Court Enjoins Ky. Price-Gouging Staute as Extraterritorial

The Eastern District of Kentucky issued an opinion on Tuesday granting the Online Merchants Guild’s motion for a preliminary injunction, finding that the Attorney General’s application of price-gouging statues to merchants who sell on Amazon violated the dormant Commerce Clause.

The plaintiff, Online Merchant Guild, questioned two Kentucky statutes, KRS § 367.170 and KRS § 367.374, which are meant to prevent price gouging. The Guild filed for a preliminary injunction, seeking to prevent Kentucky Attorney General Daniel Cameron from investigating Guild members and similarly situated merchants for potential violations of those statutes.

Cameron has investigated price gouging related to the COVID-19 pandemic. The Online Merchants Guild claimed that Cameron’s “investigation into Amazon sales has recently been targeted at certain of its members – merchants who supply Amazon – and that the investigations have caused a large contingent of its membership to grow concerned over potential liability.” The Guild alleged that the application violates the dormant Commerce Clause, the First Amendment, the Due Process Clause, and the Equal Protection Clause. Meanwhile, Cameron countered that “there is no federal subject matter jurisdiction such that a preliminary injunction is not available and, alternatively, that the statutes do not violate the constitutional provisions at issue.”

After establishing standing and ripeness of the claim, The court examined whether the Online Merchants Guild is likely to succeed on the merits of its case, a key factor in preliminary injunction analysis. 

Under the “dormant” Commerce Clause, “certain categories of state economic regulations are constitutionally invalid” because they unduly burden extraterritorial commerce. The Guild claimed that Cameron’s application of the statutes in question “giv[es] the statues unlawfully extraterritorial effect.” They argued that Guild members are suppliers to Amazon, “a unitary interstate platform where prices are not state-specific. To this point, Merchants Guild further represents its members have no control over the price set on the marketplace, but can only suggest a final price.” Thus, the members only have limited control over pricing and “no control over where the product is then sold.” The Guild argued that “[b]ecause the Attorney General threatens to enforce the price gouging statutes against members for their listings on Amazon, an interstate marketplace, the Attorney General’s actions have the practical effect of controlling the price of transactions that occur wholly outside the state.  And, to avoid potential liability Merchants Guild members must either ‘treat Kentucky prices as a national ceiling, or exit the national marketplace.’” Moreover, merchants cannot restrict sales to only Kentucky residents; it is unavoidable that transactions will occur outside of Kentucky. The plaintiffs put forward other ways to combat this issue; for example by having the Attorney General regulate Amazon, not the individual merchants. The court found that the Merchants Guild is likely to succeed as to this argument because   

The court states that it “is sympathetic with the Attorney General’s goal to protect Kentucky consumers…[b]ut the Court cannot cast a blind eye to what appears to be an unconstitutional means to achieve this worthwhile end with respect to a specific class of retailers – those who use an online platform like Amazon” because of the “impermissible extraterritorial effect on interstate commerce.”

The Online Merchants Guild is represented by The Block Firm, LLC; Rafelson Schick, PLLC; and Deatherage, Myers & Lackey, PLLC.