New York Attorney General Begins Price Gouging Rulemaking

New York Attorney General Letitia James announced earlier this spring that her office has initiated rulemaking to enforce provisions of the state's price gouging statute. This in-depth article discusses the proposed price gouging rulemaking and the specific questions posed by the Attorney General for public comments.

I. Introduction – New York Price Gouging Statute

In 2020, the New York Legislature enacted legislation that amended the state’s price gouging statute. Among the changes to the existing law was a provision granting the New York Attorney General the authority to “promulgate such rules and regulations as are necessary to effectuate and enforce the provisions” of the price gouging statute.^[1]

On March 4, 2022, Attorney General Letitia James announced that her office has begun to "solicit comments, data, and other information to assist" in crafting rules to prevent price gouging under state's price gouging statute. In her press release, Attorney General James noted that the rulemaking process will "look into whether major corporations are using the pandemic and inflation as an excuse to unfairly raise the prices of basic goods."^[2] According to the press release, the rulemaking process "will examine and address new evidence that some of the recent price hikes by big corporations were driven by profit and not increased costs."^[3]

Price gouging laws in most states assert that it is unlawful for a person or business to sell goods or services above a certain percentage for those same goods and services immediately prior to the state of emergency. This stands in contrast to New York's price gouging law which states that it is unlawful to sell goods or services "which represents an unconscionably excessive price."^[4] Under the statute, whether a price is unconscionable is "a question of law for the court."^[5]

The statute provides that a prima facie case can be established by showing either:

• “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
• 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.”^[6]

II. Attorney General Rulemaking Process – Questions for Public Comment

The Attorney General’s Advance Notice of Proposed Rulemaking seeks public comments on “consumer experiences, market data, and other industry information that will assist” the Attorney General in determining what rulemaking would “help deter price gouging.”

The rulemaking notice lists numerous questions for public comment. Some of the listed questions hint at the type of language that may be included in the rule. For example, as discussed above, New York’s statute defines price gouging as an “unconscionably excessive price,” but it does not set a specific threshold. Yet one of the proposed questions suggests the proposed rule could include such a threshold:

“GBL 396-r prohibits the sale of covered goods or services at ‘unconscionably excessive price[s]’ during periods of abnormal market disruption. One of the tests for finding that a price was unconscionably excessive is that “that the amount of the excess in price is unconscionably extreme.’ Is it appropriate to set thresholds at which price increases could give rise to a presumption of ‘unconscionably extreme’ excesses in price? If so, which benchmarks should be used? Should those thresholds be absolute measures or relative to historical or other market trends?”^[7]

The Attorney General further asks, “what methods of measurement are appropriate to calculate any threshold for a presumption that an excess in price is ‘unconscionably extreme?’” It further asks that if a “percentage increase from the benchmark is used as one of the indicators, what percentage increase is unconscionable?”

This line of questioning suggests that the price gouging rule could include a percentage threshold to determine what constitutes an “unconscionably excessive price.” While such a threshold may provide more clarity for businesses seeking to comply with the statute, it could also be harmful to businesses if the rule establishes a strict threshold that does not consider the increased costs caused by supply chain issues or market forces.

III. Industry Specific Questions

The proposed rulemaking also questions industries that experienced the largest pandemic-related price hikes including shipping, meat packing, lumber, rental housing, grocery stores, online platforms, and basic household goods like diapers. The Attorney General then asks, “[w]hat information about these industries, including the nature of their supply chains, could help shed light on whether price gouging is occurring in these industries?” The Attorney General also highlights the energy industry, asking “what features of energy production and distribution might make price gouging more likely and/or mask price gouging?”

The questions posed in this section suggest that the proposed rule may adopt industry-specific standards.

IV. Conclusion

Given the broad statutory authority granted under the price gouging statute to promulgate rules, the Attorney General has wide latitude to adopt regulations that could significantly impact the business community during declared states of emergencies.

The Orrick State Attorney General group will continue to monitor and report on the price gouging rulemaking process.