COVID-19 Commercial Litigation Updates

One of the biggest financial consequences of the COVID-19 pandemic has been a huge uptick in various commercial litigation lawsuits. Unprecedented times have made for unprecedented financial losses. This, in turn, has left the courts to decipher many novel issues of first impression. A growing number of businesses are taking legal action in connection to COVID-related losses. As such, it is worth keeping apprised of any updates concerning these various suits. Here, we’re discussing a few of the highest-profile commercial litigation matters you should know.

Airbnb Heads to Arbitration

A California federal judge recently granted Airbnb’s motion to compel arbitration in a proposed class action against the home-sharing platform. The plaintiff did not contest the existence and applicability of the arbitration agreement. However, they did argue that Airbnb violated its obligations under Section 1281.98 of the California Code of Civil Procedure. This Section requires the payment of certain fees and costs in order to continue the arbitration.

The United States District Judge Jon S. Tigar found the fee issue was not for the court to determine. This was regarding the company’s failure to timely pay a $1,500 arbitration fee due to the American Arbitration Association. Judge Tigar explained, when “as here, questions of arbitrability have been delegated to the arbitrator, and the arbitrator has not found the party to be in default or terminated the proceedings for nonpayment.”

In addition to granting arbitration, the court also ordered the proceedings stayed. Plus, the court will administratively close the file. As the court explains, “[t]his order shall not be considered a dismissal or disposition of this action against any party. If further proceedings become necessary, any party may initiate them in the same manner as if this case had not been administratively closed.”

The Initial Class Action Complaint

The plaintiff, Anthony Farmer, filed the initial proposed class action complaint against Airbnb. Its claims focused on Airbnb’s failure to properly repay hosts and guests for canceled bookings during the COVID-19 pandemic. According to the complaint, in response to COVID-19, the company announced that guests could cancel their reservations and receive full refunds. However, guests did not receive full refunds. Rather, the company issued only partial refunds and expirable travel credits. The complaint further alleges that this arrangement also adversely affected hosts. This was because it overrode previously agreed upon cancellation policies with their guests. As such, this resulted in the refunds coming directly out of the hosts’ pockets. The plaintiff alleges breach of contract claims and breach of fiduciary duties.

Monmouth University Faces Lawsuit Under Quasi-Contract Theory

The pandemic forced school closures throughout the country last year. In response, students sued a number of colleges and universities for tuition reimbursement. These claims were on the basis that remote learning is not of the same quality as in-person classes. Thus, this is an alleged breach of contract on behalf of the school.

In early June 2021, a New Jersey federal judge rejected a breach of contract claim filed against Monmouth University. But they held that students may advance on a quasi-contract claim for tuition reimbursement. Thus, the court granted in part and denied in part the school’s motion to dismiss.

Contracts Between Schools and Students

The court’s decision relied upon comparison to prior case law that analyzed the contractual relationship between schools and students. Specifically, the court looked at this relationship in the context of administrative decision-making. U.S. District Judge Michael A. Shipp held that “classic contract law doctrine should not be used to resolve disputes of this nature where the alleged terms of the contract are contained in various representations by the university and there is no express mutual assent.”

In declining to characterize the relationship as purely contractual, the court nonetheless found that a good faith and fair dealing standard could apply. As the court noted, the university subsequently reduced its per-credit cost for courses in the summer of 2020— the semester after its closure—by 15% due to remote instruction. This “demonstrates defendant’s own belief that the online-only courses are worth less than in-person courses.” Therefore, “plaintiffs (at a minimum) allege that Monmouth acted arbitrarily and other than in good faith by failing to reduce the cost per credit due to the remote instruction,” the court concluded.

Monmouth closed its campuses in March 2020 in response to the state’s executive order to cease in-person instruction. Although the university provided prorated refunds for room and board, meal plans, and other living costs, it did not refund tuition and other fees, totaling nearly $20,000. Such conduct, the Court found, may constitute claims of unjust enrichment and conversion.

Minnesota Business Interruption Insurance

Businesses in Minnesota experienced a recent interruption insurance win. In early June 2021, a Minnesota federal judge partially denied IMT Insurance Company’s motion to dismiss a hair salon’s COVID-19 business interruption coverage suit. IMT’s request was on the basis of its virus exclusion clause. The court found that the insurance policy’s virus exclusion did not preclude the hair salon’s losses. These losses were attributed solely to the closure orders and not to any actual contamination of COVID-19 on its premises. Further, the court found that extending the clause to include government closure orders would go “too far.”

As U.S. District Judge John R. Tunheim explains, “Extending the causal chain beyond situations involving direct or indirect contamination of business premises would extend the chain too fair; in this case, it would transform a virus exclusion into a government-order or pandemic exclusion, which is not what the parties intended.” The court concluded that IMT’s policy’s virus exclusion was “intended to preclude coverage only when there has been some direct or indirect contamination of the business premises, not whenever a virus is circulating in a community and a government acts to curb its spread by means of executive orders of general applicability.”

The above lawsuits are just a few of the many commercial litigation suits pending as a result of COVID-19. Any attorney or potential litigant seeking to obtain relief on the basis of COVID-related losses should keep an eye on any further developments.