Price Gouging and the Pandemic: State Attorneys General Enforcement Trends and Developments

Price gouging refers to the practice of raising the price of essential goods, services, or commodities to an unreasonable, unfair, or excessive level, typically during a declared state of emergency or, in some states, any “external crisis.” As there is no federal anti-price-gouging law, the primary role of curbing this conduct traditionally has rested with state attorneys general either through statutory authority, gubernatorial executive order, or, in some states, rulemaking. Until March 2020, state price gouging laws were almost exclusively triggered by major local or regional weather events or other natural catastrophes of limited geographical impact and duration, such as hurricanes, floods, or wildfires. The COVID-19 pandemic has changed all that, introducing new elements. Its impact is national in scope, and the kinds of products deemed essential are more numerous and varied and can even change over time.

Some states of emergency declared in 2020 lasted a year or more due to the health crisis, and others were reissued for other essential products, such as test kits, following waves of COVID-19 Omicron resurgence. In most states, where required, these declarations activated price gouging laws, but these laws, while conceptually similar between states, are not uniform in their application, scope, or remedies, and state attorneys general have varied in the ways in which they have used their authority to pursue price gouging. As a result, businesses have had to tread carefully to avoid scrutiny. To help understand the legal challenges wrought by the pandemic for enforcers and businesses alike, this article will provide a high-level overview of state price gouging enforcement trends and will explore some of the differences in approach and remedy among the state attorneys general as well as how businesses in the crosshairs responded.

State Price Gouging Laws: A Brief Overview

There are approximately 37 states as well as the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands with price gouging laws, rules, or regulations. In addition, in some states with no price gouging statutes, the governors were prompted by the urgency of the situation to issue executive orders allowing their state attorneys general to pursue price gouging during the current emergency. This took place in Delaware and Minnesota. In Illinois, the governor issued an order extending the state’s authority to pursue price gouging on household and medical supplies, expanding the existing law beyond petroleum products, the only area to which it applied before. The Massachusetts attorney general acted in a similar fashion under her rulemaking powers.

In addition to Delaware and Minnesota, there are at least 11 other states with no price gouging law, regulation, or rule, and at least one, Ohio, that also has no price gouging law but does have laws on the books banning “unconscionable sales practices.” Likewise, many of the states with no price gouging laws, depending on the circumstances, can apply their existing unfair trade practice laws; therefore, businesses still must be careful in those states, as price gouging could still be considered a violation of a state’s consumer protection or similar law. Alaska is an example. Although Alaska has no price gouging law, in April 2020 the state’s attorney general filed suit against an online seller, alleging unconscionable trade practices in violation of the state’s unfair and deceptive trade practices act.

What triggers price gouging laws, and what do they cover? For states with price gouging laws, while there are some similarities among the various laws concerning what triggers them, there are far more differences. Most typically, price gouging laws are only triggered by a declared state of emergency, the occurrence of a natural disaster, or an “abnormal market or economic disruption,” and they apply to the pricing of products and services “necessary for consumption and use as a direct result of the emergency.” In some states and territories, the statutes apply across the board to all products and services. Others apply to products and services considered “necessities,” “essential,” or “critical.” Still others apply only to a single product or a handful of products deemed necessary to a consumer’s health and safety in an emergency, such as food, gasoline, and medical goods.

Regarding price gouging laws focused on “necessities” or “essential commodities,” most statutes are worded in a way that the emergency itself dictates what can be deemed a “necessity” or “essential.” However, in other states where the definition of these terms appeared too narrow or was unclear, officials had to act quickly in the early days of the COVID-19 pandemic to broaden the reach of their laws. For example, in New York, the attorney general successfully worked to expand the scope of the state statute to include goods vital and necessary to the health, welfare, or safety of the public. The New York legislature also increased the penalty amounts in the law. In other states, as mentioned earlier, either the governor, as in Illinois, or the attorney general, as in Massachusetts, issued executive orders or expanded rules to cover health-related necessities. And, in at least one state with no price gouging law, Nevada, the attorney general successfully achieved the passage of price gouging legislation effective October 1, 2021. By contrast, efforts by Connecticut’s attorney general to beef up his state’s price gouging law failed during the 2020–21 legislative session, passing only the House.

Additionally, other states saw efforts to narrow existing price gouging laws. For example, in Idaho the legislature passed a bill narrowing the state’s price gouging statute in March 2021. The legislation, which was strongly opposed by the state’s attorney general, was passed after the attorney general had successfully pursued price gouging allegations against three retail fuel companies that had failed to bring their prices down as quickly as wholesale prices declined. The bill clarified that price gouging only applied to excessive price increases and not the speed of price decreases.

