Price Gouging During the COVID-19 Pandemic Leads to Civil and Criminal Actions

May 29, 2020Article

Allegations of price gouging amid the COVID-19 pandemic continue to accumulate, resulting in a slew of civil and criminal complaints.

Most recently, the U.S. Attorney’s Office for the Southern District of New York filed charges against Ronald Romano, who attempted to sell $45 million of personal protective equipment (“PPE”) to the City of New York, despite possessing no such equipment and having no authorization to sell it. Romano and his co-conspirators allegedly lied about prior sales of PPE and provided false references, hoping to dupe the City. He was charged on May 26, 2020, with wire fraud, conspiracy to commit wire fraud, and a violation of the Defense Production Act of 1950.

The U.S. Attorney for the Eastern District of New York filed similar charges in April, alleging Amardeep Singh also violated the Defense Production Act. United States Attorney Richard P. Donoghue explained that Singh amassed PPE and resold them at markups of up to 1,328%.

The Defense Production Act states:

In order to prevent hoarding, no person shall accumulate (1) in excess of the reasonable demands of business, personal, or home consumption, or (2) for the purpose of resale at prices in excess of prevailing market prices, materials which have been designated by the President as scarce materials or materials the supply of which would be threatened by such accumulation.

Pursuant to Executive Order 13909, signed by President Trump on March 18, 2020, PPE is covered under the Act during the current pandemic.

Singh’s attorney called the Defense Production Act “wildly vague” and expects it will be struck down by the courts, according to Time.

In addition to criminal matters, retailers across the nation are facing class-action lawsuits.

On April 21, 2020, Hagens Berman Sobol Shapiro LLP filed a class-action lawsuit against, Inc. on behalf of consumers, alleging violations of California’s Unfair Competition Law, unjust enrichment, and negligence. The plaintiffs allege Amazon increased prices of products meant to help consumers “remain healthy, protected, and nourished,” including face masks, pain relievers, and flour.

According to the complaint, California Penal Code § 396(b) was triggered on February 3, 2020, when a state of emergency was declared, prohibiting price increases of greater than 10%. Plaintiffs claim Amazon increased prices as much as 672%. They concede, however, that such price increases are permitted if “directly attributable to additional costs imposed on the seller,” such as higher costs for labor or materials or costs imposed by an upstream supplier.

On April 30, 2020, a group of consumers filed a class-action lawsuit against numerous grocery chains, including Wal-Mart, Albertson’s, and others alleging they illegally raised the price of eggs. As noted in the complaint, Section 17.46(b)(27) of the Texas Business and Commerce Code prohibits selling food at exorbitant or excessive prices. Plaintiffs seek treble damages and other relief.

Complaints of price gouging often follow major catastrophes. After Hurricane Gloria, one retailer was charged with violation of New York’s price-fixing law for selling electric generators at inflated prices. The Court of Appeals ruled against the retailer, as the generators were considered “essential” items during the crisis. People by Abrams v. Two Wheel Corp., 71 N.Y.2d 693 (April 28, 1998). The retailer had argued that generators were not governed by the statute.

Following Hurricane Sandy, New York State Attorney General Eric Schneiderman opened an investigation into price gouging. Consumers complained of higher prices for gas, hotels, and emergency supplies. The probe resulted in settlements with dozens of gas stations. One station was slapped with a $10,000 civil penalty after Judge Jerry Garguilo of the Suffolk County Supreme Court found its price increases “unconscionably excessive,” and a violation of General Business Law § 396-r. People v. AGIP Gas, LLC, Index No. 13-11907 (October 18, 2013).

With criminal and civil complaints piling up, similar rulings are anticipated in the wake of COVID-19.

Editor: S. Christopher Collier (Senior Partner, Atlanta)

Hawkins Parnell & Young's national litigation team is helping businesses across the United States navigate unprecedented legal challenges arising from the COVID-19 pandemic. Visit our COVID-19 Resource Center for the latest insights and guidance.