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Calculating Damages for Price Gouging Violations: Why Customer Refunds are Only Part of a Company’s Concerns

As the COVID-19 pandemic continues and the triggering states of emergencies are largely extended, companies are increasingly focused on compliance with state price gouging statutes. State attorneys generals have launched investigations and brought lawsuits, and several class actions have been filed by consumers against companies for alleged price gouging, up and down the supply chain. The relief sought in these actions highlights the risk that violators of price gouging statutes could find themselves facing hefty damages claims—perhaps to a greater extent than immediately obvious.

Depending on the state, damages could arise from enforcement actions by the state attorney general or by private rights of action; some states provide for damages under both enforcement mechanisms.

The categories of damages permitted vary widely. As an example of the range of relief sought in a single action, the New York Attorney General recently filed suit against a wholesale grocery distributor based on increased wholesale prices for the sale of Lysol disinfectant products to New York grocery and discount stores, and her complaint seeks a permanent injunction, an accounting, disgorgement of profits and restitution to consumers, as well as a civil penalty and costs.

Restitution: Many price gouging statutes include restitution as a penalty, with the expectation that companies refund customers any amounts those customers paid in excess of the permissible prices. But even if companies faced with price gouging lawsuits or investigations provide that restitution to customers, they can nevertheless face additional—and potentially quite onerous—financial penalties.

Penalties per transaction: Dozens of states allow for civil penalties to be imposed on a “per violation” basis, meaning that each and every sale could be tallied for purposes of determining damages. Some states impose a daily cap on potential liability, such as Utah, which allows for up to $1,000 per violation, with a maximum of $10,000 per day, and Alabama and Rhode Island, which allow for up to $1,000 per violation, with a maximum of $25,000 per day. Rather than capping penalties on a daily basis, Vermont’s attorney general can seek up to $10,000 per violation, up to a maximum of $1,000,000 for a company.

Other states provide no caps for civil penalties, including:

  • Indiana and Tennessee (up to $1,000 per violation)

  • North Carolina, South Carolina and West Virginia (up to $5,000 per violation)

  • Washington (up to $2,000 per violation)

  • California and Virginia (up to $2,500 per violation)

  • Delaware, Maryland, Pennsylvania, and Texas (up to $10,000 per violation)

  • Colorado (up to $20,000 per violation)

  • Alaska, Michigan, and Oregon (up to $25,000 per violation)

  • Iowa (up to $40,000 per violation)

Other financial penalties: A variety of other forms of financial penalties may be available in addition to those “per violation” penalties. Some statutes allow for fees and costs incurred in investigating the price gouging at issue to be shifted, such as Delaware and Pennsylvania. Others allow for the appointment of a receiver (Georgia, Illinois, Montana), revocation of business licenses (Kansas, Mississippi, South Carolina), or corporate dissolution (Rhode Island, Illinois, Massachusetts) to be ordered if non-compliance is determined. Delaware even permits treble damages.

Other relief: In some extreme cases, depending on the circumstances, violators could be jailed for up to thirty days (South Carolina), or even for up to one year (California, Connecticut, or West Virginia), five years (Mississippi), or ten years (Oklahoma).

Some states also have special protections in place if the customers affected include senior citizens. In New Jersey, the statute provides for up to twice the amount of normal restitution to be repaid to senior citizens. In Illinois, the attorney general may seek a civil penalty of up to $50,000 per violation if there was intent to defraud, but if the violation was committed against a person 65 years or older, that ceiling on civil penalties is raised and up to an additional $10,000 per violation may be imposed.

While even a small price increase could result in such penalties, there are many justifications and exceptions that permit some price increases. To avoid these risks, companies will benefit from reliance on their compliance practices and their own internal documentation of costs and justifications. This post does not cover all the damages that may be sought, nor does it address every state whose statutes may be implicated if a price increase does not fall within those exceptions. Rather, it illustrates the most common forms of damages available to enforcers and private plaintiffs, which should counsel caution in pricing movements for the duration of the emergency.

© 2020 Proskauer Rose LLP. National Law Review, Volume X, Number 212

TRENDING LEGAL ANALYSIS


About this Author

Christopher Ondeck, Antitrust Litigator, Proskauer Rose, law firm
Partner

Chris Ondeck is a partner in the Litigation Department and vice-chair of the Antitrust Group. He focuses his practice on representing clients in civil and criminal antitrust litigation, defending mergers and acquisitions before the U.S. antitrust agencies, defending companies involved in government investigations, and providing antitrust counseling.

Chris has handled antitrust matters for clients in a number of industries, including advertising, aerospace, alcoholic beverages, appliances, building materials, defense, medical devices, metals,...

202-416-5865
John Ingrassia, Antitrust Attorney, Telecommunications, Proskauer Law firm
Special Counsel

John Ingrassia is a special counsel and advises clients on a wide range of antitrust matters in various industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services, health care, and others. His practice includes a significant focus on the analysis of Hart-Scott-Rodino pre-merger notification requirements, the coordination and submission of Hart-Scott-Rodino filings, and the analysis and resolution of antitrust issues related to mergers, acquisitions, and joint ventures. John has extensive experience with the legal, practical, and technical requirements of the Hart-Scott-Rodino Act, and is regularly invited to participate in Federal Trade Commission and bar association discussions regarding Hart-Scott-Rodino practice issues. 

John also advises clients regarding international antitrust issues arising in proposed acquisitions and joint ventures, including reportability under the EC Merger Regulation and numerous other foreign competition filing regimes, and liaising with local counsel to coordinate foreign pre-merger notifications and ensure the efficacy and consistency of the competition law theories advanced.

202.416.6869
Kelly Landers Hawthorne, Proskauer Law Firm, New York, Litigation Attorney
Associate

Kelly Landers Hawthorne is an attorney in the Litigation Department.

Education

  • Columbia Law School, J.D., 2017

  • George Mason University, M.Ed., 2013

  • University of Richmond, B.A., 2011

212-969-3537
Law Clerk

Nathaniel Miller is a Law Clerk in the litigation department. He works for the firm's New York offices. 

Education

  • New York University School of Law, J.D., 2017
  • Harvard University, B.A., 2014
212-969-354
Nicollette R. Moser Litigation & Antitrust Proskauer Rose Washington, DC
Associate

Nicollette Moser is an associate in the Litigation Department and a member of the Antitrust Group.

Related Practices

  • Litigation
  • Antitrust

Admissions & Qualifications

  • District of Columbia
202.416.5862