Kentucky AG Argues for Oversight of Third-Party Sellers on Amazon

Kentucky’s top lawyer told the Sixth Circuit the state’s price-gouging statutes regulating in-state commerce can be enforced against third-party sellers on Amazon.

Packages pass through a scanner at an Amazon fulfillment center in Baltimore in 2017. (Photo/Patrick Semansky, File)

CINCINNATI (CN) — Kentucky Attorney General Daniel Cameron argued on Wednesday before an appeals court that laws to prevent price gouging are not only constitutional, but also necessary to protect his constituents from crooked online retailers, especially during the Covid-19 pandemic.

The state’s arguments were part of its appeal of a lower court decision in favor of the Online Merchants Guild, which won a preliminary injunction after suing Cameron for violations of the dormant commerce and due process clauses.

The lawsuit took aim at Kentucky statues KRS 367.170 and KRS 367.374, both of which are used to prevent individuals or corporations from selling goods at “unconscionable” prices.

KRS 367.374 deals specifically with price gouging during a governor-declared emergency, and was activated when Governor Andy Beshear declared a state of emergency in response to the Covid-19 pandemic on March 6, 2020.

The Merchants Guild, a trade association for online merchants, argued in federal court that both statutes violate the dormant commerce clause because they attempt to legislate and control conduct that occurs outside of Kentucky’s borders.

It claimed its members can only suggest the prices for their goods when they are listed at online retailers like Amazon, and that the retailer ultimately sets the final price, an argument U.S. District Judge Gregory Van Tatenhove found persuasive.

“It appears that application of the Kentucky price-gouging statutes to transactions that occur on Amazon have the inevitable effect of regulating the price charged outside of Kentucky,” Van Tatenhove said in his June 2020 opinion. “In other words, the attorney general’s actions effectively dictate the price of items for sale on Amazon nationwide.”

In his brief to the Sixth Circuit, Cameron challenged the Merchant Guild’s standing to bring suit and said it failed to prove his office’s investigations “caused any diversion of resources from this mission sufficient to establish an injury-in-fact.”

He also disputed Van Tatenhove’s application of the commerce clause’s extraterritoriality doctrine and his ultimate conclusion that Kentucky’s laws attempt to control prices nationwide.

“Kentucky’s price-gouging laws operate within the historical bounds of the extraterritoriality doctrine because the statutes allow sellers to sell goods in Kentucky for one price while selling those same goods in other states for different prices,” the brief states.

Meanwhile, the Merchants Guild asked the Cincinnati-based appeals court to uphold the lower court’s decision, which it said confirmed the wisdom of the framers’ decision to allow Congress to regulate interstate commerce.

“If every one of the country’s thousands of prosecutors could use state laws to regulate interstate e-commerce, based on his or her prosecutorial preferences or semi-subjective definition of prices that are ‘too high,’ the result would be chaos,” its brief states.

On Wednesday, attorney Matthew Kuhn argued on behalf of Kentucky and told the Sixth Circuit panel Van Tatenhove’s decision extends the extraterritoriality doctrine “past its breaking point.”

Kuhn emphasized that Kentucky’s laws are not enforced against out-of-state companies marketing goods to nonresidents, and only apply to sellers who choose to use Amazon to sell products for which there is an established, nationwide price.

“Kentucky law,” he said, “is not requiring online merchants to use Amazon, or Amazon to use a nationwide price.”

The state’s attorney told the court that Cameron’s investigation has been limited to in-state vendors who have attempted to prey on Kentucky residents during the Covid-19 pandemic.

“We’re talking about purely in-state activities,” he said.

Attorney Aaron Block argued on behalf of the Online Merchants Guild, warning the panel a reversal of the district court’s injunction could usher in a “radical new world of local government control” over online retailers.

“National economic development belongs in the hands of the national government,” he said.

Block reminded the panel the members of his client’s trade association can only recommend prices to Amazon and are relatively powerless to set the nationwide prices for their goods.

“Amazon has total control of its store,” the attorney said, “and the attorney general retains the ability to … investigate Amazon … and go after the dominant actor.”

U.S. Circuit Judge Karen Moore, a Bill Clinton appointee, asked if a mom-and-pop store selling locally could be investigated and prosecuted for price gouging under the statutes, and Block answered they could.

“Why should it be different because a mom-and-pop store chooses to use Amazon?” Moore asked.

“We can’t have a situation where a mom-and-pop business that wants to sell on Amazon” must consider each state’s price-gouging laws to set prices, the attorney answered.

Such a scenario, Block added, would create an impossible task for sellers because of “overlapping and conflicting obligations” imposed by various price-gouging laws across the country.

In his rebuttal, Kuhn urged the panel to overturn the injunction and cautioned that a failure to do so would leave every other state on “weak footing” when it came to enforcing similar laws.

“Under the guild’s proposed rule,” Kuhn concluded, “third-party sellers are entirely immune to state price-gouging laws.”

Senior U.S. Circuit Judge Alice Batchelder, an appointee of George H.W. Bush, and U.S. Circuit Judge John Bush, a Donald Trump appointee, also sat on the panel. The court did not give a timetable for its decision.

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