Governor Phil Murphy triggered New Jersey’s stringent anti-price gouging laws when he issued a March 9, 2020 Declaration of Emergency in response to the COVID-19 viral crisis. The anti-price gouging law is part of New Jersey’s Consumer Fraud Act, located at N.J.S.A. 56:8-107-109.
WHO IS IMPACTED?
Any person or business selling products to the public or distributing to retailers. Likely targets of enforcement actions are retailers or distributors selling:
- Food and other consumer goods (including bottled water, meat, produce, dairy, canned goods, batteries and paper products);
- Medicine (including antibiotics, fever reducers, cough medicine, hydroxychloroquine and zinc sulfate);
- Medical Supplies (including masks, gloves, face shields, ventilators and respirators); and
- Cleaning/Disinfectant Products (including hand sanitizers, Lysol/Clorox, ammonia, bleach and isopropyl alcohol)
Note: after Hurricane Sandy in 2012, the Attorney General’s price gouging enforcement efforts focused on hotels and gas stations, neither of which is likely to be a high priority target now.
HOW DOES IT WORK?
The anti-price gouging laws make it unlawful for any person or business to sell an item used to “preserve, protect, or sustain the life, health, safety or comfort of persons” at an “excessive price.”
An “excessive price” is defined as more than 10% over the price at which the good was sold or offered for sale in the usual course of business before the emergency. If the seller’s costs go up, an “excessive price” is then measured as an increase in price resulting in an increase of the markup over cost greater than 10%.
To illustrate this point, assume a large bottle of hand sanitizer typically costs the seller $5 and sold at retail for $10 before the emergency ($5 profit/100% markup):
HOW IS IT ENFORCED?
The Attorney General’s office has been actively policing price gouging violations, and has recorded over 1,500 complaints, conducted more than 300 investigations, issued 162 cease-and-desist letters, and served 32 subpoenas as of March 25, 2020. Attorney General Gurbir Grewal has also joined 32 other state Attorneys General in letters to online retailers like Amazon, Walmart, eBay, Craigslist and Facebook requesting their cooperation in preventing price gouging.
Violations of the anti-price gouging laws are subject to fines of up to $10,000 for a first violation and $20,000 for each subsequent violation, with each individual sale constituting a separate violation. The significant potential exposure to statutory damages enables the AG’s office to demand large settlements from impacted businesses. Businesses may also be subject to private civil litigation under New Jersey’s Consumer Fraud Act for price gouging, which can result in treble damages and legal fee shifting.
WHAT CAN NJ BUSINESSES DO TO PROTECT THEMSELVES?
New Jersey business owners must take steps to protect themselves against price gouging allegations. There are few defenses available after the AG launches an investigation, so prevention and compliance are paramount. Steps every business selling products to consumers should take NOW include:
- Maintaining accurate records from both before and after the enactment of the state of emergency which reflect the prices of goods sold and the costs of inventory;
- Determining the maximum allowable price for each item sold and ensuring prices stay below that level; and
- Responding promptly and honestly to pricing questions raised by customers – if the price is higher because of supply chain issues, explaining that to an angry customer may head off a complaint to the AG.
In the event a business is contacted by the AG’s office in connection with a consumer complaint alleging price gouging, best practice dictates immediately retaining counsel to help defend the business, negotiate with the AG’s office, and maximize the business’ chance of resuming healthy operation once the crisis passes.