August 29, 2022

N.Y. Appellate Court Resurrects NYAG’s COVID-19 Price-Gouging Claim Against Lysol Wholesaler

The early days of the COVID-19 pandemic may not involve memories anyone wants to relive, but lawsuits claiming that businesses unconscionably raised prices for emergency-related goods in those first weeks of the emergency are likely to persist for quite some time. On August 23, 2022, a New York appellate panel of four judges reversed a lower court’s dismissal of price-gouging claims the New York Attorney General (NYAG) had alleged against a wholesaler of Lysol products, Quality King Distributors, Inc. The decision may open the door to similar cases in New York and elsewhere, which state AGs still have plenty of time to pursue.

The lower court had dismissed the NYAG’s case on the grounds that the AG failed to (1) demonstrate a uniform price-gouging practice across all Lysol products; (2) show that Quality King’s price changes for the specified Lysol product before and after the judicially determined start date for the public emergency represented “a gross disparity”; and (3) refute Quality King’s evidence that its prices were competitive, and in fact, lower than its competitors at the time. 

The appellate panel held that the lower court’s dismissal order misapplied both the law and the relevant facts. The appellate decision has clarified New York’s legal landscape for pandemic-related price-gouging cases (most of which are likely to turn on the pre-pandemic version of New York’s gouging law, not the amended version that took effect in June 2020 without retroactivity). The panel also rejected Quality King’s argument that the price-gouging statute was unconstitutionally vague.

The appellate court first considered whether the NYAG established an abnormal disruption of the market price for the Lysol goods in question. To clear this bar, the court held the AG must show a change in the market for the product caused by a specific event enumerated in the statute, which were “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 other cause of an abnormal disruption of the market which results in the declaration of a state of emergency by the governor,” and establish the onset date of the abnormal disruption. 

Quality King did not dispute a disruption in the market price, but disagreed that the pandemic qualified as a triggering event under the anti-gouging statute (or alternatively, that the NYAG set the triggering date too early). The lower court agreed with Quality King that the only possible triggering date was Gov. Andrew Cuomo’s declaration of a state of emergency on March 7, 2020, and it disagreed with the NYAG, who argued that the triggering event was the federal Health and Human Services Department’s declaration of a “public health emergency” on January 31, 2020.

The appellate panel chose a middle path by identifying February 26, 2020, as the date on which Lysol became a good related to an emergency. On that date, the Centers for Disease Control and Prevention (CDC) made statements advising the public that the pandemic required “immediate and extraordinary action.” The court believed New York consumers could have interpreted the CDC’s statement to mean “buy Lysol, right now.” 

In the panel’s view, the January 30 date was too soon because the general populace did not yet understand the pandemic to constitute an emergency. The March 7 date was too late. To rely solely on a formal declaration of emergency, the court believed, would allow unchecked price-gouging after an emergency had become clear but before the state could formally declare it.

The panel next considered whether Lysol goods, in the context of the pandemic, were “vital and necessary for the health, safety, and welfare of consumers” — terms the statute does not define. The court agreed with the NYAG that Lysol goods qualified. It did not matter that, with the benefit of hindsight, Lysol may not actually have been necessary as a COVID-fighting tool. The relevant question is whether people thought it was necessary at the time. 

The last question was whether the AG sufficiently alleged that Quality King charged an “unconscionably excessive price,” relative to what it charged immediately prior to market disruption, or a price that “grossly exceeded” the price for similar products available to consumers in the same area. 

The appellate court looked at prices Quality King charged for the same goods to the same customers between February and April 2020 and found price increases ranging from 25% to almost 50%. Whereas the lower court put great weight on the fact that Quality King’s prices were similar, or in some cases lower, than the prices charged by its competitors, the appellate panel did not address this argument at all, suggesting that an “everybody was doing it” defense will not fly. For the appellate court, it was enough that the AG demonstrated wrongdoing by the defendant. The court made clear that the AG need not prove Quality King engaged in uniform price-gouging, only that persistent illegal price-gouging might give rise to additional liability under Executive Law § 63[12].

The appellate panel remanded the case to the lower court, where Quality King, if it loses on the merits, faces a host of potential monetary hits including restitution, injunctive relief and civil penalties. Although Quality King insisted in pleadings that an accounting would not be appropriate to determine penalties, the appellate panel explicitly stated that the lower court “may order an accounting on such terms as are just” to determine the necessary extent of any imposed penalties.

An important point to remember is that the statute of limitations for the NYAG to bring these claims is three years beginning November 3, 2020, when New York’s executive-imposed tolling period ended. In other states, the statute of limitations is longer (and some state AG offices take the position that no statute of limitations applies to claims of this type asserted by the government). Pandemic-related gouging claims, therefore, may still be closer to the starting blocks than to the finish line.

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