People ex rel. James v. Quality King Distribs., Inc.

Decision Date23 August 2022
Docket NumberAppeal No. 16071-16071A,Index No. 451296/20,Case No. 2020-04338
Citation209 A.D.3d 62,173 N.Y.S.3d 221
Parties In the Matter of The PEOPLE of the State of New York, BY Letitia JAMES, Attorney General of the State of New York, Petitioner-Appellant-Respondent, v. QUALITY KING DISTRIBUTORS, INC., Respondent-Respondent-Appellant, Glenn Nussdorf, Respondent.
CourtNew York Supreme Court — Appellate Division

209 A.D.3d 62
173 N.Y.S.3d 221

In the Matter of The PEOPLE of the State of New York, BY Letitia JAMES, Attorney General of the State of New York, Petitioner-Appellant-Respondent,
QUALITY KING DISTRIBUTORS, INC., Respondent-Respondent-Appellant,

Glenn Nussdorf, Respondent.

Appeal No. 16071-16071A
Index No. 451296/20
Case No. 2020-04338

Supreme Court, Appellate Division, First Department, New York.

ENTERED August 23, 2022

Letitia James, Attorney General, New York (Philip J. Levitz and Steven C. Wu of counsel), for appellant-respondent.

Mintz Levin Cohn Ferris Glovsky and Popeo, P.C., New York (Anthony J. Viola and Andre K. Cizmarik of counsel), for respondent-appellant.

Sallie Manzanet-Daniels, J.P., Martin Shulman, Julio Rodriguez III, John R. Higgitt, JJ.


209 A.D.3d 64

In March 2020 the coronavirus disease 2019 (COVID-19) descended on New York. That month began with a single reported positive case in New York (see New York State Department of Health, [last accessed July 22, 2022]); by month's end, the number of reported cases in the State exceeded 83,000 (see id. ). A significant number of those infected with it died.

COVID-19 occasioned exceptional demand for certain consumer products in the lead up to and the initial phase of

209 A.D.3d 65

what was to become a pandemic. One of those products was disinfectant, such as Lysol, which carried with it the promise of killing the novel coronavirus on household surfaces.

In the special proceeding underlying this appeal, petitioner Attorney General of the State of New York accused respondent Quality King Distributors, Inc. of engaging in price gouging in contravention of General Business Law § 396-r based on its sale of certain Lysol products in the first four months of 2020.1 For the reasons that follow,

173 N.Y.S.3d 225

we reverse Supreme Court's order denying the AG's petition and, in effect, dismissing the proceeding, and remand the matter for further proceedings.


Quality King is a wholesale distributor of consumer products to grocery and discount stores. Quality King's clientele ranges from national chain retailers to independent local retailers. Prior to and during the spring of 2020, Quality King sold Lysol products, including 19-ounce spray cans of the disinfectant, to retailers. (For ease of reference, 19-ounce cans of Lysol will be referred to as the Lysol product.) Quality King's sales of the Lysol product in the first four months of 2020 lie at the heart of this litigation.

The AG is empowered, among other things, to investigate complaints of price gouging and seek appropriate remedies for proscribed price-gouging activities (see General Business Law § 396-r ; Americana Petroleum Corp. v. Northville Indus. Corp. , 200 A.D.2d 646, 648, 606 N.Y.S.2d 906 [2d Dept. 1994] ; see also Executive Law § 63[12] ).

209 A.D.3d 66

In February and March 2020, the AG received complaints from consumers regarding the high prices of Lysol products at retail outlets that purchased those products from Quality King. In response to these complaints and after preliminary investigations into them, the AG sent Quality King a letter demanding that it cease and desist from charging unconscionably excessive prices on disinfectants. The AG later requested that Quality King provide purchase and sale data relating to disinfectants so that it could evaluate whether Quality King had engaged in unlawful price gouging. Quality King, in turn, provided the AG with certain sales information relating to the Lysol product. Later, Quality King provided information regarding the costs it incurred in procuring the Lysol product, and sales information concerning products other than Lysol products.


In May 2020, the AG commenced this special proceeding against Quality King and its CEO under General Business Law § 396-r and Executive Law § 63(12), alleging that Quality King engaged in price gouging of Lysol products.2 According to the AG, since at least January 31, 2020, there was an abnormal disruption of the market for Lysol products; Lysol products were vital and necessary consumer goods; and Quality King unjustifiably sold the Lysol product for unconscionably excessive prices (see General Business Law § 396-r[2] ). Notably, on January 31, 2020, the Secretary of the United States Department of Health and Human Services (HHS) declared a national public health emergency pursuant to Public Health Service Act § 319 ( 42 USC § 247d ) based on confirmed cases of COVID-19.

