Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co.

• Decision Date: 08 May 1986
• Docket Number: No. 51213-2,51213-2
• Citation: 105 Wn.2d 778,719 P.2d 531
• Parties: HANGMAN RIDGE TRAINING STABLES, INC., a Washington corporation; and Arthur P. McNeil and Lois McNeil, Respondents, v. SAFECO TITLE INSURANCE COMPANY, Appellant.
• Court: Washington Supreme Court

Page 778

105 Wn.2d 778

719 P.2d 531

HANGMAN RIDGE TRAINING STABLES, INC., a Washington corporation; and Arthur P. McNeil and Lois McNeil, Respondents, v. SAFECO TITLE INSURANCE COMPANY, Appellant.

No. 51213-2.

Supreme Court of Washington,

En Banc.

May 8, 1986.

Witherspoon, Kelley, Davenport & Toole, Kristine Chrey, Seattle, for appellant.

Evans, Craven & Lackie, P.S., Constance Gould, Spokane, for respondents.

BRACHTENBACH, Justice.

This case involves the Consumer Protection Act (CPA). The precise issue presented is whether the defendant title insurance company, acting as escrow agent, may be assessed attorney fees in a private CPA action when plaintiffs have not established that defendant engaged in an unfair or deceptive act, or that plaintiffs were in fact injured, or that defendant's conduct caused such alleged injury, or that the defendant's conduct had an impact on the public interest. We hold that to prevail in a private CPA action and therefore be entitled to attorney fees, a plaintiff must establish five distinct elements: (1) unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury to plaintiff in his or her business or property; (5) causation. Because plaintiffs here have failed to establish the first, third, fourth, and fifth elements, they have not prevailed, and are not entitled to attorney fees. The judgment of the trial court which awarded attorney fees to plaintiffs is reversed.

The plaintiffs, Mr. & Mrs. McNeil, were the sole shareholders in a corporation, Hangman Ridge Training Stables, Inc. (Hangman Ridge). Sometime prior to March 1978, the McNeils found themselves in desperate financial straits. They had not filed corporation or individual tax returns for several years. A federal tax lien and a judgment had been filed against them, and the corporation's contract seller of certain real estate had given notice of intent to declare a forfeiture.

In an attempt to ease these financial pressures, the McNeils applied to the Farmers Home Loan Administration (FHLA) for a loan. The FHLA agreed to the loan but insisted upon a security interest in the real estate then being purchased under contract by Hangman Ridge and a transfer of the property to the McNeils individually. Accordingly, the closing of the loan included conveyance of the subject property from Hangman Ridge to the McNeils by quitclaim deed.

Prior to the closing, the FHLA agent told the McNeils that it might be necessary for them to seek legal assistance regarding the transaction. The McNeils never did so, although they retained an attorney and an accountant on a regular basis. Their accountant, in fact, had advised them earlier that the corporation was not advantageous to them and should be dissolved.

The quitclaim deed conveying the corporation's interest to the McNeils was prepared by the escrow agent, and the closing was performed in March 1978 by Safeco Title Insurance Company (Safeco), which had been designated by FHLA as the escrow closer. The Safeco closing agent told the parties she was not an attorney, but she provided no information regarding any need to consult independent counsel or obtain tax advice.

Approximately 1 year after the closing, the McNeils' attorney discovered that the tax liability resulting from the transfer of the deed amounted to approximately $3,500. Plaintiffs contend this liability could have been avoided had the Safeco closing agent warned the McNeils about the potential tax consequences before the deed was transferred. The McNeils, individually and as Hangman Ridge, then sued Safeco. They alleged that the loan closing and deed preparation constituted the unauthorized practice of law and that such conduct supported both a CPA and legal malpractice action.

Trial was held to the court in December 1980. The trial judge essentially found that Safeco's deed preparation and loan closing amounted to the unauthorized practice of law, but that such conduct did not support a legal malpractice action or constitute a CPA violation.

The trial court found that the standard of care was the same for attorneys and nonattorneys who prepare deeds and close real estate transactions. Based upon conflicting evidence, the court found that such standard did not require "across the board" tax advice. The conflicting testimony which attempted to establish such higher standard was described by the trial judge as "meager." This led to a conclusion of law that the plaintiffs had failed to establish a standard of care which required the defendant to advise plaintiffs of the possible tax ramifications of the quitclaim deed or to refer the matter to a tax expert.

