Avoiding Price-Gouging Pitfalls While Navigating Price Increases in the Era of COVID-19

WHITE PAPERAvoiding Price-Gouging Pitfalls While Navigating Price Increases in the Era of COVID-19As COVID-19 continues to impact communities across the country—causing many state and local authorities to extend (or reinstate) emergency orders and other pricing restrictions—the road companies must travel to implement price increases (no matter how justifiable) continues to be littered with price-gouging statutes that, if not skillfully navigated, can lead to costly exposure. Because price gouging is currently governed by state law, with each state setting its own requirements, ensuring compliance on a national scale is difficult, expensive, and fraught with pitfalls. But there are actions companies can take to minimize the risk of a collision with state attorneys general and/or class actions filed by private litigants. This Jones Day White Paper outlines the most important aspects of, and differences among, the current state statutes, the issues companies often face in determining whether and how to implement a price increase, and tips companies can use to avoid, or at least minimize, the bumps in the road to obtain a smoother ride.August 2020iiJones Day White PaperTABLE OF CONTENTSTHE CURRENT RULES OF THE ROAD...........................................................1 Scope ....................................................................................1 Triggers...................................................................................1 Enforcement ..............................................................................1 Thresholds/Defenses.......................................................................1MANY ROADS MEANS MANY POTHOLES.......................................................2HOW TO AVOID A PRICE-GOUGING MISHAP ...................................................4 Understand the Law.......................................................................4 Stay Up to Date on Emergency Orders......................................................4 If You Must Increase Prices, Keep Price Increases Under 10% (In Most States)..................4 Keep Copious Records Evidencing Your Increased Costs, and Limit Price Increases to the Amount of Those Cost Increases.....................................................4 Reevaluate Pre-Emergency Delayed Pricing Decisions.......................................4 Consider Limiting Per-Visit Purchases of Critical Items .......................................4LAWYER CONTACTS .........................................................................5APPENDIX A: OVERVIEW OF STATE PRICE-GOUGING LAWS .....................................6ENDNOTES..................................................................................81Jones Day White PaperTHE CURRENT RULES OF THE ROADPrice-gouging statutes have long been the province of state law. And, as with many other state-specific statutes, there is a rich, and often conflicting, assortment of approaches that states have taken. A mere four have not waded into the price-gouging waters,1 while the vast majority of states and the District of Columbia—38—have express price-gouging laws (including some recently enacted in response to the pandemic2), as do five territories.3 Other states and territo-ries (at least seven) have other laws, usually found in con-sumer protection or deceptive trade practice statutes, that are broad enough to cover price-gouging conduct. Yet other states have included in emergency orders provisions to guard against price gouging,4 and still others (at least three—New Hampshire, Ohio, Washington) are contemplating more spe-cific price-gouging laws in addition to their current consumer protection laws. Even though laws aimed at preventing price gouging are nearly ubiquitous, as outlined below, they differ widely in scope, triggers, enforcement, and thresholds/defenses.ScopeOne of the first questions to answer when analyzing a price-gouging statute is: “What does the statute cover?” This inquiry has two parts. First, what is covered (products, services, etc.) by the statute? Some statutes, like Idaho’s,5 which applies only to “consumer fuel or food, pharmaceuticals, or water for human consumption,” are limited in scope.6 Others have much broader application—for example, Georgia’s statute applies to any “goods or services.”7Second, what levels of the supply chain are implicated (retail, wholesale, manufacturing)? Certain statutes, like the one in Alabama, expressly cover sales by wholesalers and retailers,8 while others—like that in the District of Columbia9—appear to limit application to sales at retail to consumers.10 TriggersWith one exception (Michigan),11 all pure price-gouging stat-utes on the books require a trigger before they go into effect. Typically, this trigger is the declaration of a state of emer-gency, but whose declaration counts (the state governor, the President of the United States, both, others?) varies. The