Law360 (September 24, 2020, 8:29 PM EDT) -- Over 30 attorneys general urged the Sixth Circuit on Wednesday to unblock Kentucky's investigations into Amazon merchants, arguing state price-gouging rules are a vital consumer protection tool amid the COVID-19 pandemic that do not unconstitutionally interfere with a retailer's right to set prices across state lines.
U.S. District Judge Gregory F. Van Tatenhove was wrong to grant the Online Merchants Guild a preliminary injunction in June blocking Kentucky Attorney General Daniel Cameron from pursuing investigations or cases against Amazon retailers, the enforcers said in an amicus brief supporting their Kentucky peer's appeal.
The enforcers' argument: the dormant Commerce Clause, and its limitations on state rules being applied "extraterritorially," shouldn't apply to price-gouging rules that are "a valid, non-protectionist exercise of state police powers that is designed to aid vulnerable consumers during emergencies."
And Kentucky's rules don't have an impermissible impact on commerce beyond the state's borders because they don't control other states' commerce or establish "conflicting regulatory burdens."
"Unlike other regulations that have been struck down under the extraterritoriality doctrine, price-gouging laws like Kentucky's affect only the price of goods within the state, without dictating the price for out-of-state sales. And although state price-gouging laws may vary, there is no actual conflict among them," the attorneys general said, arguing sellers can abide by the varying price hike limits of different states without issue, even if it means selling at different rates in different locations.
Judge Van Tatenhove, of Kentucky's Eastern District, saw differently. In a June 23 order, he responded to the guild's lawsuit, filed in the wake of Cameron's investigation into third-party Amazon sellers, with a preliminary injunction blocking the attorney general from applying Kentucky's price-gouging statutes, "including by subpoena, investigation or prosecution, to Amazon suppliers in connection with offers or sales on Amazon."
Judge Van Tatenhove's reasoning was that it wasn't enough that Cameron limited his probes to "Kentucky-based entities." According to the ruling, that doesn't change the fact that those investigations, and any enforcement action taken in their wake, will have "the practical effect" of dictating the prices "these Kentucky-based entities can charge outside of Kentucky."
"As noted at length, by selling through Amazon, merchants cannot restrict their sales to only Kentucky residents — inevitably transactions will occur outside of the state," the judge said at the time.
Judge Van Tatenhove went on to say that the Kentucky attorney general has at his disposal "alternative measures" that could be applied to fight the issue of price-gouging amid the pandemic "in a non-extraterritorial fashion."
One option, Judge Van Tatenhove said in citing the guild, would be to regulate Amazon itself. Amazon exercises tremendous control over the prices offered through its platform even by third parties, who cannot geographically limit the sale of goods through the online retail giant and whom the judge described as "suppliers" rather than sellers because, he said in citing the guild, they "have no control over the price set on the marketplace, but can only suggest a final price."
Guild chairman and in-house attorney Paul Rafelson, a partner at boutique e-commerce firm Rafelson Schick LLP, highlighted the role of Amazon itself in an interview with Law360 Thursday.
It is Amazon, not its merchants, that should be held accountable, Rafelson said, accusing the company of offering up its sellers as "scapegoats" and likening the retail giant to the customer-side stores that price-gouging statutes are primarily meant to police. Yet Cameron had actually thanked Amazon for helping identify the top price-gougers located in Kentucky.
"What the states don't like is the fact that there is a way to protect consumers that doesn't involve violating the constitutional rights of small-business merchants," Rafelson said in an email. "Because in order to do that, they would have to hold Amazon accountable for something, which is always a politically unpopular choice given Amazon's influence in just about every state these days."
Rafelson pointed to a Public Citizen report from earlier this month which found that Amazon was gouging consumers on an array of essential products such as antibacterial soap and face masks, with price increases as high as 1,000%.
Public Citizen's report was meant in part to highlight the limitations of the current U.S. price-gouging regime, which has no federal component and is instead dependent on the statutes of about three dozen states, many of which can only go after the practice when a state of emergency has been declared.
At the federal level, prosecutors have been able to go after the sale of certain "essential" products such as disinfectants and protective gear above market prices under President Donald Trump's March invocation of the Defense Production Act.
Yet most price-gouging enforcement during the pandemic has fallen to state enforcers. And they've encountered hiccups even outside Kentucky, with a New York state court judge Wednesday throwing out a case over a wholesaler's alleged doubling of the price for Lysol Disinfectant Spray after concluding that price hikes were not "unconscionable or overall extreme."
Wednesday's amicus brief from the state attorneys general, whose numbers included the enforcers of Illinois, Arkansas, Delaware, Maryland, Michigan, Nevada, New York, North Carolina, Vermont and Washington, D.C., did not mention the New York Lysol case.
Instead, the brief focused on some of their other ongoing enforcement actions, including over 1,500 cease-and-desist letters sent by the New York enforcer in addition to direct lawsuits.
Kentucky enforcer spokesperson Elizabeth G. Kuhn welcomed the amicus brief in a statement.
"This appeal raises important questions about the ability of states to protect their citizens from price-gouging during times of emergency. The fact that a bipartisan coalition of 30 states and the District of Columbia voiced their support for Attorney General Cameron's position underscores the importance of this appeal," Kuhn said.
The brief itself argues that price-gouging actions are an important part of protecting consumers during the pandemic.
"The decision below — which preliminarily enjoined Kentucky from enforcing its price-gouging prohibitions against merchants that sell their products on Amazon — interferes with these interests," the enforcers said. "If states are unable to enforce price-gouging regulations against online sellers, bad actors will profit off of their residents by charging excessively high prices for scarce goods during emergencies."
The state enforcers are represented by their respective attorneys general.
Kentucky is represented by Solicitor General S. Chad Meredith, along with Matthew F. Kuhn, Brett R. Nolan, Victor B. Maddox, J. Christian Lewis, Justin D. Clark and Philip R. Heleringer with the Attorney General's Office.
The Online Merchants Guild is represented by Paul Rafelson of Rafelson Shcick PLLC, Aaron Block of the Block Firm LLC and Mark Gilbert of Deatherage Myers & Lackey PLLC.
The case is Online Merchants Guild v. Daniel Cameron, case number 20-5723, in the U.S. Court of Appeals for the Sixth Circuit.
--Editing by Philip Shea.
Correction: A previous version of this story misstated Judge Van Tatenhove's name. The error has been corrected.
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