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Class Action Lawsuits and Regulatory Litigation Related to COVID-19

As the COVID-19 pandemic continues to wreak havoc on daily life, consumers and personnel that are feeling the ripple effects are beginning to file litigation against public and private companies in increasing numbers. Concurrently, the SEC is filing civil lawsuits to protect consumers and investors from COVID-19 scams.

In March 2020, several class action security lawsuits were filed against companies, including Norwegian Cruise Line Holdings Ltd. [NYSE: NCLH] and Inovio Pharmaceuticals, Inc. [Nasdaq: INO], due to decreases in stock prices stemming from circumstances related to COVID-19. While those were some of the first lawsuits to be filed, they were definitely not the last.

As of April 28, 2020, Audit Analytics has identified at least 13 cases directly related to the COVID-19 pandemic:

Litigation Filed by Consumers

Plaintiffs are seeking a class action suit against Inc. [Nasdaq: AMZN], alleging that the retail giant engaged in price gouging during the COVID-19 pandemic in violation of California’s Unfair Competition Law. The complaint alleges that Amazon charged customers more than 1000% the price for certain products that are vital to their health, safety, general welfare, and normal daily lives during the pandemic.

On a similar note, plaintiffs are suing Town Sports International Holdings, Inc. [Nasdaq: CLUB], an operator of fitness facilities. The complaint alleges that customers continued to be charged membership fees, despite the gyms being closed as a result of the state of emergency declared by New York in response to the COVID-19 pandemic. Further, customers were allegedly not able to freeze or cancel their memberships during the time they were unable to use the facility that they paid for.

Worth nothing, Town Sports International recently received a going concern modification on their 2019 annual audit opinion. According to management’s discussion of the going concern, the shuttering of 95% of its facilities as a result of the pandemic is having a materially adverse effect on revenue and cash flows, and the Company expects to record material asset impairment during the quarter ending March 31, 2020. The litigation may cost Town Sports International substantial fees, and considering the factors already affecting the Company related to the pandemic, the Company may experience difficulties after operations are allowed to resume.

As many types of businesses closed in response to the COVID-19 pandemic, it is not surprising that other companies have been caught in litigation because of fees paid for services that could no longer be offered.

Vail Resorts Inc. [NYSE: MTN] – a luxury ski resort operator – is being sued in a class action suit after closing 100% of their resorts in response to the crisis. Season passholders are now seeking refunds, alleging that Vail Resorts did not offer any kind of refund despite the resort closing off access to services that had already been purchased.

Additionally, Six Flags Entertainment Corp. [NYSE: SIX] – an amusement park operator – is being sued by season pass holders who allege that the Company continued to charge monthly fees, despite closing 100% of its parks through the middle of May 2020.

Though, Six Flags has more to worry about than the litigation; the Company launched a $725 million bond offering in April 2020 in order to increase their cash reserves. Specifically, the Company is looking to pay off $315 million of short-term debts and use the rest of the money for working capital to cover other business expenses.

Regulatory and Other Litigation

It could be expected that litigation would stem from interrupted operations related to COVID-19, but it is not the only type of legal action arising from the pandemic.

As reported in the New York Times, multiple banks are being sued in class action cases, alleging that large corporate clients were given priority when applying to access the Paycheck Protection Program fund that was intended as a lifeline for small businesses during this difficult time.

Additionally, the SEC has cautioned investors about scams related to COVID-19 and the Commission has already taken action against at least one company for taking advantage of circumstances arising from the pandemic. According to a recently filed SEC civil litigation complaint, Praxsyn Corp. and its CEO allegedly issued false and misleading statements regarding the Company’s ability to obtain personal protective equipment in the midst of the pandemic. The SEC charged Praxsyn with violating the antifraud provisions of securities laws and is seeking injunctive relief, civil penalties, and an officer and director bar against the Company’s CEO.

Litigation Filed by Personnel

Employees working at a Smithfield Foods Inc. plant in Missouri filed a lawsuit, alleging that the employer failed to follow CDC guidelines for COVID-19 safety measures. This includes the failure to provide personal protective equipment or the opportunity for employees to wash their hands, failure to implement proper social distancing while standing shoulder-to-shoulder on production lines, and failure to implement testing or contact-tracing for employees that may have been exposed. Furthermore, the complaint alleges that Smithfield established bonus payments encouraging employees to come to work, even if they were ill.

Shortly after the lawsuit against Smithfield was filed, an executive order was enacted, classifying meat processors such as Smithfield as critical infrastructure and, therefore, requiring the plants to remain open.

While the Smithfield complaint involves a group of employees, individuals are also seeking legal action against employers due to unlawful termination and lost wages as a result of becoming ill from COVID-19, in violation of the Family Medical Leave Act, as amended by the Families First Coronavirus Response Act.

Considering the magnitude of the COVID-19 pandemic continues to increase, it would not be surprising to continue to see litigation related to the crisis, with far-ranging impacts that have yet to be fully realized.

Audit Analytics will continue to track litigation related to COVID-19 on an ongoing basis.

For more information on this analysis, or for access to our Litigation database, please contact us.

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