By Mark S. Nelson, J.D.
Within months of the onset of the COVID-19 pandemic, several plaintiffs brought lawsuits against cruise ship operators and other businesses alleging the failure to disclose the risk of a pandemic. These early lawsuits prompted the submission of a rulemaking petition in October 2020 signed by Tom Quaadman, Executive Vice President of the U.S. Chamber of Commerce's Center for Capital Markets Competitiveness (CCMC), and by Harold Kim, President of the U.S. Chamber Institute for Legal Reform, asking the Commission to use its exemptive authorities to limit liability for pandemic-related corporate statements. The CCMC and the Chamber Institute for Legal Reform, now joined by a dozen other industry groups, have provided additional comments on their argument for pandemic-related liability exemptive relief.
The original petition had called on the Commission to: (1) assuming sufficient warnings, bar liability for a range of corporate statements, regardless of whether they are forward-looking, regarding a company's ability to recover from the impacts of the pandemic; and (2) limit liability to instances of actual (i.e., subjective) knowledge of a statement's falsity. "Requiring actual knowledge of the falsity of pre-pandemic statements will help ensure that the focus properly remains on the issuer’s knowledge at the time the statement was made, not how well the statement holds up after-the-fact," said the petition.
The more general concern of the Chamber was the rise of event-driven litigation overall, not just the nearly two dozen pandemic-related suits cited by the CCMC’s latest comment letter. The CCMC pointed to suits against companies with businesses not directly related to the response to the pandemic. The CCMC also noted the potential for suits to be brought against companies that receive federal aid and for plaintiffs to target companies’ economic/financial projections and results. The CCMC observed that Australian regulators had taken steps to limit pandemic-driven suits.
In the more than three months since CCMC submitted it rulemaking petition, the Commission has received only one other comment. Linda Moore, President and CEO of TechNet, expressed support for the CCMC petition and reiterated the notion that event-driven securities suits are less carefully investigated before filing and instead rely on more "tenuous" theories of liability. The comment described TechNet as a "national, bipartisan network of technology CEOs and senior executives" whose companies have participated in varied ways to respond to the pandemic.