Texas v. Cal-Maine Foods, Inc.: In this case, Attorney General Paxton sued one of the largest egg producers in the country for raising prices in sales to grocery stores in the early days of the Covid-19 pandemic. Cal-Maine moved to dismiss the case raising both constitutional challenges to Texas’ price gouging law as well as asserting that Texas had no legal or factual basis for the claim. Cal-Maine’s primary argument was that the price gouging law was unconstitutional for three reasons: 1) it is vague (Texas law prohibits “excessive” or “exorbitant” pricing without defining those terms), 2) it violates the Dormant Commerce Clause (since Cal-Maine sells to national chains, they would be unable to adjust their pricing to be state-specific), and 3) it is a regulatory taking (by forcing Cal-Maine to sell eggs below the price they paid). Cal-Maine further asserted that because it was merely pricing eggs using the same methods it always did – through a price index – it could not have “taken advantage of an emergency” as required for price gouging under Texas law. The trial court agreed with Cal-Maine, and entered an order dismissing the case, without providing a written opinion explaining the basis. Texas then appealed.

On August 16 the First District Court of Appeals reversed and remanded. The court’s focus was on the standard necessary to dismiss an action under Texas Rule of Civil Procedure 91a, which requires the petition have “no basis in law or fact.” Noting there is nothing interpreting what “excessive” or “exorbitant” means under Texas’ law, the court seemingly adopted the parties’ general assertion that there must be a comparison between the price charged during the emergency and what is “usual, proper, necessary, or customary.” In a motion to dismiss however, the Court did not need to decide the appropriate time period to analyze Cal-Maine’s pricing increase, finding that under any reading the State had made a claim that should survive a 91a motion. In reviewing the three constitutional affirmative defenses raised by Cal-Maine, the Court found each to be premature, noting that while Cal-Maine may ultimately have a colorable claim, the record on appeal of a motion to dismiss was insufficient to make that determination.

New York v. Quality King Distributors, Inc. and King: Switching gears from eggs to Lysol, Attorney General James also brought an early case in response to Covid-19 under New York’s price gouging law. The State sued Quality King, a wholesale distributor to grocery and discount stores, over its higher prices of Lysol products, increasing its profit margin 75% from November 2019 to March 2020. On a motion to dismiss, the Court granted the motion finding that as a matter of law, Quality King did not charge unconscionable or extreme prices, as there wasn’t a large disparity between its pricing right before and after the emergency declaration, and because its pricing was in line with, and even less than, other competitors. New York appealed.

Just as in Texas, the First Judicial Department in New York reversed and remanded. To show a price gouging claim, New York needed to show 1) an abnormal disruption of the market, 2) that the good or service in question is vital to the health, safety, and welfare of consumers, and 3) the price charged was unconscionably excessive.

Looking at a variety of Covid-19 emergency declarations, the Court ultimately found that February 26, 2020 was the date of the onset of the market disruption, as that was the date the CDC found Covid-19 to pose an imminent threat. In finding the second “vital good” prong met, the Court examined the products at issue in the eyes of the consumer at the time of the market disruption – it didn’t matter that scientific hindsight questioned whether Covid-19 could be transmitted from surfaces, since consumers believed they needed the products at that time. For the third “unconscionably excessive” prong, the Court compared prices charged on February 26 to those charged a month later and found significant increases. Like the Cal-Maine case, the Court made clear this wasn’t a definitive finding of a violation of law, but rather showed that the State had met its prima facie burden to proceed with its case. Unlike Cal-Maine however, the Court squarely addressed constitutional vagueness claims raised by Quality King. While noting that the statute doesn’t provide any metrics for calculating what “unconscionably excessive” pricing means, the Court nonetheless found that the statute met the relaxed standard provided to civil laws, and that it did not encourage arbitrary or discriminatory enforcement.

While both appellate courts have breathed new life into these AG enforcement actions, it remains to be seen whether either or both companies will ultimately be held liable under those laws. In the meantime there are some notable takeaways:

• All levels in the supply chain may be on the hook under certain price gouging statutes. Both enforcement actions here concerned businesses that do not sell directly to the end consumer. This indirect relationship nonetheless provides grounds for certain AGs to enforce, and companies should take note that if they ultimately impact consumers prices, they may be on the hook for price gouging enforcement.
• In an increasingly partisan space, price gouging remains completely bipartisan. The fact that two states like Texas and New York, who are at opposite ends of the political spectrum, could bring similar cases shows the importance that AGs will put on pricing issues in the face of emergencies.
• Challenges to vagueness of price gouging laws may not succeed. New York’s survival of the constitutional challenge to the vagueness of its price gouging law is an important precedent as businesses and enforcers alike struggle with what constitutes price gouging in each state. As we discussed in our webinar, many states include similar descriptors of “excessive” or “exorbitant” without specific definition, leaving companies in the challenging position of determining what type of price increase, if any, is permissible during an emergency or market disruption. Seeking legal guidance on price changes during an emergency declaration is even more advisable given these terms were held, at least in one instance, not to be unconstitutionally vague.

