Knowledge Problem

Michael Giberson

One bill,, submitted to the New York State Assembly last year (but, so far as I can tell, not passed into law; ADDED: See status note below.), proposes to grant consumers a private right of action when they become victims of price gouging in times of emergency. Currently only the state’s Attorney General has authority to bring legal action against someone accused of violating the state’s price gouging law.

The bill’s sponsor suggests that “the threat of enforcement by the Attorney General is not serving as an adequate deterrent,” and implies allowing private rights of actions would help.  To that end, “the purpose of this bill is to grant citizens who are victims of illegal price gouging in times of emergency the right to directly sue the responsible party.” The proposal would allow a victim to sue to recover up to “actual damages” or $1000, whichever is greater, and give the court discretion to award a prevailing plaintiff up to $5000 and reasonable attorneys’ fees.

The bill does not specify who is considered a “victim” under the law.  I can imagine a few problems that may result.

The existing New York law on price gouging is in Section 396-r of the New York Code.  The law provides that during “any abnormal disruption of the market for consumer goods and services vital and necessary for the health, safety and welfare of consumers, no party within the chain of distribution of such consumer goods or services or both shall sell or offer to sell any such goods or services or both for an amount which represents an unconscionably excessive price.”  The law narrows the description of “abnormal disruption” to events resulting in a state of emergency declared by the governor, and otherwise tries to specify just what the law covers, but on the question of what makes a price too high, the law simply states: “Whether a price is unconscionably excessive is a question of law for the court,” and it offers a bit of guidance.

So here is one problem: One part of that guidance suggests a price could be unconscionably excessive if “the amount charged grossly exceeded the price at which the same or similar goods or services were readily obtainable by other consumers in the trade area.”  Therefore, the definition seems to apply in cases in which the “victim” incurs the hazard, i.e. could have purchased at other prices but chose to buy from a merchant offering the good or service for a much higher price. Why would a consumer do this? Well, under this proposal the consumer could file a private action by which he might rewarded as much as $1,000 damages plus up to a $5,000 penalty and reasonable attorneys’ fees because the consumer chose to pay the higher price.

More generally, which victims would qualify to seek compensation? While the consumer charged an amount grossly exceeding some reference price is typically seen as a price gouging victim, what about consumers that would have purchased the good or service but for the unconscionably excessive price at which it is offered? Surely they, too, are victims under the logic of price gouging.  Will they also be able to seek private rights of action and obtain a reward?  If not then the law protects consumers willing and able to pay the higher price, but not consumers who find themselves priced out of the market.  If the law permits these victims-without-receipts to file private suits of action, the potential liability of a business charging higher prices after an emergency can become very large and ill-defined.

Supporters of anti-price gouging legislation may say this is all fine.  The first case suggests that consumers may intentionally seek out merchants offering too-high prices with the intent of subsequently filing a price gouging claim, but that just means that more citizens are motivated to help deter price gouging, and that’s the point, right?  The second case, with a large and ill-documented class of consumers who would-have-but-didn’t-buy at the too-high price, by dramatically increasing the potential liability, similarly serves to help deter price gouging.  Again, that’s the point and what could be wrong?

Well, nothing in New York’s anti-price gouging law requires merchants to remain open for business during market disruptions associated with declared emergencies.  And if remaining open might expose the store to large but hard-to-define liabilities, the store’s owner might reasonably just close up shop.  Consumers, then, would be made worse off by the action of this “consumer protection” policy.

UPDATE: As indicated on the bill’s information page, in early February 2010 the Consumer Protection Committee of the State Senate approved the bill on an 8-2 vote and sent it to the Finance Committee.  An identical bill, A278A, passed the State Assembly last year.