Online Merchants Guild v. Cameron
| Decision Date | 29 April 2021 |
| Docket Number | No. 20-5723,20-5723 |
| Citation | 995 F.3d 540 |
| Parties | ONLINE MERCHANTS GUILD, Plaintiff-Appellee, v. Daniel J. CAMERON, in his official capacity as Attorney General of Kentucky, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
ARGUED: Matthew F. Kuhn, OFFICE OF THE KENTUCKY ATTORNEY GENERAL, Frankfort, Kentucky, for Appellant. Aaron K. Block, THE BLOCK FIRM LLC, Atlanta, Georgia, for Appellee. ON BRIEF: Matthew F. Kuhn, Brett R. Nolan, Victor B. Maddox, OFFICE OF THE KENTUCKY ATTORNEY GENERAL, Frankfort, Kentucky, for Appellant. Aaron K. Block, THE BLOCK FIRM LLC, Atlanta, Georgia, Paul S. Rafelson, RAFELSON SCHICK, PLLC, Boca Raton, Florida, Mark A. Gilbert, DEATHERAGE, MYERS & LACKEY, Hopkinsville, Kentucky, for Appellee. Sarah A. Hunger, OFFICE OF THE ILLINOIS ATTORNEY GENERAL, Chicago, Illinois, Christopher E. Ondeck, Jennifer E. Tarr, PROSKAUER ROSE LLP, Washington, D.C., Kelly Landers Hawthorne, Chantel L. Febus, PROSKAUER ROSE LLP, New York, New York, for Amici Curiae.
Before: BATCHELDER, MOORE, and BUSH, Circuit Judges.
Early in the COVID-19 pandemic, some sought to capitalize on consumers’ fear and uncertainty by charging outrageous prices for hand sanitizer, disinfecting wipes, masks, and other cleaning and protective products. In response, the Commonwealth of Kentucky's Attorney General, Daniel J. Cameron, announced that his office would enforce the Commonwealth's price-gouging laws against Kentucky businesses involved in such schemes. True to his word, the Attorney General opened civil price-gouging investigations into various Kentucky-based merchants, including at least one member of Plaintiff Online Merchants Guild (the "Guild") that was selling goods to Kentuckians through Amazon's online marketplace.
The Guild brought suit against Attorney General Cameron to challenge the constitutionality of Kentucky's price-gouging laws as applied to sellers on Amazon, invoking, among other things, the extraterritoriality doctrine of the dormant commerce clause. Accepting that the Attorney General sought only to enforce the Commonwealth's price-gouging laws against Kentucky-based sellers in connection with sales to Kentucky consumers through Amazon's platform, the district court nevertheless granted the Guild's motion for a preliminary injunction, concluding that enforcing the laws in connection with Amazon sales would have impermissible extraterritorial effects. Because we conclude that the Attorney General's enforcement of Kentucky's price-gouging laws in this fashion is unlikely to run afoul of the dormant commerce clause's extraterritoriality doctrine, we VACATE the preliminary injunction and REMAND for further proceedings.
Because the district court's analysis depended on the structure of Amazon's online marketplace, a brief overview is in order.1 Amazon is an eCommerce website that offers goods for sale via the internet and is "responsible for over 50% of all eCommerce sales in the [United States]." R. 10-1 (Rafelson Decl. at ¶ 15) (Page ID #64). It operates by contracting with third-party sellers, which supply the goods to Amazon, which in turn sells the products to consumers. See id. at ¶¶ 9–10, 16 (Page ID #62, 64). Thus, according to the Guild, the third-party sellers "are not in privity of contract with Amazon's customers; Amazon is." Id. at ¶ 16 (Page ID #64). Most notably for present purposes, Amazon operates as a national online marketplace. It allegedly sets a single, national price for goods, and third-party sellers cannot choose to have their goods withheld from consumers in particular states. Id. at ¶¶ 12–14 (Page ID #63–64). Third-party sellers propose a price for their goods, but it is Amazon that has final authority as to whether to accept or reject that price. Id. at ¶ 14 (Page ID #63–64).
The Guild "is a trade association for online merchants," such as Amazon's third-party sellers. Id. at ¶ 3 (Page ID #60). The Guild's purpose "is to advocate for a free and fairly-regulated online marketplace, and for the interests of online merchants." Id. According to the Guild, "Amazon's store is ... a critically important sales channel for online merchants." Id. at ¶ 8 (Page ID #62).
