As Texas and other southern states thaw from a frigid winter storm, companies doing business in these states should assess and take steps to minimize the risk of a price gouging claims. As suits are filed in the wake of the storms, companies should prepare now to defend such claims, whether from state attorneys general or from private plaintiffs. In road-mapping a defense strategy, the following information may be helpful.

Covered Products

Only certain products are covered by price gouging laws and these laws vary by state. It is important to identify whether products are being sold in states hit by the winter storm. For example, the Governors of Texas and Oklahoma declared states of emergency in the wake of the February winter storm, and the laws in those states cover different products. The Oklahoma statute covers, “any goods, services, dwelling units, or storage space” sold in the emergency area. Whereas in Texas, covered products include “fuel, food, medicine, lodging, building materials, construction tools, or another necessity.” As only products covered by the statute are subject to pricing restrictions, businesses facing price gouging allegations should carefully evaluate which products at issue may not be covered by the statute.

Permitted Increases

If a product is arguably within the scope of the emergency pricing restrictions, determine what price increases are permitted, as most states allow some price increases. If suit is brought alleging price gouging of a covered product, the extent of permitted increases will help determine whether the price at issue potentially violated the statute. Some states, like Texas, prohibit selling products at an “exorbitant or excessive price.” Other states, provide specific percentage caps, such as Oklahoma and Arkansas, which cap price increases at 10% more than the price charged immediately before the state of emergency.

Baseline Prices

The precise amount of a permitted price increases will often depend on a baseline price. Establishing the baseline price for each covered product at issue is essential – and not always straightforward. The formulas for baseline prices vary by state. For instance, in Oklahoma, the baseline price is the price charged “immediately prior to the state of emergency.” Any price increase above 10% of that baseline is presumptively illegal. In Oklahoma, the Governor declared a state of emergency on February 12, so the baseline price would be the seller’s price on February 11. These baseline prices lay the foundation for showing that the price increase was permitted by the statute. Unlike the states mentioned above, Texas does not provide a specific baseline measurement, instead, it prohibits selling covered products at an “exorbitant or excessive price.” However, prices for these products just before the emergency would most likely still be relevant in determining whether a price increase is exorbitant or excessive. Additionally, businesses should consider that COVID-19 states of emergency may still be in effect, adding an additional layer to consider when calculating a product’s baseline price.

Calculating the Increase

From the established baseline, there are variety of ways a price increase may be justified and permissible under the statute. In some states, simply exceeding the baseline price, or the statutory percentage increase for the covered product may violate the pricing restrictions. Other states evaluate price increases relative to profit margin. For example, in Oklahoma, if costs increase or non-emergency factors led to the price increase, the increase could be legal if the profits margin for the seller did not increase as well. Most likely, for states without specific percentage caps, such as Texas, stable profit margins will provide evidence that the price increase was not “exorbitant or excessive.” Margins, costs, and comparable competitive prices could all serve as data points for a court determining the legality of a price increase.

Defenses

Other defenses may be available as well. For example in Arkansas, the price gouging statute provides a specific exception for increased costs. A successful defense might establish that the alleged price increase was “directly attributable” to increased labor or materials costs, or to price increases by suppliers. Similarly, Oklahoma provides a specific exception for increased costs attributable to price increases on a petroleum commodity market or other non-emergency factors. Texas does not explicitly provide such an exception, but increased costs would arguably serve as defense to an allegation of “excessive” prices.

Additionally, the plaintiff in any suit must have the right to sue under the price gouging statute. Some states limit price gouging enforcement to the state’s attorney general. Other provide a private right of action. However, for a private individual to bring such a suit, they must have experienced a direct harm from the allegedly illegal conduct. A careful analysis of a private action may reveal that the complainant does not have sufficient grounds to bring a claim.

When facing a price gouging suit, companies should be wary of claims that a simple price increase inevitably imposes liability. With multiple factors at play in pricing calculations and the availability of defenses, many price increases are permissible. Companies at risk of a price gouging claims should consider the extent to which their products or services may be covered by a state’s pricing restrictions along with and the availability of potential justifications for price increases. While the South digs out of the snow, companies should not unnecessarily fear being buried in price gouging suits.

