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Law360 (March 24, 2021, 5:42 PM EDT) -- New York City can continue handing out pandemic-related price-gouging penalties as it sees fit while battling a $50 million suit accusing the city of imposing unconstitutionally high fines on those hawking supplies such as face masks and hand sanitizer, a federal court said.
U.S. District Judge Denise Cote refused to grant the temporary restraining order requested by hardware store Union Square Supply in a brief, one-paragraph order Tuesday that didn't include any of the court's reasoning.
The restraining order would have blocked the city from enforcing its price-gouging law and pressed pause on the $21,000 fine that it had already slapped Union Square with for allegedly violating the statute.
Originally, the city had a policy not to impose fines larger than $3,000 but has since rescinded it, resulting in price-gouging penalties regularly climbing above $15,000 since violations can rack up at the rate of $350 per item, according to the suit.
For example, the seller can be fined $350 for each disposable mask in a package rather than once for the entire box.
But according to Union Square, "The price gouging statute is being applied in an arbitrary manner. It is constantly evolving by decisions in cases which change the determination of price gouging and defenses."
Enforcers descend upon businesses armed with a "secret list" of products and prices to guide them that the fined businesses haven't been able to get their hands on, according to the suit.
The hardware store placed the blame largely upon the shoulders of the Office of Administrative Trials and Hearings when it filed the proposed class action earlier this month, accusing the office, known as OATH, and the city of violating the constitutional rights of individuals and businesses with its steep fines and complicated administrative process.
Lack of transparency is a major issue because OATH refuses to publish the price list that it uses to judge whether a seller is gouging or not, and what products qualify as necessary for combatting the pandemic, according to the suit. The city also hasn't been accounting for cost increases for the merchants themselves when doling out fines, Union Square said.
Merchants can raise prices to match their cost but only insofar as the dollar value of their profit doesn't change, according to the suit. If an item is priced 10% higher than what similar products in New York were selling for over the last two months, it can be considered price-gouging, according to the law.
The "bogus hearing process" is also difficult to navigate, with alleged violators being sent summons to an OATH building that was closed due to the pandemic, the suit claims. The office was still conducting hearings by phone but the summons didn't mention that, which the suit claims resulted in alleged violators failing to appear and being hit with default fines.
Union Square Supply is represented by Robert J. La Reddola of La Reddola Lester & Associates LLP.
Counsel information for the defendants was not immediately available.
The case is Union Square Supply Inc. v. De Blasio et al., case number 1:21-cv-02390 in the U.S. District Court for the Southern District of New York.
--Additional reporting by Bryan Koenig. Editing by Jay Jackson Jr.
For a reprint of this article, please contact reprints@law360.com.