The Commonwealth has two statutes that address price gouging. The first—and the more direct of the two—is Kentucky Revised Statutes § 367.374, which is triggered when the Governor or the United States Department of Homeland Security declares a state of emergency. § 367.374(1)(a). Once triggered,2 the statute prohibits any person from selling, renting, or offering to sell specified goods—including "[g]oods ... used for emergency cleanup," "[e]mergency supplies," and "[m]edical supplies"—"for a price which is grossly in excess of the price prior to the declaration and unrelated to any increased cost to the seller." § 367.374(1)(b). The statute includes safe-harbor provisions that preclude liability where, for example, the price is (1) ten percent (or less) above the pre-declaration price for the good; (2) ten percent (or less) above "costs and normal markup" for the good; or (3) "[g]enerally consistent with fluctuations in applicable commodity, regional, national, or international markets, or seasonal fluctuations." § 367.374(1)(c).
The second applicable statute is the Kentucky Consumer Protection Act, which prohibits "[u]nfair, false, misleading, or deceptive acts or practices in the conduct of any trade or commerce." Ky. Rev. Stat. § 367.170. The statute defines "unfair ... to mean unconscionable." § 367.170(2). "[T]rade" and "commerce," as used in the statute, mean "the advertising, offering for sale, or distribution of any ... property ... and shall include any trade or commerce directly or indirectly affecting the people of this Commonwealth." Ky. Rev. Stat. § 367.110(2).
Kentucky law empowers the Attorney General to initiate civil investigations into suspected price gouging when he "has reason to believe" that a violation has occurred, is occurring, or will occur. See Ky. Rev. Stat. §§ 367.240(1), 367.378. Consistent with this authority, the Attorney General may compel the production of documentation or testimony regarding the subject matter of the investigation through subpoenas and civil investigative demands ("CIDs"). Ky. Rev. Stat. §§ 367.240(1), 367.250. The Attorney General may also petition a state court for a restraining order where doing so would be in the public interest and he has reason to believe a violation has occurred, is occurring, or will occur. See Ky. Rev. Stat. § 367.190(1). Those found to have committed a price-gouging violation face civil monetary penalties and private damages actions. See Ky. Rev. Stat. §§ 367.220, 367.378, 367.990.
On March 26, 2020, in response to complaints by Kentucky consumers of price gouging involving N95 masks and other essential goods by third-party sellers on Amazon—including markups of up to 1,951%—Kentucky's Attorney General publicly announced that "[t]he egregious actions of these third-party sellers will not be tolerated in Kentucky." Elizabeth Kuhn, Attorney General Cameron Issues Subpoenas to Amazon Third-Party Sellers for Price Gouging During COVID-19 Pandemic (March 26, 2020), https://kentucky.gov/Pages/Activity-stream.aspx?n=AttorneyGeneral&prId=888 (last visited April 28, 2021). This was not just tough talk; the Attorney General issued subpoenas to six Kentucky-based sellers "who used Amazon's online platform to engage in suspected price gouging during the [COVID-19] pandemic" and stated in a press release that the subpoenas "should serve as a warning to anyone who tries to illegally profit from COVID-19." Id.
Among the Kentucky-based sellers that drew the Attorney General's attention regarding suspected price-gouging was a member of the Guild, Jones & Panda, LLC ("Jones & Panda"). R. 22-3 (Cocanougher Ltr. at 1) (Page ID #179). On March 25, 2020, the Attorney General sent a letter informing Jones & Panda that he was opening a price-gouging investigation into its pricing of hand sanitizer and respirators on Amazon. Id.3 "In furtherance of [his] investigation," id. , the Attorney General served Jones & Panda with a subpoena and CID stating that he had "reason to believe that a person has engaged in, is engaging in, or is about to engage in" an unlawful act under Kentucky's price-gouging laws, R. 22-4 (CID at 1) (Page ID #181). The CID requested pricing, sales, and cost data for hand sanitizer and respirators offered on Amazon between February 15, 2020 and March 25, 2020, along with documentation and records regarding the sales or justifying any price increases. See id. , Att. at 2–3 (Page ID #184–85). Rather than comply with the CID, Jones & Panda petitioned in state court to have the CID set aside or modified. See R. 34-3 (First Am. Pet. at 1) (Page ID #393).
The Guild initiated this suit on May 1, 2020, seeking through injunctive and declaratory relief to prevent the Attorney General from enforcing § 367.374 and § 367.170 against the Guild's members. See R. 1 (Compl. at ¶ 65) (Page ID #16).4 It alleges that the application (or threatened application) of Kentucky's price-gouging laws to members of the Guild for sales on Amazon violated the dormant commerce clause, the Due Process Clause, and the First Amendment. Id. at ¶¶ 48–64 (Page ID #14–16). After a series of briefings and telephonic hearings, the district court granted the Guild's motion for a preliminary injunction and enjoined the Attorney General from "applying KRS § 367.170 and KRS § 367.374, including by subpoena, investigation, or prosecution, to Amazon suppliers in connection with offers or sales on Amazon." Online Merchants Guild v. Cameron , 468 F. Supp. 3d 883, 904 (E.D. Ky. 2020). In doing so, the district court concluded that the Guild was likely to...
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