The AG alleged that, from November 2019 through January 2020, Quality King

173 N.Y.S.3d 226

charged a median monthly price of $51 for a 12-pack of the Lysol product, and, coinciding with the rise of the coronavirus in or around the end of January 2020, repeatedly and unjustifiably raised its prices for a 12-pack of the Lysol product in February and March of 2020, leading to unconscionably excessive prices. The AG's allegations are founded on information, including detailed purchase and sales

209 A.D.3d 67

records, provided to the AG by Quality King. With respect to the costs incurred by Quality King in procuring 12-packs of the Lysol product and its gross profit margins, the petition alleged that, despite incurring relatively static purchase costs between November 2019 and March 2020, Quality King's gross profit margin increased each month, culminating in a gross profit margin approximately 75% greater in March 2020 than November 2019.

Based on the information provided to it by Quality King, the AG concluded that, between February 1, 2020 and April 7, 2020, Quality King engaged in at least 432 separate sales of the Lysol product; prices per can charged by Quality King in these transactions ranged from $5.00 to $9.15. Moreover, the AG concluded that those 432 transactions involved at least 3,835 12-packs of the Lysol product, or 46,020 individual cans. The AG maintained that Quality King engaged in price gouging each time one of those cans of the Lysol product was sold at retail for an unlawfully inflated price. As a result, the AG sought injunctive relief, an accounting, restitution for aggrieved customers, disgorgement of profits, and a civil penalty.

Quality King interposed an answer to the petition, denying the material price-gouging allegations and raising a number of affirmative defenses, including that the price increases associated with the Lysol product were justified because Quality King incurred additional costs in procuring and distributing Lysol products. Additionally, Quality King asserted that General Business Law § 396-r is unconstitutionally vague and therefore void. Quality King subsequently moved to dismiss the petition under CPLR 3211(a)(1) and (7).


After conducting oral argument on the petition and Quality King's motion to dismiss, Supreme Court issued a decision and order on September 23, 2020 denying the petition, granting that aspect of Quality King's motion seeking dismissal of the petition as asserted against Quality King's CEO, and denying any form of relief to the AG. The decision and order, in effect, dismissed the proceeding in its entirety.3 The court wrote, in pertinent part, that

"[o]n balance, considering all of the Lysol products
209 A.D.3d 68
sold immediately before and after the March 7 Governor's Emergency Declaration, the price increases charged by Quality King were not, as a matter of law, unconscionable or overall extreme. While there may have been isolated instances of price increases for [the Lysol product] to certain customers which were seemingly increased to the extreme, Quality King did not uniformly raise [its] prices on Lysol products to these customers. When considered among the panoply of Lysol products offered for sale at that time (which includes Lysol wipes and other size Lysol cans, among other Lysol products, and which [the AG] urges should all be included should the court fashion injunctive relief), all of which were shown to be vital and necessary for health and safety, the pricing overall did not indicate any use of unfair leverage, an abuse
173 N.Y.S.3d 227
of bargaining power or unconscionable means; nor did the pricing represent a gross disparity between the price of the goods and their value measured by the price at which they were sold immediately prior to March 7, 2020. Quality King demonstrated that [its] prices were competitive and even lower that [its] competitors who were offering the same products in the same market. Additionally, Quality King demonstrated [its] own increased cost for [the Lysol product]."


The AG appealed from the order, and Quality King separately appealed.4

The AG requests that we reverse the order denying the petition and, in effect, dismissing the proceeding, and remand the matter to Supreme Court for further proceedings. To that end, the AG makes three principal arguments. First, the AG argues

209 A.D.3d 69

that Supreme Court erred in concluding that Quality King could not be held liable for price gouging absent evidence that it had uniformly gouged prices on all of its Lysol products on and around March 7, 2020, the date Governor Cuomo issued an Executive Order declaring a State disaster emergency occasioned by COVID-19. In relation to this argument, the AG contends that General Business Law § 396-r prohibits each sale made for an unconscionably excessive price -- regardless of whether the sales represent a uniform price-gouging scheme. In addition, the AG contends, March 7, 2020 was not the date on which an "abnormal disruption in the market" occurred within the meaning of the statute; rather, the abnormal disruption in the Lysol-product market began in the end of January 2020, continuing and intensifying over the course of the next months, resulting in Quality King's pervasive price gouging through its increasing prices to its customers.

Second, the AG maintains that Quality King failed to discharge its burden of establishing its affirmative defense that its...

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