By Bryan Koenig

Law360 (November 24, 2020, 9:47 PM EST) -- United Egg Producers Inc. has urged the Sixth Circuit to ignore a bid by 30 attorneys general for a broad declaration that price gouging prohibitions are always a valid exercise of state policing powers, particularly during emergencies such as the ongoing COVID-19 pandemic.

The cooperative, whose member farmers represent about 95% of all egg production in the United States, made their plea in an amicus Monday in the circuit's review of Kentucky's price-gouging investigations into Amazon merchants. Their brief was a response to a September filing by 30 state attorneys general who argued that state price-gouging rules are vital consumer protection tools amid the pandemic that do not unconstitutionally interfere with a retailer's right to set prices across state lines.

United Egg Producers used much of Monday's amicus brief to argue that egg producers have been unfairly targeted by state attorneys general alleging price-fixing amid the COVID-19 pandemic, using rules that vary wildly between states and have forced some producers to rack up "hundreds of thousands of dollars in legal bills." The cooperative said that the massive "patchwork" of state rules against the practice threatens to stifle egg production by creating an unfair burden on producers.

The overall constitutionality and validity of price-gouging laws are not before the circuit in the Kentucky case and should not be considered by the appellate court, the co-op said. If, however, the court does decide to rule on their validity, the egg producers called on the circuit to reject the "blanket invocation of state policing powers" argument from the attorneys general.

Granting states nearly unlimited ability to enforce price-gouging laws could "lead to a cascade of over-enforcement" and result in "new lawsuits all over the country," said United Egg attorney Christopher E. Ondeck of Proskauer Rose LLP.

The root of those concerns is the appeal of the June preliminary injunction blocking Kentucky Attorney General Daniel Cameron from pursuing investigations or cases against Amazon retailers. The Online Merchants Guild won that injunction on the argument that the state enforcer is trying to impose the rules of a single state across borders since Amazon prices are set nationally and, according to the trade group, are ultimately up to the purview of the retail giant itself rather than its third-party merchants.

The so-called "dormant" Commerce Clause limiting state rules from being applied across state lines, according to the enforcers' brief, shouldn't apply to price-gouging rules that are "a valid, non-protectionist exercise of state police powers that is designed to aid vulnerable consumers during emergencies." They argued further that Kentucky's rules don't have an impermissible impact on commerce beyond the state's borders because they don't control other states' commerce or establish "conflicting regulatory burdens."

On Monday, however, United Egg argued such issues weren't argued at the district court and thus should not be considered on appeal.

"Because the district court's decision on the guild's likelihood of success on the merits was limited to a determination that Kentucky's price gouging law is likely extraterritorial, and given the case's early procedural posture before the district court, the factual record needed to resolve the additional issues raised by Kentucky and the state amici is not developed," the cooperative said. "In particular, the record does not clearly present critical facts about the undue burdens such laws can impose under Pike or the extent to which police powers justify the prolonged application of economic restraints on market commerce."

"Pike" refers to the U.S. Supreme Court's 1970 Pike v. Bruce Church ruling, in which the high court established a balancing test for determining whether state laws impose too much of a burden on interstate commerce. In this case, United Egg, which is also battling price-fixing allegations, wants the appellate court to avoid that balancing test entirely, arguing that it requires "a fact-intensive inquiry" best left to trial proceedings.

The egg industry is a good example of the importance of that inquiry, according to the brief, which argued over "the protracted application of over 40 separate state price gouging laws and orders." Those rules have imposed a litany of burdens, according to the brief, including dealing with contrasting jurisdictions where prices are treated as legal in one state but illegal in another, as well as enforcement against prices that United Egg argues are merely following the fluctuating course egg rates, and demand, take over a year.

"These laws are leading to perverse results," Ondeck said, arguing that rules designed for short-term natural disasters were never meant to be activated for this long or to control supply and demand forces. He also argued that rules meant to safeguard consumers can end up stifling egg production if they create an unfair burden on producers.

At issue is the injunction imposed June 23 by U.S. District Judge Gregory F. Van Tatenhove after the guild challenged Cameron's investigation into third-party Amazon sellers. The order blocked the attorney general from applying Kentucky's price-gouging statutes, "including by subpoena, investigation or prosecution, to Amazon suppliers in connection with offers or sales on Amazon."

Judge Van Tatenhove's reasoning was that it wasn't enough that Cameron limited his probes to "Kentucky-based entities." According to the ruling, that doesn't change the fact that those investigations, and any enforcement action taken in their wake, will have "the practical effect" of dictating the prices "these Kentucky-based entities can charge outside of Kentucky." Because Amazon merchants can't restrict themselves to only selling to Kentucky residents, the judge said their sales will "inevitably" cross into other states.

Representatives for the guild and the Kentucky enforcer did not immediately respond Tuesday to requests for comment.

At the federal level, prosecutors have been able to go after the sale of certain "essential" products, such as disinfectants and protective gear, priced above market under President Donald Trump's March invocation of the Defense Production Act.

Yet most price-gouging enforcement during the pandemic has fallen to state enforcers. And they've encountered hiccups even outside Kentucky, with a New York state court judge in September throwing out a case over a wholesaler's alleged doubling of the price for Lysol Disinfectant Spray after concluding that price hikes were not "unconscionable or overall extreme."

The state enforcers are represented by their respective attorneys general.

Kentucky is represented by Solicitor General S. Chad Meredith, along with Matthew F. Kuhn, Brett R. Nolan, Victor B. Maddox, J. Christian Lewis, Justin D. Clark and Philip R. Heleringer of the state attorney general's office.

The Online Merchants Guild is represented by Paul Rafelson of Rafelson Shcick PLLC, Aaron Block of the Block Firm LLC and Mark Gilbert of Deatherage Myers & Lackey PLLC.

United Egg Producers is represented by Christopher E. Ondeck, Jennifer E. Tarr, Chantel L. Febus and Kelly Landers Hawthorne of Proskauer Rose LLP.

The case is Online Merchants Guild v. Daniel Cameron, case number 20-5723, in the U.S. Court of Appeals for the Sixth Circuit.

--Editing by Jay Jackson Jr.

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