Is price gouging during an emergency a crime in California?

Yes, in defined circumstances. After the President or the Governor proclaims a state of emergency, or a city or county declares a local emergency, Penal Code section 396 makes it a misdemeanor, for a set period, to sell or offer listed goods and services, or to raise hotel or rental rates, at more than 10 percent above pre-emergency levels. Which items are covered, how long the limit lasts, how the starting price is measured, and which defenses apply depend on what you sell.

What is covered, and for how long

Goods and services: 30 days. Section 396(b) covers consumer food items and goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, housing, transportation, freight, and storage services, and gasoline or other motor fuel. The baseline is the price the seller charged immediately before the proclamation or declaration, or before a date the proclamation sets. The Legislature stated that the law is meant to reach sales made in person, in stores, or online (396(a)).

Contractor work: 180 days. Section 396(c) applies the same 10 percent limit to a contractor’s repair or reconstruction services and emergency cleanup services. Repair or reconstruction services means work by someone required to hold a contractor’s license, repairing property damaged in the disaster (396(j)(4)).

Hotels and motels: 30 days. Section 396(d) bars raising regular rates, as advertised immediately before the proclamation or declaration, by more than 10 percent.

Rental housing: 30 days or as long as the emergency is extended. Section 396(e) bars raising the rent advertised, offered, or charged to an existing or prospective tenant by more than 10 percent. Housing here means rental housing with an initial lease term of one year or less, including mobilehome park and campground spaces (396(j)(10)). For a unit not rented or offered for rent in the year before the emergency, the baseline is 160 percent of the fair market rent set by the U.S. Department of Housing and Urban Development, and a fully furnished unit can qualify for a 5 percent adjustment (396(j)(11)). During the same period, a landlord may not evict a tenant and then rent or offer the unit to someone else for more than the evicted tenant could have been charged. Continuing an eviction lawfully begun before the emergency is not a violation, and the section does not bar evicting a tenant for any lawful reason (396(f), (m)).

When a larger increase is not a crime

For goods and services and for contractor work, a larger increase is not unlawful if the seller can prove it was directly attributable to added costs imposed by its supplier, or to added labor or material costs, during the emergency, and the price is no more than 10 percent above the seller’s cost plus the markup it customarily applied before the emergency (396(b), (c)). A seller that did not charge a price for the goods or services before the emergency may not charge more than 50 percent above its cost (396(b)).

Hotels and motels have different defenses: an increase directly attributable to added costs for goods or labor used in the business, to regularly scheduled seasonal rate adjustments, or to previously contracted rates (396(d)).

Rental housing has only two defenses: added costs for repairs or additions beyond normal maintenance, amortized over the rental term, or an increase the tenant contractually agreed to before the proclamation or declaration. It is not a defense that the increase was based on the length of the rental term, on added goods or services (apart from the furniture adjustment), or on an insurer or other third party offering or paying the rent for the tenant (396(e)). Section 396 also does not allow rent above a local rent control limit, and it does not preempt local ordinances that prohibit the same conduct or impose stricter penalties (396(e), (k)).

Penalties and civil exposure

A violation is a misdemeanor punishable by up to one year in county jail, a fine of up to $10,000, or both (396(h)). It is also an unlawful business practice and an act of unfair competition under Business and Professions Code section 17200, and the remedies are cumulative, so a criminal case does not rule out separate civil enforcement (396(i)).

Details that change the calculation

If you were selling an item or service at a reduced price just before the emergency, you may use the price you normally charge to calculate the limit under the 30-day goods and services rule or the 180-day contractor rule (396(l)).

The limits can also last longer than 30 or 180 days. A local legislative body, a local official, the Governor, or the Legislature may extend them as needed; each local extension may last no more than 30 days, and an extension may also authorize specified price increases above what the section would otherwise allow (396(g)).

Records that decide these cases

Whether an increase was lawful usually turns on records that already exist: what you charged or advertised right before the emergency, supplier invoices and labor or material costs, your usual markup, and any contract or lease signed before the declaration. Preserve those records as they are. The Law Offices of David S. Chesley’s white collar and fraud defense team can go through that evidence with you. Call (800) 755-5174.