New Jersey’s Consumer Protection Laws Govern COVID-19; Retail “Sellers Beware”

Retailers contemplating a price increase on high demand/low supply consumer goods and related items such as surgical masks, cleaning products, hand sanitizers, disinfectant sprays and wipes, first aid kits, and even essential food items and bottled water (hereafter, “items of necessity”) are well advised to know that New Jersey has enacted—and is already aggressively enforcing—some of the strongest consumer protection laws on the books. These consumer protection laws and policies in the garden state are creating a myriad of “thorny issues” for entrepreneurs who intentionally, or even inadvertently, cross the COVID-19 pandemic line.

The Murphy Administration & Attorney General’s Office Spring into Immediate Action

On March 9, 2020, as part of an initiative to contain the spread of COVID-19, Governor Phil Murphy declared a state of emergency via Executive Order No. 103 that applied to all 21 counties throughout the state.

Attorney General Gurbir Grewal and the Division of Consumer Affairs (DCA) quickly responded by warning residents to make themselves aware of price gouging and practices amounting to consumer fraud involving items of necessity during the period of time the state of emergency is in effect, and for 30 days thereafter.

The New Jersey Consumer Fraud Act:

Over the past sixty years, New Jersey has passed some of the strongest and most expansive consumer protection laws in the country. Chief among them is the Consumer Fraud Act (CFA), codified at N.J.S.A. 56:8–2 et. seq. Following various amendments made in 1971 to the statute, New Jersey’s courts began to liberally interpret the scope of the CFA by continually broadening the application of its provisions. (See e.g., Weinberg v. Sprint Corp., 173 N.J. 233, 257 (2002) (citing Cox v. Sears Roebuck & Co., 138 N.J. 2, 15 (1994)).   

In terms of retail sales, New Jersey’s CFA promulgates restrictions on price gouging measures and, specifically, prohibits excessive price increases during a declared state of emergency and for 30 days after its termination. See N.J.S.A. 56:8-107.

Section 107 of the CFA, entitled “Findings, declarations relative to excessive price increases at certain times,” provides that:

The Legislature finds and declares that during emergencies and major disasters, including, but not limited to, earthquakes, fires, floods or civil disturbances, some merchants have taken unfair advantage of consumers by greatly increasing prices for certain merchandise. While the pricing of merchandise is generally best left to the marketplace under ordinary conditions, when a declared state of emergency results in abnormal disruptions of the market, the public interest requires that excessive and unjustified price increases in the sale of certain merchandise be prohibited. It is the intention of the Legislature to prohibit excessive and unjustified price increases in the sale of certain merchandise during declared states of emergency in New Jersey.

New Jersey’s Attorney General & Statewide Law Enforcement Mean Business:

In the short period of time since Governor Murphy entered Executive Order No. 103, the DCA has already received nearly 300 complaints from consumers alleging price gouging or other unfair business practices relating to the sale of items of necessity in connection with the public’s response to, and preparation for, COVID-19. Tellingly, many of these complaints were made after the state of emergency was declared by Governor Murphy on March 9, 2020, which leads one to conclude that retailers in New Jersey may not be aware of the restrictions that govern this space in the marketplace.

The DCA is applying a “zero-tolerance” policy to enforcing these measures and has already assigned close to 60 Investigators to inspect retail stores and related businesses throughout the state in response to consumer complaints. Indeed, state officials are cracking down hard on retailers who they perceive to be crossing the line.

For example, The Jersey Journal reported that one particular retailer—a discount store called “99 Cent Dream” located on Newark Avenue in Jersey City—was cited for nine separate violations of the State’s anti-gouging laws—each carrying a $10,000 fine—because law enforcement and prosecutors discovered the retailer was charging exorbitant prices for rubbing alcohol (which was raised from $2.99 to $6.99/bottle), disinfectant wipes and disinfectant spray.

Consequently, retailers are well advised to heed this warning.

The Consumer Fraud Act & Executive Order No. 103 Are Broad in Their Application:

Although the state of emergency places restrictions on price increases for all consumer products, the CFA specifically addresses items that are: (a) consumed or used as a direct result of an emergency; or (b) consumed or used to preserve, protect, or sustain the life, health, safety or comfort of persons or their property. See N.J.S.A. 56:8-109. As such, the DCA has received most of its complaints about price increases thus far in connection with items of necessity.

In terms of general guidance, the DCA defines “excessive price increases” as any price that exceeds 10% of the price the product or service was sold for during the usual course of business immediately prior to enactment of the state of emergency unless the price charged by the seller is attributable to additional costs imposed by the seller’s supplier or other costs of providing the good or service during the state of emergency.  See N.J.S.A. 56:8-108.

As noted above, price-gouging violations in New Jersey are considerable, and could be punishable by civil penalties of up to $10,000 for the first offense and $20,000 for the second and subsequent offenses, with each individual sale of merchandise being considered a separate and distinct violation. Moreover, violators may also be required to pay consumers restitution, attorney’s fees, investigative fees, and be exposed to broad ranging restrictions via injunctive relief.

Practical Considerations to Consider

This publication does not offer guidance to retailers seeking to capitalize on the misfortune that New Jersey residents are experiencing because of COVID-19 (i.e., retailers hoping to “make a quick buck” or seeking to allocate exorbitant profits against losses incurred with other aspects of their businesses caused by the COVID-19 pandemic).

