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Covid-19 | Bulletin

The Impact of COVID-19 on Canadian Class Actions

Fasken
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Litigation and Dispute Resolution Bulletin

In light of COVID-19, Canadian businesses should be mindful of the risk of class action litigation against them. To minimize this risk, businesses should communicate with customers, investors, and the public carefully and after having consulted with legal counsel if appropriate. While some class actions have already been commenced in Canada, suits filed in the United States are likely to encourage more claims in Canada in the coming weeks and months.

Background

The coronavirus (COVID-19) pandemic has given rise to unprecedented challenges for Canadian businesses. From dealing with sudden cash flow reductions to questions about timely disclosure, accurate messaging and insurance coverage, how businesses respond to this threat will be crucial in minimizing the risk of class actions. In the United States, class actions have been filed against, among other entities, consumer goods producers, tour providers, airlines, financial institutions, rideshare companies, cruise lines, pharmaceutical companies, online retailers, software providers and insurers. Given that class counsel often launch "copycat" claims in Canada, it is imperative that domestic businesses stay up to date on developments across the border. Indeed, at least three class actions have already been filed in Canada as a result of the pandemic. It is likely that more will follow.

American class actions

Notable class actions in the US include:

Deceptive advertising and unfair business practice class actions

  • Class action complaints have been filed against manufacturers and retailers of hand sanitizer alleging that the defendants misleadingly promoted hand sanitizer products. In one complaint, the defendant is alleged to have made claims that its hand sanitizer prevents Ebola or the flu; in the second complaint, that its hand sanitizer offers "coronavirus/flu prevention"; and in the third complaint, that its hand sanitizer "kills 99.99% of germs." In two of the complaints, the plaintiffs relied in part on FDA warning letters about the defendants' marketing practices and lack of evidence supporting the claims that were allegedly made.
  • A parent whose child was scheduled to attend a tour organized by a tour promoter filed a class action complaint alleging that the defendants' refusal to provide cash refunds for school tours that were cancelled in light of COVID-19 constitutes an unfair business practice. The defendants allegedly offered to provide credit for future tours but not refunds.
  • Airline ticket purchasers filed class action complaints against a US airline alleging that it misrepresented to purchasers that they were not entitled to refunds when their tickets were subsequently cancelled by the carrier, and that its refusal to refund tickets constitutes an unfair business practice. The airline allegedly told purchasers that they were only entitled to vouchers. The lawsuit was filed only a few days after the US Department of Transportation issued an Enforcement Notice clarifying that airlines are legally required to provide refunds when they cancel passengers' tickets, regardless of the cause of cancellation.

Class actions seeking injunctive relief

  • Homeowners filed a class action complaint against a financial institution requesting that it be prevented from conducting foreclosure sales in West Virginia. The plaintiffs' basis for seeking injunctive relief is, among other grounds, that non-judicial foreclosure sales (by way of public auction) cannot be conducted fairly given the restrictions around social distancing. As such, the plaintiffs claim that they will suffer irreparable harm if the injunction is not granted.
  • Class action complaints were filed against rideshare companies seeking injunctions declaring that drivers working for those companies are employees instead of independent contractors. As a result, the lawsuits claim that the drivers are owed paid sick leave under California state law, among other benefits. The plaintiffs argue that being entitled to paid sick leave would enable them to stay home if infected with COVID-19, as opposed to potentially spreading the virus by driving passengers.

Securities class actions

  • A shareholder of a pharmaceutical company brought a class action against the issuer and its CEO alleging that they made false and misleading statements in violation of federal securities laws. In particular, the complaint alleges that the defendants falsely stated that they had developed a vaccine for COVID-19 within three hours, leading to a 71% decline in the company's peak share price once its statements were contradicted.
  • A cruise line was sued in a class action by a shareholder alleging that the defendant made false and misleading statements in violation of federal securities laws. The company and certain of its executives allegedly reported positive revenue outlooks for the company and directed sales staff to lie to customers about the risks of contracting COVID-19 on its cruises. The issuer's share price plummeted 27% and then a further 36% following the publication of news articles exposing the defendant's statements.
  • A video-conferencing software provider was sued in a class action by a shareholder alleging that the defendant misrepresented its privacy standards and failed to disclose privacy and data security issues, including that its calls lacked end-to-end encryption. The lawsuit alleges that as a result of these misleading statements and omissions, the issuer's stock price decreased around 25% when the defendant's practices were exposed.

