I. What is “Price Gouging?”
Price gouging is an illegal or otherwise unreasonable increase in pricing of goods and services, in response to a large increase in demand or a sharp decrease in availability, usually associated with an emergency or other catastrophic event.
“Emergency and Catastrophic Event”
Typically, illegal price gouging and related laws are associated with a government declared emergency. Various governments, including cities, states, and the federal government, will declare emergencies for weather-related disasters, wars, economic downturns, and health emergencies.
II. Price Gouging Laws Differ from State to State
Price gouging is codified as law by most states, although not all states have made price gouging illegal. In order to be found guilty of price gouging, the following are common elements found in most state anti-price gouging laws:
- Increasing the price of a necessary item or service,
- During a declared national or state emergency, and
- The price increase is unreasonable, unfair, or otherwise deceptive.
Price gouging laws are very different from most laws, as an activity that is legal and permissible at other times becomes an illegal act during a declared emergency.
Each state has a specific definition of when an emergency is declared, as multiple governmental entities can declare emergencies. For example, some states require a nationally declared emergency from the federal government, while others require a state declared emergency. For these reasons, it is important to know your specific state’s laws regarding price gouging.
Each state defines the necessary goods and services differently. The most common goods and services that are protected by price gouging laws are food, medical supplies, water, gasoline, heating fuel, housing, transportation, and medical care. Other goods and services may also fall under price gouging laws if they are deemed a necessity depending on the type of emergency declared.
Just like the declared emergency requirement, what an unreasonable increase is under the price gouging laws varies from state to state. Some states have a particular percentage for which prices cannot be increased. California is one such state, where necessary goods and services cannot be raised by more than 10% during a declared emergency. Other states, such as Florida, only make increases, which “grossly exceed the average price of the prior 30 days.”
III. Price Gouging Laws in New York – General Business Law § 396-r
The state of New York is one of the states that has a specific price gouging statute. Under the General Business Law § 396-r, New York can impose civil penalties for the illegal business practices and price gouging in times of an emergency. While the current law does not criminalize such behavior (although the state legislature has pending bills to make it a criminal offense), violators can be subject to significant financial penalties.
The elements for price gouging in New York are:
- Selling goods and services for an unconscionably excessive price;
- During an abnormal disruption of the market place or state of emergency; and
- Such good or services are vital to the health, safety, or welfare of consumers.
New York state vendors, retailers, and suppliers are covered by the law and include supermarkets, pharmacies, hotels, delis, repairmen, and gas stations, among many other businesses.
“Abnormal Disruptions of the Marketplace”
The price-gouging law of New York is not in effect at all times. Instead, there must be a specific disruption in the marketplace or a declared state of emergency. New York Business Law § 396-r specifically names the following as possible disruptions:
- Stress of weather
- Convulsion of nature
- Failure or shortage of electric power or other form of energy
- Civil disorder
- War and military actions
- National or locally declared emergencies
- Or any other disruption resulting in a declared state of emergency by the governor.
The growing pandemic of the COVID-19 virus resulted in the most recent state of emergency declaration by the Governor of New York.
“Consumer Goods and Services”
The goods and services covered by New York’s price gouging law include any items or services used primarily for personal, family, or household purposes. The law includes the entire supply chain from production to receipt by the consumer. The law includes the following entities as liable under the law:
- Retail seller
Aside from goods, necessary services are also subject to the law. Any emergency repairs, necessary services, or essential core services are subject to price gouging laws of New York.
“Unconscionably Excessive Pricing”
Unlike some other states, New York does not have a definitive percentage or dollar amount of mark-up that is prohibited. Instead, the law relies on the courts’ interpretation to determine whether a price mark-up is unconscionably excessive. Remember, price increases are not outright illegal during a declared emergency, however, such increases must pass the unconscionably excessive standard. New York has outlined the following test for the courts to determine if a price increase is unconscionably excessive:
- Is the amount of the increase unconscionably extreme?
