Updated Client Alert – DOJ and State Attorneys General Warn Against Exploiting Equipment and Supply Shortages

The Department of Justice’s Antitrust Division announced on March 9, 2020 that its lawyers stand ready to initiate investigations to mitigate potential risks the public faces from scarcities associated with the COVID-19 pandemic. It has been widely reported that there exist significant shortages for government, private sector, and individual U.S. consumers of personal protective equipment (PPE) such as sterile gloves, respirators, and face masks.  To combat COVID-19 related fraud and misconduct, U.S. Attorney for the District of New Jersey Craig Carpenito, New Jersey Attorney General Gurbir S. Grewal, and New Jersey Acting State Comptroller Kevin D. Walsh recently announced on March 30, 2020 of the formation of a joint federal-state task force “to investigate and prosecute a wide range of misconduct arising from the COVID-19 pandemic, including the unlawful hoarding of medical supplies, price gouging, charity scams, procurement fraud, insurance fraud, phishing schemes, and false and misleading investment opportunities.”[i]  To aid in these efforts, the task force is comprised of a number of agencies, including the Federal Bureau of Investigation; the Department of Health and Human Services, Office of the Inspector General; the U.S. Secret Service; the U.S. Postal Inspection Service; and the Office of Inspector General, among others.

Voicing concern for consumers and businesses on the “buy” side of the equation, the Antitrust Division warned “bad actors” against trying to exploit the crisis created by the government’s failure to act in advance to ramp up production of critical supplies and equipment.  The press release cautions suppliers against “tak[ing] advantage of emergency response efforts, healthcare providers, or the American people during this crucial time.”  Those who “fix prices or rig bids for personal health protection equipment such as sterile gloves and face masks could face criminal prosecution.”  Similarly, the Division warned against any horizontal allocation of customers.

Attorney General William P. Barr is quoted: “The Department of Justice stands ready to make sure that bad actors do not take advantage of emergency response efforts, health care providers, or the American people during this crucial time … I am committed to ensuring that the department’s resources are available to combat any wrongdoing and protect the public.”

Also, several state attorneys general have announced measures to combat price gouging in connection with the COVID-19 pandemic.  For instance, New Jersey Attorney Grewal announced that his office has issued more than 80 cease and desist and warning letters in response to complaints of price gouging, and explained that his office is “taking an all-hands-on-deck approach to consumer complaints about price gouging and other abuses related to the COVID-19 pandemic[.]”

On March 23, 2020, President Trump signed an executive order to prevent price gouging and hording of supplies needed to combat COVID-19.  Executive Order 13909, entitled “Prioritizing and Allocating Health and Medical Resources to Respond to the Spread of COVID–19,” provides that personal protective equipment and ventilators meet criteria to be considered “scarce and critical material essential to the national defense” under the recently-invoked Defense Production Act (DPA).  During the March 23, 2020 Press Briefing of the Coronavirus Task Force, United States Attorney General William Barr stated that “[o]nce specific materials are so designated, persons are prohibited from accumulating those items in excess of reasonable personal or business needs, or for the purpose of selling them in excess of prevailing market prices.”  According to Attorney General Barr, those determined to be hoarding or price gouging could face criminal prosecution.

None of this has been lost on plaintiff class action lawyers.

On March 10, 2020, a purported class action complaint was filed against Amazon in Florida state court accusing it of price-gouging on toilet paper and hand sanitizer.

And on April 10, 2020, 3M Company sued mask-seller, Performance Supply LLC, for alleged price gouging and trademark infringement in connection with 3M-brand N95 respirators.[ii]  In an action filed in the Southern District of New York, 3M alleges that defendant tried to sell 3M-branded masks to New York officials for up to six times the list price.  3M’s Complaint specifically alleges, for instance, that “[a]nother equally detestable element of Defendant’s unlawful conduct is price gouging.  Defendant’s quote of $6.05 per 3M brand, N95 Model 8120 respirator is approximately 600% over 3M’s suggested list price of $1.02-$1.31 per respirator.”[iii]  3M also alleges deceptive trade practices by defendant in connection with 3M brand and marks.

Walsh partners Marc D. Haefner and Liza M. Walsh lead the firm’s antitrust practice and have particular experience in the application of antitrust laws to pharmaceutical and consumer product pricing issues.

For more information, please contact Marc D. Haefner at [email protected] or (973) 757-1013 or Liza M. Walsh at [email protected] or (973) 757-1101.

• [i] U.S. Attorney Carpenito, AG Grewal, Acting Comptroller Walsh Announce Federal-State COVID-19 Fraud Task Force, available at: https://nj.gov/governor/news/news/562020/approved/20200330a.shtml.
• [ii] This action is captioned, 3M Company v. Performance Supply, LLC, Civil Action No. 1:20-CV-02949 (S.D.N.Y.).
• [iii] Id., Complaint at ¶44.

Walsh Pizzi O’Reilly Falanga LLP has prepared the content of this alert for general informational purposes. The content should not be considered advice, recommendations, or an offer to perform services. You should not act upon any information provided in this alert without seeking professional legal counsel from an attorney licensed to practice law in your jurisdiction. No representations are being made as to the completeness or accuracy of the information contained herein.