What the Omicron Variety Could Mean For Price Gouging Enforcement in New York

Proskauer - Minding Your Business

New York Governor Kathy Hochul has declared a disaster emergency for the state through January 15, 2022 in the wake of rising COVID-19 cases in the state and the newly identified Omicron variant. According to The Wall Street Journal, New York is the first state to declare a state of emergency in response to Omicron, although many states have remained under declared states of emergency since the beginning of the pandemic. New York allowed its previous declared state of emergency to expire on June 24, 2021.

Beyond the public health implications, the new state of emergency could lead to a second wave of price gouging enforcement under New York General Business Law § 396-r. Under New York law, during a declared state of emergency that disrupts the markets for goods and services vital for the health, safety and welfare of consumer or the general public, it is a violation for any party within the chain of distribution to sell or offer to sell any such good or service at an unconscionably excessive price. “The court’s determination that a violation of this section has occurred shall be based on any of the following factors: (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 in subparagraphs (i) and (ii) of this paragraph.” § 396-r(3).

Prima facie proof of price gouging includes evidence that the amount charged represents a “gross disparity between the price of the goods or services which were the subject of the transaction and their value measured by the price at which such goods or services were sold or offered for sale by the defendant in the usual course of business immediately prior to the onset of the abnormal disruption of the market.” Since New York allowed the state of emergency to lapse, the reference price—the price “immediately prior to the onset of the abnormal disruption of the market”—likely reset to the price of the good or service directly prior to November 26, 2021.  The maximum penalty for each violation is the greater of $25,000 per violation or three times the gross receipts for the relevant good.

New York City has an independent price gouging rule and its own active state of emergency. Mayor Bill de Blasio has maintained a COVID-19 related declaration of a state of emergency in New York City since early 2020. Most recently on November 28, 2021, Mayor de Blasio renewed the state of emergency—signing an executive order extending the emergency for an additional five days (as has been customary since the initial declaration).

These declarations trigger the City’s own price gouging rules, prohibiting excessive prices on certain goods “during a declared state of emergency in the City of New York,” as well as selling or the offer to sell goods covered under the statute at a price 10% or more above the price for the same or similar good 30-60 days prior to the initial COVID-19 declaration – issued March 12, 2020. Since the state of emergency has continued in NYC since the start of the pandemic, the reference price used to compare to the alleged price gouging price would be the price of the same or similar good 30-60 days prior to the initial COVID-19 state of emergency in March of 2020.

During the previous state of emergency for New York State, New York Attorney General Letitia James actively pursued major companies with price gouging accusations. One such lawsuit brought against Hillandale Farms which sells eggs to Stop & Shop, BJ’s Wholesale Club and Associated Supermarkets, settled after Hillandale agreed to donate 100,000 cartons of eggs to foodbanks statewide. In contrast, the State Attorney General’s case against Quality King over the price of Lysol sold during the pandemic resulted in a dismissal following oral arguments. The state court judge found that Quality King had not unconscionably raised the price of the product, that they had incurred increased costs, and that they had maintained pricing largely in line with the market.

If indeed another spike in COVID-19 cases is seen, New York will likely not be the last state to declare a new state of emergency. Many of these declarations will again trigger state price gouging laws which could lead to new enforcement efforts. Companies planning to raise prices, even as a result of supply chain disruptions or inflation, should continue to monitor these developments to manage compliance.

[View source.]

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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