The Price Gouging Law and the CFA

In general, New Jersey’s Consumer Fraud Act (CFA) prohibits merchants, salespeople and contractors from using deceptive practices in the sale of goods or services to consumers.

The CFA’s price gouging provision makes it unlawful to sell merchandise at an “excessive price” during a declared emergency, which it defines as more than 10% higher than the price at which the seller sold or offered the good or service for sale in the usual course of business prior to a declared state of emergency.

Attempts to Expand the Price Gouging Law

While the price gouging provision would appear to apply only to merchandise sold during the state of emergency, DAGs appear to be taking a much broader enforcement approach that may contradict established New Jersey case law.

DAGs are serving subpoenas on sellers pursuant to the CFA and demanding documents relating to the sale of merchandise during and for months prior to the state of emergency. At first glance, these demands would appear to focus on comparing the price of the items prior to and during the state of emergency to determine if it has increased more than 10%. However, merchants should be aware that DAGs may also be looking to prosecute behavior related to pricing prior to the state of emergency.

Since the price gouging law was triggered by the state of emergency, I have received numerous calls and defended many price gouging cases. It has become clear that DAGs are examining behavior prior to the declaration of the state of emergency for potential CFA violations. DAGs allege that while the price gouging provision may not encompass behavior prior to a state of emergency, the broader CFA does cover issues of price outside of that time period.

Price Gouging Plus

The Attorney General’s Office has broad subpoena and enforcement powers pursuant to the CFA. While a seller may breach the CFA in part by charging an “excessive price” for its product outside the time frame of the state of emergency, that must be coupled with numerous misrepresentations or other deceptive practices involving soliciting customers, to truly violate the CFA. Excessive price alone, absent a state of emergency, should not constitute a CFA violation.

New Jersey courts have consistently ruled that under our market-driven, capitalist system, sellers may generally charge whatever the market will bear so long as they do not engage in deceptive or other unfair sales practices. Further, the specific language in the CFA’s price gouging provision spells out the exclusive authority of the Attorney General’s Office relating to the regulation of pricing during a declared state of emergency. The Attorney General does not have the unilateral ability to supply additional language not included in the statute. Accordingly, charging a high price without engaging in any other unfair practices should not violate the CFA unless a state of emergency has been declared.

Before producing any documents to a government agency, sellers should be aware that DAGs are investigating potential violations of the CFA related to pricing outside the window of the state of emergency. Attorneys representing sellers should also review the body of case law that supports the legal arguments related to CFA violations, the price gouging provision and COVID-19.

Merchants facing subpoenas and businesses that have been contacted by any agency should consult with counsel. In light of the issues outlined above, merchants may want to secure a confidentiality agreement with the requesting agency before producing any documents. Finally, it remains important that merchants selling products and services online be mindful of the price gouging laws in every state, as well as the federal Defense Production Act, before responding to a subpoena.