its property in Fair Lawn, New Jersey. Back2Health alleges it lost income due to the statewide closures enacted during the COVID-19 pandemic. Sentinel denied the claim based on a lack of physical damage to the chiropractic center’s office, as well as pollution and virus exclusions. Plaintiff sued on behalf of four putative nationwide classes alleging various breach of contract claims. Sentinel moved to dismiss, arguing that plaintiff lacks standing to bring common law breach-of-contract claims arising under the laws of other states and that the court lacks specific personal jurisdiction over Sentinel for claims of putative class members outside of the state.
Decision: The court held that it need not determine whether the putative class members have standing, ruling that so long as a class representative has standing, the case can go forward. Further, the court determined that it only needs to consider personal jurisdiction over Sentinel for the claims of the named plaintiff – a New Jersey policyholder – and not for claims brought by absent class members.
Our Take: This case represents a departure from the majority of COVID-19 coverage lawsuits, insofar as it was not dismissed at the pleading stage. That said, the grounds for decision do not imply a different outcome on the merits once the court analyzes the policy language. The court’s holding on Sentinel’s standing argument is also significant, and will likely be cited by other policyholders facing motions to dismiss on this ground.
4. New Jersey Court Finds Restaurants’ Coverage Suits Barred by Virus Exclusions
Overview: The District of New Jersey granted the motion to dismiss filed by Utica National Insurance Group against the COVID-19 business interruption claims of various restaurants because their policies contained virus exclusions.
Background: A group of restaurants located in New Jersey, Delaware, Florida, and Washington sued Utica over denied business interruption claims as a result of the pandemic. Utica moved to dismiss, arguing the claims were barred by the policies’ virus exclusions, which broadly excluded “loss or damage caused by or resulting from any virus” and “loss or damage caused directly or indirectly by . . . any virus.” The restaurants argued that the provisions only apply in the event of a virus at the property itself, and not due to state-mandated closures.
Decision: The district court granted Utica’s motion to dismiss, finding that the virus exclusions unambiguously applied even if the virus was not present at the insured property. It also rejected the argument that the state shut-down orders were an intervening proximate cause that brought plaintiffs’ claims outside the scope of the virus exclusion.
Our Take: This case is the latest in a long line of district court and state court cases dismissing claims for wrongful denial of coverage related to business closure as a result of the COVID-19 pandemic. The outcome is in the mainstream of these decisions. As state responses to the virus become even more varied, it will be interesting to see whether plaintiffs’ proximate cause argument gains any traction.
5. New York Court Dismisses Tuition Refund Suit Against NYU
Overview: The Southern District of New York dismissed a putative class action against New York University, brought by a graduate student over NYU’s failure to provide in-person education during the COVID-19 pandemic.
Decision: Plaintiff alleged that NYU’s transition to remote learning was inferior to in-person instruction and constituted a breach of contract, entitling students to a refund of tuition fees. Although the court held that the claims were not barred by the “educational malpractice” doctrine because they sounded in contract, it nonetheless held that plaintiff had failed to state a claim for breach of contract because the complaint lacked any showing that NYU had expressly promised to provide in-person instruction. Further, the court found that plaintiff had failed to demonstrate that NYU “relinquished its authority” to modify the method of instruction.
Our Take: The pandemic has forced colleges to alter their approaches to education, and many have faced refund lawsuits as a result. This decision confirms prior rulings that so long as the college offers an education that is comparable to the in-person experience, its method of instruction will not constitute a breach of any obligations unless otherwise indicated in the express language of its agreements with students or its marketing materials. Courts have made plain that there is no implied expectation of in-person education in college.
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.
