Coronavirus Litigation: The Week In Review

By Celeste Bott
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Law360 (October 29, 2020, 5:59 PM EDT) -- A group of Texas landlords lodged a bid to block a nationwide eviction moratorium, another BigLaw firm is battling with its landlord over rent during the pandemic, and several major retailers such as Kohl's and J. Crew face claims they unlawfully charged or collected tax on the sales of face masks.

While courts across the country are altering procedures, restricting access and postponing certain cases to stem the spread of the novel coronavirus, the outbreak has also prompted a wave of litigation across the country.

Here's a breakdown of some of the COVID-19-related cases from the past week.

Retail & E-Commerce

A group of Pittsburgh-area shopping centers on Tuesday accused lenders KeyBank NA and PNC Bank-affiliated Midland Loan Services of interfering in their relationships with retail tenants and threatening to take punitive actions against the centers even as they navigate the COVID-19 outbreak.

In a complaint filed in the Allegheny County Court of Common Pleas, five shopping centers owned by Ira J. Gumberg alleged that the lenders were withholding nearly $4.5 million reserved for tenant improvement costs and are threatening to sweep that money away from the borrowers despite the shopping centers' being current on all obligations under the agreements governing the $138 million lending facilities.

The charges of breach of contract and tortious interference focus on the plaintiffs' dealings with tenants seeking to rent retail space in the shopping centers, the complaint said. After negotiations with bankrupt retail giant J.C. Penney over the summer, that tenant agreed to continue to lease space until mid-October to enable the plaintiffs to find a new tenant for that space, the complaint said. These changes are being used as an excuse by the lenders to enact a punitive cash sweep from the plaintiffs that would siphon away working capital and could potentially prove fatal for the shopping centers, according to the complaint.

A Pennsylvania federal judge has refused to block a grocery store's mandatory mask policy, holding that a shopper claiming he can't wear a mask because of his anxiety had not shown that he can't just wear a face shield or order grocery delivery instead.

Josiah Kostek claims that he has medical problems that cause him anxiety and has trouble breathing when wearing a mask. In his suit, he said he had twice been thrown out of an Oil City, Pennsylvania, Giant Eagle in May because he refused to wear a mask. He was seeking a preliminary injunction to stop Giant Eagle from enforcing its mandatory, no-excuses face-covering policy, arguing that Giant Eagle can't use the pandemic to turn away customers with disabilities that render them unable to wear masks, arguing that the Americans with Disabilities Act only provides exemptions for individuals who pose a threat.

Also in Pennsylvania, several retailers including American Eagle OutfittersFoot Locker, Kohl's, J. Crew, The Gap, Walgreens and Hot Topic are accused of wrongly charging sales tax on tax-exempt protective face masks and face coverings.

Pennsylvania resident Daniel Garcia said that numerous retailers wrongly charged or collected the tax on the sales of masks even though those items were exempt under Democratic Gov. Tom Wolf's emergency disaster declaration for the COVID-19 pandemic, according to a complaint filed with the Allegheny County Court of Common Pleas.

The suit was brought against retailers American Eagle Outfitters, Foot Locker, Kohl's, J. Crew, The Gap, Hot Topic, Carter's, Chico's, Express, Francesca's, Gabriel BrothersGenesco Inc., Tapestry Inc., Vera Bradley Inc. and Walgreens, in addition to the stores they operate under different brand names, such as Old Navy and Kate Spade. According to the complaint, Garcia lives in Allegheny County and was charged sales tax on masks purchased between Sept. 26 and Oct. 22 at stores in the state at a rate of 7%. The state sales tax rate is 6%, and a 1% local tax is added for purchases in the county, according to the state Department of Revenue website.

Employment

A Manhattan real estate firm announced that it had brokered an agreement with the labor union it accused of endangering lives by blowing "saliva-spewing whistles" at recent pickets, marking the end of a monthlong battle over the developer's use of a nonunionized demolition contractor.

SL Green Realty Corp. promised to drop both lawsuits it has filed against Construction & General Building Laborers, Local 79 over the allegedly "abusive and life-threatening picketing," and the union said it would call off the pickets. Both agreed to have a discussion about working on future projects together, according to a joint statement they released Thursday. 

SL Green, which bills itself on its website as New York City's largest office landlord, found itself in the crosshairs of Local 79 after it tapped an unorganized construction company to handle demolition ahead of an academic development in the Financial District. 

