As consumers hoard household and health care products, attorneys anticipate class actions to come out of the COVID-19 outbreak.
Although most firms have focused primarily on the health of their employees and the logistics of juggling their existing cases, lawyers on both sides are watching for potential cases brought over price gouging and antitrust violations, mislabeled health products and other consumer claims.
Class actions have already hit the courts. One targets the health claims of Germ-X hand sanitizer, while others challenge a study-abroad program’s refund policy or the lack of closed captioning on Jim Cramer’s online videos about the stock market.
“Mistakes are going to be made. This is an emergency. It’s unprecedented. Nobody really prepared for it,” said plaintiffs attorney Elizabeth Cabraser, of San Francisco’s Lieff Cabraser Heimann & Bernstein. But that’s not who lawyers are concerned about. “There are going to be a few bad actors out there. And they are going to try to take advantage of this.”
Both lawyers and government enforcement agencies are on the lookout for price gouging as residents of more than half the U.S. states ordered to stay in their homes are loading up on certain items such as hand sanitizers and food staples.
“My view is that our focus should be on trying to keep people employed, able to eat, and safe and healthy, and try to be supportive of society,” wrote Adam Slater, of Mazie Slater Katz & Freeman in Roseland, New Jersey, in an email. “The one area that is open for discussion is any merchant who tries to take advantage of others in the midst of the colossal upheaval and disruption in society.”
In the past week, attorneys general in several states, including New York and California, have alerted consumers to potential price gouging and have ordered online sites to remove posts that unlawfully profit on consumer fears.
“Consumers go on Craigslist every day looking for values, but these items only aim to cheat consumers and profit off their fears surrounding the coronavirus,” said New York Attorney General Letitia James last Friday.
That same day, Missouri Attorney General Eric Schmitt announced a partnership with Amazon to monitor price gouging related to COVID-19.
On Monday, U.S. Attorney General William Barr threatened enforcement against companies that hoard “health and medical resources” such as masks and ventilators and then charge exorbitant prices for them. The Justice Department already sued the operators of a website called www.coronavirusmedicalkit.com, for fraudulently profiting off the pandemic.
“What AG Barr talked about, this isn’t about someone at home and has a bigger supply of toilet paper than they normally would, but he’s talking about an entire warehouse of protective gear and not selling them because they’re waiting for a time to sell at a higher price,” said Katrina Robson, an antitrust partner at O’Melveny & Myers in Washington, D.C. “He was expressing that they should be aware of their situation and be cautious of the decisions they’re making.”
Most states have a price gouging statute, but only half allow private attorneys to bring cases such as class actions, said Ben Bradshaw, another antitrust partner at O’Melveny & Myers. The statutes come with exceptions and often have a specific threshold at which a price increase constitutes gouging.
Lawyers, however, do not have to sue under a price gouging statue, he said. Many could sue under consumer fraud allegations.
“Plaintiffs might try to bring a potential class action under a broader theory of unfair methods of competition,” Bradshaw said. “California, for instance, does have a specific price gouging statute, but, in California, it’s limited to actions brought by the AG so there’s not a private right of action. But, of course, there are other statutes under which potentially a class action could be brought in California.”
Lawyers, and some attorneys general, also are watching for alleged misstatements on product labels, particularly those making health claims relating to the coronavirus.
A March 5 class action against the maker of Germ-X alleges the company falsely advertised on Walmart.com that its hand sanitizer provides “coronavirus/flu prevention.”
“Defendant misleads consumers into believing its products can prevent disease or infection from pathogens such as coronavirus and flu along with other claims that go beyond the general intended use of a topical alcohol-based hand sanitizer,” the suit says.
Earlier this month, the U.S. Food and Drug Administration and the Federal Trade Commission sent warning letters to seven companies claiming to treat or prevent coronavirus, which has no approved vaccine or drugs to prevent it.
“There already is a high level of anxiety over the potential spread of coronavirus,” said FTC Chairman Joe Simons. “What we don’t need in this situation are companies preying on consumers by promoting products with fraudulent prevention and treatment claims.”
Among those targeted were the makers of teas and essential oils, as well as televangelist Jim Bakker, for promoting silver products as coronavirus cures. This month, Schmitt, Missouri’s attorney general, sued Bakker for the misrepresentations on his show, and James, New York’s attorney general, ordered Bakker and the makers of the silver products to cease and desist such marketing. James also sent letters to several domain name registrars, including GoDaddy.com, to stop registration of websites aimed at deceiving consumers about the coronavirus.
“Do not be hustled by opportunistic tricksters claiming to have a miracle cure. There is not a cure for COVID-19,” said California Attorney General Xavier Becerra on Monday, issuing a consumer alert about fake coronavirus treatments.
Some companies might face lawsuits, even though they did not make coronavirus claims. A March 13 consumer class action against the maker of Purell, for instance, alleges misstatements similar to that of the Germ-X case even though its advertisements mentioned the flu, norovirus and Ebola—not the coronavirus.
Both cases arise from the FDA’s Jan. 17 warning letter against GOJO Industries Inc., the maker of Purell.
Abbas Kazerounian, of Costa Mesa, California’s Kazerouni Law Group, who filed the Germ-X case, declined to comment.
Other consumer class actions target different areas.
In one class action, filed on March 18, the plaintiff, who is deaf, alleges that TheStreet.com did not provide closed captioning to its Jim Cramer videos this month in violation of the Americans with Disabilities Act.
“Plaintiff is concerned about the economic impact that the coronavirus has on herself and others and sought to educate herself by watching videos featuring Jim Cramer and other newsworthy videos found on the website,” the complaint says.
Dan Shaked, of Shaked Law Group in Brooklyn, New York, who filed the lawsuit, did not respond to a request for comment.
In a case filed over the study-abroad program, the mother of a student enrolled in EF Institute for Cultural Exchange Inc. filed a lawsuit on March 17, claiming the organizer “caused utter confusion” in providing travel vouchers, rather than full cash refunds. Because of those policies, she said, she lost $3,200. The $5 million suit aims to represent tens of thousands of class members.
The plaintiff’s attorney in that case, William McGrane, of San Francisco’s McGrane PC, declined to comment.
For now, Cabraser said, most plaintiffs lawyers were willing to give businesses the benefit of the doubt as they struggle with an unprecedented health crisis.
“If there’s somebody out there who is going to use this as an occasion for true consumer fraud, we’ll all go after them,” she said. “But if it’s a situation where someone is caught unprepared, flat-footed, and tries to do the best they can, they deserve a break.”