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Texas AG Sues Houston Business for Operating Online Auction, Alleges Price-Gouging

covid-19On March 26, the Texas attorney general acted swiftly, filing a lawsuit against Auctions Unlimited LLC over an online auction that ended on March 24. The auction sparked an article published by the Chicago Tribune entitled  “more than 750,000 masks auctioned for huge markup in Texas while hospitals run out nationwide.” Not even two days elapsed before the Texas attorney general, through his Consumer Protection Division filed this enforcement action against the company. In addition to seeking injunctive relief, restitution, and attorney fees, the Texas AG demands civil penalties of up to $10,000 per violation.

According to the lawsuit, Auctions Unlimited conducted an auction of health related and cleaning supplies over a two-week auction period ending on March 24.  The bidding on N95 respirator masks apparently went as high as $180 for a package of 16 masks. The complaint cites the Chicago Tribune article directly alleging that the owner of the business admitted to the Chicago Tribune to receiving warnings from the Consumer Protection Division and local police. Furthermore, the article claims that masks sold prior to the pandemic for $3 each and the owner of the Auctions Unlimited would profit $40,000 as a result of the auction.

In Texas, the Consumer Protection Division may bring an enforcement action under the Texas Deceptive Trade Practices Act, which broadly prohibits “false, misleading, or deceptive acts or practices in the conduct of any trade or commerce.” Specifically the DTPA prohibits price-gouging which is defined as  “taking advantage of a disaster declared by the governor…by selling or leasing fuel, food, medicine, lodging, building materials, construction tools or another necessity at an exorbitant or excessive price; or demanding an exorbitant or excessive price in connection the sale or lease of fuse, food, medicine, lodging, building materials, construction tools, or another necessity at an exorbitant or excessive price.”

To demonstrate that the products sold by Auctions Unlimited are considered a necessity, The State of Texas references the Center for Disease Control’s guidance to public health official for “strategies optimizing the supply of facemasks” as issued on March 17th along with Executive Order GA-09. The suit claims that the Governor’s Order (GA-09) was claiming was to “secure the purchase of millions of these essential supplies.”  Executive Order GA-09 was executed on March 22, and relates to hospital capacity and elective or non-emergency surgeries. The foundation and justification for the order is based, in part, on shortage of supplies.

News outlets reported that Auctions Unlimited received a cease and desist letter on March 20, following Gov. Greg Abbot’s declaration of a state of emergency, which was on March 16. The company said that the transactions could not be completed without approval from law enforcement. Accordingly, the transaction has not been completed.

The Texas AG warned businesses about price-gouging: “My office will work aggressively to investigate and prosecute any price-gouger who takes advantage of a disaster declaration by selling necessities at an excessive price.” Emphasizing that no one is exempt, General Ken Paxton reminds retail suppliers, such as grocery and pharmacy chains, that they are subject to liability.

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Jessica Lesser is Of Counsel to Maurice Wutscher in Dallas. Jessica is a proven civil trial attorney with expertise in the regulatory framework of consumer finance, lending, and technology. A former managing attorney in the Consumer Protection Division of the Office of the Attorney General of Texas, she has two decades of litigation and regulatory compliance experience and is board certified in consumer and commercial law. Her leadership roles in private practice, state government, and within corporations demonstrate her adaptability and ability to provide solutions in highly regulated environments. Her extensive litigation experience provides for efficient and responsive results that are customized to a client’s needs. Jessica is the former chair of the Texas Board of Legal Specialization Advisory and Exam Commission for the consumer and commercial law specialization exam and past chair of the Consumer and Commercial Law Section, State Bar of Texas. For more information, see https://mauricewutscher.com/attorneys/jessica-lesser/

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