On The Case

Dorsey partner is tracking COVID-19 class actions (and advising businesses how to avoid them)

(Reuters) - Have you heard about the Huntsville body waxing salon that sued the state of Alabama for declaring waxing to be a nonessential service in the age of COVID-19? Cabana Wax voluntarily dismissed its case just a few days after filing the complaint, but the filing shows just how, um, creative plaintiffs' lawyers can get. More evidence: There are now three purported class actions against the government of China for allowing the pandemic to spread around the world. The complaints in federal court in Miami and Las Vegas allege that China’s conduct falls under an exception to the Foreign Sovereigns Immunities Act.

My point, with apologies to Benjamin Franklin, is that along with death and taxes, the only thing we can be sure of is that national crises breed litigation. COVID-19 has already engendered a few securities class actions, a smattering of consumer class actions and a lot of employment litigation. And just about everyone I’ve talked to in the last weeks predicts there will be more, much more, to come.

Want more On the Case? Listen to the On the Case podcast.

Kent Schmidt of Dorsey & Whitney is keeping track of COVID-19 class actions at his Left Coast Law blog. He’s also, as he told me in an interview Wednesday night, thinking about how businesses can limit their exposure to classwide claims. (He and his partner Jaime Stilson hosted an hour-long webinar on that as well.) Schmidt said that as a California lawyer for a firm based in Minnesota, he’s become a specialist in counseling multistate companies how to avoid getting sued under California’s expansive employment and consumer protection laws. He’s now using that frame of reference to think about COVID-19 class actions.

For some businesses, Schmidt said, it’s already too late to avert consumer class actions. Plaintiffs’ lawyers have begun suing fitness chains, for instance, that charge monthly membership fees but are now closed, asserting that gyms should refund their customers’ fees. Those cases, Schmidt said, are “low-hanging fruit,” although he also said fitness centers may be able to make a compelling counterargument that their overhead is fixed. “Do you really want … to lay off all of these hourly employees?” he said. “There’s a societal issue.” (At least one class action against a fitness chain alleges that the gym laid off most its workers despite continuing to collect membership fees.) In their webinar, Schmidt and Stilson urged companies considering refunds to attempt to balance the benefits of keeping some or all of their customers’ money against the cost of the bad publicity, ill will and potential litigation they will face.

Schmidt is predicting similar suits against colleges and universities that have shut their campuses, though so far only one has so far been filed, against the Arizona Board of Regents by parents of students at the University of Arizona. Like fitness centers, Schmidt said, colleges and universities will argue that they must continue to pay faculty and maintain their facilities. State government, he added, may step in to block or resolve claims against public universities but that won’t help private school. (Schmidt’s own family embodies the potential dichotomy: His son goes to UCLA and his younger daughter goes to a private college in Arizona; both are now taking classes at home, as is Schmidt’s older daughter, who’s in graduate school.)

What Schmidt hasn’t yet seen – and isn’t sure will materialize – are class actions blaming businesses and non-profits for failing to close down or failing to take adequate precautions to protect customers once the risk of COVID-19 began to emerge. “Two weeks ago, three weeks ago, different people were reacting at different stages of this,” he said. “Some pulled the trigger sooner than others, and I think that would be a really tough case to make … We were in such a gray area.” The exception, he said, would be businesses or other organizations that recklessly exposed people to the virus after the risk was clear. Students who contracted COVID-19 at a school that re-opened its campus, for instance, might not be able to bring a class action because of individualized issues, Schmidt said, but could certainly assert personal injury claims. (The likely defense: Anyone who can read the news was aware of the risk of being infected.)

In the employment arena, Schmidt said he considers a March 24 state-court suit by an Alaska state workers’ union to be a paradigm of some of the claims to come. The complaint asserted that Alaska hasn’t taken adequate steps to assure the safety of state workers by, among other things, failing to provide protective equipment and refusing to agree to telecommuting and staggered shifts. Obviously, the case involves a union and a state employer, which distinguishes the class action from future litigation by non-union employees of private businesses. But Schmidt said he’s urging private employers to read the complaint to anticipate allegations by their workforce. (As my colleague Dan Wiessner reported on Wednesday, a state judge in Anchorage refused to grant a temporary restraining order to the union, declining to second-guess the governor and state officials who have the “unenviable but duly appointed task of managing this disaster.” I suspect that outcome won’t be of much help for private businesses.)

The third major front for potential COVID-19 class actions, Schmidt said, is shareholder litigation. I told you earlier this month, in a story about the first securities fraud suits accusing defendants of virus-related misrepresentations, that plaintiffs’ lawyers weren’t in a rush to sue companies for failing to anticipate the impact of COVID-19. Schmidt agreed that courts would probably look askance at bare-bones shareholder disclosure class actions. He predicted instead that shareholders’ lawyers will be watching closely in the next two quarters, as companies try to find good news to announce. The risk, however, is that corporate executives are so anxious to be optimistic that they neglect to stay within the safe harbor for forward-looking statements in the Private Securities Litigation Reform Act.

“You’re going to want to convey things about the present and future that are as optimistic as possible,” Schmidt said. “Companies have to be really careful … I think the shareholder plaintiffs’ bar is going to be looking very carefully and then following the market (reaction).”

What’s going to be really interesting, Schmidt said, is COVID-19’s impact on judges and juries that ultimately hear the cases spawned by the virus. “COVID-19 cases are going to be very delicate,” he said. Every juror, and, for that matter, every judge, will have been touched in some way by the virus. Some will have lost jobs or even lost people they love because of COVID-19. That’s going to be the context, Schmidt said, for every class action arising from the virus.

“Jurors are going to bring with them ... their own lived experience,” he said. “Some are going to have, I believe, a very negative reaction to the very concept that anyone should be able to obtain some sort of windfall as a result of this horrible crisis.”