Allen v. American Land Research

• Decision Date: 23 July 1981
• Docket Number: No. 47153-3,47153-3
• Citation: 95 Wn.2d 841,631 P.2d 930
• Court: Washington Supreme Court
• Parties: Kirby L. ALLEN and Amelia A. Allen, his wife, individually and on behalf of a class of persons similarly situated, Wayne Kirkland, a single man, Robert S. Christensen and Iva L. Christensen, his wife, Rodger Patton, and Glenn E. Griffith and Christina M. Griffith, his wife, Petitioners, v. A Foreign Corporation, d/b/a AMERICAN LAND RESEARCH, a Foreign Corporation, d/b/a Federated Land Research, Alexander Myers and Jane Doe Myers, his wife, David Jacoby and Louise Jacoby, his wife, Phil J. Schlaifer and Jane Doe Schlaifer, his wife, Respondents, and Will Brooks and Jane Doe Brooks, his wife, Charles Desilva and Jane Doe Desilva, his wife, Defendants.

Page 841

95 Wn.2d 841

631 P.2d 930

Kirby L. ALLEN and Amelia A. Allen, his wife, individually and on behalf of a class of persons similarly situated Wayne Kirkland, a single man, Robert S. Christensen and Iva L. Christensen, his wife, Rodger Patton, and Glenn E Griffith and Christina M. Griffith, his wife, Petitioners, v. A Foreign Corporation, d/b/a AMERICAN LAND RESEARCH, a Foreign Corporation, d/b/a Federated Land Research Alexander Myers and Jane Doe Myers, his wife, David Jacoby and Louise Jacoby, his wife, Phil J. Schlaifer and Jane Doe Schlaifer, his wife, Respondents and Will Brooks and Jane Doe Brooks, his wife, Charles Desilva and Jane Doe Desilva, his wife, Defendants.

No. 47153-3.

Supreme Court of Washington, En Banc.

July 23, 1981.

Roger M. Leed, David A. Bricklin, Seattle, for petitioners.

William M. Robinson, Edwards & Barbieri, Charles K. Wiggins, Malcolm Edwards, Seattle, for respondents.

Ken Eikenberry, Atty. Gen., Thomas L. Boeder, James M. Beaulaurier, Asst. Attys. Gen., Seattle, amici curiae.

DORE, Justice.

Petitioners, plaintiffs below, seek reinstatement of the trial court's judgment. For the reasons stated below, we reverse the Court of Appeals and reinstate the trial court's judgment.

At all times pertinent to this suit, Mr. and Mrs. Myers, Mr. and Mrs. Jacoby and the corporations American Land Research and Federated Land Research were California residents. They, along with others, were defendants, but we distinguish them in this opinion by designating them "California defendants". All California defendants but Mr. and Mrs. Jacoby are respondents before this court.

Alexander Myers and David Jacoby collaborated in writing a book entitled "Think Land Think Money" (TLTM). They offered the book for sale to the public in Washington. Among other things, TLTM strongly advocated the purchase of undeveloped desert land in Southern California as a safe and prudent investment and represented that persons buying such land would probably realize a high profit at a low risk. Myers and Jacoby created and controlled two California corporations, American Land Research (ALR) and Federated Land Research (FLR). These defendants owned desert land in Southern California which was virtually worthless. Myers and Jacoby devised a scheme to sell that land to Washington residents.

TLTM was advertised in Washington; local purchasers ordered the book from California through the mail. Names of the Washington residents who ordered the book were forwarded by California defendants to ALR agents in Washington. These agents were real estate brokers licensed to do business in Washington pursuant to RCW 18.85 Real Estate Brokers & Salesmen (the Brokers Act). The Washington agents were under the direct supervision and control of the California defendants. The land sales promotion included furnishing copies of TLTM to the Washington agents. The Washington purchasers of TLTM were contacted at their homes where they received substantially identical prerehearsed sales presentations from the agents of the California defendants. As part of the sales promotion, it was the Washington agents' practice to inquire whether the prospective purchaser had read TLTM. Approximately 200 Washington residents paid in excess of $2 million to defendants for nearly worthless California land.

Kirby Allen brought suit on behalf of the Washington purchasers against the California defendants alleging common law fraud and violations of the Washington Consumer Protection Act (CPA), RCW 19.86, and the Federal Interstate Land Sales Full Disclosure Act (15 U.S.C. §§ 1701-1720). The class was certified and the case proceeded to trial. All but one of the Washington real estate brokers and salesmen who had been named as defendants reached a settlement with the plaintiffs prior to trial.

