COVID Winds Down, but States Ramp Up Price Gouging Legislation

Proskauer - Minding Your Business

Even as Governors lift mask mandates and sporting events welcome fans to stadiums, some states are revisiting their price gouging laws.  Recently, several states have advanced legislation to amend or create price gouging statutes.  State governments are learning from experiences during COVID-19 emergencies and some are proposing legislation to adjust the scope, definitions, and penalties for price gouging.

Nevada

Nevada does not currently have a price gouging statute.  At the outset of the COVID-19 pandemic, the Governor issued an executive order directing law enforcement to “monitor and investigate” various business practices including coordinated pricing, fraud, or coercion.  EO 2020-03-12, § 5.  But, the state of emergency did not trigger specific pricing restrictions.

On May 25, 2021, the Nevada Senate passed legislation to include a price gouging provision in its Deceptive Trade Practices Act.  Assembly Bill 61 (“AB61”), which was previously passed by the Nevada Assembly, is modeled after many state price gouging statutes.  AB61 defines a new deceptive trade practice—selling, renting, or offering enumerated goods or services for a price “grossly in excess of the usual price for that good or service” during a state of emergency.  The covered products would include, “consumer goods and services,” medical supplies, construction/repair services, and “any other goods or services” used to respond to the declared emergency.  Penalties for violating the statute would include a $10,000 fine for each violation of the statute.  AB61 passed both chambers of the legislature and has been sent to the Governor.

The legislation provides several caveats.  Importantly, the restrictions only apply when the state of emergency has been in effect for 75 days or less.  Also, in defining “grossly in excess,” the statute requires courts to examine all the circumstances, including the price before the emergency.  Finally, AB61 provides helpful situations and threshold levels below which, the price is not considered “grossly in excess,” including (i) increased costs causing the price increase, (ii) a contractually negotiated price or pricing formula, (iii) 10 percent more than the seller’s cost plus a normal profit margins, and (iv) tiered percentage increases—15, 10 and 5 percent—for products usually sold at $250 or less, $750 or less, and greater than $750, respectively.

Pennsylvania

On the East Coast, two states have proposed amendments to their price gouging statutes. In Pennsylvania, state legislators introduced SB498 to further define key statutory terms, such as “cost” and “unconscionably excessive,” and to clarify the duration of the price restrictions.  The bill was introduced in the state Senate and referred to the Senate’s Committee on Veteran Affairs and Emergency Preparedness.  The bill remains pending before the legislature.

As with the Nevada legislation, in defining “unconscionably excessive,” SB498 provides defenses to allegations of price gouging based on profit margins, market fluctuation, and pre-existing price formulas.  Specifically, the bill would permit an increase of 10 percent increase or less over the price offered before the emergency.  This would include a 10 percent increase over the “sum of the seller’s cost and normal markup for the good or service.”  The bill also provides limitations on the extent to which a declared state of emergency could impose pricing restrictions.  Currently, in Pennsylvania, following the declaration of emergency, the pricing restrictions remain in effect for the duration of the state of emergency and 30 days after the state of emergency is terminated.  In contrast, SB498 provides that when a state of emergency is declared, the price gouging restrictions remain in place for a period of only 15 days. The Governor may extend the price gouging restrictions for three additional 15-day intervals.

Connecticut

On January 22, 2021, House Bill 5307 (“HB 5307”) was introduced in the Connecticut House of Representatives to amend the state’s price gouging law. The bill proposes removing the current prohibition on any price increase not related to costs and instead would prohibit sellers from offering products at “unconscionably excessive price[s].”  Under the proposed regime, an unconscionably excessive price means the amount charged “represents a gross disparity between the current selling price and the price for which an item was sold […] immediately prior” to the state of emergency or when the price is “not attributable to additional costs.”  On May 18, 2021, HB 5307 passed the House and is currently awaiting a hearing in the Senate.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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