February 08, 2021


Jason A. Levine, Gillian H. Clow, and Giles Judd, Alston & Bird LLP


This week we cover an important dismissal of a securities class action arising from the pandemic, two new securities cases alleging distinct types of pandemic-related public misrepresentations, a lawsuit claiming a company’s recall of defective hand sanitizer was inadequate, and the dismissal of a refund lawsuit against Fordham University.


1. California Court Dismisses Securities Class Action Arising from Pandemic

Overview: A California federal court dismissed a putative securities class action brought against Velocity Financial, Inc., a real estate finance company, for alleged false or materially misleading statements and/or omissions presented by the company in its offering materials. The Plaintiff claimed that Velocity “painted a ‘rosy’ picture” of the market despite the fact that it would soon be disrupted by the COVID-19 pandemic.

Allegations: Plaintiff alleged violations of Sections 11 and 15 of the Securities Act of 1933, arising from “various statements in Velocity’s offering materials” that were purportedly false or materially misleading. Specifically, Plaintiff asserted that Velocity: (1) falsely touted its use of “disciplined due diligence” in its underwriting practice; (2) misrepresented the growth of its loan portfolio by failing to disclose that such growth resulted from risky short-term interest-free loans, and that a large portion of the portfolio was non-performing; and (3) cited favorable market conditions despite the risk of a growing pandemic.

Decision: With regard to Velocity’s statements relating to its underwriting practice, the court held that statements touting a company’s use of “disciplined due diligence” amounted to “nonactionable puffery.” Further, the court found that Velocity had accurately disclosed its use of short-term interest-free loans and any increase in non-performing loan growth. As for Velocity’s purported failure to disclose the potential effect of the COVID-19 pandemic on market conditions, the court held that Plaintiff failed to allege how Velocity “would have known about the coronavirus risks at the time of the IPO to include a more specific warning.” Accordingly, the judge dismissed the case.

Our Take: This is the first decision involving a securities class action arising from the COVID-19 pandemic where a court held that a company could not have been aware of the effects of the coronavirus on market conditions at the early stages of the pandemic. Although it may be too soon to predict how this decision will influence other federal courts, it provides authority for the proposition that companies could not have predicted, and thus cannot be sanctioned for failing to “disclose,” the extent of market disruption that would be caused by this global crisis.

2. Investor Suit Alleges Misrepresentations by AstraZeneca About COVID-19 Vaccine Trials

Overview: An investor filed a putative class action against AstraZeneca in the Southern District of New York, alleging a series of false and misleading statements made in connection with the development and trials of its COVID-19 vaccine.

Allegations:The complaint alleges that, in April 2020, AstraZeneca partnered with Oxford University to develop a COVID-19 vaccine. According to Plaintiff, the initial clinical trials were plagued by “critical manufacturing errors” that supposedly led to participants receiving inadequate dosages, as well as other “widespread flaws in design” and “errors in execution.” Despite these problems, the complaint asserts that AstraZeneca publicly announced its vaccine had met its “primary efficacy endpoints.” However, Plaintiff contends that analysts and news reports began to reveal undisclosed problems pertaining to the clinical trials, and that by November 25, 2020, shares had fallen by 5%. Plaintiff further asserts it is unlikely that the vaccine will be approved for use in the United States. The complaint posits causes of action under Sections 10(b) and 20(a) of the Securities Exchange Act.

Our Take: Biopharmaceutical companies seeking to capitalize on the demand for an effective coronavirus vaccine must be careful with how they describe the results of clinical trials. In litigation stemming from such disclosures, we can expect plaintiffs to rely on the global importance of the research involved to argue that any allegedly exaggerated disclosures are not mere puffery.

3. Tyson Foods Faces Investor Suit for Allegedly Downplaying Effect of COVID-19

Overview: Tyson Foods, Inc. is facing a putative investor class action in the Eastern District of New York for allegedly mishandling its response to the COVID-19 pandemic and then supposedly misrepresenting the financial impact of that mishandling to the public.

Allegations: Plaintiff’s complaint alleges that Tyson made “materially false and/or misleading” statements downplaying the financial harm that resulted from the alleged spread of coronavirus in its facilities, including reduced production and the closing of certain facilities. The complaint further alleges that, on December 15, 2020, New York City Comptroller Scott M. Stringer called on the SEC to investigate Tyson over claims that it did not adequately protect its employees. That same day, Tyson share prices fell by 2.5%. Plaintiff filed this putative class action on behalf of Tyson shareholders, alleging violations of Sections 10(b) and 20(a) of the Exchange Act.

Our Take: Although the recent California federal court decision discussed above held that a company could not have anticipated the effects that the COVID-19 pandemic would have on market conditions at the early stages of the outbreak, it remains to be seen whether a company’s public statements about its financial strength during the pandemic will be considered mere puffery if actual financial weakness follows as a consequence of alleged failures to protect workers.

4. New Lawsuit Claims the Recall of a Toxic Hand Sanitizer Was Deficient

Overview: A new proposed class action lawsuit in federal court in Northern California alleges that 4e Brands marketed alcohol-based hand sanitizers that were contaminated with toxic wood alcohol and then conducted an inadequate recall.

Background: Plaintiffs’ complaint asserts that 4e Brands falsely represented that its hand sanitizer contains 70% ethyl alcohol, when in reality it contains methanol, or wood alcohol, which can be toxic when applied to the skin or ingested. In July 2020, the FDA put the 4e products on a list of hand sanitizers that the public should not use because of methanol contamination. As a result, 4e issued a recall but did not provide a refund option. Plaintiff alleges that after purchasing and using 4e hand sanitizer, he vomited, which he alleges is a symptom of methanol poisoning.

Our Take: At the beginning of the COVID-19 pandemic, the high demand for hand sanitizer and PPE resulted in numerous lawsuits alleging price gouging and trademark infringement. Now, after some time has passed, lawsuits like this one alleging defective or harmful hand sanitizer sold during the pandemic are starting to emerge. The race to get PPE and hand sanitizer out to market was highly competitive, and plaintiffs’ lawyers now are targeting companies for potential vulnerabilities in their products.

5. Court Dismisses Lawsuit Seeking Refund for Cancelled In-Person Classes at Fordham

Overview: Fordham University won dismissal of a proposed class action filed in the Southern District of New York seeking a refund of tuition for students whose in-person classes were cancelled as a result of the COVID-19 pandemic.

Background: Plaintiff, an undergraduate at Fordham, sued for a refund of tuition paid after the second half of the Spring 2020 semester went online as a result of the pandemic.

Decision: In its order, the court notes that Plaintiff failed to identify “a sufficiently specific promise to provide in-person educational services,” or a breach of any implied agreement to provide all classes in-person. The court also found Plaintiff’s claims for unjust enrichment, money-had-and-received, tortious or fraudulent conduct, and conversion did not meet the pleading threshold.

Our Take:The court contrasted this case with a similar lawsuit brought in the Northern District of New York against Rensselaer Polytechnic Institute, which was allowed to go forward. There, however, RPI offered a residential program that “could fairly be characterized as mandatory” and also offered separate programs for in-person and on-line instruction that charged different tuition rates. This decision is also in line with the dismissal of a similar lawsuit filed against Occidental College. We expect courts to dismiss most cases like the Fordham suit, unless there are special factors like those involving RPI.

Jason Levine is a commercial and antitrust litigation partner in the Washington, D.C. office of Alston & Bird LLP. Gillian Clow and Giles Judd are litigation associates at the firm.