What products and services constitute “essential commodities” in a pandemic? In states where the price gouging laws apply without limitation to “essential commodities,” state attorneys general had to push the reset button and determine what products and services should be deemed “essential” during the COVID-19 health crisis, as opposed to a natural disaster. Several of the early statutes, such as the one Florida passed in the wake of Hurricane Andrew in 1992, expressly list, without limitation, some of the essential commodities and services subject to the statute, such as water, lumber, ice, chemicals, and petroleum products. In storms, these items are in high demand and crucial to preparing for or recovering from a major storm. Other essential items in hurricane-related states of emergency have typically included generators, hotel rooms, and cleanup and building supplies and services.

By contrast, during the COVID-19 pandemic, the new “essentials” soon became items such as bleach and other sanitizing cleaning products, hand sanitizer, face masks, PPEs, test kits, and, in some states, toilet paper! Because the crisis was health-related, in Florida, the Attorney General’s Office relied on determinations from the Florida Department of Health regarding which products and services were essential under Florida’s price gouging laws and posted the information on its website. Other states applied their laws to any product or service in scarce supply due to high demand, panic buying, and hoarding, including items such as meat products, eggs, and paper products.

Are the laws applicable only to retailers? Another way state price gouging laws can differ is whether they apply to businesses up the supply chain beyond the retailer. Some state laws expressly apply only to retailers, while others expressly apply to any party in the supply chain. Still others are silent on this issue.

What are the potential remedies? Available remedies also vary between states. Some states make price gouging a criminal offense as well as a civil one. In California, for instance, it is a misdemeanor punishable by up to a year in jail and/or up to a $10,000 fine, and in Arkansas, it is a Class A misdemeanor punishable by up to one year in jail per violation and a criminal fine of up to $2,500. Missouri makes it a Class D felony subject to one to seven years in prison and a criminal fine of up to $10,000. And in Mississippi, the criminal penalty can range from a misdemeanor (up to $1,000 and six months in jail) to a felony (up to five years in prison with fines up to $5,000).

Most states, however, provide only for civil remedies, including civil penalties, restitution, and injunctive relief. Civil penalties in many states range from $1,000 to $40,000. Depending on the statute, civil penalties caps are assessable per violation or as a total limit for all violations by a business with respect to a particular product or service.

How long do the price gouging laws remain effective? The length of time that price gouging statutes remain triggered likewise varies among states. In most states, price gouging statutes can be invoked for at least the duration of the declared state of emergency or other triggering event, including extensions. But in some states there are limits, typically of 30, 60, or 90 days from the date when the emergency is declared, with exceptions that allow for some discretion. In Florida until 2021 (when the law was amended), so long as a declared state of emergency remained in effect, the price gouging statute law was triggered; in 2021 the state added a 60-day expiration date for the price gouging provisions of the governor’s state of emergency subject to extensions at the governor’s discretion. The amendment was enacted to address concerns raised by businesses in recent years that the statute remained in effect for as long as the states of emergency were extended by the governor, sometimes for months and even years, well after the conclusion of any price gouging. Now, unless the governor expressly extends the price gouging portion of his executive order after the 60 days lapses, the law will no longer be in effect. With respect to COVID-19, the governor allowed the state’s declaration to expire in June 2021, even though, at the time, the pandemic was still in full force.

Some coastal states, such as Florida and North Carolina, have also experienced overlapping states of emergency, including in 2020, when a state of emergency was declared as the result of the COVID-19 health crisis and another was declared, or already in place, in the aftermath of single or multiple severe weather events. While the declaration periods overlapped, as noted above, what was deemed an “essential commodity,” at least in Florida, was completely different with respect to each crisis.

What thresholds apply for triggering the statute? Every price gouging statute sets forth a threshold for triggering further scrutiny. There are essentially three different threshold categories: percentage increase cap limits (for example, Arkansas, California, and New Jersey); unconscionable/excessive price limits (for example, Colorado, Florida, and Idaho); and outright bans on price gouging (for example, Georgia, Hawaii, and Louisiana).

Are there exceptions or defenses? With respect to each of these categories, most statutes provide for exceptions. The most common exception is when a merchant can show that it was just passing on the increased cost to the consumer from the manufacturer or distributor of the product or service with the normal margin for profit.

