You are here

Official Opinion 95-23

Official Opinion 95-23

May 11, 1995
To: 

Administrator
Office of Consumer Affairs

Re: 

The Office of Consumer Affairs has jurisdiction under O.C.G.A. § 10-1-391 et seq. to address violations of O.C.G.A. § 43-21-16 arising out of direct transactions between "hotel operators" and consumers.

You have asked for a legal opinion concerning the Olympic price gouging act, O.C.G.A. § 43-21-16 ("the Act"), enacted by the General Assembly during the 1994 legislative session. Specifically, you have asked what types of transactions violate the Act, whether enforcement falls within your jurisdiction as Administrator of the Georgia Fair Business Practices Act, and whether the Act will withstand constitutional scrutiny.

As a threshold matter, we caution that Georgia courts have viewed with disfavor earlier statutes which attempted to impair the freedom to contract by controlling prices. In order for the General Assembly to constitutionally authorize price fixing, it must be done with respect to a business or where a property involved is affected with a public interest. Harris v. Duncan, 208 Ga. 561, 563 (1951). See also Strickland v. Rio Stores, Inc., 243 Ga. 600 (1979) (statute regulating the price of cigarettes failed to pass constitutional muster under the due process clause); Cox v. General Elec. Co., 211 Ga. 286 (1955) (statute authorizing manufacturer to control his prices through the distribution chain declared unconstitutional). In order to withstand constitutional scrutiny, the Act must survive this public interest test.

The Act applies only to "hotels, motels, motor lodges, and bed and breakfast establishments" with four or more rooms. The Act does not apply to private homes. O.C.G.A. § 43-21-16(a)(1). During the Olympic period, the Act prohibits any hotel operator from selling or otherwise seeking compensation for rooms constructed prior to January 1, 1994,

at rates in excess of published room rates, exclusive of special discounts, as in effect at the hotel between January 1, 1994, and December 1, 1994, increased only by two times the average annual increase, if any, for the three-year period from November 1, 1991, through October 31, 1994, in the Consumer Price Index (CPI). . . .

O.C.G.A. § 43-21-16(c)(1).

For rooms constructed after January 1, 1994, the Act prohibits the charging of rates "in excess of published room rates for comparable hotel rooms." The statute does not clarify the meaning of the terms "published room rates" or "comparable hotel rooms." This oversight may create a loophole for those hotel rooms "constructed" after January 1, 1994.

The term "hotel operator" is broadly defined and includes not only the actual operator of the hotel, but also "brokers, wholesalers, and other persons who purchase and resell hotel rooms." O.C.G.A. § 43-21-16(a)(3). Given this definition of hotel operator, any transaction between a seller or reseller of hotel rooms and a consumer who has actually paid an impermissibly inflated price for a room, appears to fall within the Act if that seller or reseller has impermissibly raised its prices.

As the Administrator of the Fair Business Practices Act ("the FBPA"), you have limited authority to enforce the Act. That authority arises from your general responsibilities under the FBPA. The expressed purpose of the FBPA is to "protect consumers and legitimate business enterprises from unfair or deceptive practices." O.C.G.A. § 10-1-391(a). O.C.G.A. § 43-21-16(d)(1). The General Assembly expressly intended for the FBPA to be "liberally construed and applied to promote its underlying purposes and policies." O.C.G.A. § 10-1-391(a). Standish v. Hub Motor Co., 149 Ga. App. 365 (1979).

The price gouging Act is regulatory, and is intended in part to protect consumers. The specific objectives of the Act are consistent with the broad FBPA objectives. As stated in its Preamble, the Act protects consumers by establishing standards which govern "the rights, duties, and liabilities of innkeepers" who provide hotel rooms to consumers during the Olympic period. See Preamble to H.B. No. 1357, April 4, 1994, amending Article 1 of Chapter 21 of Title 43 of the Official Code of Georgia Annotated.

