Avoiding Price Gouging Liability During and Post-COVID-19

Avoiding Price Gouging Liability During and Post-COVID-19

Apr 13, 2020

Client Alert

Brownstein Client Alert, April 13, 2020

Attorneys general around the country are watching the amounts being charged for common goods during this crisis and comparing those amounts to what was being charged prior. While the demand for items goes up, so too does the desire to raise prices, but such increases can mean significant liability. Companies need to be aware of the price gouging laws in place during the pandemic, but also consider how much to charge coming out of it, as other consumer protection laws may still apply to pricing practices.

What Is Price Gouging?

Many states, including California, Pennsylvania and North Carolina, have statutes that prohibit raising the price of many consumer goods after the president of the United States, the governor, a county executive or a city declares a state of emergency. While every state has different definitions, price gouging generally refers to sellers trying to take unfair advantage of consumers during an emergency or disaster by greatly increasing prices for essential consumer goods and services. State statutes commonly extend to more than just retailers. They extend to manufacturers, wholesalers and distributors. And, arguments are being made that they extend to online sellers like those who go through Amazon. In fact, Pennsylvania Attorney General Josh Shapiro is leading a coalition of 33 attorneys general to implement restrictions on some of these retailers. News reports indicate that Shapiro received almost 3,000 reports of violations since the state of emergency, issued more than 110 cease-and-desist letters, and is not done investigating. Pennsylvania considers price gouging to be charging at least 20% higher than normal. California considers price gouging to be charges that are 10% higher.

Still other states, like Colorado and Nevada, which do not have express price gouging statues, have other statutes at their disposal that they can utilize. Reports indicate that the Nevada attorney general received nearly 100 calls about price gouging by March 20, 2020. The communications director for the Nevada attorney general released the follow statement:

“Though Nevada does not have a price gouging statute, we’re able to look into reports of coordinated price increases, increased consumer prices, making false representations, and the use of intimidation tactics during a transaction through a general fraud and antitrust lens,” Monica Moazez, communications director for the Attorney General’s Office, wrote in an email. “These laws provide for a range of penalties and we will be reviewing each complaint on a case-by-case basis.”

Similarly, the Colorado attorney general’s website includes the following:

Although Colorado does not have a specific price gouging law, taking advantage of a state of emergency by unreasonably increasing the prices of essential goods and services may constitute unfair and unconscionable business acts and practices under the Colorado Consumer Protection Act. Under that Act, the Attorney General is authorized to file suit against price gougers and may seek damages, injunctive relief, restraining orders, restitution, and civil penalties.

What Types of Punishments Are Available?

In Pennsylvania, fines for price gouging can be as high $10,000. California law allows for imprisonment for up to a year, a fine up to $10,000, or civil penalties of up to $2,500 per violation. North Carolina law permits a fine of up to $5,000 per violation.

It is important to note that even where states do not have express statutes on their books, like Colorado, there are general consumer protection statutes that can apply. These laws similarly may allow for disgorgement of profits, penalties per violation and awards of attorney’s fees. Some states also allow for private attorney general actions under these laws.

Can an Increase in Charges Be Justified?

The short answer is yes. However, documenting the justification is critical. The seller (which in this context can include the manufacturer, wholesaler, distributor or retailer) must be able to establish that the increased price is directly attributable to increases in the cost of labor or materials needed to provide the good or service, rather than sheer profiteering.

What Happens to Prices After the Emergency Ends?

While some of the powers granted to state attorneys general under price gouging statutes will be automatically revoked following the end of the emergency, it is important for businesses to remain mindful of the multitude of consumer protection statutes that could still create liability. In every state the plaintiffs’ bar looks for opportunities to bring class actions on consumer protection issues. Many of the same remedies for violations of these statutes are available to the plaintiffs’ bar.

Businesses around the world have been affected by this pandemic. Supply lines have been and will likely continue to be interfered with, which will inevitably increase the costs of goods. Businesses should expect that both government enforcers and the plaintiffs’ bar will be watching what happens to prices when businesses come back to work. Maintaining records and being able to justify increases in sales price to consumers will be particularly important to defend against these cases.

Information is changing daily and some of the content included in this alert may have changed or been updated since publication.

Click here to read more Brownstein alerts on the legal issues the coronavirus threat raises for businesses.

This document is intended to provide you with general information regarding price gouging liability related to COVID-19. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

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Alissa H. Gardenswartz Shareholder T 303.223.1207 agardenswartz@bhfs.com
Jonathan C. Sandler Shareholder T 310.564.8672 jsandler@bhfs.com