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COVID-19 Price Gouging Prevention Act May Give FTC and State AGs Needed Enforcement Powers

Client Alert

Authors: Jan P. Levine, Robin P. Sumner, Michael J. Hartman and Robyn R. English-Mezzino

4/10/2020
COVID-19 Price Gouging Prevention Act May Give FTC and State AGs Needed Enforcement Powers

In our April 3 article, we discussed measures the federal and state governments have taken to stop price gouging in light of their respective enforcement powers or lack thereof. We noted that, while there is no federal law that prohibits price gouging explicitly, a recent executive order granted the Department of Health and Human Services certain authority to prohibit hoarding under 50 U.S.C. 4512. By contrast, many state statutes and newly enacted rules give attorneys general the express power to address price gouging. Those laws, however, were not necessarily drafted with a health crisis in mind and may not provide AGs with sufficient authority to address COVID-19 specific practices. This may now change. On April 8, House Democrats introduced a bill that would preclude price gouging and give the Federal Trade Commission (FTC) and state AGs broad powers to enforce this law. It would be the first federal law to prohibit price gouging expressly and would provide both the federal government and the states with enforcement powers during the COVID-19 outbreak that currently may be missing. If enacted, it would also potentially provide more expansive remedies than currently available under state law.

COVID-19 Price Gouging Prevention Act

Four House Democrats led by Representative Jan Schakowsky introduced the “COVID-19 Price Gouging Prevention Act” (the Bill). The Bill would make it unlawful, for the duration of the COVID-19 declared emergency, “for any person to sell or offer for sale a good or service at a price that (1) is unconscionably excessive; and (2) indicates the seller is using the circumstances related to such public health emergency to increase prices unreasonably.” The term “good or service” is defined as “a good or service offered in commerce, including—

(A) food, beverages, water, ice, a chemical, or personal hygiene product;

(B) any personal protective equipment for protection from a prevention of contagious diseases, filtering facepiece respirators, medical supplies (including medical testing supplies), cleaning supplies, disinfectants, sanitizers; or

(C) any healthcare service, cleaning service, or delivery service.”

To determine whether a violation has occurred, the Bill provides certain factors to consider when evaluating whether the price is unconscionably excessive or unreasonable. These include, among other things, comparing the price to the prices of the same or similar goods or services at a time period 90 days prior to January 31, 2020 (or during the 90-day period of the previous year) and considering whether the price includes additional costs not within the person’s control “that were paid, incurred, or reasonably anticipated by such person, or reasonably reflects the profit-ability of foregone sales or additional risks taken by such person, to produce, distribute, obtain, or sell such goods or services under the circumstances.”

Additionally, and perhaps in recognition of the dearth of federal law on price gouging, the Bill includes broad enforcement powers. First, the Bill would give the FTC power to enforce the law. A violation of the COVID-19 Price Gouging Prevention Act would be a violation of a regulation of the Federal Trade Commission Act, 15 U.S.C. 57a(a)(1)(B), concerning unfair and deceptive acts or practices. The Bill would give the FTC the same jurisdiction, powers and duties as under the Federal Trade Commission Act, and any person who violates the act would be subject to the penalties, and entitled to the privileges and immunities, as under the Federal Trade Commission Act. Those penalties include, but are not limited to, rescission or reformation of contracts, refund of the money paid for the good or service, payment of damages, and public notification regarding the violation or the unfair or deceptive act or practice.

Second, the Bill would give state AGs the power to bring enforcement actions in any U.S. district court or other court of competent jurisdiction to enjoin violations, enforce compliance, obtain civil penalties, and obtain damages, restitution or other compensation on behalf of their residents. This enforcement power would be in addition to, not in lieu of, all of the other enforcement powers that states have at their disposal under state statutes, emergency rules and consumer protection laws. Notably, nothing in the COVID-19 Price Gouging Prevention Act is meant to preempt or impact state or local laws. The Bill, however, specifies that no state AG, or official or agency of a state, may bring an action against a defendant under the act when an action by the FTC is pending.

Takeaways

The COVID-19 Price Gouging Prevention Act could become the first federal law on price gouging, and, if it passes as is, the Bill would give the FTC broad enforcement power that the federal government lacks currently. This Bill also stands to give state AGs additional enforcement power needed to address COVID-19 specific issues in some states. For example, some state statutes do not clearly cover supplies sold to health care providers, like hospitals, or to first responders or commercial establishments, like grocery stores and restaurants, where supplies are needed to protect employees and deliver services to consumers. For example, New York’s price-gouging statute applies only to “consumer goods and services,” which are limited to “those used, bought or rendered primarily for personal, family or household purposes” and “any repairs made by any party within the chain of distribution of consumer goods on an emergency basis as a result of such abnormal disruption of the market.” This definition may not capture, for example, personal protective equipment that would be covered by the Bill’s broad definition of “good or service,” which includes, among other things, “medical supplies,” “any healthcare service,” and “any personal protective equipment for protection from a prevention of contagious diseases.”

The Bill also may give state AGs more remedies for price-gouging violations than presently exist in their respective price-gouging statutes. The monetary penalties for violating state statutes are fines, with some of the highest being $25,000 per violation. The Bill would allow state AGs to seek not only civil penalties, but also damages, restitution and other compensation on behalf of residents without capping the amount. State AGs would also be given a federal forum to adjudicate price-gouging matters if this Bill passes, which is not presently available absent some other basis for federal jurisdiction.

Finally, federal or state enforcement pursuant to the Bill (should it pass) would create a roadmap for, and likely increase the number of, costly follow-on class actions by consumers under available state consumer protection and unfair deceptive practices laws.

These government enforcements are real, not hypothetical. In New York, action has been taken under its emergency rule to issue 75 violations and levy a $37,500 fine against Metro Drugs because it was severely overcharging for face masks (i.e., $200 for 20 masks). In addition, the state AG pursuant to the New York price-gouging statute, section 396-R of the New York General Business Law, has issued fines to Scheman & Grant Hardware, d/b/a Ace Hardware, for charging $79.99 for 40 ounces of hand sanitizer. Where state laws provide for a private right of action, and especially where such litigation could be brought as a class action, companies must understand and respond to the increased risks occasioned by more aggressive enforcement. Companies must also be mindful that consumers may see these aggressive enforcements and bring class actions under consumer protection laws. Indeed, a class action has already been filed pursuant to the Florida Deceptive and Unfair Trade Practices Act concerning price gouging of toilet paper and hand sanitizer.

While the federal landscape on price gouging may be changing, state price-gouging statutes are unique, and new emergency rules are being enacted. Companies should stay attuned to new developments and seek advice as needed to ensure compliance with all relevant price-gouging laws, both to manage enforcement risk now and civil litigation risk later.

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.

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