RETAIL AND HOSPITALITY In the Crosshairs Looming Tidal Wave of COVID-19

By Sam Felker and Lawsuits Kyle Diamantas

The recent flurry of class As businesses struggle to reopen after COVID-19 actions filings may only be pandemic-related closures, just over the horizon is a the tip of the iceberg for tidal wave of litigation. The plaintiffs’ bar has seemingly the battles that lie ahead. overcome any perceived stigma associated with capitalizing on the pandemic. This arti- initially against gyms and sporting clubs cle will summarize the developing litiga- in particular. Namorato v. New York Sports tion landscape and provide guidance for Clubs, No. 20-cv-02580 (S.D.N.Y.), is a good businesses that may find themselves in the early example. The class action complaint crosshairs. leads off with what is now a familiar theme: At a time when New Yorkers are using Consumer Class Actions for all their efforts to help one another and Cancelled Services or Memberships make sacrifices necessary to meet the In the past several weeks, a host of con- daily challenges associated with a the sumer class actions have been filed against health and economic crisis created by businesses that continued billing custom- the novel coronavirus are suffering, ers for dues, membership fees, or other TSI–the publicly-traded [sic] company charges even though their business oper- which owns and operates the ubiqui- ations substantially shut down or cur- tous gym brand New York Sports Clubs tailed services because of the pandemic. (“NYSC”)—is defrauding and stealing Across the country, numerous suits alleg- from customers. ing breach of contract and consumer pro- The complaint goes on to allege that all tection statutory violations have been filed, NYSC gyms were closed on March 16,

■ Sam Felker is a shareholder in Baker Donelson’s Nashville and Fort Lauderdale offices and focuses his practice on the defense of class actions and complex litigation. Mr. Felker represents clients in significant lit- igation involving product liability, food safety, transportation, toxic torts, health care, and commercial mat- ters. Mr. Felker is an experienced trial lawyer and has tried cases throughout the United States in state and federal court and in arbitration proceedings. Kyle Diamantas concentrates his practice on food and drug law, commercial litigation, mass tort, and general business matters. Mr. Diamantas counsels food and beverage, life sciences, and private equity clients on Food and Drug Administration (FDA), Federal Trade Commission (FTC), and state equivalent regulatory, compliance, and enforcement issues. He assists in the representa- tion of food, cosmetic, dietary supplement, drug, device, and personal care manufacturers and suppliers on issues involving regulatory and quality compliance and in transactions and litigation involving products and companies subject to FDA and related regulations.

