COVID-19 Resource Center

COVID-19 Potential Claims for Retail and Hospitality Industries

May 1, 2020Article

Price Gouging

The federal government is currently considering a price gouging law. Thirty-four states already have them. In Texas, the law defines “price gouging” as taking advantage of a disaster, as declared by the governor or president, by,

selling or leasing fuel, food, medicine, lodging, building materials, construction tools or another necessity at an exorbitant or excessive price; or demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine, lodging, building materials, construction tools or another necessity.

Tex. Bus. and Comm. Code Sec. 17.46. “Exorbitant” and “excessive” are not defined. Some states’ rule is that a deviation of as little as 10% is excessive. Texas does not have such a rule. As such, the determination of whether a price increase constituted price gouging most likely will be a question of fact, precluding summary judgment. This is true even, for example, if a supplier increased the cost or an item had been unusually discounted in the weeks before.

Price gouging is illegal during disaster periods. “Disaster periods” are defined as the earlier of (a) the date the disaster occurs, (b) the date the governor declares a disaster, or (c) the date of declaration of a disaster by the president, if any part of Texas is included in a federal disaster area. Parts of west Texas were declared a disaster very early in the COVID-19 crisis due to the cost of oil dropping.

Complaints for price gouging can be filed with the Attorney General. Civil lawsuits, including class actions, also can be filed. Successful claims can result in fines and restitution by the stores to the customers.

False Claims/Product Liability

We have already seen claims against individuals, like Jim Bakker and Alex Jones, for allegedly making false claims regarding products that they are selling. Bakker alleged his product could cure COVID-19 and Jones alleged his toothpaste killed all COVID viruses. Retailers should consider carefully the claims of their vendors as outlandish claims could result in downstream liability.

The elements of a false claim under both the federal Lanham Act and Texas common law are: (1) a false or misleading statement of fact; (2) used in a commercial advertising or promotion; that (3) deceives or is likely to deceive in a material way; and (4) has caused or is likely to cause competitive or other injury to the plaintiff. Some products we could foresee false claims about are hand sanitizer or soap.

Another retail problem may be lawsuits claiming that products were used, but failed to prevent a consumer from falling ill. For example, if masks were sold by a retailer, but the consumer still fell ill, the consumer may claim the mask failed to provide the promised protection.

Claims that COVID -19 can be transmitted via food or food packaging or that it grows in food are not common and it has been said that COVID-19 does not survive well in the stomach because of the stomach’s acid content. Regardless, safety measures should be taken to reduce the risk of a product liability lawsuit where ever food is sold. Restaurants, hotels, grocery stores, and other retailers that sell food should be consider how to handle the sale of bulk food items, sneezing and coughing near products, and open displays. They should also consider handwashing, masks, and gloves. The CDC and other health organizations should be consulted for guidelines and direction.

Membership/Subscription/Fee Claims

Many gyms, health clubs, and other membership-based retailers closed their doors before required to do so by a local or state order. Others were forced to close upon the entry of an order.

A class action lawsuit has been filed in the US District Court of Massachusetts by members of the Boston Sport Club against its parent company, Town Sports. The company closed its locations in Massachusetts in mid-March. It is alleged that the members are being charged their monthly fees when the facility is closed, such that members are required to pay “despite not being able to [obtain] services.” The members alleged the actions are “unconscionable corporate avarice.” The members are seeking compensatory relief, injunctive relief, and attorney fees. The company also has faced scrutiny from the attorneys general in New York, Pennsylvania, and the District of Columbia.

A class action lawsuit also has been brought against Liberty University. It is alleged that the university is profiting from the pandemic by reducing student services, but not refunding student fees paid for the services. The lawsuit alleges that the school stated it would remain open as a pretext to keep the student fees. The university, which has kept its dorms open, has moved its classes online. cancelled student activities, closed its recreation centers, and suspended team sports. The lawsuit claims that the university offered credit toward the fall semester tuition if the student asked by March 28, 2020 to receive it. However, if a student did not intend to return, the student’s fees were not returned.

