Private Plaintiff and Class Action Price Gouging Claims Spread as Emergency Continues

Proskauer - Minding Your Business

Private plaintiffs and state enforcers have been targeting businesses up and down the supply chain for price gouging violations. Some of these actions have been over the price of goods long associated with the COVID-19 pandemic, such as toilet paper and medical supplies. Yet others, such as a dispute in which a California winery has accused the company managing its storage facility of illegally increasing its rates, show the wide range of businesses potentially affected by price gouging laws. And with many state price gouging laws likely to remain in effect until at least early 2021, these lawsuits provide insight into the scope of expected price gouging claims going forward. A recent string of lawsuits brought against egg producers provides a particularly good vehicle for doing so.

The lawsuits were initially filed in April when the Attorney General of Texas accused the country’s largest egg producer of unlawfully increasing its prices. In recent weeks the attorneys general of West Virginia and New York have also brought lawsuits accusing egg producers of unlawfully increasing their prices during the COVID-19 pandemic. Notably, the New York lawsuit accuses egg producers of colluding with a market research firm to inflate the price of eggs beyond mere cost increases. Similarly, private plaintiffs in California and Texas have brought suits alleging price gouging of eggs, and like the New York action targets not only egg producers but also additional participants in the chain of distribution, including several grocery stores such as H-E-B and others.

There are several striking things about these lawsuits. The first is simply their expanded scope, demonstrating that state regulators have moved beyond those products most immediately associated with the COVID-19 pandemic like masks and hand sanitizer. And while those types of investigations continue apace, private and government plaintiffs will continue to target price increases for as broad a set of goods and services as their states’ laws cover.

A second aspect is the increasingly sophisticated focus on price manipulation that goes beyond accusing companies of simply raising their prices after the onset of the pandemic. For example, the New York lawsuit alleges that egg suppliers and a market research company engaged in a “feedback loop system” in order to inflate egg prices. Allegedly, the egg suppliers provided the market research firm with information about its egg prices, which was then used to create pricing indices that justified higher prices by other egg suppliers. This draws into stark relief the fact that while index pricing may seem like an intuitively safe way to price without price gouging liability, many state laws do not provide an exception for index pricing. To the contrary, in most cases pricing on an index simply does not provide legal protection. Indeed, it is the use of a pricing index that stands at the heart of the New York Attorney General’s complaint. Clearly, state regulators are taking a hard look at companies’ pricing schemes during the pandemic.

The inflated prices in the NY suit are alleged to have only persisted through March and April before returning to normal levels in May. State regulators and private plaintiffs will be scrutinizing any price increases even if they are only temporary and have returned to normal levels. And, as state statutes of limitations for price gouging can run for 2 to 6 years in most cases, and up to 10 years in a handful of states, exposure for actions taken now will remain well beyond the end of the states of emergency.

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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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