40 ■ For The Defense ■ July 2020 © 2020 DRI. All rights reserved. 2020, in response to the public health crisis, hundreds of thousands of skiers who pur- allow the defendants to increase their sales but the defendant “outrageously” contin- chased Ikon ski passes for the 2019–2020 ski unlawfully during the pandemic. Gonza- ued to charge members monthly member- season but did not get the full benefits they lez v. Gojo Industries, No. 1:20-cv-00888 ship dues, which are paid for one purpose paid for, i.e., unlimited access to listed ski (S.D.N.Y.); David v. Vi-Jon, Inc., No. 3:20- and one purpose only—to access NYSC resorts in Colorado, throughout the United cv-00424 (S.D. Cal.). gyms—and refused to honor attempted States, and in Canada). membership cancelations. The complaint Similarly, Six Flags Magic Mountain Cancelled or Rescheduled Events alleged three counts: violation of the New was hit with a consumer class action filed Countless cancelled or rescheduled events York General Business Law prohibiting by season pass holders for continuing to have led to a host of consumer suits and false, misleading, and deceptive conduct; charge monthly membership fees, despite violation of a statute regulating health the park’s closure. On March 13, 2020, clubs; and breach of contract. The plain- Magic Mountain and Discovery Kingdom tiffs seek unspecified damages, injunctive closed temporarily, due to the COVID-19 In the past several weeks, relief, and attorneys’ fees. See also Delv- pandemic. According to the suit, annual ercchio v. Boston Sports Clubs, No. 20-cv- memberships range from about $240 to a host of consumer class 10666 (D. Mass.); Jampol v. Blink Holdings, $505 per year, depending on various pro- No. 20-cv-02760 (S.D.N.Y.); Jason Blank v. motions. When they sign up, members actions have been filed Youfit Health Clubs LLC, No. CACE2006161 hand over the information for their credit (Broward Cir. Fla.). or debit cards, which are automatically against businesses that Although gyms and sports clubs were charged as the payments become due on a targeted early, the theories advanced by monthly basis, the suit alleges. “However, continued billing customers plaintiffs’ lawyers in those suits have now unlike its competitors in the industry, de- been applied to other businesses that con- fendants continued charging its thousands for dues, membership tinued charging fees or membership dues of customers monthly fees—at full price,” without providing some or all of their the plaintiffs contend. This access to the fees, or other charges normal services, and the ski industry is a pass holders’ personal credit and debit card notable example. Hunt v. Vail Corp., 4:20- information enables Six Flags to charge even though their business cv-02463 (N.D. Cal.), is a putative, nation- their customers “unilaterally” and with- wide class action against Vail Resorts that out their consent. “Thus, defendants have operations substantially shut the plaintiffs have pursued allegedly be- made the deliberate decision to bilk its cus- cause the defendant has refused to refund tomers out of untold sums per month while down or curtailed services skiers’ annual passholder fees, even though its customers do not have access to defend- it closed its mountain resorts on March 25, ants’ parks,” the suit says. The plaintiffs because of the pandemic. 2020, for the remainder of the ski season seek unspecified compensatory and puni- due to the pandemic. The complaint al- tive damages, asserting claims for breach leges the defendant offers its “Epic Pass” of the California Consumers Legal Reme- class actions over refunds and fees charged for unlimited skiing at its thirty resorts, dies Act, the California Unfair Competition by organizers. Ticketmaster and Live but the closure prevented customers from Law, the California False Advertising Law, Nation were recently hit with a class action using the remaining days on their passes. breach of express warranty, negligent mis- over events postponed due to COVID-19, Vail Resorts allegedly did not offer to re- representation, unjust enrichment, conver- alleging that they are making custom- fund any consumers for their lost days of sion, and breach of contract. Ruiz v. Magic ers bear the costs of thousands of dis- skiing or permit transfer to another ski Mountain LLC, No. 2:20cv3436 (C.D. Cal.). rupted events by retroactively changing season. The complaint alleges that Vail Re- their refund policy. Hansen v. Ticketmas- sorts “made the unconscionable decision to Products that Allegedly Don’t ter Entertainment, Inc., et al., No. 3:20-cv- retain its millions of customers passholder Perform as Represented 02685 (N.D. Cal.) fees while closing 100 percent of its moun- Another common theme in consumer class tain resorts,” whereas the passes were sup- actions is that goods or products fail to pro- COVID-19 Exposure: Failure posed to be good for as long as there was tect against COVID-19 as represented. For to Warn or Protect snow suitable for skiing. The plaintiff class example, two leading makers of hand sani- This liability is an extremely hot topic sued under the California consumer protec- tizers, Purell and Germ-X, were recently hit for defendant businesses. Several recent tion law, alleging unfair competition, false with class actions, alleging that they falsely suits pursue a common theme: that the advertising, breach of contract, fraud, and advertised their products as being effective defendant businesses allegedly failed to unjust enrichment. Other ski resorts have at preventing the flu and other viral dis- protect employees or patrons from the been caught in the web. See, e.g., Kramer v. eases. According to the complaints, there COVID-19 virus. The allegations include Alterra Mountain Company, No. 1:20cv1057 are no reliable studies to support these the failure of businesses to clean and san- (D. Colo.) (filing a class action on behalf of representations, which the plaintiffs claim itize the premises adequately, to provide