Drexel University and the University of Miami have had similar lawsuits filed against them.

Premises Liability Claims

Retailers can expect premises liability claims from consumers who visited a retail location and then became ill with COVID-19. We expect these plaintiffs to argue that the retailers did not take proper precautions, such as appropriate cleaning, to ensure the safety of invitees and that the store itself was a hazardous condition. Plaintiffs may also allege negligence per se if local, state, or national orders were not followed. For example, if a local order limited the number of persons that could be in a particular area and the store allowed a larger group to congregate inside or outside, that could be seen as a violation of the order. In Texas, to succeed on such a claim, the plaintiff will have to prove that the disease was contracted at the store, the store had an unreasonably hazardous condition, and that the retailer knew or should have known it existed.

Plaintiffs may also claim that a retailer failed to warn of a hazardous condition when allowing the consumer to shop in the store or pick up merchandise in a vehicle.

Retailers will, of course, be able to argue that COVID-19 was an act of God against which they are not required to protect.

Unfortunately, safety measures implemented in a store can be Catch 22s. If the retailer does not have the procedures, the claim is the retailer did not protect the customers. If the retailer does have measures, it can still be argued that they were not followed or were insufficient. We expect the claims will be not unlike those over products placed on high shelves. There are policies regarding removing items from high shelves to protect the customer, but that does not mean the customer will follow them. Similarly, a retailer may implement a social distancing checkout line or maximum occupancy policy. But customers may not follow the rules, which may put that customer and others at risk.

To prepare for these types of claims, start documenting now. Save all the footage of local news stories showing people outside. Also, save stories showing the dates that different orders went into effect. Shelter-in-place orders went into effect on many different levels—local to national. Be sure to track dates of those. Also, keep track of social media and other places were individuals are posting photos of your stores. Also make notes and document when, how, and by whom your own policies were breached and how you attempted to enforce them.

Princess Cruise Lines has already been sued for negligence and gross negligence. A Missouri couple, Debra and Michael Dalton, allege that the cruise line failed to safeguard them from exposure to COVID-19 during a cruise to Hawaii. The suit alleges that, before boarding, they “were simply asked to fill out a piece of paper conforming that they were not sick”. The suit alleges there were not “proper screening protocols in place to minimize the risk of exposure of the disease”.

Princess Cruise Lines also has been sued by the passengers of a ship quarantined off the coast of California. The allegation there is that Princess failed to provide for the safety of its passengers.

In late April, a different suit was brought by Susan Dorety of Texas. She claims that Michael Dorety contracted COVID-19 after boarding a Princess Cruise Line ship on February 21 and later died. The suit claims that the cruise line had just discharged some infected passengers and took on a new group of passengers without properly cleaning the ship.

Princess Cruise Lines likely will argue that Plaintiffs waived the right to bring these claims because they signed a waiver and release in favor of Princess before boarding the ship. A waiver argument is only as strong as the waiver itself and most are limited in scope by state law.  However, we expect to see more and more waivers offered by retailers of various kinds. Historically, waivers were used for skiing, paint ball, and other high-risk activities. Now, we expect to see them offered by hotels, resorts, spas, retail establishments, and more.

A cruise-line case in which the waiver issue has been raised is the one brought by Arizona couple James and Kelea Nevis. They sued Costa Cruises, a Carnival Cruise company, alleging that crew members knew a passenger had COVID-19 symptoms, but did not tell the other guests to isolate themselves to their rooms. The Nevises tested positive for COVID-19 after they docked. The Nevises’ lawyer has argued that the waivers are void when the boat docks at a US port.

Employment Claims

COVID-19 claims could come from new sources. If an employee knows he/she has COVID-19, notifies the employer, and still comes to work, the employer could be held liable for the exposure of other employees and customers to the virus. Employers also will be expected to clean properly and enforce social distancing policies. For example, handing a customer a basket that has not been sanitized, touching a guest during an interaction with an employee, or seating customers near one another could all be seen as negligent acts.