As workforces become increasingly mobile and remote work is more the norm, employers face the challenge of balancing the protection of their employees’ personal data and privacy against the need to collect and process personal data to recruit, support and monitor their workforces. Mounting regulations attempt to curb employers’ ability to gather and utilize employee data—from its historical use in processing employee benefits and leave requests to employers’ collection, use or retention of employees’ biometric data to ensure the security of the organization’s financial or other sensitive information systems. Learn what employers can do now to protect employee data and prepare for the growing wave of data privacy laws impacting the collection and use of employee personal data.

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Avoiding Price Gouging Claims Wednesday, August 3 Recently State Attorneys General, the House Judiciary Committee, and many others have weighed in on rising prices in an attempt to weed out price gouging and other forms of what they deem “corporate profiteering.” States and federal regulators are carefully looking at pricing as consumers and constituents become more sensitive to the latest changes and price gouging enforcement is an avenue states may be able to use to appease the public. Unlike other emergencies in the past, the current state of supply chain and labor shortages, along with skyrocketing costs for businesses, make it unrealistic for companies to simply put a freeze on any price increases. This webinar will cover:

• The basics of price gouging laws and related state emergency declarations and how to comply • The differences and varied complexities in state laws • General best practice tips • How AGs prioritize enforcement

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Later in the week these concerns were echoed in a House Judiciary Committee meeting addressing in part “Combatting Corporate Profiteering.” State representatives raised concerns on prices in these same industries of oil and formula, for instance. We have already also seen states inquire about gas prices. So, Georgia likely is not the only state scrutinizing prices as we encounter continued supply chain issues and inflation.

Retailers and businesses across the supply chain should continue to monitor price gouging laws and state emergency declarations for compliance. Though more direct Covid-related price gouging enforcement has faded, emergencies related to Covid or other emergencies could continue or revive price gouging restrictions. And it’s important to remember that price gouging laws are varied in the states, with many leaving undefined exactly what type of price increase is permissible and instead using undefined standards like “excessive.” Unlike other emergencies in the past, the current state of supply chain and labor shortages along with skyrocketing costs for businesses make it unrealistic for companies to simply put a freeze on any price increases – so states may be testing some of these undefined concepts soon.

States will be carefully looking at pricing as consumers and constituents become more sensitive to the latest changes. Price gouging enforcement is an avenue states may be able to use to appease the public in this economy. But with this increased scrutiny by states it is extremely important to have a complete understanding of what is permissible in each state a business operates in, all while being sensitive to the varied complexities of different state laws.

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• On Monday, the President signed an executive order to prevent hoarding and price gouging of crucial medical supplies. It authorizes criminal prosecution of anyone whose purchases exceed reasonable limits. Attorney General Barr concurrently announced that the Justice Department has already launched hoarding investigations to carry out the order.

So, if you’re sitting on 17,700 bottles of hand sanitizer, it’s probably time to donate that….

• The AGs in 32 states sent a letter to online retail platforms (Amazon, eBay, Craigslist and others) urging them to do more to crack down on price gouging. The letter calls for the platforms to set policies and enforce restrictions on price gouging during emergencies, trigger these protections independent of or prior to an emergency declaration, and create and maintain a fair pricing page or portal where consumers can directly report price gouging incidents.
• In a March 17 letter, the House Energy & Commerce Committee urged the FTC to take action to protect consumers from price gouging. The Committee also says it will continue to pursue other means, including legislation, to protect consumers.

What’s the takeaway? Operators of online retail and advertising platforms should be evaluating pricing practices to ensure that they do not run afoul of the patchwork of state laws governing price gouging. Further, compare existing practices to those outlined in the AG letter and see what can be done to address these points.

• And finally, as a follow up to reports of consumers using Tito’s Vodka to make hand sanitizer, Tito’s Vodka announced this week that it will be producing 24 tons of hand sanitizer and donating it. Cheers to that. Stay well!

More than half the states have laws that prohibit charging excessive prices on certain products after a triggering event, such as a declaration of a state of emergency. What constitutes an excessive price varies by state, but many laws look at the price that had been charged for an item over a specific period prior to the emergency. Some statutes have specific thresholds. For instance, a 10% price increase is presumed to be excessive in New Jersey, while Pennsylvania assumes that a 20% increase is excessive.

Most laws have exceptions to these prohibitions. For example, in many states, a price increase is not unlawful if a company can prove that the increase was directly attributable to additional costs imposed on it by the supplier of the goods, or directly attributable to additional costs for labor or materials used to provide services. If you are a retailer and need to increase prices as a result of increases from your suppliers, make sure to check the relevant state laws and to document those increases. While generally enforced against retailers, some laws expressly apply to suppliers, distributors, and/or wholesalers – and others are broad enough to arguably apply to these entities. At minimum, this means that retailers may have leverage to request documentation to support the increase.