For The Defense ■ July 2020 ■ 41 RETAIL AND HOSPITALITY adequate protective equipment, to warn was negligent, and willful and wanton, for • cease operations of the store and to close of other employees who tested positive for failing to do the following: the store when it knew, or should have COVID-19, to screen workers for the virus, • cleanse and sterilize the store to prevent known, that various employees and oth- and generally to warn of the risks of infec- COVID-19 infection; ers present at the store were experienc- tion based on the particular circumstances • implement, promote, and enforce social-­ ing COVID-19 symptoms; known only to the business owner. distancing guidelines; • properly train its personnel to imple- Evans v. Walmart, Inc., No. 2020L003938 • provide personal protective equipment ment and follow procedures designed (Cook Cty. Ill. Cir. Ct.), is a first of its kind such as masks and latex gloves to em- to minimize the risk of contracting wrongful death case brought by the fam- ployees to prevent COVID-19 infection; COVID-19; and • warn the decedent and other employees • periodically interview and evaluate its that various individuals were experienc- employees for signs and symptoms of ing symptoms at the store and may have COVID-19. The allegations include  been infected by COVID-19, which was The lawsuit also alleges that the super- present and active at the store; center hired employees via telephone and the failure of businesses • adequately address employees at the other remote means in an expedited pro- store who communicated to manage- cess without personally interviewing or to clean and sanitize the ment that they were experiencing signs evaluating whether prospective employ- and symptoms of COVID-19; ees had been exhibiting signs and symp- premises adequately, to • follow the recommendations of manda- toms of COVID-19 before they began their tory safety and health standards pro- employment. provide adequate protective mulgated by the U.S. Department of In a statement, Walmart defended its Labor and Occupational Safety and response to the pandemic, declaring that equipment, to warn of Health Administration (OSHA); it had instituted additional cleaning mea- • follow the guidelines promulgated by the sures, installed sneeze guards at regis- other employees who Centers for Disease Control and Preven- ters, placed social-distancing decals on the tion (CDC) to keep workplaces safe and floors, limited the number of customers in tested positive for COVID- healthy; a store at a given time, provided masks and • develop an infectious Disease Pre- gloves to employees, and screened associ- 19, to screen workers for paredness and Response Plan, as rec- ates for the virus. ommended by the CDC; An immediate battleground will be the virus, and generally to • or implement basic infection-­ whether claims such as those in Evans prevention measures, as recommended are covered by workers’ compensation warn of the risks of infection by the CDC; such that an employer is shielded from • conduct periodic inspections of the tort liability by the exclusivity provision based on the particular condition and cleanliness of the store in most states’ workers’ compensation to prevent and/or minimize the risk laws. It is likely that the plaintiff in Evans circumstances known only of employees and others contracting alleged willful and wanton misconduct by COVID-19; Walmart in an attempt to avoid the exclu- to the business owner. • provide employees with antibacterial sivity bar under 820 Ill. Comp. Stat. 305/11 soaps, antibacterial wipes, and other (2012) (exclusive remedy). Similar to most cleaning agents, as recommended by the states, the Illinois workers’ compensation ily of a deceased Walmart employee alleg- CDC; law bars an employee from bringing a ing that the store failed to take appropriate • develop policies and procedures for common law cause of action against his steps to protect its workers. According to prompt identification and isolation of or her employer unless “the injury was not the complaint, Wando Evans, a 15-year-old sick people, as recommended by CDC; an accident,” meaning the injuries were employee at the Walmart supercenter in • develop, implement, and communi- “intentionally inflict[ed] upon an employee Evergreen Park, Illinois, purportedly con- cate to its employees about workplace or which were commanded or expressly tracted COVID-19 at work and later died flexibilities and protections, as recom- authorized by the employer.” Meerby v. of COVID-19 complications. The suit al- mended by the CDC; Marshall Field and Co., 564 N.E.2d 1222, leges that another employee died from CO- • implement engineering controls designed 1226 (Ill. 1990). It seems a stretch, to say VID-19 complications a few days later and to prevent COVID-19 infection, including the least, for the plaintiffs in Evans to prove that Walmart knew, or should have known, installing high-­efficiency air filters,- in that Walmart intentionally exposed its that “several employees and individuals at creasing ventilation rates in the work employees to COVID-19. the store were exhibiting signs and symp- environment, and installing physical bar- In another first of its kind lawsuit, toms of the virus.” The suit, filed in Cook riers, such as clear plastic sneeze guards, Smithfield Foods, Inc., is being sued for County Circuit Court, alleges that Walmart as recommended by the CDC; allegedly failing to protect workers from

