New York Attorney General Eyeing Enhanced Price Gouging Regulations

New York Attorney General Eyeing Enhanced Price Gouging Regulations

While COVID-19 may be receding, price increases for essential goods and services show no signs of slowing down in light of ongoing supply chain issues and growing inflation...

While COVID-19 may be receding, price increases for essential goods and services show no signs of slowing down in light of ongoing supply chain issues and growing inflation. In response, regulators have signaled that they will remain vigilant in policing businesses for price gouging.

On March 4, 2022, New York Attorney General Letitia James issued an Advance Notice of Proposed Rulemaking, which is the first step in enacting new price gouging rules. According to the Office of the Attorney General (OAG), the rulemaking will examine and address new evidence that some of the recent price hikes by large corporations were driven by profit not increased costs.

“The rising costs of essentials and basic household items has had a real impact on working families,” Attorney General James said in a press statement.“Throughout the pandemic, hardworking New Yorkers have been struggling to make ends meet, but big corporations have been celebrating record-breaking profits. It doesn’t add up. My office is prepared to use every tool in our toolbox to crack down on price gouging and pandemic profiteering.”

New York’s Existing Price Gouging Law

New York’s existing law, New York General Business Law § 396-r (GBL 396-r), prohibits any entity in the supply chain from taking advantage of an “abnormal disruption of the market” to sell vital goods and services for an “unconscionably excessive price.” The statute defines an “abnormal disruption of the market” as either an “actual or imminently threatened” change in the market resulting from “stress of weather, convulsion of nature, failure or shortage of electric power or other source of energy, strike, civil disorder, war, military action, national or local emergency” or a disruption “which results in the declaration of a state of emergency by the governor.” Covered goods and services include: (1) vital and necessary consumer goods and services, (2) vital and necessary medical supplies and services, and (3) other vital and necessary goods and services “used to promote the health or welfare of the public.”

The term “unconscionably excessive price” is not defined in the statute. However, GBL 396-r does establish two types of “unconscionably excessive” pricing: 1. where “the amount of the excess in price is unconscionably extreme”; and 2. where the price was set through either “an exercise of unfair leverage” or “unconscionable means.”

A prima facie case for a violation of GBL 396-r can be established by showing either (i) “a gross disparity” between the allegedly excessive price, and “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,” or (ii) that the allegedly excessive price “grossly exceeded the price at which the same or similar goods or services were readily obtainable in the trade area.” Once established, a prima facie case can be rebutted by showing that the price increase “preserves the margin of profit” that the defendant received prior to the disruption, or that the defendant incurred “additional costs” not within its control. These defenses only apply to the margins and costs of the goods and services for which prices were raised.

Violations of GBL 396-r can be costly. The statute authorizes the Attorney General to seek injunctive relief, restitution, and civil penalties of the greater of $25,000 per violation or three times the gross receipts for the goods or services at issue.

Advanced Notice of Proposed Rulemaking

The NY OAG’s Advanced Notice of Proposed Rulemaking (ANPR) raises concerns that some of the price increases for vital and necessary goods may violate New York law. According to the ANPR, while many recent price hikes “were legal, [] when steep price hikes during an abnormal disruption are accompanied by increases in profitability, it raises questions about whether price gouging occurred.”

In its ANPR, the NY OAG cites the beef and shipping industries as examples of pricing for essential goods during the pandemic that raise questions about “unconscionably excessive pricing” and the use of “unfair leverage or unconscionable means.” According to the NYOAG, beef prices rose 30 percent, while meatpackers experienced an average of 120 percent increase in profits. Other industries that have seen significant price and profitability increases include auto dealers, supermarkets, fast food, oil and natural gas, and lumber.

The ANPR also discusses the unique harms caused by price gouging and the economic justification for prohibiting it. According to the OAG, the State’s price gouging law “serves the interest of economic stability, by preventing a disruption from triggering a broader economic downturn and exacerbating individual suffering. Most importantly, the law protects poor and working-class New Yorkers who are the most likely to be exposed to price increases in essential items, the least likely to have savings to cover crises, and the most likely to have to choose between going into debt or foregoing essential goods and services.”

The ANPR seeks comments on price gouging generally, including what kinds of price gouging by suppliers and distributors is most likely to occur in a pandemic, and how would enforcers detect it. It also solicits feedback on specific issues, such as how to best define what constitutes an “exercise of unfair leverage or unconscionable means” and what methods of measurement are appropriate to calculate any threshold for a presumption that an excess in price is “unconscionably extreme.”

What’s Next?

Public comments in response to the ANPR may be submitted immediately and until April 22, 2022, at stopillegalprofiteering@ag.ny.gov. Requesting public comments is part of the three-step process. Once public comments are submitted OAG will review them and then propose new rules. Thereafter, the public will have 60 days to submit comments on the proposed rules. Following the 60 days, OAG will promulgate new price gouging rules.

If you have questions, please contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Howard Bader, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.