Michael Lehr headshotBy: Michael Lehr

Michael Lehr is an associate practicing in Dunlap Bennett & Ludwig’s Richmond Office

 

For decades pop culture led us to believe that the first things to go amidst a pandemic would be consumer drugs, perishable foods, and water. However, as the novel coronavirus has sparked an actual pandemic, the bare shelves in our grocery and convenience stores are those which once held toilet paper, hand sanitizer, and disinfectant wipes. As early as February of this year consumers made a dash to buy up as much of these products as possible to assuage their fears and protect themselves from the virus. Unfortunately, amongst that group of genuinely concerned buyers was a more sinister faction – price gougers. These price gougers saw a national crisis and immediately sought to profit off of this new reality we find ourselves in. The price gougers purchased large quantities of essential items and attempted to resell these typically inexpensive goods for well over their standard retail price.

One of the most infamous examples of this practice occurred in Tennessee, where two brothers, Matt and Noah Colvin, traveled 1,300 miles across the state and purchased over 17,000 bottles of hand sanitizer and other medical supplies. Their intent? Immediately resell the items for a quick profit. Amazon—the medium through which they were reselling—pulled all of their listings. Tennessee’s attorney general sent the brothers a cease and desist letter, but the case remains under investigation. Tennessee is one of thirty-six states that has enacted an anti-price gouging statute or regulation.  

On Wednesday, March 25, 2020, over 30 state attorney generals sent an open, bipartisan letter urging major online retailers such as Amazon, Walmart, eBay, Craigslist, and Facebook’s Marketplace to take a more hands-on approach in combatting price gouging on their platforms. The officials have every right to be concerned as consumers, struck by the permanence of the COVID-19 virus, have begun hoarding essential items. In return, price gougers feeding on consumer fear have listed highly desired items for hundreds of dollars—hand sanitizer typically the most exploited. These attorney generals are hoping that proactive steps by the retailers will curb the need to enforce their anti-price gouging statutes. In response, many retailers are taking drastic measures to cull the devious parties from their websites. For example, in the first week of March, Amazon removed over 1 million listings it judged as price gouging. Two weeks later it suspended nearly four thousand sellers’ accounts which were responsible for similar unacceptable listings.  

 Several dozen states which do not incorporate anti-price gouging statutes into their general prohibited conduct under their consumer protection laws, automatically employ their respective local statutes when a state of emergency is declared. For instance, Virginia’s anti-price gouging law went into effect on March 12, 2020, when Governor Ralph Northam declared a state of emergency. New York, Florida, and California have a similar disaster-based implementation of anti-price gouging measures, all of which now operational. These statutes typically grant each state the authority to investigate and impose civil and/or criminal penalties for excessive price increases on certain goods and services. However, because each state’s anti-price gouging law is unique it becomes exceedingly difficult for multistate retailers to abide by the seldom utilized regulations.

Additionally, some states which do not have any form of anti-price gouging statutes are nonetheless poised to take action. Washington’s attorney general declared that he will—under the guise of Washington’s consumer protection act—prohibit a business from increasing their prices 20-30% on common items. Washington’s consumer protection act does not include a general prohibition on price gouging during a disaster, but a new bill addressing this issue was recently introduced into the state legislature. In the interim, Washington based businesses are left uncertain whether Washington courts will agree with the attorney general’s declaration without a corresponding law. At a minimum, businesses are now on notice that the attorney general’s office will be probing for this type of conduct. Similarly, Maryland—which did not have an anti-price gouging law—quickly enacted new legislation in March to suppress the surge of deviant retailers and resellers.

Moreover, on March 23, 2020, President Trump—empowered by the Defense Production Act—signed an Executive Order outlawing price gouging on certain “critical” goods. The order directs Attorney General William Barr and Health and Human Services Secretary Alex Azar to designate certain medical supplies as “critical” and criminally prosecute those found to be hoarding unnecessary quantities of items to sell them above the fair market value. This executive order, while appropriate, now further complicates the arena for online and multi-state retailers trying to comply with dozens of state regulations, some newly enacted or amended, amidst a genuine surge in demand on essential goods.

Several of the major factors which go into determining whether a retailer or private seller is engaged in price gouging to include: (1) the relevant geographic area; (2) the time period under consideration; (3) relevant costs and an acceptable margin for product prices; and (4) comparable products and services. 

All of these factors are necessary for consideration because each one plays a pivotal role in setting market prices during typical sales periods. As such, they are usually incorporated into the anti-price gouging laws. For example, Virginia’s “Post Disaster Anti-Price Gouging Act” provides that it shall be prohibited for a supplier to charge “unconscionable prices” for necessary goods and services during the thirty-day period following a declared state of emergency. In his March press release, Virginia Attorney General Mark Herring’s office stated the basic test for price gouging, is “whether the post-disaster price grossly exceeds the price charged for the same or similar goods or services during the ten days immediately before the disaster.” In contrast, California broadly states that any increase of a consumer or good or service in excess of 10% higher than the price charged “immediately prior” a state of emergency constitutes a violation. 

The penalties are similarly unique to each state. For example, under Virginia’s Post-Disaster Anti-Price Gouging Act each violation could lead to a $2,500 fine. Va. Code § 59.1-525 et seq. In New York, a general prohibition on price gouging carries up to a $25,000 civil penalty and a recently passed New York City ordinance allows for a $500 fine per violation.  See NY GBR § 396-r; NYC Admin. Code § 20-701(b). California and Florida carry even harsher penalties which include the possibility of jail time as each violation is considered a misdemeanor. See Ca. Penal § 396 (providing that violation of the statute is a class 1 misdemeanor); Fl. St. § 501.160 (providing that violation of the statute is a class 2 misdemeanor).  

A key takeaway is that every single price gouging complaint involves a fact-specific inquiry based upon the individual mandate of each affected state. 

Moreover, it is important to remember that while states and the federal government can try and enforce blatant price gouging efforts, the task is left principally up to the retailers. Large brick and mortar stores are typically not the problem. Rather, the culprits are individual resellers, such as the Colvin brothers in Tennessee, who utilize the framework of these large e-retailers to peddle their hyper-inflated goods. As such, the federal and state governments must do their best to work in tandem with Amazon, Facebook, and Craigslist, etc., amongst others, to limit the effect these price gougers have on everyday consumers instead of forging the path alone.

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Posted in: Business Law

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