COVID-19 Accelerating Growth Of Class Action Cases

By Emma Cueto
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Law360 (July 8, 2020, 6:21 PM EDT) -- The COVID-19 pandemic and associated shutdowns and economic fallout have led to more than 500 class action lawsuits, particularly insurance-related and education refund suits, according to a new survey from Carlton Fields.

In the ninth annual Carlton Fields Class Action Survey, researchers found that the number of class action lawsuits had been continuing to trend upward even before the pandemic, but that COVID-19 brought on a sharp increase in new filings.

The report was compiled based on interviews with chief legal officers, general counsel and direct reports to general counsel at 400 large companies across industries.

"Obviously the fact that this class action litigation has continued to rise for five years in a row now is notable," said Julianna Thomas McCabe, a shareholder at Carlton Fields who worked on the report, "and the fact that companies were expecting that trend to continue into next year even before the COVID-19 pandemic hit [is notable]."

Researchers found that in the early days of the pandemic, about half of in-house counsel expected that it would not have an impact on class action litigation, and about 10% expected to see a decline in cases due to lack of funding. By mid-May, however, hundreds of cases had been filed, and 70% of survey respondents said that they expected the pandemic to drive more class actions.

In addition, 40% said the COVID-19-related class actions could drive companies to settle preexisting cases. McCabe noted that plaintiffs might also have a similar pressure to settle, which could lead to an upcoming wave of settlements, both those favorable to companies and those favorable to plaintiffs.

"We haven't seen it yet, but it's certainly possible," she said.

Overall, the report identified 560 COVID-19-related class actions filed by the end of May 2020, with more than 100 in California alone. About 25% are against insurance companies regarding business interruption coverage, and another 25% concern education refunds, according to the survey.

Other common types of class actions include refund suits against gyms and entertainment venues and suits against airlines and government entities, the report found.

McCabe added that she expects the number of employment and labor class actions sparked by the pandemic might also increase in the coming months.

"Historically, in our survey, the top category of class actions is usually labor and employment cases, and we haven't seen the breadth of those cases that I think are going to come out of this," she said. "There have been layoffs in many, many industries. There are changes in work practices in virtually every industry. And I think companies are concerned about that."

Other research has shown that there has been an uptick in workplace lawsuits, especially in California and Texas, but so far that increase does not seem to be driven by class actions. However, new COVID-19-related lawsuits continue to be filed, and litigation connected to the pandemic is becoming more and more common.

Beyond COVID-19 suits, the Carlton Fields researchers found that 2020 was already on track to see an increase in class action activity, continuing a trend that has been going on for years.

The report projects that companies will spend $2.73 billion on class action litigation in 2020, up from $1.92 billion in 2006. In addition, while the number of companies facing a class action has remained relatively flat since 2011, fluctuating between about 50% and 60%, the number of class actions companies are handling in any given year has more than tripled in the same period, from an average of 4.4 to an average of 15.1.

This is partly due to a sharp spike in the number of new matters filed in the past three years, increasing from an average of 1.7 new matters per company in 2017 to 3.1 in 2018, 3.3 in 2019 and a projected 5.4 in 2020.

The report also found that companies looking for outside counsel to handle class actions place a premium on client service and attorneys who understand the risks to the business.

About 1 in 3 survey respondents named "excellent client service" as the top area in which outside counsel needs to improve, followed by aggressively pursuing a favorable outcome, which was selected by 26% of respondents. Forty-five percent of the in-house counsel in the survey also said that the most important factor for an outside attorney on a class action case was an understanding of the business risks at stake.

"There's a desire out there for the best they can get, and maybe sometimes they're not getting it," said Michael Wolgin, another Carlton Fields shareholder who worked on the report. "Especially when it comes to class action defense when there's a lot on the line, they want to see excellent client service ... and want to see that the business risk is understood."

--Editing by Bruce Goldman.

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