The developer fired off a lawsuit in New York state court on Oct. 6, alleging that the activities were "abusive and life-threatening," as the firm said Local 79's members were not abiding by COVID-19 safety precautions by coming too close to SL Green employees while "shouting, screaming, yelling and blowing ear-piercing whistles that spew saliva." It followed up with a federal lawsuit earlier this week that echoed its earlier allegations, highlighting the "saliva-spewing whistles" as a core problem with the pickets.

Hospitality

Franchisees of an Indian hotel start-up hit the company with a proposed class action alleging that it used the COVID-19 pandemic to escape its obligation to ensure franchises make a certain amount in monthly revenue, according to a suit removed to Texas federal court Wednesday.

Shree Veer Corp. and Chief Hospitality LLC filed the suit against the Dallas-based arm of OYO Hotels & Homes, OYO Hotel Inc. The franchisees allege OYO used health regulations aimed at combating the coronavirus pandemic as an excuse to suspend a provision of its contracts with franchisees that promises a minimum revenue for the hotel owners.

The franchisees say that the guarantee was hurting OYO's bottom line pre-pandemic and that the company saw an opportunity to escape its obligations by declaring the hotel rooms qualified as unavailable under the terms of the agreement during the health crisis. Declaring rooms unavailable suspended the minimum revenue guarantee under the contract even though the franchises continued to operate, according to the suit.

And a proposed class of Princess Cruise Lines passengers has urged a California federal judge to reject parent company Carnival's bid to dismiss their allegations that the cruise companies allowed passengers aboard a ship while knowing people on a previous voyage had shown COVID-19 symptoms.

Passengers who claim to have contracted the coronavirus say that they either tested positive soon after disembarking from the Grand Princess ship in early March or that they met the Centers for Disease Control and Prevention's definition of a "probable case" while still aboard the Grand Princess or soon after disembarking, according to their filing on Monday.

In the April suit, the proposed class of passengers alleges that Princess and its owner, Carnival Corp., allowed more than 2,400 passengers to board the Grand Princess ship in late February while hiding that at least two passengers from the previous trip had COVID-19 symptoms.

Employment

A Giant Eagle Inc. grocery chain subsidiary has hit a union with a breach of contract lawsuit in Pennsylvania federal court, alleging that the union is supporting a workplace "slowdown" due to the coronavirus pandemic that they say violates their collective bargaining agreement.

In a seven-page, one-count complaint, which was dated Oct. 23 but filed Monday, the Pittsburgh-based OK Grocery Co. accuses Teamsters Local Union No. 636 of violating provisions of the CBA that prohibit workers from striking, which the company says includes "slowdowns and sickouts."

The suit comes after the store discovered seven signs posted in worker break and vending machine rooms on Sept. 15 that call on workers to boycott overtime and make "good use" of the company's COVID-19 call-off policy, which the store implemented in March and which suspended discipline under its attendance policy due to the pandemic. OK Grocery reviewed surveillance footage and discovered that union committee member Tim Basile posted the signs in an alleged attempt to initiate a "slowdown and sickout by his co-workers," the suit says.

Insurance

A Texas federal judge has handed Nationwide Mutual Insurance Co. a win over a Texas car wash that alleged the insurer wrongly denied it coverage of losses resulting from the COVID-19 pandemic, saying an "unambiguous" virus exclusion bars coverage.

In an order filed Monday, U.S. District Chief Judge Orlando L. Garcia threw out claims by Vizza Wash LP, which operates a number of car washes in the state, with prejudice, rejecting its argument that the policy language was ambiguous. While the judge acknowledged that the policy language could have been more specific about denying coverage related to the pandemic, this does not make it ambiguous, he said, adding that the virus exclusion is clear enough that no amount of amending would save the case.

Vizza Wash, like thousands of businesses in the last eight months, put in a claim for insurance coverage after state officials ordered nonessential businesses to close in an effort to slow the spread of the coronavirus that causes COVID-19. The car wash owners sued Nationwide after the insurer denied their claims.

The Hartford Financial Services Group Inc. is urging a California federal court to drop it from a waxing salon's COVID-19-related loss suit, arguing it was just the holding company of the insurer that issued the policy and therefore has no legal liability toward the salon whatsoever.