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Visit Proskauer on Price Gouging for antitrust insights on COVID-19.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

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Photo of Christopher E. Ondeck Christopher E. Ondeck

Chris Ondeck is head of the Washington, DC office and co-chair of the Firm’s Antitrust Group. Chris is one of the most highly rated antitrust trial lawyers in the United States. In 2023, he won the largest antitrust jury trial of the year…

Chris Ondeck is head of the Washington, DC office and co-chair of the Firm’s Antitrust Group. Chris is one of the most highly rated antitrust trial lawyers in the United States. In 2023, he won the largest antitrust jury trial of the year, and one of the largest in history, by defending Sanderson Farms as the sole non-settling defendant where the direct purchaser plaintiffs alleged $7 billion in damages. The significance of the trial victory was widely reported by Reuters, Bloomberg Law, Law360, and other publications, calling it a “blockbuster case.” Law360 noted that Chris “blasted” the plaintiffs’ assertions at trial and called it one of the biggest trial decisions of the year. Chris and his team were named Litigators of the Week by the American Lawyer. Benchmark Litigation also shortlisted Chris for antitrust litigator of the year in 2023.

Chris is a go-to litigator for clients in high-profile antitrust matters, including AARP, Amtrak, AT&T, Butterball, Cardinal Health, Continental Resources, Daybreak Foods, Discovery, DuPont, Ocean Spray, SpaceX, Sunkist, Wayne Sanderson Farms, Welch’s, and Weyerhaeuser. He also has 30-years’ expertise with the Capper-Volstead Act’s application and interpretation for agricultural cooperatives, and serves as outside counsel to a large number of industry groups, including trade associations and cooperatives.

Chris has been recognized as a leading antitrust practitioner by Chambers, noting that clients describe him as “our primary thought partner – he’s very good at explaining the complex issues and making them easy to understand” and praising “his strong advocacy skills”; by The National Law Review as a “Go To Thought Leader”; by Acritas as a “Star” for multiple years; by Benchmark Litigation as a National Litigation Star; and by The Legal 500 United States for Antitrust: Civil Litigation/Class Actions.

Photo of John R. Ingrassia John R. Ingrassia

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating…

John is a partner at the Firm, advising on the full range of foreign investment and antitrust matters across industries, including chemicals, pharmaceutical, medical devices, telecommunications, financial services consumer goods and health care. He is the first call clients make in matters relating to competition and antitrust, CFIUS or foreign investment issues.

For more than 25 years, John has counselled businesses facing the most challenging antitrust issues and helped them stay out of the crosshairs — whether its distribution, pricing, channel management, mergers, acquisitions, joint ventures, or price gouging compliance.

John’s practice focuses on the analysis and resolution of CFIUS and antitrust issues related to mergers, acquisitions, and joint ventures, and the analysis and assessment of pre-merger CFIUS and HSR notification requirements. He advises clients on issues related to CFIUS national security reviews, and on CFIUS submissions when non-U.S. buyers seek to acquire U.S. businesses that have national security sensitivities.  He also regularly advises clients on international antitrust issues arising in proposed acquisitions and joint ventures, including reportability under the EC Merger Regulation and numerous other foreign merger control regimes.

His knowledge, reputation and extensive experience with the legal, practical, and technical requirements of merger clearance make him a recognized authority on Hart-Scott-Rodino antitrust merger review. John is regularly invited to participate in Federal Trade Commission and bar association meetings and takes on the issues of the day.

Photo of Shannon D. McGowan Shannon D. McGowan

Shannon McGowan is an associate in the Litigation department.  Shannon’s practice focuses on assisting clients navigate a range of antitrust issues.  In addition to her experience on wide-ranging antitrust litigations, Shannon works with clients on general antitrust compliance and litigation issues.  In connection…

Shannon McGowan is an associate in the Litigation department.  Shannon’s practice focuses on assisting clients navigate a range of antitrust issues.  In addition to her experience on wide-ranging antitrust litigations, Shannon works with clients on general antitrust compliance and litigation issues.  In connection with historic restructuring of Puerto Rico’s debts, Shannon advises the Financial Oversight and Management Board for Puerto Rico on a variety of issues related to Puerto Rico Oversight, Management, and Economic Stability Act.

Shannon maintains an active pro bono practice, including assisting non-profit organizations with research into immigration and refugee law and representing individual clients in litigation to improve housing conditions in the Washington D.C. area.

Shannon earned her J.D. from the University of Virginia School of Law, where she captained the school’s Philip C. Jessup International Law Moot Court team.  As an alumnae, she is active in advising the current UVA Jessup Team throughout the year-long competition.

Prior to law school, Shannon served as a legislative assistant to state representatives at the Oklahoma State House of Representatives, where she researched and advised on legislation and policy issues, including government transparency, education, and financial accountability.