United States: Governor's Order Protects Against Price Gouging Following Hurricane Harvey

Jon Shepherd and Kelly F. Bagnall are partners in our Dallas office



HIGHLIGHTS:

  • In addition to providing much needed relief for the people and businesses affected by Hurricane Harvey, Texas Gov. Greg Abbott's declaration of disaster also has implications for anyone doing business within the affected counties.
  • The Texas Deceptive Trade Practices-Consumer Protection Act (DTPA) provides that it is a false, misleading, or deceptive act or practice to take advantage of a disaster declared by the Governor by: (a) selling or leasing fuel, food, medicine, or another necessity at an exorbitant or excessive price, or (b) demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine or another necessity.
  • Accordingly, Texas businesses should not reflexively raise prices in the face of a disaster but instead should have a process put in place that includes, among other things, consideration of their documented increased costs and pricing trends.

Pursuant to Texas Government Code section 418.014, Gov. Greg Abbott on Aug. 23, 2017, declared 23 counties a disaster area given the impending landfall of Hurricane Harvey. Abbott subsequently has amended the list of counties declared to be in the disaster zone three times, now numbering 58 counties total.1

In addition to providing much needed relief for the people and businesses affected by Hurricane Harvey, the Governor's declaration of disaster also has implications for anyone doing business within the affected counties. The Texas Deceptive Trade Practices-Consumer Protection Act (DTPA) provides that it is a false, misleading, or deceptive act or practice to take advantage of a disaster declared by the Governor by:

  • (a) selling or leasing fuel, food, medicine, or another necessity at an exorbitant or excessive price, or
  • (b) demanding an exorbitant or excessive price in connection with the sale or lease of fuel, food, medicine or another necessity

 Tex. Bus. & Commerce Code §17.46(b)(27). Unfortunately, there is little guidance from the Texas courts as to what constitutes a "necessity" or "an exorbitant or excessive price."

In addition to the statutorily included necessities of "fuel, food, [and] medicine," what else constitutes a necessity? Items that likely will be considered necessities include hotel rooms,2 generators, batteries, ice and at least some building products like lumber. Other potential necessities could include storage facilities, towing services and the like.

Perhaps more critical than the definition of "necessity" is the process of determining what constitutes an exorbitant or excessive price. In an action brought by then-Attorney General Abbott's office, the State accused a hotel operator in Fredericksburg of price gouging following Hurricane Ike in 2008. See State v. Demirov, 2012 WL 911262 (Travis County 2012). The parties entered into an agreed judgment that defines price gouging as "[t]aking advantage of any disaster or natural calamity by charging excessive prices for goods and services sought out by consumers as necessary to their daily living or to the operation of their business, specifically charging rates in excess of ten percent (10%) of the average price for those goods and services." In turn, "average price," was defined as the "average price charged for a good of service over a two month period prior to the declaration of a disaster by the Texas Governor."3

Other Factors to Consider

What the agreed order does not address, however, is what factors other than the pre-disaster average price should be considered in deciding whether price gouging occurred. For example, if a retailer incurs transportation costs to relocate products from nonaffected areas into the affected areas, that retailer certainly should be able to recoup all or part of those costs that it otherwise would not have incurred. Similarly, if a manufacturer incurs overtime costs in order to increase production of necessities needed in the disaster area, those costs likewise should be considered in evaluating whether the ultimate selling price is excessive. Of course, companies trying to transport goods into the disaster area likely are going to incur increased costs for fuel and other items. Consequently, for most necessities a simple comparison of pre-disaster and post-disaster pricing will not be informative.

Additionally, analyzing prices for even those necessities that one might believe should not incur significantly increased costs may not be particularly straightforward. For example, certain hotels use complicated pricing systems that increase rental rates as forecasted occupancy increases. A room that rents for $100 a night when the hotel is forecasted to be 20 percent occupied might be $125 a night when the hotel is 50 percent occupied and $200 a night when the hotel is 90 percent occupied. Is the hotel charging an excessive and exorbitant price when the last rooms are rented at $200 a night but other rooms were rented at a significantly lower rate? Is the hotel charging an excessive and exorbitant price when, for example, a convention or some other event is in town that causes the hotel to forecast high occupancy that results in higher rental rates? Of course, as noted above, there are other factors that could be considered in the price-gouging analysis, such as increased costs for employee overtime and so on.

Texas courts may also turn to interpretations from other states with statutes similar to the Texas price-gouging provision.4 For example, Florida law prohibits sellers from charging a price that is in "gross disparity" to pre-disaster prices for "essential commodities."5 Florida concludes that a gross disparity exists if the post-disaster price charged for the commodity grossly exceeds the price during the 30 days prior to the declaration of disaster, unless the seller can justify the increased price by showing increases in its costs or "market trends." Fla. Stat. §501.160(b)(1), (2).

Consequences and Takeaways

The penalties for violating the DTPA's prohibition against price gouging can be severe. In addition to civil damages, the state's consumer protection division can seek a civil penalty of up to $20,000 for each individual violation and an additional amount up to $250,000 if the victim was 65 years old or older, as well as injunctive relief. Tex. Bus. & Commerce Code §17.47(c). Accordingly, Texas businesses should not reflexively raise prices in the face of a disaster but instead should have a process put in place that includes, among other things, consideration of their documented increased costs and pricing trends. 

Footnotes 

1 The counties are: Angelina, Aransas, Atascosa, Austin, Bastrop, Bee, Bexar, Brazoria, Brazos, Burleson, Caldwell, Calhoun, Cameron, Chambers, Colorado, Comal, DeWitt, Fayette, Fort Bend, Galveston, Goliad, Gonzales, Grimes, Guadalupe, Hardin, Harris, Jackson, Jasper, Jefferson, Jim Wells, Karnes, Kerr, Kleberg, Lavaca, Lee, Leon, Liberty, Live Oak, Madison, Matagorda, Montgomery, Newton, Nueces, Orange, Polk, Refugio, Sabine, San Jacinto, San Patricio, Trinity, Tyler, Victoria, Walker, Waller, Washington, Wharton, Willacy and Wilson.

2 Operators of hotels and motels statewide also should be aware that Gov. Abbott suspended collection of the state and local Hotel and Motel Occupancy Tax for both victims of Hurricane Harvey and relief-effort personnel. The suspension lasts until Sept. 6, 2017, 14 days from the initial disaster declaration.

3 The authors are aware of other settlements between hotels and the Attorney General that contain similar provisions.

4 There are approximately 35 states that have price-gouging laws.

5 Florida defines "commodity" to mean "any goods, services, materials, merchandise, supplies, equipment, resources, or other article of commerce, and includes, without limitation, food, water, ice, chemicals, petroleum products, and lumber necessary for consumption or use as a direct result of the emergency." Fla. Stat. §501.160(1)(a).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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