- Was there unfair leverage or unconscionable means?
- Is there an excessive combination of the preceding two factors?
Investigations of price gouging must include the amounts charged for the goods or services, the amount charged during the usual course of business immediately preceding the market disruption, and the pricing of other similar goods and services sold by other vendors during the market disruption.
New York Price Gouging Penalties
Violators of New York price gouging laws are subject to a civil penalty of up to $25,000 and potentially restitution to aggrieved consumers. The courts may also issue restraining orders or cease and desist orders, requiring violators of price gouging laws to stop all sales and services.
IV. California Price Gouging Laws – California Penal Code Section 396
California is another state that has a specific price gouging law. California Penal Code Section 396, titled “Crimes Against the Public Health and Safety,” provides the elements and penalties for the crime of price gouging under state law. In order to be found liable for price gouging in California, the state must prove the following elements:
- During and 30 days after a federal, state, or locally declared emergency
- To offer or sell any essential goods or services
- For more than 10 percent than the price charged immediately prior to the declaration of an emergency.
While California specifically provides 10% as the cut off for a reasonable increase during an emergency, the law also always for exceptions, such as if it can be proven that the mark-up of the cost of labor and supplies have also increased. As a general rule, as long as the seller is not profiting more than 10% after increased costs, they are compliant with the rule.
Essential Goods and Services
California Penal code Section 396 specifically lists the items that are deemed essential during an emergency. Those items include:
- Consumer food items and goods
- Emergency clean-up goods and services
- Emergency supplies
- Medical Supplies
- Home heating oil
- Building materials
- Transportation and freight
The law also specifies limitations on housing and rental evictions and price increases. Residential evictions and foreclosures are paused during the state of emergency and for 30 days after the declared emergency is over. It also limits increasing rent during declared emergencies
California Price Gouging Penalties
California’s price gouging laws can be investigated and prosecuted as criminal offenses, civil offenses, or both. If charged as a criminal offense, the violation is a misdemeanor level offense and penalties may include a prison sentence of up to one year and a fine of up to $10,000.
A civil offense, if deemed to be an unlawful business practice or act of unfair competition, is subject to the penalties outlined in the California Business and Professions Code. Under the code, civil penalties of up to $6,000 per violation may be imposed, along with injunctions and potential restitution penalties.
V. Laws Related to Price Gouging
While not all states have specific price gouging laws, certain states may apply other laws to situations of price gouging.
#1) Consumer Protection Act
Acts of the state that apply general protections to consumers and the general public. These laws prohibit deceptive or fraudulent practices that harm consumers. These acts are usually enforced by the state Attorney General Offices and can be criminal or civil in nature, depending on the type of deceptive or fraudulent act committed. Often these consumer protection acts are more heavily scrutinized and enforced during states of emergency and disasters.
Extortion is a criminal and civil violation in many states and by the federal government, in which a communication instills fear into an individual or company in order to illegally obtain something of value. During emergency and disaster situations, state and federal enforcement agencies may use extortion laws when goods or services are withheld from consumers at risk of harm.
VI. Price Gouging and the Covid-19 Pandemic
The Covid-19 pandemic has resulted in a declaration of emergency by the federal government as well as many states and local governments. The state of New York declared a state of emergency on March 7, 2020, which is in effect until September 7, 2020. Because of this declaration, New York’s General Business Law § 396-r is in effect during the declaration, which restricts increases on the costs of goods and services.
Investigation and Arrest of Baruch Feldheim
The FBI and New York authorities investigated the sale of 1,000 N95 masks by a Brooklyn man, Baruch Feldheim, to a doctor at a hospital located in New York City. The masks were sold at a markup of nearly 700% from the average price of the masks prior to the state of emergency.
