The Background: Many states have prohibitions on price gouging that go into effect during states of emergency. In this hurricane season, seven U.S. states and territories have declared emergencies.
The Impact: Although hurricanes often decrease the supply of critical goods like fuel, while increasing demand, companies must consider local price-gouging statutes when setting prices to avoid fines and even criminal penalty.
With Hurricane Harvey over and Hurricane Irma looming, the coastal areas are in the middle of a devastating hurricane season. In just the past few weeks, governors and President Trump have declared states of emergency in seven U.S. states and territories; others will certainly follow.
These states of emergency trigger local price-gouging statutes, which prohibit certain price increases during the emergency and impose significant civil, and sometimes criminal, penalties for doing so. State attorneys general have announced their intentions to investigate and prosecute price-gouging violators. As communities and businesses prepare for these storms and the recovery that follows, it is critical to be mindful of state price-gouging prohibitions.
While there is no federal prohibition on price gouging, nearly every state has enacted its own price-gouging statute. Under the structure of a typical statute: following a triggering event (usually declaration of a state of emergency by the President or governor), businesses are prohibited from raising prices for a set period of time (usually 30 or 60 days). Violations are punishable by civil fine, although some states allow criminal punishment as well.
Unfortunately for companies operating in multiple states, there is wide disparity in the threshold for a price increase violation. Some statutes permit small (10–15 percent) price increases, while others allow none at all. Some statutes allow companies to raise prices to account for their own increased costs, while others do not. Some statutes apply only to specified goods (e.g., food, medicine, gasoline), while others apply more broadly to include all retail products. As a result, it is critical that companies with operations in states with declared states of emergency carefully consider the scope of a state's price-gouging statute before adjusting prices during the emergency.
This Commentary focuses on the price-gouging statutes in states most affected by the recent hurricanes: Texas and Florida. Other states and territories will also be affected, including Louisiana, South Carolina, Georgia, Mississippi, Alabama, Puerto Rico, and the U.S. Virgin Islands. Businesses with operations in these areas should carefully review the local price-gouging ordinances.
The Texas Deceptive Trade Statute declares it unlawful to "take advantage of a disaster" by "selling or leasing fuel, food, medicine, or another necessity at an exorbitant or excessive price," or demanding an excessive or exorbitant price for those products. In advance of Hurricane Harvey, on August 23, 2017, Texas Governor Greg Abbott declared a state of disaster for 30 Texas counties and later extended the declaration to an additional 13 counties.
The key elements of Texas's price-gouging statute are as follows:
Prohibition. It is unlawful to sell at "exorbitant or excessive" prices. The Texas statute does not define what constitutes an "exorbitant or excessive price." In an enforcement action following Hurricane Ike, the Texas Attorney General defined this to mean an increase of more than 10 percent above the average price for a good or service during the two-month period preceding declaration of disaster. In recent public statements following Hurricane Harvey, Attorney General Ken Paxton similarly stated that his office intends to investigate price increases of more than 10 percent.
Covered Goods and Services. Covered goods and services typically include fuel, food, medicine, or other necessities. The Texas legislature did not further define what constitutes a "necessity." The Texas AG previously has interpreted this to include hotel accommodations, water, batteries, generators, and towing. The statute does not limit price gouging to retail sales, so wholesalers of fuel and other covered products should be mindful of price increases.
Duration. Restrictions remain in place until the declared disaster is over. If the declaration lasts more than 30 days, it must be renewed by the governor.
Defenses. Technically, none. Unlike many state statutes, the Texas price-gouging statute does not permit companies to raise prices to cover increased costs. However, the Texas Attorney General's website appears to recognize that higher prices in disasters often result from higher costs (in the context of gasoline sales), so it is possible the Attorney General would be receptive to such a defense. However, no court has had a chance to weigh in on this defense, particularly in the context of private party (consumer) litigation.
Penalties. Violations are punishable by a civil penalty of up to $20,000 for each violation, and up to $250,000 if the gouging is targeted at a consumer aged 65 years or older. Moreover, the Texas statute allows consumers a private cause of action, with recovery of treble damages for both mental anguish and economic damages.
Following Hurricane Harvey, Texas Attorney General Ken Paxton reported receiving several hundred allegations of price gouging, ranging from gasoline to bottled water, and confirmed that his office will enforce the statute.
Florida's Rental or Sale of Essential Commodities During a Declared State of Emergency law makes it unlawful to "sell at an unconscionable price … any essential commodity including, but not limited to, supplies, services, provisions … necessary for consumption or use as a direct result of the emergency." Florida Governor Rick Scott declared an emergency on September 4, 2017, in advance of Hurricane Irma.
Prohibition. It is unlawful to sell, or offer to sell, at an "unconscionable price," which the statute defines to be a "gross disparity" between the price charged and the average price of the product 30 days prior to the emergency.
Covered Goods and Services. Any essential commodity, including but not limited to food, water, ice, chemicals, gasoline, and lumber. The Florida Attorney General has enforced price gouging at both retail and wholesale levels.
Duration. The restrictions remain in place until the state of emergency is over. If the emergency lasts more than 60 days, it must be renewed by the governor.
Defenses. The statute recognizes two defenses. First, companies can increase prices if the price charged was attributable to increase costs incurred in connection with the sale of the commodity. Second, companies can increase price consistent with regional, national, or international market trends.
Penalties. Violations are punishable by civil penalties up to $1,000 per violation, with an aggregate total not to exceed $25,000 for any 24-hour period. Florida does not have a private right of action for price gouging.
Given the number of intricacies between state statutes, companies frequently and even inadvertently run afoul of price-gouging statutes, during periods of decreased supply and heightened demand following natural disasters such as hurricanes. Companies should be especially mindful of these prohibitions during the coming months.
Two Key Takeaways
- Almost all states have price-gouging statutes, but their scope varies widely. Companies must carefully consider states' price-gouging statutes before adjusting prices during a declared state of emergency.
- State attorneys general intend to investigate and prosecute price-gouging violators.