A 3-month trial culminated in a judgment for named plaintiffs on a common-law fraud theory, and judgment for the class on its claims alleging violations of the CPA. Insufficient evidence was produced to prove the violations of the federal act. The trial court found that much of the illegal activity involved was the extensive use of the book "Think Land Think Money". The claims against the one Washington defendant who went to trial were dismissed for lack of evidence to support liability.

The trial court ordered that California defendants

deposit $250,000 in a trust fund for the benefit of the class, and directed restitution. Defendants never sought a supersedeas bond but appealed the judgment. Myers was ordered to appear for post-judgment proceedings. Defendants were found in contempt by the trial court for failing to establish the trust fund and Myers was found in contempt for failure to comply with post-judgment procedures. The question of the validity of the contempt orders was consolidated with the direct appeal. The Court of Appeals reversed the trial court. Allen v. American Land Research, 25 Wash.App. 914, 611 P.2d 420 (1980). Noting that the fraud perpetrated by defendants was "amply supported by the record", Allen at 916, 611 P.2d 420, the Court of Appeals concluded "(w)ith great reluctance", Allen at 917, 611 P.2d 420, that the acts of defendants were exempt from the reach of the Consumer Protection Act. The contempt orders, which were predicated on the judgment, were reversed as well.

CONSUMER PROTECTION ACT

All acts complained of occurred before 1974. Prior to 1974, the Washington Consumer Protection Act contained an exclusion which read as follows:

Nothing in this chapter shall apply to actions or transactions otherwise permitted, prohibited or regulated under laws administered by the insurance commissioner of this state, the Washington public service commission, the federal power commission or any other regulatory body or officer acting under statutory authority of this state or the United States...

Laws of 1967, ch. 147, § 1, p. 710. Defendants contend that their acts, regardless of their proven wrongfulness, are not subject to the Consumer Protection Act because they fall within the above-quoted exemption by virtue of the defendants' utilization of licensed Washington real estate brokers to consummate the sales. Because such brokers are regulated by the Brokers Act, defendants' activities were "regulated ... by ... (a) regulatory body or officer acting under statutory authority of this state ..."

We agree with respondents that the activities of their Washington agents were exempt from the CPA due to their regulation under the Brokers Act. The California defendants, however, were not so regulated. We hold that the legislature did not intend that this CPA exclusion be given so liberal a construction as to allow scores of Washington residents to be deceived and defrauded without recourse by California residents.

There are two inquiries which determine the applicability of the cited exemption: first, is there a "regulatory body" involved and second, is the transaction "permitted, prohibited or regulated".

To satisfy the first requirements, an agency must do more than merely monitor the business practices of those who are in the area; the entry into that area must also be controlled. State v. Reader's Digest Ass'n, 81 Wash.2d 259, 501 P.2d 290 (1972). The Brokers Act clearly controls entry into the occupation of selling real estate. The provisions of that act cover licensing of brokers, and require brokers and salespersons to conform to certain standards and code of conduct in order to maintain those licenses. But for those who are not licensed, the Brokers Act obviously does not act as a regulatory agency. There was no way for the Director of Motor Vehicles (Director), who enforces the Brokers Act, to stop and/or regulate Myers' activities, whether Myers' acts took place in Washington or in California.

Respondents have failed to show that their activities were prohibited or regulated. Even if a business is generally regulated, the specific activity complained of must be subject to regulation to come within this exemption. Dick v. Attorney General, 83 Wash.2d 684, 521 P.2d 702 (1974). Although the distribution of false materials and participation in misrepresentations or fraud were prohibited under the Brokers Act, see RCW 18.85.230, these regulations did not apply to anyone but the Washington real estate brokers and salespersons. The California defendants were free to distribute their book and any other misleading promotional material with impunity, as far as the Brokers Act was concerned. If the Washington brokers with whom Myers associated had been enjoined by the Brokers Act, Myers could have associated new Washington agents and made more sales. If those agents were subsequently stopped by the Director, Myers could have found still another Washington agent to consummate additional sales. This ability to leap-frog with the Brokers Act discloses the weakness in respondents' argument that the California defendants' activities and transactions were regulated.

As noted above, the Washington brokers and salespersons were regulated by the Brokers Act. We heard and considered respondents' arguments that their activities cannot be separated from the sale of the realty. They contend that the California defendants made no direct representations to any plaintiff after 1968, and without such individual contact, the respondents' acts were merged within the ultimate sale made by the licensed (i. e., regulated) broker. We reject this argument in light of policy reflected by federal law and the trial court's unchallenged findings of fact.

Our Consumer Protection Act provides:

It is the intent of the legislature that, in construing this act, the courts be guided by the interpretation given by the federal courts to the various federal statutes dealing with the same or similar matters...

RCW 19.86.920. It has long been held under federal law that one may not escape liability by putting into the hands of another the means and...