The Coronavirus Pandemic and Your Business: How We Can Help – Litigation Issues That May Arise

A wide variety of issues are arising and are likely to arise in connection with, and in the aftermath of, the COVID-19 crisis. The Gibbons Commercial & Criminal Litigation Department is here to help, and can work with you to address these critical concerns.

Breach of contract disputes stemming from the coronavirus situation are likely to be widespread. They are surfacing already and will continue to surface throughout commercial contexts and for numerous reasons, including the ever-changing landscape of market forces that are at play right now.

One notable – and particularly relevant – contractual concept, force majeure, is going to be front and center. Force majeure provisions may excuse otherwise impermissible actions in certain extraordinary situations beyond the control of the party failing to perform. It is, therefore, critically important that contracts are reviewed both for the presence of (and particular language surrounding) such provisions and for any necessary notice requirements.

Additionally, employment contracts are likely in jeopardy, which will inevitably lead to wrongful termination claims. Relatedly, you may need to enforce restrictive covenants – or fight their enforcement – in the aftermath of the crisis.

Also likely to arise are supply chain disputes. People and companies will need goods and materials that are not going to be available, and businesses will have contracts to supply goods and materials to others who will no longer accept them. Consequential damages claims arising from these disputes should also be expected. Something almost all of us have already experienced in this pandemic situation – personally, professionally, or both – are canceled events, which implicate both breach of contract and, more narrowly, supply chain issues. Whether the event is as intimate as a wedding or as large as a concert at a stadium, a cancellation will affect you (and your business), regardless of which side of the transaction you are on.

In addition, businesses may be subject to litigation in connection with consumer protection and similar issues. For example, there could be a very large number of claims related to misrepresentations in the marketing of products that claim to kill viruses. Gibbons has deep and wide-ranging experience with applicable consumer protection laws and can help not only address such claims, but also proactively review any marketing materials in order to minimize risk.

There will also undoubtedly be allegations that various types of entities and organizations were inadequately prepared for this crisis, as well as claims against businesses for essentially staying open and thereby exposing people to the virus. Testing labs are at risk for claims related to, for example, errors and false positives. Price gouging, while often a species of supply chain disputes, could arise as free-standing claims brought against or by one of our clients. You and your business may also need to confront constitutional-type claims arising from potential “takings” situations.

For publicly traded companies, securities claims may be brought – most likely regarding inadequate disclosures. Many public companies issued investor guidance after the COVID-19 crisis was already underway, but did not adequately account for it. Public statements will be put under a microscope. Securities class actions and shareholder derivative actions inevitably follow significant stock drops, and among the claims that might be brought as a result of the COVID-19 situation are 10b-5, scheme liability, control person liability, insider trading, and Reg D claims, as well as Exchange Act claims based on statements in prospectuses or new stock issues. And beyond securities class actions, creative plaintiffs’ lawyers have numerous avenues for class action suits that may target your business.

If your business involves construction of any kind, be prepared for disputes. Most construction contracts have scheduling requirements, and many of your contracts will be affected by this crisis. If you are either a franchisor or franchisee, you may face challenges resulting from business closures, including the inability to meet performance or revenue metrics, earnings estimates, and similar matters. This could be particularly acute in the hospitality area, and the issues might be novel to a pandemic. For example, the business community has been buzzing with rumors of hotels being asked to reserve rooms for quarantine areas or medical treatment, with hotel franchisors reluctant to agree, fearing the effect on their brands.

Whether you become involved in litigation (or one of the various types of alternative dispute resolution, which may become more widespread as courts become overwhelmed with claims in the wake of COVID-19), whether you are hoping to avoid litigation, or whether you need assistance managing a crisis related to the coronavirus pandemic, we are here to help. Please do not hesitate to contact Peter Torcicollo, Co-Chair of the Gibbons Commercial & Criminal Litigation Department, with your questions or concerns.

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