Price-gouging class action

  • A class action complaint was filed against an online retailer alleging that it charged unconscionable prices on hygienic products, including toilet paper and hand sanitizer, during Florida's declared state of emergency. The plaintiff was allegedly charged US$99 for toilet paper and US$199 for hand sanitizer, even though these items would have normally retailed for around US$36 and US$16.

Negligence and breach of contract class actions

  • A couple quarantined on a cruise ship filed a class action complaint against the cruise line alleging that the company negligently allowed passengers aboard the ship even though it knew that the vessel was contaminated with the novel coronavirus. In addition, the plaintiffs allege that the defendant failed to take all reasonable measures to prevent an outbreak of COVID-19 on the ship.
  • A student loan borrower filed a class action complaint against a lender alleging that its suspension of an interest-rate reducing benefit program constituted, among other things, breach of contract and breach of a previous settlement agreement. Specifically, the lender offered a repayment bonus for every loan payment made in full and on time, which effectively reduced the applicable interest rate on the loans. However, due to the COVID-19 outbreak, the lender allegedly failed to provide those bonuses which ran contrary to its loan agreements and a previous settlement.
  • A purchaser of an event ticket filed a class action complaint against a ticket reseller alleging that its refusal to provide refunds for cancelled events constitutes, among other things, breach of contract. The reseller guaranteed in its user agreement that it would refund the price of tickets for events that were cancelled, but then refused to honour this policy when the COVID-19 outbreak caused widespread cancellation of events.

Privacy class actions

  • A video-conferencing software provider has been sued in class actions alleging that it shares its users' personal information with social media sites, which then create unique profiles for advertising purposes. At least one of the class actions alleges that the defendant discloses its users' locations and time zones, devices used, identifiers associated with the devices used, mobile carriers, and times of use.

Coverage actions

  • Numerous complaints have been filed against an insurance market seeking declarations that the policyholders' losses and expenses caused by COVID-19 are covered under their "all risk" commercial general liability policies. While these are not class actions, it is conceivable that class actions could be filed based on similar facts.

Current and expected Canadian class actions

Proposed class actions commenced in Canada regarding COVID-19 include the following:

  • A class action was filed against several Canadian airlines alleging that the defendants' refusals to provide cash refunds for flights cancelled due to COVID-19 constitute breaches of contract. The proposed class covers persons residing anywhere in the world who purchased tickets before March 11, 2020 for travel between March 13, 2020 and the date the federal government withdraws travel advisories for COVID-19 and who did not receive full cash refunds. Two days before the class action was filed, the Canadian Transportation Agency released a "Statement on Vouchers" which states that, in general, it may be appropriate for airlines to provide vouchers instead of refunds.
  • A long-term care home has been sued in a class action in relation to the deaths of at least 30 residents. The lawsuit seeks compensation on behalf of the estates of deceased residents and on behalf of current residents and immediate family members. It also seeks damages under the Charter
  • Policyholders filed a class action against several insurers alleging that those insurers refused to pay claims for losses arising from COVID-19 under business interruption policies.

In addition, an unissued statement of claim for a class action against a condominium corporation was published online, alleging that the defendants negligently exposed residents to COVID-19 by permitting short-term rentals in breach of the City of Toronto's by-laws. The defendants subsequently issued a notice forbidding short-term rentals until the state of emergency was over, following which the plaintiff stated that it would not issue its claim.

It is likely that additional class actions will be filed in Canada following American developments. In particular, claims could be filed against Canadian financial institutions to prevent foreclosures and against debt collectors; against manufacturers and retailers of personal protective equipment, hand sanitizer, or ventilators alleging deceptive marketing practices or negligence (especially in light of the increased number of manufacturers in other industries now producing such equipment in Canada); against employers for wrongful dismissal or failure to keep workplaces safe from COVID-19; against issuers for secondary market liability or insider trading claims and against officers or directors for derivative claims; against retailers for price gouging or in relation to refund policies; against travel agencies, ticket resellers or brokers, subscription service providers, and entertainment venues for travel and event cancellations; against software providers for privacy breaches; against insurers for denied claims, particularly under business interruption policies; and against healthcare providers including long-term care homes and hospitals for negligence.

Conclusion

As a consequence of the COVID-19 pandemic, businesses should pay particular attention to their communications with key stakeholders and should exercise caution when making decisions. If possible, legal counsel should be involved when appropriate. For more information on COVID-19 and how it may affect your business, please contact your Fasken lawyer and visit our Knowledge Centre here. For more information on coverage disputes in particular, please see Fasken's bulletins on Insurance Coverage During A Pandemic And Force Majeure (Quebec) and An Overview of Insurance Coverage, Claims and Considerations Relating to the COVID-19 Outbreak.

 

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