The New York Office of the Attorney General is actively investigating the advertising or offering for sale of necessary consumer goods at unconscionably excessive prices during the period of market disruption caused by the (COVID-19) outbreak.  Necessary consumer goods include sanitizing and disinfecting products used to mitigate the spread of COVID-19.  They also include necessities such as toilet paper and basic food supplies.

The NY OAG is tasked with enforcing New York’s price gouging statute, section 396-r of the New York General Business Law, which prohibits the sale of goods and services necessary for the health, safety and welfare of consumers at unconscionably excessive prices during any abnormal disruption of the market.

In order to prevent any party within the chain of distribution of any consumer goods from taking unfair advantage of consumers during abnormal disruptions of the market, the New York legislature has declared  that the public interest requires that such conduct be prohibited and made subject to civil penalties.

During any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety and welfare of consumers, no party within the chain of distribution of such consumer goods or services or both shall sell or offer to sell any such goods or services or both for an amount which represents an unconscionably excessive price.

The chain of distribution includes any manufacturer, supplier, wholesaler, distributor or retail seller of consumer goods or services or both sold by one party to another when the product sold was located in the state prior to the sale.  Consumer goods and services shall also include any repairs made by any party within the chain of distribution of consumer goods on an emergency basis as a result of such abnormal disruption of the market.

Whether a price is unconscionably excessive is a question of law for the court.

The court’s determination that a violation 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).

Where a violation is alleged to have occurred, the AG may apply in the name of the people of the State of New York to the supreme court of the State of New York within the judicial district in which such violations are alleged to have occurred, on notice of five days, for an order enjoining or restraining commission or continuance of the alleged unlawful acts.  In any such proceeding, the court shall impose a civil penalty in an amount not to exceed $25,000 and, where appropriate, order restitution to aggrieved consumers.

Proof that a violation of has occurred can include, for example, evidence that:  (i) 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 consumer 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; or (ii) the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area.  A defendant may be able to rebut such evidence by establishing that additional costs not within its control were imposed on the defendant for the goods or services.

A flurry of recent letters have been issued from state regulators, including the New York OAG, directing recipients to cease and desist immediately from selling such things as hand sanitizers,  other sanitizing and disinfecting products, and other consumer necessities at prices that violate applicable price gouging statutes, or to demonstrate why such recent prices do not violate the law.

Importantly, merchants in New York City must also comply with the emergency regulations.  Under the Rules of the City of New York (6 RCNY Sec. 5-38), stores are prohibited from selling items that have been declared in short supply at excessively increased prices.  These items currently include the following: cleaning products, diagnostic products and services, disinfectants (e.g., wipes, liquids, sprays), face masks, gloves, hand sanitizers, medicines, paper towels, rubbing alcohol, soap and tissues.

Richard B. Newman is an FTC defense attorney at Hinch Newman LLP.  Follow him on Facebook at @FTC defense attorney.

Informational purposes only. Not legal advice. May be considered attorney advertising.