Ky. AG Fighting 'Law As Written,' Amazon Sellers Say

By Bryan Koenig
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Law360 (November 17, 2020, 7:54 PM EST) -- A trade group for online merchants urged the Sixth Circuit not to unblock Kentucky's investigations into Amazon merchants, arguing the state attorney general is trying to rewrite the law amid the COVID-19 pandemic to allow price controls across state lines.

U.S. District Judge Gregory F. Van Tatenhove was "exactly right" 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 guild said Monday. Nor does the enforcer "seriously try to undo the district court's factual findings," according to the brief.

"The AG's real dispute is with the law as written. He offers various arguments for skirting the body of precedent, but they all come down to a variation on the same theme: the AG wants a power that the Constitution allocates instead to Congress," the guild said.

That power would be to go after Amazon sellers whose prices are national in scope and, according to the guild, are up to the online retail giant's ultimate approval and cannot be varied state to state.

More than 30 state attorneys general argued in a September amicus brief, however, that state price-gouging rules are a vital consumer protection tools amid the pandemic that do not unconstitutionally interfere with a retailer's right to set prices across state lines.

The dormant Commerce Clause, according to the enforcers' brief, 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." They argued further that 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."

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." Because Amazon merchants can't restrict themselves to only selling to Kentucky residents, the judge said their sales will "inevitably" cross into other states.

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 again 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, told Law360 on Tuesday that the organization is treating the Kentucky spat as essentially a test case for the various probes by enforcers all over the country. The guild is, however, willing to bring other cases "if there's inherent need" elsewhere, he said. Rafelson maintained that Amazon would be the proper target for price-gouging enforcement, arguing that a case against the platform could accomplish everything that enforcers want to do.  
"We're not taking any enforceability away from the AGs," Rafelson said.

In the brief itself, the guild argued Monday that however "well-intentioned" the enforcer's efforts may be, it doesn't matter that they are targeting new technology. What matters is that Congress meant to keep interstate commerce unhindered by state-by-state limitations, according to the guild.

The guild also assailed the enforcer's attack on its standing to sue.

The attorney general argues that the group can't establish injury because responding to price-gouging enforcement "is part and parcel of its organizational mission" instead of a "diversion of resources." But the guild argued Monday that the district court rightly found that it had previously spent little or no time and energy on price-gouging issues and that a rule eliminating standing for injuries consistent with a group's mission would fundamentally undermine the right of organizations of all stripes to bring legal challenges.

Multiple organizations, such as the NAACP and the U.S. Chamber of Commerce, specifically bill themselves as advocacy groups, according to the brief.

"To hear the AG tell it, since those groups advocate for the issues they and their constituents care about, the groups cannot possibly come into federal court and challenge state laws that interfere with the groups' work. That cannot possibly be right," the guild said.

The guild also maintained that it has associational standing to sue because its members "credibly fear" enforcement thanks to public promises from Cameron and information demands that also include cease-and-desist language.

Cameron maintained in a statement that his office has the ability to go after price gouging during emergencies. "We look forward to responding to the guild's arguments in our reply brief and in oral argument before the Sixth Circuit," he said.

At the federal level, prosecutors have been able to go after the sale of certain "essential" products, such as disinfectants and protective gear, priced above market 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 in September 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."

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 state 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 Jay Jackson Jr.

For a reprint of this article, please contact reprints@law360.com.

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Case Information

Case Title

Online Merchants Guild v. Daniel Cameron


Case Number

20-5723

Court

Appellate - 6th Circuit

Nature of Suit

3950 Constitutional - State Statute

Date Filed

June 29, 2020

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