42 ■ For The Defense ■ July 2020 COVID-19 at its meat-­processing plant in gard for the safety of employees and pas- crewmembers… from COVID-19—despite Milan, Missouri, after at least eight workers sengers aboard cruise ships immediately Celebrity having prior notice pertain- had to stay home after showing symptoms before and during the pandemic. It is esti- ing to the dangerous conditions and/or of the virus. In Rural Community Worker’s mated over twenty such suits have been explosive contagiousness associated with Alliance et al. v. Smithfield Foods, Inc. et al., filed against Carnival, the industry’s lead- COVID-19 aboard its vessels from previ- No. 5:20-cv-06063-DGK (W.D. Mo.), the ing operator. The plaintiffs’ playbook is the ous passengers, crewmembers and/or other plaintiffs seek an injunction to force Smith- same. In Archer v. Carnival Corporation, invitees… allowed aboard the vessels.” The field to comply with CDC guidance, the et al., No. 20-cv-02381 (N.D. Cal.), passen- suit involves crew members from fourteen orders of state public health officials, and gers of the Grand Princess who had to be vessels in the Celebrity fleet. Nedeltcheva additional protective measures that pub- quarantined at Travis Air Force Base just v. Celebrity Cruises, Inc. No. 1:20-cv-21569 lic and occupational health experts deem north of filed a class action (S.D. Fla.). necessary. Smithfield allegedly refused to against the cruise line’s operators demand- provide workers sufficient opportunities ing $5 million in damages. They claim that Securities Class Actions for or time to wash their hands, discouraged when the Grand Princess left for Alleged False Statements workers from taking sick leave when they on February 21, 2020, with 2,000 passen- Given the pandemic’s immediate effect on were ill, and established bonus payments gers on board, Carnival Corp. and Prin- the stock market, it is no surprise that sev- that encouraged workers to come to work cess Cruise Lines Ltd. were already aware eral securities class actions have already sick. The company also failed to imple- of the escalating public health crises on sis- been filed. Norwegian Cruise Line Hold- ment a plan for testing and contact-trac- ter ships abroad. A fellow Carnival cruise ings Ltd. was likely the first hit in a lawsuit ing workers who may have been exposed to liner, the , was docked claiming that the company made pub- the virus that causes COVID-19, the com- in Japan by early February, and two of her lic statements promoting the company’s plaint said. The workers want Smithfield to passengers had died as a result of COVID- financial performance at the outset of the provide proper personal protective equip- 19 before the Grand Princess pushed off, COVID-19 crisis that artificially inflated ment, COVID-19-related sick leave, addi- according to the complaint. The companies the company’s stock price. The plaintiffs tional break time, implement proper social also allegedly knew about COVID-19 cases claim that the cruise line made false state- distancing, alter the configuration or speed on board its Australia–­New Zealand cruise ments in its February 2020 U.S. Security of the line, stagger shifts, and develop and liner, the , by mid-February, and Exchange Commission filings, which implement a testing and contact-tracing but Carnival chose instead to operate the touted the company’s strong financial per- protocol. This may be the first COVID- second voyage that left port with a new set formance, despite the coronavirus out- 19-related case that seeks injunctive relief of passengers weeks later, the plaintiffs say. break, and the company’s confidence in its to address safety issues at a workplace Aboard the Grand Princess officials alleg- preventive measures to reduce exposure and comes after hundreds of employees edly delayed cabin-based quarantining and and transmission of the virus. The plain- at Smithfield’s plant in South Dakota con- cancelling large events and waited too long tiffs claim that these statements about the tracted COVID-19. to start increased sanitation procedures. cruise line’s business and operations were It is also noteworthy that several prom- The plaintiffs say that this allowed the dis- false because, when the company made inent members in the United States Con- ease and panic to spread, causing their them, it was using sales tactics that pro- gress, led by Senate Majority Leader Mitch physical and emotional injuries. vided customers with unproven and false McConnell, have demanded that Congress Despite this record flood of litigation statements about COVID-19 to entice them use the next COVID-19 stimulus bill to against the cruise industry, legal experts to purchase cruises. The plaintiffs argue shield corporations from legal responsi- expect this to be an uphill battle for pas- that the deceptive acts inflated Norwegian’s bility for workers who contract the novel sengers, largely because the tickets that stock price. Had investors known about coronavirus on the job, a proposal also cruise passengers buy generally contain the inflation, “they would not have pur- being pushed by the U.S. Chamber of Com- language barring customers from filing chased Norwegian securities at the artifi- merce. In a statement issued Monday, April class action suits. That waiver language is cially inflated prices that they did, or at all.” 27, 2020, Sen. McConnell noted that com- just one of several built-in legal protections See Douglas v. Norwegian Cruise Lines, No. panies could be hit with “years of end- in cruise tickets, coupled with industry-­ 1:20-cv-21107 (S.D. Fla.). In another securi- less lawsuits” if Congress doesn’t provide friendly maritime laws. Nevertheless, this ties class action, McDermid v. Inovio Phar- employers with liability protections as same theme—inadequate response to the maceuticals, No. 2:20-cv-01402 (E.D. Pa.), states begin reopening their economies. It COVID-19 pandemic—could play out in the plaintiffs allege that a pharmaceuti- remains unclear if such legislation will be a host of scenarios as injured individu- cal company induced investors to acquire palatable to both sides of the political aisle. als and their families cast blame for con- stock at artificially inflated prices with mis- tracting the virus. leading statements, made by the compa- Cruise Industry Swamped with Class In a slightly different twist, crew mem- ny’s CEO, that the company had developed Actions by Passengers and Employees bers recently filed a putative class action a vaccine for COVID-19. Similar suits may The cruise line industry has been hit with against Celebrity Cruises, Inc. for “care- arise as companies make difficult decisions a flurry of class actions, alleging disre- less and continuous failure to protect its about how to address the effect of the cri-

