In California, price gouging is a misdemeanor offense under Penal Code 396 PC. This law is primarily applicable during declared states of emergency, such as earthquakes, floods, or pandemics, when unscrupulous individuals or businesses might attempt to exploit the situation by drastically inflating the prices of essential goods or services.
Price gouging is defined as raising a price more than 10% of what it was before the state of emergency was declared. It applies to merchants for 30 days, contractors for 180 days, and hotels and landlords for the 30 days after the emergency has been declared. Notably, however, the government can extend periods if the emergency persists.
PC 396 says, “(a) The Legislature hereby finds that during a state of emergency or local emergency, including, but not limited to, an earthquake, flood, fire, riot, storm, drought, plant or animal infestation or disease, pandemic, or epidemic disease outbreak, or other natural or manmade disaster, some merchants have taken unfair advantage of consumers by significantly increasing prices for essential consumer goods and services.
While the pricing of consumer goods and services is generally best left to the marketplace under ordinary conditions, when a declared state of emergency or local emergency results in abnormal disruptions of the market, the public interest requires that excessive and unjustified increases in the prices of essential consumer goods and services be prohibited.
It is the intent of the Legislature in enacting this act to protect citizens from excessive and unjustified increases in the prices charged during or shortly after a declared state of emergency or local emergency for goods and services that are vital for the health, safety, and welfare of consumers, whether those goods and services are offered or sold in person, in stores, or online. Further, the Legislature intends that this section be liberally construed so that its beneficial purposes may be served.”
If you are a merchant charged with price gouging, you could face up to one year in jail plus substantial fines if convicted.
What Is Price Gouging?
Price gouging is defined as raising the price of many types of goods and services by an unacceptable amount due to a drastic increase in demand, such as during an emergency. This price increase is usually unreasonable and often occurs when consumers have no alternative sources for the goods or services needed.
A violation of Penal Code 396 PC is a misdemeanor in California. The penalties for a conviction can include up to one year in county jail and a fine of up to $10,000.
What Does the Law Say?
As noted, Penal Code 396 PC prohibits explicitly increasing the price of essential goods and services by more than 10 percent during a declared state of emergency, whether declared by the President of the United States or the Governor of California.
This law may apply during national, state, or local emergencies. In most cases, this ban stays in effect for 30 days after the state of emergency is declared; however, for contractors in particular, the ban applies for 180 days.
The government also has the authority to extend the ban if emergency conditions persist. For purposes of this law, essential goods and services include:
- Food and other home sundries (e.g., toilet paper, cleaning supplies),
- Housing (including hotels or rental units),
- Freight costs,
- Storage services,
- Emergency supplies,
- Medical supplies,
- Building materials,
- Home heating oil,
- Construction services,
- Reconstruction or restoration services,
- Goods needed for emergency cleanup,
A “consumer food item” means any article used or intended for food, drink, confection, or condiment by a person or animal.
“Housing” means “any rental housing with an initial lease term of no longer than one year, including a space rented in a mobile home park or campground.”
“Emergency supplies” include “water, flashlights, radios, batteries, candles, blankets, soaps, diapers, temporary shelters, tape, toiletries, plywood, nails, and hammers.”
“Medical supplies” include “prescription and nonprescription medications, bandages, gauze, isopropyl alcohol, and antibacterial products.”
“Building materials” means “lumber, construction tools, windows, and anything else used in the building or rebuilding property.”
Section 396(b) says, “If the person, contractor, business, or other entity did not charge a price for the goods or services immediately before the proclamation or declaration of emergency, it may not charge a price that is more than 50 percent greater than the cost thereof to the vendor as “cost” is defined in Section 17026 of the Business and Professions Code.”
What Are Qualifying Emergencies?
For purposes of this law, qualifying emergencies include, but are not limited to, the following:
- Disease outbreaks (epidemic or pandemic),
- Severe drought,
- Plant or animal infestation or disease,
- Other natural or manmade disaster.
What Are the Elements of the Crime?
For the prosecution to secure a conviction for price gouging under Penal Code 396 PC, they must prove the following elements beyond a reasonable doubt:
- A state of emergency or local emergency was in effect.
- The defendant sold or offered to sell a good or service at a price more than 10% higher than the price charged immediately before the state of emergency was declared.
- The price increase was not directly attributable to additional costs imposed on the seller or incurred by the seller.
What Are Some Examples?
EXAMPLE 1: John is a local grocery store owner near the epicenter of a large earthquake that has prompted a state of emergency. John decides to capitalize on the situation and drastically increases the prices of many of his products. For instance, a gallon of milk priced at $3.50 before the disaster is now being sold for $5.00, marking an increase of more than 40%. John could be charged under PC 396 for price gouging.
EXAMPLE 2: A wildfire has caused massive destruction in a California town, leading to a state of emergency declaration. Terri is a local landlord in a nearby community. Recognizing the increased demand for housing due to hundreds of displaced families, Terri raised the rent on one of her properties from $1,500 to $1,800 per month, a 20% increase. Terri can be charged under PC 396 because she raised the rent more than 10 percent with no corresponding cost increase.
What Are the Legal Defenses?
If you are charged with price gouging, an experienced California criminal defense attorney may implement one of several defenses to counter the charges. These include, but are not limited to, the following:
- No State of Emergency: If there was no officially declared state of emergency at the time of the alleged price gouging, the charge cannot stand. For example, if the prices were raised the day before a natural disaster, it's not considered price gouging.
- Additional Costs Imposed: It's not considered price gouging if the person's actual costs to provide a product or service go up accordingly. Suppose you can demonstrate that the increased price of more than 10 percent was directly attributable to cost increases plus the customarily applied markup. In that case, this can serve as a defense.
Contact our law firm for more information and to discuss legal options. Eisner Gorin LLP has offices in Los Angeles, CA.