The Justice Department’s Covid-19 Hoarding and Price Gouging Task Force, which utilizes the FBI to investigate complaints of price gouging and fraud during the Covid-19 epidemic, raided the man’s warehouse in Irvington, New Jersey. Feldheim was arrested and charged with criminal assault against federal officers and making false statements to law enforcement after he spit at them and stated he was positive for Covid-19.
The federal government seized various stocks of medical supplies from the warehouse, redistributing them to local hospitals and health-care facilities. Feldheim also faces civil liability under New York’s price gouging laws, where he may face fines of up to $25,000 and possible restitution to the purchasers of his medical equipment during the state of emergency.
VII. California and Covid-19 Price Gouging Investigations
California has seen a surge in price gouging complaints, investigations, and arrests relating to the Covid-19 pandemic. A man in Baldwin Park, California was charged with criminal price gouging offenses related to the sale of N95 respirators online. Authorities reported Johnwill Baldonado placed at least two advertisements on craigslist, indicating he would sell a box of the highly sought after N95 respirators for $300. Each box contained 20 respirators, costing $15 per respirator mask. Typically, N95 masks retail for approximately $1 per respirator mask.
California price gouging law limits the increase of pricing for essential items during a declared emergency and 30 days after. The governor of California declared a state emergency due to the Covid-19 pandemic on March 4, 2020. Because of the declaration, Mr. Baldonado put himself at risk of investigation and price gouging by charging well over the 10% mark-up allowed under California’s price gouging laws.
Similar complaints and investigations have been initiated throughout the declared state of emergency in California. Another similar investigation led to the arrest of eight individuals in Fallbrook, California on March 18, 2020.
After monitoring online peer to peer sales websites, such as Facebook, Craigslist, and OfferUp, the Fallbrook Sheriff’s department made undercover purchases of items such as N95 masks, cleaning supplies, and toilet paper. As a result of the active monitoring and investigations, the eight unrelated individuals were all charged with price gouging during the declared state of emergency.
California’s strict price gouging laws, which are being actively and heavily enforced, could lead to substantial penalties. The criminal charge is a misdemeanor level offense, which comes with up to one year in prison and a $10,000 fine per offense.
VIII. Price Gouging and Hurricane Katrina
Hurricane Katrina, which struck the Gulf coast in 2005, was one of the most devastating natural disasters to strike the United States. 1,833 people were killed and millions were left homeless after the storm, resulting in years of recovery from economic ruin.
Investigations and prosecutions for price gouging occurred across all of the gulf states directly affected by the storm. Mississippi received approximately 1,400 complaints in one day, including a complaint against the owners of two hotels in Natchez, Mississippi, where the price of a room was raised from $93 prior to the storm to $198 immediately after the storm. The owners were charged with 16 counts of price gouging and 1 count of conspiracy to commit price gouging, where they faced up to five years in prison and up to a $5,000 fine per offense.
Another similar investigation that resulted in arrests for price gouging in the wake of Hurricane Katrina involved John Shepperson. Shepperson was a Kentucky resident at the time of the storm. He purchased 19 generators in his home state and drove them down to Mississippi, selling them for twice as much as he had purchased them. Mississippi police arrested him on charges of price gouging, confiscating the generators, and holding him in jail for four days.
Price gouging investigations and charges almost always stem from a shortage of supplies and an increase in demand. In the above two examples, the needs after Hurricane Katrina for shelter and electric power resulted in an increased demand by the public, caused by the storm.
Similarly, the Covid-19 Pandemic is resulting in an increased need for medical supplies and particularly Personal Protective Equipment. The short supply of these items results in increased investigations and enforcement against price gouging.
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Price gouging charges, particularly during a health pandemic, are serious legal issues that need to be addressed quickly and efficiently. Our office, with experienced legal professionals, can help you meet all of your legal needs. Contact our office immediately to speak with qualified legal specialists to review your case.
We can help guide you through these charges and work to get the best possible results. Contacting our office today may help to avoid many of the terrible consequences of federal and state charges, including price gouging, during the COVID-19 pandemic.