Coronavirus disease 2019 (COVID-19) has become an unprecedented pandemic that is having profound economic and social impacts around the world. Many of its effects are similar across different countries, resulting in common economic, supply chain, operational, and consumer issues. The pandemic presents a potential for coordinated class action and collective redress activity attacking companies’ conduct in multiple jurisdictions simultaneously.
At the same time, an ever-increasing number of countries are enacting and expanding class action and global redress procedures, especially regarding consumer claims. This confluence of events presents greater opportunities for sophisticated plaintiffs’ lawyers and litigation funders to prosecute coordinated cases in multiple jurisdictions simultaneously. Indeed, plaintiffs’ lawyers and litigation funders are already focused on instigating COVID-19 related litigation in the UK, Europe, Australia, the US, and Canada. The US has already seen hundreds of COVID-19 related class actions, and dozens have been filed in Canada. As discussed below, extensive COVID-19 related class action filings are expected in Australia and the UK, with filings expected to varying degrees in Germany, China, and elsewhere.
In this unparalleled environment, the risk to companies of global and cross-border class action and collective redress proceedings is greatly increased. To help our clients anticipate and protect against these litigation threats, our DLA Piper global team is monitoring COVID-19 related litigation, identifying trends, and marshalling our knowledge and experience. Working across our platform of practices, geographies, and sectors, we are partnering with our clients to plan proactively to defend against inevitable litigation.
Below, we discuss the trends we are seeing and the areas in which we expect to see increased COVID-19 related litigation in multiple jurisdictions around the world. We will be drilling down on these trends in a webinar on June 16, 2020; we hope that you will join us. If you would like to sign up for the webinar, please register here.
COVID-19 related class actions are exploding in the US and Canada
As expected, plaintiffs’ lawyers and litigation funders have already begun capitalizing on the pandemic to bring a significant number of COVID-19 related class actions. Between the beginning of March 2020 and as of May 25, 2020, 442 COVID-19-related putative class actions have been filed throughout the US.1 Canadian courts have seen 32 COVID-19 related class actions,2 including some early examples of coordinated cross-border prosecution of putative class actions between the US and Canada. These US and Canadian lawsuits are early indicators of class action litigation risk that will arise in other jurisdictions around the world in 2020 and 2021. We are already seeing plaintiffs’ lawyers trolling for plaintiffs for putative class action cases in the UK and Australia.
Class actions trends in the US and Canada
The largest number of putative class actions filed to date in the US are contract, insurance-related, and consumer protection claims, including refund cases against airlines, educational institutions, ticket sellers, and venues. A number of other cases have been filed arising from the federal CARES Act, as well as employment and securities cases − as depicted below.
A number of industry sectors in the US have been hit with multiple class actions. Over 120 class actions to date have been filed against insurance companies, and more than 90 class actions have been lodged against universities and colleges. The travel and transportation sector has been another frequent target, along with financial institutions, fitness companies, ticketing and event companies, manufacturers, retailers, technology companies, and other businesses, in an expanding wave of putative class actions across the US, as depicted below.
In Canada, the majority of filings seen so far have been in Quebec and Ontario, followed by British Columbia.
The largest number of class actions filed in Canada relate to negligence (personal injury and wrongful death), followed by insurance and consumer protection cases. There are also a number of cases against nursing homes and transportation companies.
We expect these trends to continue in both the US and Canada, with additional likely targets including sports leagues and teams, manufacturers and sellers of personal protective equipment (PPE), and pharmaceutical companies.
Based on these filings and past trends in the US and Canada, we anticipate expansion of COVID-19 class actions and collective redress proceedings in multiple jurisdictions globally in coming months. At present, there is no legislative safe harbor for COVID-19 related class action litigation in the US or Canada, although we are closely monitoring all legislative developments.
COVID-19 class actions in Australia
Australia has a well-established and mature class actions regime, with litigation funders playing a significant role. Although no COVID-19 class actions have been issued yet, a number are already in the initial stages and several are imminent. We expect this trend to mirror the US and Canada, although a surge in Australian class actions is unlikely until later this year for several reasons:
- The judiciary discourages competing class actions, so there is less of a race to the starting line than in the US.
- COVID-19 will place cashflow pressure on plaintiff law firms, with all courts prioritizing court business and adjourning many trials. As a result, many plaintiff law firms will likely want litigation funding in place before bringing class actions.
- Litigation funders similarly may be nervous about delays in funded matters that were expected to have resolved within the next year. We expect that funders will, however, continue with due diligence of potential claims and will not be deterred in pursuing litigation with prospects of success. Funders have also not welcomed the announcement of a parliamentary inquiry into the impact of litigation funding in class actions on justice outcomes.
- The Victorian government tabled a bill to introduce contingency fees for class actions. There is growing pressure from business industry groups to defer legislation that exposes companies to increased class action risk whilst the economy struggles to recover. The government, however, is pressing on with that legislation.
- There is agitation for legislative reform to limit COVID-19 class actions, including lobbying from business interest groups to add a “safe harbour” provision in the Corporations Law barring proceedings relating to statements about company performance in the context of COVID-19.
