New York Attorney General’s Loss Shows Limits Of Price-Gouging Laws – Coronavirus (COVID-19)

In the wake of COVID-19, consumers everywhere have seen a stark
decline in available resources such as disinfectant sprays,
cleaning supplies, toilet paper, and hand sanitizer. These items,
along with many others, have become hot commodities and seem to
disappear from shelves just as soon as they are restocked. With the
increased purchase of these products by consumers, retailers are
forced to increase their purchase of these products from
wholesalers. Wholesalers, are in turn, forced to increase prices on
certain products as they face increased fees to keep them stocked
for distribution.  A recent decision serves as a useful
reminder that, oftentimes, retailers and wholesalers increase
prices in response to increased costs, and that doing so does not
amount to price gouging under New York State law.

New York State Anti-Price-Gouging Statute

New York is one of many states with laws against price gouging.
The difference between New York and other states, however, is that
the laws in most states focus only on specific rates of price
increases, while New York also considers the concept of abusive
bargaining power.

Under New York Consolidated Laws, General Business Law Section
396-R, “charging grossly excessive prices for essential goods
and services” during “abnormal disruptions of the
market” is prohibited. The statute further states that
violations of this law are determined based on “(i) that the
amount of the excess in price is unconscionably extreme; or (ii)
that there was an exercise of unfair leverage or unconscionable
means; or (iii) a combination of both factors.” GBS
§396-R. This is a high standard to meet because, in the case
of many wholesalers, the price markup can be tied to the
company’s own costs increasing, which may defeat an
unconscionability argument.

New York Attorney General’s Price-Gouging Allegations
Against Quality King

At the outset of the pandemic, the Office of the New York
Attorney General (the NYAG) announced that “price gouging will
not be tolerated,” and that the NYAG would use its authorities
to enforce laws against price gouging.  The NYAG publicized
certain cease-and-desist letters that it served on retailers. 
Then, on May 27, 2020, the NYAG announced litigation against
Quality King Distributors Inc. (Quality King), a privately held
distributor of more than 5,000 health and beauty products and
grocery items with more than 900 employees in Bellport, New
York.  The NYAG alleged that Quality King had increased the
price of Lysol Disinfectant Spray from about $4.25 per 19-ounce can
to up to $9.15 per can between January 2020 and April 2020.
 The NYAG deemed the wholesaler’s conduct
“profiteering” and called it “appalling” and
“unconscionable.”

But Quality King quickly defeated the NYAG in court.  The
court focused on a few key points: (i) that Quality King had not
uniformly raised prices on all Lysol products, (ii) that Quality
King’s prices were lower than competitors offering the same
products, and (iii) that Quality King’s own expenses had
increased.  The court also measured the change in pricing
before and after the onset of the pandemic and concluded there was
no gross disparity in pricing.  For those reasons, the court
found inadequate evidence of price gouging.

Conclusion

The Quality King case illustrates the aggressive posture that
the NYAG and other enforcers have taken during the pandemic, as
well as the burden enforcers face in prosecuting price-gouging
cases under New York law.  For retailers and wholesalers, the
case is a reminder that increasing prices on scarce goods during a
pandemic carries obvious risks-both reputational and legal. 
Before implementing significant price increases, sellers should
consider these risks. 

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.