Following the devastating fires in Southern California, Governor Gavin Newsom proclaimed a State of Emergency to exist in Los Angeles and Ventura Counties. This proclamation triggered the application of California Penal Code Section 396, commonly referred to as California’s “anti-price gouging” law. This statute generally prohibits price increases for specified goods and services for specified periods following an emergency proclamation. The statute also generally prohibits landlords from increasing the price of rental housing by more than 10% of the previously charged or advertised price. This Alert focuses on the provisions of the statute limiting price increases on specified goods and services. Note that local governments may prohibit the same or similar conduct.
What Is Prohibited And For How Long?
From January 7, 2025 to January 7, 2026, the sale or offering of goods and services for a price that is 10% greater than the price charged by that person or business for those goods and services immediately before the Proclamation is prohibited; provided that if no price was charged immediately before the Proclamation, the price may not be more than 50% greater than the cost of the goods or services to the vendor as “cost” as defined in Cal. Bus. & Prof. Code § 17026. Note that other disaster proclamations will also trigger application of the statute. The Governor’s Office of Emergency Services has published this listing of the time periods when price gouging prohibitions are in effect.
What Goods And Services Are Covered By The Statute?
According to the California Attorney General, the statute applies to the following goods and services: food and drink (including food and drink for animals); emergency supplies (such as water, flashlights, radios, batteries, candles, blankets, soaps, diapers, temporary shelters, tape, toiletries, plywood, nails, and hammers); medical supplies (such as prescription and nonprescription medications, bandages, gauze, isopropyl alcohol, and antibacterial products); home heating oil; building materials (including lumber, construction tools, and windows); transportation; freight; storage services; gasoline and other motor fuels; and repair and reconstruction services. These are just examples; the statute's protections are not strictly limited to these items.
What About Sale Prices?
A person or entity offering an item for sale, or a service, at a reduced price immediately before the proclamation or declaration may use the price it normally charges for the item or service to calculate the price for purposes of the prohibitions with respect to the prohibitions pertaining to goods and services and repair and reconstruction services.
Where Does The Statute Apply?
According to the California Attorney General, application of the statute is not restricted to a city or county where the emergency or disaster is located. In addition to applying in the city or county covered by the declaration, it is intended to prevent price gouging elsewhere in the state where there is increased consumer demand as a result of the declared emergency.
Significantly, the legislative intent set forth in the statute states that such prohibition should apply to any price increases of goods and services sold or offered, “whether those goods and services are offered or sold in person, in stores, or online.” Coupled with the following sentence, “it is the intent of the Legislature that this section be liberally construed so that its beneficial purposes may be served[,]” any person or business engaged in the sale or offering of goods and services online should be mindful of the possible application of this prohibition on any sales or services transacted online.
Whom Does The Statute Apply To?
Under the statute, the Proclamation is not limited just to retailers and businesses engaged in the sale of goods and services. Rather, the statute applies to any person, contractor, business, or other entity engaged in the sale of goods and services in Los Angeles County. As such, any person or entity engaged in the sale of goods and services should be aware of this Proclamation and the impact it may have on any contemplated price increases.
A person or entity may meet an exception to the Proclamation by proving the following: (1) the price increase was directly attributable to: (i) additional costs imposed on it by the supplier of the goods or (ii) additional costs for labor or materials used to provide the services, during the emergency; and (2) the price is no more than 10% 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 Proclamation. Accordingly, it is important that you maintain appropriate records should you intend to rely on this exception.
What Are The Penalties For Violation The Statute?
Violations of the statute constitute a misdemeanor crime punishable by imprisonment for not more than one year, a fine of not more than $10,000, or both, and constitute an act of unfair competition within the meaning of Business & Professions Code § 17200. The remedies available with respect to any violation of the prohibition are cumulative. Local governments may impose more severe penalties for violations of the conduct prohibited by the statutes. The California Attorney General has already announced that he has filed charges for price gouging violations and has a toll free number for reporting violations.
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