Hartford said Tuesday that it was Sentinel Insurance Co. that issued the policy to Franklin EWC Inc. and that it was not a party involved in the insurance contract. Hartford said it is not an insurer itself, but rather owns carriers that write policies.

Also in California, a federal judge ruled Tuesday that a Berkshire Hathaway unit is not obligated to cover losses that two Fresno-based hotels suffered during COVID-19 shutdowns, citing the lack of direct physical loss and the policy's virus exclusion. 

Mergers & Acquisitions

Tiffany & Co. and LVMH Moet Hennessy Louis Vuitton will lower the price of their merger from $16.2 billion to roughly $15.8 billion and have agreed to settle their legal dispute in Delaware, the companies said Thursday.

Under the terms of the revised transaction, LVMH will acquire Tiffany for $131.5 per share, down from the original $135 per share, according to a statement, giving the deal a total value of about $15.8 billion. As part of the agreement, the companies will settle their pending litigation in the Delaware Chancery Court. Other "key terms" of the merger remain unchanged. The companies formally filed to voluntarily dismiss their Chancery dispute Thursday morning, and Vice Chancellor Joseph R. Slights III granted the dismissal shortly thereafter.

The companies originally agreed to merge in November, but after the coronavirus pandemic hit, LVMH tried to terminate the transaction. They had been going at it in court since September, when Tiffany lodged a complaint in the Delaware Court of Chancery seeking to compel LVMH to complete the deal it had agreed to. Later that month, LVMH filed a 241-page countersuit in Delaware Chancery Court, saying the deal should be nixed because, among other reasons, the effects of the pandemic constituted a material adverse effect, which is a common clause in merger agreements that let parties terminate a transaction under very narrowly defined circumstances.

Legal Industry

Schulte Roth & Zabel LLP has become the latest BigLaw firm to take on its landlord over rent, claiming its been forced to continue paying monthly fees despite a leasing agreement provision allowing rent abatement when the use of its Manhattan office is affected by a public health emergency.

In a lawsuit filed in New York state court, the firm alleges that its longtime landlord, Metropolitan 919 3rd Avenue LLC, breached the firm's lease and that it's entitled to monetary damages of at least $10 million.

The complaint comes as BigLaw practices, including Jenner & Block LLP and Simpson Thacher & Bartlett LLP, battle with landlords over rent during the coronavirus pandemic. Simpson Thacher in July sued its New York landlord for $8 million, alleging it ignored a rent abatement provision triggered by the health crisis.

And a public defender concerned over a spike in COVID-19 cases in a Colorado county was found to be in contempt after he appeared virtually rather than in person to represent his client at the beginning of a criminal trial.

Fourth Judicial District Judge Robert Lowrey on Tuesday ordered attorney Adam Steigerwald to appear in person on Thursday to be sentenced for contempt. Though the judge had ordered that the criminal trial be conducted inside the courthouse in El Paso County, Colorado, the lawyer appeared instead through a video link, according to a transcript of the proceedings.

Steigerwald told the court that under an August order by Chief Judge William Bain of the Fourth Judicial District, any criminal proceedings that can be conducted remotely should be done either by phone or by WebEx, the court's video link. The attorney also asserted that the Colorado State Public Defender's Office has a COVID-19 policy that attorneys should not proceed to trial in person — during which more than a dozen people living in different households would need to be in the same room together — if the public health data suggest that it would be unsafe to do so, according to the transcript.

In California, a federal judge Tuesday tossed a law school graduate's Americans with Disabilities Act lawsuit alleging that the State Bar of California discriminated against him by failing to provide adequate accommodations for his disabilities for the October online bar exam during the COVID-19 pandemic.

In her order permanently dismissing the case, U.S. District Judge Phyllis Hamilton said the state bar provided some accommodations and responded to Benjamin Kohn's requests. Kohn sued the state bar in July after he was denied certain accommodations he requested because of conditions including autism, neurological/attention disorders and visual impairments, according to the judge's order.

Banking

JPMorgan Chase Bank NA has urged an Arizona federal court to toss claims that it unjustly enriched itself by failing to pay a law firm for its work on federal Paycheck Protection Program loans, arguing that the parties never had a deal.

Because Radix Law PLC never signed an agreement with Chase that would entitle it to fees for helping borrowers obtain the loans awarded as part of the federal government's response to the COVID-19 pandemic, the court should dismiss the firm's attempt to cash in now, the banking giant argued Friday.