Wrongful Death

Wrongful death claims almost certainly will be filed by families of those who die from COVID-19.

In Cook County, Illinois Walmart has already been sued. Wando Evans had worked as an overnight stocker for Walmart for 15 years. According to his family, he told his manager that he had symptoms consistent with the virus, but his report was ignored and he continued to work for two weeks. He was sent home sick by his manager two days before his death. The lawsuit alleges that Walmart was negligent in failing to implement and enforce social distancing guidelines and in failing to properly clean and sanitize the store. The lawsuit alleges that because Walmart is a high-volume retailer, it has a responsibility to take additional precautions to protect employees and customers. The suit alleges that Walmart had a duty to provide the employees with personal protective equipment, implement social distancing, and to prevent exposed employees from working. The attorney for the employee’s family has also requested that OSHA investigate Walmart.

OSHA Litigation

OSHA requires, under the General Duty Clause, that an employer provide a workplace that is free from recognized hazards likely to cause death or serious physical harm. We expect to see complaints to OSHA alleging that an employer failed in this regard, as evidenced by employees getting sick with COVID.

While employees may allege that they got sick at their place of employment, it will be difficult to prove where a person was exposed to COVID-19.

Worker’s Compensation

The difficulty in proving place of exposure may also be important in worker’s compensation cases. Workers may file worker’s compensation claims for medical bills and loss of income related to COVID-19. We also expect that plaintiffs will seek to avoid the limitations put on worker’s compensation recoveries by such means as, in Texas, alleging gross negligence.

Hospitality Litigation

Hotels, event centers, catering companies, and other hospitality and event related companies may see numerous breach of contract claims. Cancellation of events leads to disagreements about rescheduling, cancellation policies, and refunds on both ends of the spectrum: from individual guests, as well as sub-contractors and other vendors.

While many hotels have completely closed, others remain open. When a hotel remains open, the hotel should take extra precautions to show the steps it is taking to ensure health and record the steps taken. CDC and WHO cleaning guidelines should be followed for cleaning and guest placement.

Supply Chain Litigation

Many suppliers are having difficulty getting products and manufacturers are having difficulty obtaining materials to produce products. Additionally, many factories and companies have closed down or halted production due to the quarantine and shelter-in-place orders. This, no doubt, will lead to disagreement when orders cannot be fulfilled and promises cannot be kept. Consider, for example, a wedding that goes forward after shelter-in-place orders are lifted, but the hotel being unable to provide the wine promised for a wedding because the vineyard was closed.

Securities Litigation

Some shareholder cases have already been filed against companies like Norwegian Cruise Lines. The shareholders allege that false and misleading claims were made in SEC filings which caused the stock value to be inflated. When the markets fell because of the COVID-19 pandemic, companies lost significant value.

Insurance Litigation

There will also be suits by retailers and hospitality groups against their insurance carriers. Many business interruption policies exclude or do not specifically include pandemics. However, policy holders are fighting that. The carriers urge that there must be physical property loss in order for the business interruption coverage to apply. The policyholders argue that COVID-19 “physically infects and stays on surfaces of objects or materials”, thus constituting physical damage.

Six Chicago bar and restaurant groups have filed a federal lawsuit in the Northern District of Illinois against their carrier, Society Insurance. The policyholders accuse Society of wrongfully and in bad faith denying claims related for business interruption insurance.

In Napa County, the French Laundry Partners, LP has brought suit against Hartford making similar claims.

Florida has seen similar suits with a request for class action designation.

Author: Amy C. Welborn (Partner, Austin) Editor: Kathryn S. Whitlock (Senior Partner, Atlanta)

Hawkins Parnell & Young's national litigation team is helping businesses across the United States navigate unprecedented legal challenges arising from the COVID-19 pandemic. Visit our COVID-19 Resource Center for the latest insights and guidance.