We expect that Australia will follow the emerging US and Canadian litigation trends, including in travel, products, manufacturers, personal protective equipment (PPE), consumer claims, supply chain, employment, privacy, financial services, and securities claims (especially around disclosure obligations in the COVID-19 world).
Emerging COVID-19 class action risk in the UK
The UK is an emerging jurisdiction for all types of mass litigation. Although there is no US-style class action system, group litigation orders, representative proceedings, and mass claims are combined under the popular description of “class actions” in the UK. Against a backdrop of procedural and legislative change designed to enable easier access to collective redress together with multibillion-pound levels of new fundraising for investment in litigation, it has never been easier to fund and initiate class actions in the UK, and we expect COVID-19 will provide a major impetus for expanded class action litigation. Indeed, two of the UK’s most senior retired judges have already called for “breathing space” for companies to avoid a “deluge of litigation” in the wake of the coronavirus pandemic.3
As of the date of this publication, there are no COVID-19 related class actions filed in UK courts yet, but there are multiple reports of claimant groups being assembled. The plaintiffs’ bar and litigation funders are actively originating and evaluating claims for funding across the UK. Given the emerging character of UK class actions, much of the experience and expertise developed in the more mature but legally comparable North American and Australian class action systems will be steadily deployed in the UK in the coming months and years. Assuming that the UK emerges from lockdown over the summer, there is a real prospect of a large volume of funded mass litigation from the third quarter of 2020 onwards.
Any spike in UK litigation will likely follow the trends in the US and Canada, particularly in the financial services, insurance, aviation, government contracting, and manufacturing/industrial sectors. The timing of the UK litigation, however, may be similar to litigation arising from the global financial crisis. Initially, few cases were initiated, but some nine to 12 months after the September 2008 collapse of Lehman Brothers, significant litigation was steadily initiated, leading to a peak between 2010 and 2012.
Based on our market monitoring in the UK, plaintiffs’ lawyers are already preparing claims in the following areas:
- Consumer protection – relating to allegedly exploitative sales, the management of consumer finance products by financial institutions or refusing to provide refunds for products or services acquired prior to COVID-19
- Securities litigation – arising from a loss in share investments and claims against directors and officers concerning operational resilience, business continuity, and market statements
- Supply chain claims – relating to failures to deliver or sell products or declarations of force majeure
- Mass employment claims – in areas such as safe working practices and worker protection and
- Data breach and privacy – eg, how companies manage COVID-19 related personal data.
The UK is one of the world’s largest financial centers and, given the importance of English law in international contracts, the UK courts will be a key battleground for potential claims, either as a testing ground for innovative categories of claims or as part of a wider global strategy. Businesses that operate in the UK are urged to carefully monitor developments in their UK operations, as risks present in North America and Australia now also present risks for UK operations.
Limited COVID-19 class action risk in Germany
In Germany, there is no class action procedure and claims are generally brought individually. However, German procedural law allows for an action for declaratory judgment, or "musterfeststellungsklage," where certified bodies (eg, consumer protection associations) publicly register a suit against a private company, which can then be joined by consumers. If the court declares the claims feasible, each consumer who took part in the action for declaratory judgement still has to file suit for payment of compensation individually. Alternatively, the claims may result in a settlement that participants in the declaratory judgment action can join. Thus, plaintiffs can pool together multiple claims only if the claims are ceded to them by the individual consumers. Claims aggregating companies already include consumer claims and mass enforcement of cartel damage claims, and this may be an area ripe for expansion for COVID-19 related claims.
Currently, there are no actions for declaratory judgment concerning COVID-19 registered publicly in Germany, but we expect such actions in the future. We anticipate consumers will likely seek relief primarily against insurance companies that have declined COVID-19 related insurance claims. There are also a number of plaintiff lawyers and legal-tech (claims aggregating) companies urging consumers and companies to file compensation claims against the federal states of Germany based on infection control measures that forced temporary business closures or imposed heavy restrictions on operations. German law provides that those who are subjected to either unlawful or lawful government measures may bring compensation claims under certain circumstances. The key principle in these claims will be that locked down businesses make a "special sacrifice for the general public" in helping slow infection at the cost of their business. Such claims will likely be enforced primarily through individual trials, although legal-tech companies are seeking to take on a share of these claims also.
COVID-19 litigation risk in China
Class actions (referred to as representative actions under Chinese law) are limited to product liability, environmental pollution, consumer rights, and public interests related claims in China. To date, no COVID-19 related representative actions have been filed in China. Given the range of claims that can be made as representative actions, we expect that the emerging class action trends observed in jurisdictions like the US and Canada are less likely in China.
Nevertheless, COVID-19 has produced an increase in non-class action litigation in China, with the bulk of these claims related to supply chain, property leases, insurance, and international trade issues. For example, on April 16, 2020, China’s Supreme People’s Court published a “Guiding Opinion on Several Issues Concerning Proper Trial of Civil Cases Involving COVID-19.” The Opinion provides guidance to lower courts in China on handling COVID-19 related issues in civil cases, including detailed guidance on applying force majeure and other contract principles to determine whether performance has been impacted by COVID-19, how the impact of COVID-19 measures by the government should be taken into account, and other COVID-19 related guidance. This Opinion may provide more clarity to companies involved in or looking to undertake COVID-19 related litigation in China.
