Amended California Price Gouging Law Closes Potential Loopholes

By: Leo Caseria (Sheppard Mullin)

California Penal Code § 396 prohibits price gouging in California during a state of emergency. California enacted a few amendments to Section 396 that are effective now.  As explained in more detail below, among other things, the amendments close potential loopholes relating to e-commerce, sales of new products, and the relevant benchmark date for pre-emergency prices.

The entire State of California has been under a state of emergency relating to COVID-19 since Governor Newsom’s March 4, 2020 proclamation of a state of emergency, and various California counties have been under separate states of emergency due to the California wildfires. During the current COVID-19 emergency, there has been an explosion of price gouging investigations brought by the State and also by local counties, as well as lawsuits brought by private parties. COVID-19 price gouging investigations and cases have mostly focused on food items (such as eggs) and consumer goods relating to health and hygiene (gloves, toilet paper, hand sanitizer, wipes, etc.).

With the amended version of Section 396, the basic rules for providers of food items and consumer goods remain the same:  During a state of emergency, prices may not be increased by more than 10% over pre-emergency prices. Cal. Penal Code § 396(b). A higher price is not unlawful if it is directly attributable to certain costs and is “no more than 10 percent greater than the total of the cost to the seller plus the markup customarily applied by that seller for that good or service in the usual course of business immediately prior to the onset of the state of emergency or local emergency.”  Id.

Amended Section 396 includes new language that gives the Governor the power to do by statute certain things he had previously been doing by executive order.  The statute also now expressly covers pandemics and online sales.  Key changes of relevance to providers of food items and consumer goods are summarized below….

CONTINUE READING…