Some price gouging statutes expressly provide for specific look-back periods for before-and-after price comparisons. These can vary from seven days to 90 days before the declared state of emergency, but the most common, when there is one, appears to be 30 days, as in Florida. However, most provide no explicit look-back time frame for comparison and simply look to prices charged “pre-emergency” or “before the declaration of the state of emergency.”

What are the general elements of a price gouging claim? With this overview in mind, then, what would a typical price gouging enforcement claim look like? In most states, the main elements of a claim likely would include: (1) whether a state of emergency is in place; (2) whether the product in question is named in the statute or could be considered under the circumstances to be an “essential commodity”; (3) whether the price of the product appears to be excessive or exorbitant or falls outside the designated percentage thresholds for states that have percentage caps; and (4) whether it can be shown that any justifiable cost exists that might offset any excessive increase in price, as most price gouging laws would not apply in such circumstances.

What should businesses do? So, what does all this mean for businesses? First and most importantly, businesses should maintain all documentation demonstrating the reasons for any price increases. Retailers should be as transparent as possible about increased prices; it will save a lot of time and scrutiny in the long run. Suppliers up the chain must also be cautious and be prepared for scrutiny.

State Enforcement: Approaches and Outcomes

Given the variety of state price gouging laws, it should come as no surprise that state attorneys general have differed in their approaches to price gouging enforcement during the pandemic. Those with more tested statutes, albeit usually under the very different circumstances of severe weather events, were able to hit the ground running, pursuing price gouging aggressively and quickly, but states with little prior experience with their price gouging laws have also proven to be aggressive in enforcement. No matter their level of experience, state attorneys general have myriad tools available to them, and they have used them.

Warnings, cease-and-desist letters, investigative subpoenas, business points of contact, corporate complaint facilitators. For most attorneys general, the primary goal in price gouging enforcement is to stop the conduct as soon as it is spotted and substantiated, with a secondary goal being deterrence generally. Achieving these goals requires an all-hands-on-deck approach and extensive investigative resources. For example, in Florida, during spring and summer 2020, the Consumer Protection Division utilized nearly all 100 of its attorneys and staff to review and investigate complaints of alleged price gouging. Most substantiated consumer tips resulted in businesses correcting the prices they charged and providing refunds voluntarily. If that did not occur, or if the conduct was particularly egregious, however, warning letters were issued, investigative subpoenas were served, and potential lawsuits or formal settlements were pursued.

The result of this effort was that, between March and December 2020, the Florida Attorney General’s Office recovered $2 million in refunds and civil penalties for consumers as well as refunds for such things as event and trip cancellations and outright scams. By year’s end, nearly 6,000 consumers had contacted the Florida Attorney General’s Office asserting price gouging of commodities deemed essential in the pandemic. The Office also made more than 10,000 referrals to merchants regarding a wide variety of potential price gouging concerns as well as refund requests for items never received or for such things as canceled events and travel deposits. More than 100 investigative subpoenas were issued, including more than 70 to online sellers, and the Office worked closely with major online platforms such as eBay, Amazon, and Facebook Marketplace to deactivate hundreds of posts by third-party sellers offering items at unconscionable prices. Florida’s efforts are a good example of the variety of informal approaches available to state attorneys general that allow them to respond to price gouging quickly and aggressively.

After the attorneys general of 33 states and territories wrote the major online sales platforms in March 2020 urging them to aggressively pursue price gouging sellers on their sites, many states established points of contact with the platforms to crack down on online sellers as soon as possible and remove excessively priced items. Florida was one of the most aggressive, working closely with platforms such as Amazon, Walmart.com, and Etsy to remove thousands of excessively priced items offered by online sellers.

All major platforms now have in place both automated and non-automated systems that detect price gouging on their sites. While not foolproof, these efforts have worked to deter third-party sellers from attempting to gouge for fear of losing the ability to sell on the platform, a penalty many of the platforms have not hesitated to apply.

Litigation involving “essential commodities.” Because the name of the game in pursuing price gouging is to stop it in its tracks before consumer harm is widespread and then obtain consumer restitution quickly where appropriate, litigation is not typically the first choice of remedy for most state attorneys general. Litigation rarely yields prompt results, is costly, and may have little immediate deterrent effect in the price gouging context, but it has been employed by state attorneys general in several states during the pandemic, typically after other avenues have failed, and, with a few exceptions, has yielded good results.

