By Bryan Koenig

Law360 (March 10, 2021, 7:49 PM EST) -- Online sellers faced tough questions Wednesday from a Sixth Circuit panel trying to figure out why a federal judge's order barring the Kentucky attorney general from investigating alleged price-fixing by Amazon merchants should stand even though the enforcer remains free to investigate the same conduct by brick-and-mortar stores.

A federal judge barred the Kentucky attorney general from applying the state's price-gouging statutes, "including by subpoena, investigation or prosecution, to Amazon suppliers in connection with offers or sales on Amazon." That order — which could impact enforcement nationwide if upheld on appeal — left intact all other price-gouging investigations under the state's emergency declaration for the COVID-19 pandemic, a distinction questioned by U.S. Circuit Judge Karen Nelson Moore as the Kentucky enforcer appeals.

"Why should it be different because a mom-and-pop store chooses to use Amazon?" said Judge Moore, even though that same retailer could face price-gouging enforcement for the same rates charged in a physical store.

"That flows directly from the design of our system," responded Aaron Block of the Block Firm LLC, representing the Online Merchants Guild.

The system Block was referring to is the Constitution's dormant commerce clause, which prohibits state regulation from crossing borders.

U.S. District Judge Gregory F. Van Tatenhove of the Eastern District of Kentucky concluded under that clause in June that it wasn't enough that state Attorney General Daniel Cameron limited his probes to "Kentucky-based entities" selling to customers in the state. According to the ruling, that doesn't change the fact 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." Because Amazon merchants can't restrict themselves to only selling to Kentucky residents, the judge said their sales will "inevitably" cross into other states.

Block defended that ruling Wednesday, saying he understood skepticism of the distinction created by the clause but called on the panel to envision a scenario where small sellers who want to sell on Amazon need to figure out the differing price-gouging statutes, and implementations, of the dozens of jurisdictions with laws targeting the practice, usually only under a declaration of emergency.

"It's just an unsustainable burden," Block told the panel. "It is impossible for our members to function like that."

Pressed about asking the enforcers for guidance and then telling Amazon what prices are safe, Block responded that such an approach would be unrealistic in the face of the online giant's market power.

"If not from Washington, that message has to come from the attorney general," Block said.

Block even used to his advantage an amicus brief from more than 30 attorneys general backing Cameron.

The enforcers had argued that the dormant commerce clause, and its limitations on state rules being applied "extraterritorially," shouldn't apply to price-gouging measures that are "a valid, non-protectionist exercise of state police powers that is designed to aid vulnerable consumers during emergencies."

Kentucky's rules, the enforcers said in September, 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."

That brief, Block said Wednesday, shows the "diversity" of approaches with which sellers must contend.

"It is impossible for a small-business owner or a human being to guess which … is the ceiling," he said.

The guild has argued that Cameron is investigating the wrong people. The real focus of any online price-gouging probe, according to OMG, should be Amazon itself, which the guild says is ultimately responsible for controlling the prices that its sellers can only suggest.

"Amazon has total control over its store," Block said Wednesday, arguing that nationwide sales should be governed by a national framework. But Block had to admit that there is no federal price-gouging statute — most price-gouging enforcement is left up to the states, although federal prosecutors have been able to go after the sale of certain "essential" products, such as disinfectants and protective gear, priced above market under former President Donald Trump's March 2020 invocation of the Defense Production Act.

Both sides noted Wednesday that the instant case could have profound nationwide implications for price-gouging enforcement, thanks to the potential for limits on the ability to police price-gouging from sellers within a state whose goods are available nationwide through Amazon or a similar online portal. For Block, upending Judge Van Tatenhove's preliminary injunction would be "ushering in a radical new world" of state power over the interstate market.

Kentucky Deputy Solicitor General Matt Kuhn, however, conversely argued that the lower court decision "calls into question price-gouging regimes across the country." Those regimes, Kuhn warned, could be hobbled by a precedent by which simply selling price-gouged goods on Amazon instead of in a physical store "somehow walls off that business's pricing."

Kuhn — who said the enforcer is taking an all-of-the-above approach that hasn't ruled out going after Amazon itself — told the panel that the Kentucky enforcer could not and will not go after price-gouging by out-of-state sellers to customers outside of Kentucky. All 11 information demands over which OMG filed suit in the first place were to Kentucky sellers, Kuhn told the panel.

Kuhn also called the dormant commerce clause's extraterritoriality doctrine "rarely used" and argued that "it should go without saying" that something that's supposed to be limited to prohibiting wholly out-of-state conduct should have no impact within the state. The doctrine, he said, only kicks in if Kentucky tries to "directly" impact extraterritorial pricing, while the enforcement in question here is at most indirect. Triggering the clause, he said, requires independent business decisions to sell on Amazon and for Amazon to require only a single nationwide price.

"Kentucky law isn't requiring online merchants to use Amazon. Nor are we requiring Amazon to only allow a nationwide price," Kuhn said. If the district court decision stands, he warned, "it creates a circumstance where states can't regulate in-state conduct, wholly in-state conduct."

Judges Alice M. Batchelder, Karen Nelson Moore and John K. Bush sat on the panel for the Sixth Circuit.

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 Schick 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 Orlando Lorenzo.

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