The court concluded that: (1) defendant did not breach any duty owed to plaintiffs; (2) the defendant did not cause any damage to plaintiffs; (3) defendant's actions were not unfair or deceptive; and (4) the alleged harm and alleged damage were not reasonably foreseeable. As a result of these conclusions, the trial court awarded neither an injunction nor attorney fees.

Plaintiffs appealed first to the Court of Appeals, which affirmed the trial court. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 33 Wash.App. 129, 652 P.2d 962 (1982). They then petitioned this court for review. The petition was granted in January 1983, but was continued, pending the disposition of Bowers v. Transamerica Title Ins. Co., 100 Wash.2d 581, 675 P.2d 193 (1983), which raised similar issues. Bowers was decided in December 1983, and in March 1984, this court remanded Hangman Ridge to the Court of Appeals with instructions to reconsider in light of Bowers. The Court of Appeals then remanded to the trial court, with the same instructions.

Upon remand, the trial judge found the unauthorized practice of law in this case constituted a "per se CPA violation," although he found the McNeils had not been injured. Nevertheless, he enjoined Safeco from performing closings except in strict compliance with current Admission to Practice Rule 12, and he awarded approximately $45,000 to the McNeils in attorney fees, expert witness fees, and costs. Safeco appeals from the finding of a CPA violation and award of attorney fees.

Because this case involves a highly confused area of the law, we have chosen it as a vehicle for clarification of the private right of action under the CPA. Pursuant to such clarification, we first set forth a brief history of state consumer protection law. Second, we focus on the elements of a private cause of action, with emphasis on the public interest requirement. Finally, we apply these elements to the facts of this case.

I

In the 1950's and 1960's, individual states began to enact consumer protection laws. These acts were generally modeled after section 5 of the Federal Trade Commission Act (codified in 1938 as 15 U.S.C. § 45(a)(1)) which was adopted by Congress to protect United States citizens against unfair trade practices. See generally Note, Toward Greater Equality in Business Transactions: A Proposal To Extend the Little FTC Acts to Small Businesses, 96 Harv.L.Rev. 1621 (1983). Washington, along with Rhode Island, New York, and Alaska, led the states in enacting consumer protection legislation. Lovett, Private Actions for Deceptive Trade Practices, 23 Ad.L.Rev. 271, 275 (1971).

In 1961, the Washington Legislature adopted RCW 19.86.020, which provides:

Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

The purpose of the Washington CPA was set forth in RCW 19.86.920. That section reveals the Legislature's intent "to protect the public and foster fair and honest competition." To that end, the Attorney General was given enforcement powers under the act. By 1971, Washington was recognized as having one of the best and most successful enforcement programs in the country, with a higher proportion of claims to population than any other state in the nation. 23 Ad.L.Rev., at 287.

In apparent response to the escalating need for additional enforcement capabilities, the State Legislature in 1971 amended the CPA to provide for a private right of action whereby individual citizens would be encouraged to bring suit to enforce the CPA. RCW 19.86.090, as amended, first in 1971 and again in 1983, provides in relevant part:

Any person who is injured in his business or property by a violation of RCW 19.86.020 ... may bring a civil action ... to enjoin further violations, to recover ... actual damages ... or both, together with the costs of the suit, including a reasonable attorney's fee, and the court may in its discretion ... award ... three times the actual damages ... not [to] exceed ten thousand dollars ...

After private individuals began to pursue their remedies under this section, we construed the language of all three of the foregoing sections, RCW 19.86.020, .920, and .090, to require a showing that the public interest would be served by each private plaintiff's lawsuit. See Lightfoot v. MacDonald, 86 Wash.2d 331, 544 P.2d 88 (1976).

Since the Lightfoot decision, the confusion surrounding private rights of action under the CPA has steadily increased. In the past, private plaintiffs have been required to establish only three separate elements: (1) an unfair or deceptive act or practice; (2) in trade or commerce; (3) which affects the public interest. See Anhold v. Daniels, 94 Wash.2d 40, 614 P.2d 184 (1980). Hereafter, five elements, all statutorily based, must be established by a plaintiff in order that he or she prevail under a private CPA action. The first three elements remain, although the public interest element is substantially changed. The fourth requires a showing of injury to plaintiff in his or her business or property. The fifth requires that a causal link be established between the unfair or deceptive act complained of and the injury suffered. Each of these five elements will be discussed...