When a statute such as the Act prohibits certain defined consumer transactions, you may enforce the consumer-related facet of that statute under your general authority as the FBPA Administrator. The FBPA permits you to regulate "unfair" "acts or practices in the conduct of consumer transactions and consumer acts or practices in trade or commerce." O.C.G.A. § 10-1-393(a). See State v. Meredith Chevrolet, Inc., 145 Ga. App. 8, 11-12, aff'd, 242 Ga. 294 (1978); Orkin Exterminating Co. v. Federal Trade Comm'n, 849 F.2d 1354, 1364 (11th Cir. 1988) (an unfair practice causes substantial consumer injury, is not outweighed by countervailing benefits, and cannot reasonably be avoided by consumers).

Your authority to enforce the Act, however, is limited by the FBPA statutory constraints. Under the FBPA terms, "consumer transactions" are limited to "the sale, purchase, lease, or rental of goods, services, or property, real or personal, primarily for personal, family, or household purposes," and "consumer acts or practices" are confined to "acts or practices intended to encourage consumer transactions." O.C.G.A. §§ 10-1-392(a)(3), (2).

The FBPA also requires a showing that the violation "had or has potential harm for the consumer public," impacting the consumer marketplace as opposed to isolated incidences. Zeeman v. Black, 156 Ga. App. 82, 84 (1980). Although a hotel operator who sells a room to a consumer at an impermissible rate may violate the Act, a claim under the FBPA must also affect the consuming public. The effect of a practice on the consuming public is measured by (1) the way that the practice is introduced into the stream of commerce, and (2) the market that the practice is reasonably intended to impact. Zeeman at 85.

When a hotel operator publicly offers rooms at an impermissibly inflated price to consumers, that operator is participating in the consumer marketplace by "opening his doors to the general public." See State v. Meredith Chevrolet, Inc., 145 Ga. App. at 13. Charging impermissibly inflated hotel room prices will have a widespread impact on the consuming public who will reasonably presume that hotel operators are charging legal rates. Compare Regency Nissan, Inc. v. Taylor, 194 Ga. App. 645, 646-48 (1990) (consuming public impacted by car dealer who fails to ascertain car title status prior to consummating sale because consumers are entitled to presume title is not defective).

In effect, when hotel operators offer hotel rooms publicly to consumers, they warrant that the hotel rates they have charged are legal. During the Olympics, consumers will rely strongly on this implied warranty of legal rates because the scarcity of hotel rooms will decrease or eliminate consumer ability to comparison-shop for hotel rates. See Miles Rich Chrysler-Plymouth, Inc. v. Mass, 201 Ga. App. 693, 697 (1991) (FBPA requirements satisfied where dealer pressured consumer into purchasing more expensive vehicle by representing that there were no similarly priced vehicles available). This threat to consumers is likely to be recurring because violations of the Act could effect thousands of consumers. Compare Zeeman v. Black, 156 Ga. App. at 86 (no threat of public impact in context of isolated sale of real property based on deceptive representation unique to the property).

When hotel operators engage in intermediate transactions with businesses such as travel agents and other resellers and charge impermissibly inflated rates, those transactions violate the Act. Those transactions do not constitute violations of the FBPA, however, because unlike consumer transactions, intermediate transactions are accomplished through a private medium. See State v. Meredith Chevrolet, Inc., 145 Ga. App. at 13 ("a private sale limited to nonconsumers, is outside the context of consumer commerce") (emphasis in original). This type of transaction is not reasonably intended to impact the consumer marketplace because consumers are not directly involved. Nor does this type of transaction necessarily encourage consumer transactions. See Zeeman v. Black, 156 Ga. App. at 86 ("the underlying transaction must involve a businessman as well as a consumer").

In addition to the sanctions provided by the FBPA, the Act provides other remedies for all prohibited transactions. The Act provides for criminal penalties of "not less than $100.00 nor more than $1,000.00" for "[e]ach room night and each room provided in violation of [the Act]." O.C.G.A. § 43-21-16(f). In addition, the Act creates a private right of action which enables any injured person to (1) seek to avoid any contract which violates the Act, (2) seek an injunction to prevent violations of the Act, (3) recover actual and punitive damages and (4) obtain attorney's fees. O.C.G.A. § 43-21-16(g)(1).

Therefore it is my official opinion that you have jurisdiction under the FBPA to address violations of the Act arising out of direct transactions between "hotel operators" and consumers.

Prepared by:

REBECCA J. MILLER
Assistant Attorney General