Civil penalties for violations generally range from $99 to $250,000 per violation. (The high end of that range applies in Texas if a consumer who is impacted is at least 65 years old.) Some states also have criminal penalties for violations. If you’re going to increase prices on goods, make sure you take a look at these laws first.​

For other helpful information during this pandemic, visit our COVID-19 Resource Center.

We noted a couple news items this week that help add context to the pervasiveness of and risks related to price gouging enforcement. In this story, the New York Times reported on a merchant who was selling hand sanitizer and related protective gear on Amazon, at profit levels that corresponded with the growing public concern. Amazon removed his listing along with hundreds of thousands of others and suspended thousands of sellers’ accounts for price gouging. He’s now left with 17,700 bottles of hand sanitizer.

The California, Washington, and New York attorneys general offices are investigating price gouging complaints. The New York AG issued multiple cease and desist letters last week relating to exorbitant prices on hand sanitizer and disinfectant spray. The California AG issued a consumer alert regarding price gouging following announcement of a state of emergency. The Washington AG issued a similar alert calling on consumers to report price gouging and scam products.

On the advertising claims front, the New York AG announced enforcement against Alex Jones, who operates the InfoWars website. The

AG alleged that Jones was marketing and selling toothpaste, dietary supplements, and creams as treatments to prevent and cure the coronavirus. The NY AG also issued cease and desist letters to Dr. Sherill Sellman, who was selling colloidal silver as a coronavirus cure, and to disgraced televangelist, Jim Bakker, for featuring claims that Sellman’s colloidal silver product could “eliminate [coronavirus] within 12 hours.” The State of Missouri has also brought enforcement action against Mr. Bakker.

So, what’s the lesson? In our prior coronavirus marketing post, the lessons were to know and understand the pricing laws and to avoid overstating the benefits of any product. The follow-on issue is one of ethics and brand management: We’re in a public health crisis. Brands and platforms that demonstrate that they are working to comply with the law and take proactive consumer protection measures may forego short term profits, but they stand to gain long term consumer trust and maybe even generate some goodwill with regulators.

In addition to retail platforms, advertising and social media platforms may want to take note. CDA Section 230 is alive and well but does any platform want to go to bat for advertising allegedly scam products? The Washington AGs office stated that they will use their consumer protection laws to sue platforms or sellers even if they aren’t in Washington, as long as they were trying to sell to Washington residents. Every other state AG undoubtedly agrees with this approach.

And finally for some comic relief…for some insightful advice from John Oliver, check out this link at the 17-minute mark.

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Not anymore.

The public is rightly concerned about coronavirus and how to avoid catching it. And where the public has questions, marketers will have answers. Here are a couple things to think about before rushing that next campaign out the door.

State and Local Laws Prohibit Price Gouging

As hand sanitizer has become scarce, some who have it have sought to capitalize on consumer demand and no small amount of fear. We noticed this story about Amazon cracking down on third-party merchants selling coronavirus products at inflated prices.

Many states have laws governing price gouging. New York’s law prohibits merchants from taking unfair advantage of consumers by selling goods or services that are “vital to the health, safety or welfare of consumers” for an "unconscionably excessive price" during an abnormal disruption of the market place or state of emergency.

New York's price gouging law does not specifically define what constitutes an "unconscionably excessive price." However, per the NY AG, the statute provides that a price may be "unconscionably excessive" if: the amount charged represents a “gross disparity” from the price such goods or services were sold or offered for sale immediately prior to the onset of the abnormal disruption of the market. Merchants may provide evidence that justifies their higher prices were justified by increased costs beyond their control.

California’s law is more prescriptive. California’s anti-price gouging statute, Penal Code Section 396, prohibits raising the price of many consumer goods and services by more than 10% after an emergency has been declared. There may also be local laws that prohibit price gouging.

State attorneys general and CA district attorneys have reported receiving price gouging complaints. Companies that fail to comply will risk being enforcement targets.

Be Careful Not To Oversell

The FTC and FDA issued warning letters to seven companies allegedly selling unapproved products that may violate federal law by making deceptive or scientifically unsupported claims about their ability to treat coronavirus. Both agencies issued statements indicating that they are prepared to take further enforcement action to prevent the public from being misled.

An equally concerning scenario is the marketer who sees an opportunity to market around coronavirus with a product that has value but not to the degree that it would be an effective prevention tool. For example, dust masks are not the same as N95 face masks. Hand wipes without alcohol will not kill the same germs as those with alcohol. Tito’s Handmade Vodka is not hand sanitizer. It would be potentially misleading and deceptive to market dust masks, hand wipes without an effective sanitizer, or even Tito’s Handmade Vodka hand sanitizer as effective coronavirus prevention tools. It’s also a waste of good vodka. But, we digress.

The lesson is this: The rush to meet consumer demand should not overcome the legal clearance process or common sense. Rules still apply even in – and maybe especially in – times of public health emergency.

Stay tuned. We’ll update this post as the situation evolves.