dura-tion of effect also often is tied to the triggering event—for example, in West Virginia, the price-gouging law takes effect on the date the emergency is declared and lasts for 180 days.12 In some states, who can trigger price-gouging statutes and how long they stay in effect are intertwined: In Utah, while the declaration of an emergency by either the President or the Governor can trigger the price-gouging statute, the statute is in effect for the entire time period for which the Governor-declared emergency exists, but only 30 days if triggered by a Presidential declaration.13EnforcementWho has the power to enforce price-gouging restrictions? There, too, variety reigns, although there is one constant—the state attorneys general always have the power to enforce price-gouging statutes. After that, anything goes. Some states, like Indiana and Minnesota,14 grant the state attorneys gen-eral or other state authority the sole authority to police price gouging, while others (e.g., Oklahoma and West Virginia)15 pro-vide for a private right of action. State statutes also vary as to the scope of penalties available to the attorney general: Sometimes an attorney general has the option to seek criminal or civil penalties, like in Mississippi;16 in other circumstances (Virginia, to name one17), attorneys general can seek only civil penalties; and in still other circumstances, an attorney general may seek restitution or some other form of relief (for example, in addition to civil penalties, Pennsylvania’s statute allows for injunctive relief and restitution).18 And the amount of penalties or fines also varies widely, as illustrated by comparing New Jersey, which features a civil penalty of up to $10,000 for the first violation, to up to $20,000 for each subsequent violation, with Missouri—just a $1,000 civil penalty per violation.19 Thresholds/DefensesEven when a sale triggers a price-gouging statute, whether a price increase on a covered product or service violates the statute depends on the statutory language, which, again, differs greatly across the United States. At least one statute (U.S. Virgin Islands) prohibits any price increase regardless of amount or rationale. The majority, however, set a spe-cific threshold for a price increase, usually a percentage increase from some comparison point identified, but often not explained, in the statute. For example, Oregon makes unlaw-ful a price increase of “15% or more [above] the price at which the goods or services were sold or offered for sale by the mer-chant or wholesaler in the usual course of business immedi-ately prior to or during a declaration of an abnormal disruption 2Jones Day White Paperof the market,” or the price at which the “goods or services were readily obtainable by other consumers in or near the geographical area covered by the declaration,” unless the amount is “attributable to additional costs.”20 And then there are states that prohibit merely “unconscionable,” “unconscio-nably high,” or “excessive” prices, or prices “grossly in excess of” or that otherwise evidence a “gross disparity with” (or words to similar effect) certain prices prior to the emergency.21 Additional complexity and diversity exist with regard to poten-tial defenses. A type of cost-based defense is the most com-mon one identified by price-gouging statutes,22 but not all costs are treated equally under all statutes. For example, Idaho’s statute treats all costs of doing business as poten-tially providing a defense, while Indiana’s statute limits its cost defense to “replacement costs, taxes, and transportation costs incurred by the retailer.”23 Several of these cost defenses also permit a company to include its typical markup.24 Still other statutes, e.g., Michigan and Texas,25 apply a strict liability-type standard, with no potential defenses identified. In addition to, or in lieu of, cost-based defenses, a handful of states also allow other defenses. These include a “market defense” (price increases due to specified market changes);26 exclusion of certain providers, like growers;27 and safe harbors for sellers who unintentionally violate the statute once certain conditions are met.28The differences outlined above, while striking, are by no means the only ways in which price-gouging statutes differ. Indeed, a few require a showing of willfulness (e.g., South Carolina),29 some may allow for extraterritorial application (e.g., New York),30 and some can be in effect only in certain counties or regions (such as the declared “disaster area”) rather than statewide (e.g., Missouri31). Although they differ in their approaches, the states are virtually uniform in their efforts to prevent, or at least curb and punish, price gouging.MANY ROADS MEANS MANY POTHOLESUnfortunately, as is so often the case, quantity does not mean quality, or clarity. States not only currently apply differing rules, regulations, and standards but do so in a way that can make conducting business in interstate commerce—i.e., the manner in which businesses...