Protecting Your Business from COVID-19 Class Action Lawsuits
The COVID-19 pandemic has altered the landscape for private and public businesses in almost every industry, impacting day-to-day operations as well as longstanding obligations to businesses and consumers alike. Just over a month into the quarantine, we have witnessed a dramatic spike in litigation stemming from the pandemic, causing significant challenges in both business-to-business dealings and consumer-oriented businesses.
The fallout from the spread of COVID-19 has also motivated class action plaintiffs’ lawyers to target the companies most heavily impacted, and we have already seen the focus of these plaintiffs’ lawyers broaden over time. Presently, putative class action lawsuits related to the pandemic present a new and significant set of risks to all businesses, including those on which consumers often depend for their basic needs.
As evidenced by early filings, California (with its broad consumer protection statutes) appears to be the venue of choice. One of the very first consumer class actions related to the COVID-19 pandemic was filed in California on March 5, 2020, against Vi-Jon Inc., the manufacturer of hand sanitizer product Germ-X. The complaint alleges that Vi-Jon Inc. falsely represented to consumers that its product is capable of fighting the novel coronavirus, thereby prompting consumers to purchase Germ-X, allegedly to their detriment. See David v. Vi-Jon Inc., Case No. 3:20-cv-00424 (S.D. Cal. Mar. 5, 2020). Other class action plaintiffs’ lawyers quickly followed, filing claims in federal court against the manufacturers and retailers of Purell- and Target-brand hand sanitizers, alleging deceptive marketing related to the efficacy of their products. See Miller v. GOJO Industries Inc. d/b/a Purell, Case No. 4:20-cv-00562 (N.D. Ohio Mar. 13, 2020); see also Taslakian v. Target Corp., Case No. 2:20-cv-02667 (C.D. Cal. Mar. 20, 2020).
Subscriptions and Memberships
This pandemic has also spawned a number of putative class actions based on individuals’ inabilities to utilize subscription services, including gym and fitness center memberships. For example, 24 Hour Fitness was recently sued in California for failure to refund monthly membership fees despite mandatory closures. See Labib v. 24 Hour Fitness USA Inc., Case No. 3:20-cv-02134 (N.D. Cal. Mar. 27, 2020). Similar actions have been asserted more recently against Fitness Evolution and Corepower Yoga. See Hunt v. Fitness Evolution Inc., Case No. 4:20-cv-02461 (N.D. Cal. Apr. 10, 2020); Weiler v. Corepower Yoga LLC, Case No. 2:20-cv-03496 (C.D. Cal. Apr. 15, 2020). These lawsuits are based on the plaintiffs’ class action bar’s theory that the automatic extension of membership benefits following resumption of operations will not be sufficient to compensate consumers for membership fees collected during closures.
Tickets and Events
Ticket sellers, event organizers, and venues have been similarly impacted. Consumers recently initiated a pair of putative class actions against StubHub for its alleged refusal to refund ticket prices for events canceled due to the pandemic. See McMillan v. StubHub Inc., Case No. 3:20-cv-00319 (W.D. Wis. Apr. 2, 2020); Alcaraz v. StubHub Inc., Case No. 4:20-cv-02595 (N.D. Cal. April 14, 2020). The second of these lawsuits was filed four days after StubHub announced a new policy of providing vouchers (rather than cash refunds) to cover the value of tickets for canceled events. Even Major League Baseball and each of its teams are defendants in litigation alleging slow refunds on season tickets. See Ajzenman v. Office of the Commissioner of Baseball, Case No. 2:20-cv-03643 (C.D. Cal. Apr. 20, 2020).
Do LaB Inc., the organizer of central California’s popular Lightning in a Bottle music festival, is similarly the target of two class actions stemming from the event’s cancelation. See Neses v. Do LaB Inc., Case No. 2:20-cv-03452 (C.D. Cal. Mar. 24, 2020); Jimenez v. Do LaB Inc., Case No. 2:20-cv-03462 (C.D. Cal. Apr. 14, 2020). Do LaB previously committed to make fans “whole,” but did not provide a timeline or specifics. On April 17, 2020, following the filing of the Jimenez lawsuit, Do LaB announced a new policy providing three options to ticket buyers: (1) supporting the future of Lightning in a Bottle with a gift; (2) converting 2020 tickets to upgraded VIP tickets for LIB 2021 or 2022; or (3) joining a refund pool. It is unknown how these options will impact the lawsuits, particularly after Ticketmaster and Live Nation were sued on similar allegations last Friday, April 17, after, according to the plaintiffs’ pleading, revising their own refund policies. See Hansen v. Ticketmaster Entertainment Inc. and Live Nation Entertainment Co., Case No. 3:20-cv-02685 (N.D. Cal. Apr. 17, 2020).
Impacted venues have included the Magic Mountain family of theme parks, which was sued recently for allegedly continuing to assess monthly charges to season passholders while its parks are closed. Ruiz v. Magic Mountain LLC, Case No. 2:20-cv-03436 (C.D. Cal. Apr. 13, 2020). For now, Disney appears to have avoided litigation by implementing a hybrid policy of automatically extending expiration dates for Disneyland annual passes while giving consumers the option to obtain prorated refunds. Disney has further suspended monthly charges and retroactively refunded payments collected during the closure of its theme parks.
The foregoing is just a partial list of COVID-19-related class action litigation being filed across the country. The egg industry has been targeted for alleged price gouging (see, e.g., Fraser v. Cal-Maine Foods Inc., 3:20-cv-02733 (N.D. Cal. Apr. 20, 2020)). Several companies have likewise been sued in class actions for allegedly terminating employees without sufficient advance notice. See Siers v. Velodyne Lidar Inc., Case No. 5:20-cv-02290 (N.D. Cal. Apr. 3, 2020); Scott v. Hooters III Inc., Case No. 8:20-cv-00882 (M.D. Fla. Apr. 16, 2020). The financial services industry has also been targeted with COVID-19 related class action litigation.
Businesses seeking advice on how to avoid these types of lawsuits and how to respond to them should continue to consult with experienced counsel. The old saying “Be quick but don’t hurry” could not be more apt. Proactive measures today can help protect your business tomorrow. In a follow-up post, we will outline potential steps to minimize exposure during these trying times. In the meantime, we recommend maintaining the same disciplined approach that your business usually employs in bringing products and services to market and responding to customer or business-to-business issues. Working with outside counsel to assess strategies can add a layer of calm and protection to any business decision.