For The Defense ■ July 2020 ■ 43 RETAIL AND HOSPITALITY sis in public filings and through account- ing decisions.

Financial Services Litigation Is Likely The pandemic’s economic disruptions are also likely to spawn lawsuits based on finan- cial service providers’ handling of loans. In Shuff v. Bank of America, No. 5:20-cv-00184 (S.D. W. Va.), for example, homeowners fac- ing foreclosure sought injunctive relief on behalf of a class, arguing that the public auc- tions allegedly required by the parties’ con- tracts and West Virginia law could not be conducted because of the coronavirus out- break. Several lawsuits have also been filed, alleging that banks were discriminatorily prioritizing current accountholders for ex- tensions of loans under the Paycheck Pro- tection Program. Loan servicing is also likely to be an area for potential class claims. The Coro- navirus Aid, Relief, and Economic Security (CARES) Act provides an automatic sus- pension of principal and interest payments on federally held student loans through September 30, 2020, and it gives home- owners who are experiencing a financial hardship due to the COVID-19 emergency a right to forbearance for federally backed mortgages. Class suits may arise based on claims that servicers failed to apply these requirements appropriately. The crisis is also likely to exacerbate ongoing trends of suits that are brought under statutes such as the Fair Credit Reporting Act and the Fair Debt Collection Practices Act.

Recommended Best Practices With the federal government, states, municipalities, and regulatory bodies issu- ing new directives and guidance on a daily basis, business must stay focused and be ready to adapt quickly to this changing environment. It is imperative that busi- nesses follow best practices and direc- tives from the CDC and local government authorities for managing the pandemic and dealing with employee and customer safety. Tracking and addressing consumer complaints may also help quell costly liti- gation by identifying problems before they turn into bigger issues. Finally, any busi- ness that has recurring charges for its cli- ents and customers must assess whether full value is still being provided in light of limited business operations.

44 ■ For The Defense ■ July 2020