Other federal courts reviewing similar arguments in other cases have determined that the Coronavirus Aid, Relief and Economic Security Act that created the PPP does not entitle agents to collect fees from lenders if they do not have an agreement that calls for it, according to a memorandum accompanying Chase's motion to dismiss.

Securities

The U.S. Securities and Exchange Commission has reached a tentative deal to settle its suit in New York federal court accusing a company of making misleading statements about the availability of at-home COVID-19 tests.

U.S. District Judge Jesse M. Furman on Monday agreed to dismiss the SEC's case against biotechnology company Applied BioSciences Corp., noting that the parties have resolved the case in principle. The judge said there is a 60-day window for reopening the case if the settlement is not finalized.

The regulator filed the case at issue in May, alleging that Applied BioSciences issued a series of misleading press releases claiming that it had begun offering at-home COVID-19 testing kits to the general public for private use. But in reality, the finger-prick tests had not yet been shipped, were not meant to be used at home as advertised and were not approved by the U.S. Food and Drug Administration, the SEC said.

And Royal Caribbean Cruises Ltd. was hit with another suit stemming from the coronavirus pandemic Tuesday, as a proposed class of investors alleged the company deceived them with a series of false or misleading statements about its bookings and safety protocols, causing stock drops.

Thomas Altomare said he bought Royal Caribbean securities at artificially inflated prices earlier this year. He claimed that hundreds of COVID-19 cases were reported on at least 13 of the company's ships in the first quarter of 2020 — leading to multiple deaths and wrongful death lawsuits against the company — while Royal Caribbean assured the investing public that its "aggressive" safety protocols would ultimately contain the virus.

Public Policy

Texas landlords who say they are owed thousands of dollars in unpaid rent have asked a federal judge to block a nationwide eviction freeze, saying the moratorium does nothing to prevent the spread of COVID-19 and goes beyond the federal government's powers.

The landlords — one individual and six companies — said Thursday that the U.S. Centers for Disease Control and Prevention's four-month eviction moratorium violates their property rights on the "pretext" that exercising them would contribute to the spread of the coronavirus. They also argue the federal government lacks this power to begin with.

The CDC's September order has drawn legal challenges alleging the agency overstepped its authority under the Administrative Procedure Act, among other arguments. The Texas suit takes the matter a step further, arguing that not even federal lawmakers could block evictions through legislation.

And a New Jersey state judge has shot down a bid from advocacy groups to order election officials to send ballots by email to voters who requested but have not received them in the mail ahead of the Nov. 3 general election, saying it was too late for such a new process.

Superior Court Judge Mary C. Jacobson denied a request from the League of Women Voters of New Jersey and the American Civil Liberties Union of New Jersey that vote-by-mail ballots be sent by electronic means to voters who left the address where they are registered to vote due to the COVID-19 pandemic but don't receive ballots at their current address by Oct. 30.

The advocates have claimed the electronic delivery of ballots — which they said could be printed and returned by mail — would avoid potentially disenfranchising hundreds of New Jerseyans displaced from their homes, but Judge Jacobson stressed during a Zoom hearing that the affected voters were "undefined and unknowable."

Native American

The U.S. Department of the Treasury urged the D.C. Circuit to affirm a lower court's finding that the Shawnee Tribe of Oklahoma is not owed a larger share of federal virus relief funds, doubling down on its stance that agency funding allocations are not reviewable.

The tribe claims that Treasury Secretary Steven Mnuchin irrationally used Indian Housing Block Grant population data to allocate $8 billion to tribes under Title V of the Coronavirus Aid, Relief and Economic Security Act. The data was "patently false," resulted in an undercount of the tribe and was selected arbitrarily in violation of the Administrative Procedure Act, the tribe has said.

But the Treasury Department countered Monday that there is no rationality threshold for reviewability of agency actions.

--Additional reporting by Morgan Conley, Daphne Zhang, Benjamin Horney, Justin Wise, Adam Lidgett, Kevin Penton, Emily Sides, Emma Whitford, Vince Sullivan, Mike Curley, Rachel O'Brien, Dorothy Atkins, Hailey Konnath, Abraham Gross and Bill Wichert. Editing by Peter Rozovsky.

For a reprint of this article, please contact reprints@law360.com.

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