Other COVID-19 related litigation
The flood of COVID-19 related litigation is not limited to putative class actions. Continuing areas of focus include: (a) breach of contract disputes for cancelled events or undelivered goods; (b) refund actions against various industries; (c) insurance coverage disputes; (d) litigation seeking to force closure or get out of corporate transactions; (e) litigation seeking to force or excuse performance of real estate transactions; and (f) a wide variety of employment related claims. Claims relating to government relief programs in the US are also an emerging trend.
We are also anticipating increases in fraud-related allegations. During times of economic crisis, there is a well-documented pattern of increased allegations of corporate fraud, especially as businesses struggle to sustain ongoing losses and damages. We anticipate increased restructuring litigation, investor claims against companies and their boards arising from claim of fraud, and related claims against financial services companies, as well as claims related to qualification for and use of government relief.
As we have already seen in the US and Canada, the following types of litigation and class action activity may intensify elsewhere:
- Consumer: disputes over alleged price gouging, alleged product defects or failures of PPE or cleaning products, product labeling and marketing, fees and charges, refund and cancellation policies, monthly or yearly memberships and other subscription services, automatic renewals, failure to provide goods and services, and expiration of time limited services or gift cards. Consumer protection is also a key focus for regulators, and some companies have already been subject to additional regulatory attention, which may generate follow-on litigation.
- Securities: disputes relating to financial disclosures, supply chain impact, and enterprise risk preparedness disclosures, particularly where there has been an accompanying stock drop or recent trading (such as stock buyback programs and insider trading). In addition, companies taking advantage of government relief programs will face both heightened regulatory scrutiny and litigation risk regarding their implementation or use of government stimulus.
- Commercial: force majeure provisions, material adverse change provisions, refund and cancellation policies, indemnification, representations and warranties, acceptance and rejection of goods, minimum volume purchase requirements, and delayed payments, as well as litigation and investigations regarding the payment of money related to government programs.
- Privacy: with the global surge in teleworking, online education, video communication, and shopping, the volume of cyber incidents has increased, and will result in data breach and other privacy related class actions. The increase in at-home medical devices and testing also creates new privacy litigation risk.
- Real estate and construction: rent abatement requests, buyers in purchase agreements and tenants declaring force majeure events, anchor tenant remedies, premises-related claims, service interruptions, foreclosure actions, deadline extensions, and delayed payments or defaults, including inability to mitigate damages by re-letting properties.
- Insurance: business interruption and event cancellation insurance coverage and claim denials, travel insurance and claim denials, professional and directors’ and officers’ liability disputes, shareholder class actions, workers’ compensation (where the source of exposure is unclear), litigation related to compliance with scores of newly adopted directives relating to claim payments, suspension of premium collection, cancellations for non-payment of premium, and health insurance, as vaccines or arguably experimental treatments come on line, as well as bad faith claims.
- Employment: issues relating to reopening and potential liability arising therefrom, discrimination claims, retaliation claims, whistleblower claims, privacy issues relating to handling of COVID-19 diagnoses, working time and working condition issues, COVID-19 absences and adjustments or working while ill, claims involving mass layoffs or plant closures, workers’ compensation claims, allegations of failure to protect employees and wrongful death claims.
What you can do right now to minimize your exposure
In light of the flurry of litigation and likely increase in litigation in the near term, businesses are urged to act now to mitigate their litigation risk and attendant reputational and headline risk in all the major jurisdictions where they operate. Among other things, businesses and their counsel are urged to consider taking the following proactive steps:
- Perform a risk analysis of products or services in the new COVID-19 environment: identify and implement measures that can minimize or cabin potential liability.
- Review potentially impacted agreements (leases, purchase order terms, or agreements with customers, vendors, or counter-parties), with a particular focus on provisions such as force majeure clauses, representations and warranties, refund or cancellation policies, material adverse change, minimum volume purchase requirements, automatic renewal provisions, and choice of law/venue selections for disputes.
- Consider implementing a class action waiver and arbitration agreement or other adjustments to terms and conditions, to the extent enforceable in particular jurisdictions.
- Manage employment risk by clear communications with employees, and seeking legal guidance as to COVID-19 related employment questions. Review product labels, warnings, customer disclosures, and advertisements carefully for litigation and regulatory risk.
- Review public disclosures with a particular focus on earnings guidance, financial statements, MD&A, risk factors, and statements regarding supply chains or other operational matters that might be used to allege companies misled investors regarding preparedness in light of regulatory guidance on the pandemic.
- Plan for re-openings, streamlining processes, more liberal work-from-home options, and new health and safety requirements (all of which seem very likely to transform workplaces as we know them across the globe).
- Plan and structure transactions in securities, including employee equity awards and stock repurchase programs, to limit concerns about inadequate disclosure, insider trading, market manipulation, or similar claims.