For example, in April 2020, Vermont’s attorney general filed suit against Big Brother Security Programs and its owner. The company purchased imported surgical masks costing 10 cents each and sold them to Central Vermont Medical Center (CVMC) for $2.50 each. The court granted the Vermont Attorney General’s request for an injunction on April 27, 2020. In December 2020, the company settled. The settlement requires the defendants to provide nearly 80,000 units of personal protective equipment (PPE) to CVMC and 10,000 units of PPE to the State of Vermont for distribution throughout the state. The company was also assessed a suspended civil penalty of $15,000.

Litigation against suppliers for price gouging. Several states have pursued, with mixed results, litigation against wholesalers and distributors for alleged price gouging in their sales to retailers.

For example, in 2020 New York filed a lawsuit against the nation’s fourth-largest egg distributor, Hillandale Farm Corporation, alleging that in March 2020 the company began raising the prices it charged Western Beef Supermarket for a dozen white eggs, ultimately reaching a per-dozen price nearly five times higher than the prices it charged the supermarket in January 2020. The case ultimately settled with Hillandale donating 1.2 million eggs (100,000 cartons) to New York food banks.

In April 2020 Texas sued the giant egg supplier Cal-Maine for price gouging, accusing it of hiking its price from about $1 per dozen to $3 per dozen, despite experiencing no disruption in its supply chain. The suit was dismissed, however, based on Cal-Maine’s contention that its pricing essentially was the effect of market forces.

Assurances of voluntary compliance. Several states have resolved price gouging concerns through pre-litigation settlements, called assurances of voluntary compliance (AVCs).

For example, in January 2021, the Colorado Attorney General’s Office saw its first settlement, an AVC, under the price gouging law its legislature passed in 2020. Nationwide Medical Supply, a seller of PPE and other health safety supplies, agreed to pay $70,000 in restitution, fees, and costs to the state and stop charging excessive and unreasonable prices for its products. Nationwide allegedly sold face masks for a markup that sometimes exceeded 250 percent of Nationwide’s cost. It also made false and misleading claims about the masks, marketing the KN95 masks as the far more protective N95 respirators, falsely claiming they were “FDA/CE approved,” and using the FDA logo in violation of applicable law.

Civil fine assessments. The Pennsylvania Attorney General’s Office used its power to seek the imposition of civil fines for alleged price gouging in more than 20 instances in 2020. In July 2020, for example, a Chester County pharmacy was required to pay $5,300 in fines for selling 100 individual N95 masks for $25 each. The business was also required to reimburse almost $2,000 to customers who purchased the masks.

Criminal enforcement. The California Attorney General’s Office was among the first to pursue criminal charges for alleged price gouging. In June 2020 that Office announced misdemeanor price gouging charges against Katrin Golian, doing business as RxAll Pharmacy. The charge was brought on the heels of an executive order issued by California’s governor, Executive Order N-44-20, prohibiting businesses that did not sell certain emergency-related items prior to the emergency declaration from charging a price for the item that was 50 percent greater than the seller’s cost of purchase. The criminal complaint alleged that the licensed pharmacist knowingly sold KN95 masks at prices exceeding the markup permitted under the executive order, selling masks purchased for $5 each for $10, a 100 percent markup. The charge came after the pharmacist received a warning from special agents but continued to sell masks in violation of the executive order.

Enforcement under general unfair trade practices acts. At least one state attorney general in a state without a price gouging law has sued using the state’s general unfair and deceptive trade practices act. Alaska’s attorney general sued an online seller in April 2020 under the state’s consumer protection statute after the individual bought up thousands of N95 respirators from Alaska stores and resold them on Amazon and eBay at allegedly unconscionably high prices. According to the complaint, the defendant purchased 20-packs of N95 respirators from several stores in Alaska, including Lowe’s, Home Depot, and others, for between $17 and $23 dollars, and then resold them on Amazon for an average price of $89.25 and on eBay for as much as $89.99. In the complaint, the attorney general asked the court to impose a $25,000 fine for each sale the defendant made.

Conclusion

It should be clear from this overview that while the price gouging laws may vary in scope, thresholds, application, duration, and remedies, and while approaches may differ between state attorneys general, the goals are the same: immediate relief and deterrence. Prolonged investigations and possible litigation can be avoided where businesses have maintained all relevant paperwork reflecting costs, promptly provided the paperwork when inquiries have been made, immediately heeded warning or cease-and-desist letters, quickly provided refunds where appropriate for any essential products or services priced significantly higher than before the declared state of emergency, and otherwise fully cooperated with enforcers. In the end, this not only benefits the businesses under scrutiny and their affected customers, but it also ultimately saves substantial time and resources for all concerned, often leading to quicker resolution.