Rather, the challenge that bona fide retailers of consumer products—and , in particular, items of necessity—are currently facing is how to react to and lawfully pass along price escalations they are facing in their historical supply lines that, by necessity, require a concomitant increase on the retail price paid by their customers to offset the additional (and unexpected) costs retailers are incurring when procuring these goods in the first place.

Prudence and best practices dictate that retailers should carefully assess areas of potential non-compliance and litigation exposure since even “technical” violations can easily result in five to six figure penalties, civil exposure (ranging from cease and desist letters to injunctions), inadvertent reputational harm and damage to good will, and even criminal penalties as State Prosecutors have issued stern warnings about their readiness to criminalize conduct they deem to be criminal in nature.

What does all this mean? While New Jersey’s retailers are all navigating through unchartered waters with this pandemic, the following issues are worth considering:

1. Determine What Space You Want To Occupy: Avoiding the land mines inherent with this process will require striking a balance between accommodating the retailer’s desire to procure and supply consumer goods and related items of necessity for the benefit of their consumers, on the one hand, against the way those items are ultimately priced to consumers, on the other hand, to: (a) supply a benefit to the retail public; while (b) deterring re-sellers from “stock-piling” these items so they can, in turn, re-sell them at exorbitantly higher prices to needy consumers in the marketplace.
2. Each Case Will Turn on Its Own Facts: As with other unchartered territory, the outcome of any balancing test and related analysis will likely turn on the facts and circumstances surrounding each scenario being judged by objective standards (in other words, does the retailer’s conduct pass the “smell test?”). For this reason, a customized action plan should be developed to suit each retailer’s specific needs and objectives.
3. Use Common Sense—”What Would Your Peers Say About Your Defense?”: If any increase on consumer goods and items of necessity exceed the 10% limit prescribed in the CFA, and the reason(s) for that increase are not readily ascertainable from a review of the retailer’s supply line records, the likely outcome may result in a finding of liability. In other words, if the documents and business justifications for vaulting the 10% increase limit are so flimsy and so “shock the conscience” that they can only lead a reasonable fact finder to one conclusion (a hit-job on New Jersey’s consumers), then chances are the defense will fail. Use common sense and peer review to test your analytics and decisions.
4. Cover Your Bases With Objective Data: On the other hand, if retailers can demonstrate and provide a thorough and plausible supply chain explanation as to why such increases were not only unavoidable, but in direct proportion to their historical costs of goods acquired, etc., retailers desiring to continue providing items of necessity to consumers in New Jersey should find protection in the safe harbors outlined above.

“Best Practices” To Avoid Liability

There are no cookie-cutter answers applicable to every scenario that retailers will encounter. However, there are best practices that can be considered to avoid liability. Here are a few:

1. Create & Maintain Meticulous Records: Retailers are advised to maintain thorough business records documenting the increased costs they incurred to procure consumer goods and items of necessity to demonstrate a plausible claim of “price increase by necessity.” When in doubt, document, retain, and then document again.
2. Be Transparent With Consumers: Another approach retailers can consider to stave off claims of actionable price gauging is to unambiguously inform consumers that items of necessity are presently in high demand and low supply and, because of that, retailers are experiencing challenges and price increases in connection with procuring such goods from their historical distribution channels. Therefore, since retailers are being forced to look beyond historical suppliers for such goods to combat the spike in costs caused by increased acquisition and shipping charges, they are well advised to suggest that their consumers also price shop these items.
3. Create & Maintain A “Safe-Harbor” Database: Retailers weary about their ability to demonstrate the “objective reasonableness” of their pricing decisions should consider using the broadscale marketplace as a barometer against which to measure their individual pricing decisions and related actions. By way of illustration, creating, maintaining and periodically updating a database that tracks retail pricing for items of necessity by national, regional and local sellers of these goods will likely provide a compelling and “objectively reasonable” litmus test against which possible claims will later be compared. While the retailer will still be required to demonstrate full compliance with the CFA’s restrictions on price increase, documenting a broader spike in costs of goods sold and placed for sale in the marketplace should rebut and serve to undercut claims of intentional violations of the CFA.

Examples of websites that provides some of this information include:

• • PriceGrabber: http://www.pricegrabber.com/
  • CamelCamelCamel: https://camelcamelcamel.com/
  • BuyVia: https://www.buyvia.com/
  • Shopping.com: https://www.shopping.com/
  • Pronto: https://www.pronto.com/

Conclusion

The current economic landscape in New Jersey and beyond is rife with business anxiety. This concern is creating tremendous uncertainty for retailers selling goods to consumers in the garden state. Therefore, retailers can—and should—inform their decision making about pricing consumer goods and related items of necessity with confidence and in accord with applicable legal precedent.

If you or one of your business partners have been sued, cited or even contacted by the New Jersey Attorney General’s Office, the DCA, representatives of public agencies or private consumer protection groups, or private counsel threatening or asserting claims for violations of the New Jersey Consumer Fraud Act and/or EO No. 103, you are encouraged to contact us to discuss an appropriate response and action plan to confidently work through these challenges.

The Coronavirus Task Force at Klehr Harrison stands ready to assist you in your business and legal needs. We will continue to provide additional information and guidance as the COVID-19 situation develops.

Author Michael A. Iaconelli is a partner in the Litigation Department at Klehr Harrison.