State By and Through McGraw v. Imperial Marketing

Decision Date20 March 1996
Docket NumberNo. 22809,22809
Citation196 W.Va. 346,472 S.E.2d 792
CourtWest Virginia Supreme Court
PartiesSTATE of West Virginia, By and Through Darrell V. McGRAW, Jr., Attorney General, Plaintiff Below, Appellee, v. IMPERIAL MARKETING, et al., Defendants Below, Suarez Corporation Industries, Defendant Below, Appellant.

1. In reviewing the exceptions to the findings of fact and conclusions of law supporting the granting of a temporary or preliminary injunction, we will apply a three-pronged deferential standard of review. We review the final order granting the temporary injunction and the ultimate disposition under an abuse of discretion standard, West v. National Mines Corp., 168 W.Va. 578, 590, 285 S.E.2d 670, 678 (1981), we review the circuit court's underlying factual findings under a clearly erroneous standard, and we review questions of law de novo. Syllabus Point 4, Burgess v. Porterfield, 196 W.Va. 178, 469 S.E.2d 114 (1996).

2. The method of analysis which governs the propriety and scope of an injunction under W.Va.Code 46A-7-110 (1974) deviates from the customary standard for the issuance of temporary relief and may best be described as whether the Attorney General has shown by the existence of some credible evidence, even if disputed, that reasonable cause exists to believe that the respondent is engaging in or is likely to engage in conduct sought to be restrained. The Attorney General need not prove the respondent has in fact violated the Prizes and Gifts Act, W.Va.Code 46A-6D-1 to -10 (1992), but only needs to make a minimal evidentiary showing of good reason to believe that the essential elements of a violation of the Prizes and Gifts Act are in view.

3. The West Virginia Prizes and Gifts Act, W.Va.Code 46A-6D-1 to -10 (1992), was designed by the West Virginia Legislature to assist in protecting West Virginia citizens from being victimized by misleading and deceptive practices when a seller is attempting to market a product using a prize or gift as an inducement.

4. Findings of "material misrepresentation" or "actually misleading" are not necessary 5. A misrepresentation of any fact, so long as it materially induces a purchaser's decision to buy, is a deceptive practice under the West Virginia Prizes and Gifts Act, W.Va.Code 46A-6D-1 to -10 (1992).

[196 W.Va. 349] predicates to support a temporary injunction under the West Virginia Consumer Credit Act, W.Va.Code 46A-7-110 (1974).

6. Reliance on the interpretation of federal consumer protection legislation by federal courts are permissible guidelines under the West Virginia Consumer Credit and Protection Act, W.Va.Code 46A-6-101(1) (1974).

7. Under the West Virginia Prizes and Gifts Act, W.Va.Code 46A-6D-1 to -10 (1992), once the circuit court makes a finding that deceptive practices are used to affect a consumer's decision to purchase a product, then the circuit court is authorized, within the bounds of reason, to infer that the deception will constitute a material factor in a consumer's decision to purchase the product.

8. The West Virginia Legislature, under the West Virginia Consumer Credit Act, W.Va.Code 46A-7-110 (1974), is accorded considerable deference in restricting and regulating solicitations which are or may be deceptive or misleading, even to the extent of permitting prior restraints upon the deceptive solicitation.

Tom Rodd, Senior Assistant Attorney General, Morgantown, and Silas Taylor, Office of the Attorney General, Charleston, Victor S. Woods, Assistant Attorney General, Charleston, for Appellee.

James M. Cagle, Charleston, and Carter G. Phillips, Jeffrey T. Green, David D. Meyer, Sidley & Austin, Washington, DC, for Appellant Suarez.

James Zimarowski, Morgantown, for amicus curiae Council of Senior West Virginians.

Steven Zaleznick, Deborah Zuckerman, Washington, DC, for amicus curiae American Association of Retired Persons.

RECHT, Justice:

The defendant below and appellant herein, Suarez Corporation Industries (hereinafter "SCI"), appeals an order of the Circuit Court of Kanawha County granting a preliminary injunction restricting the method and manner by which SCI may solicit consumers in West Virginia in the sale of jewelry and other products either manufactured or distributed by SCI. In reaching its decision, the circuit court found that there was reasonable cause to believe that SCI was engaging in or is likely to engage in conduct in violation of specific provisions of the West Virginia "Prizes and Gifts Act," W.Va.Code 46A-6D-1 to -10 (1992), and accordingly granted the preliminary relief requested prohibiting specified conduct found to be in violation of the Act. We affirm this ruling, with a modification limiting the duration of the temporary injunction.

I. PROCEDURAL HISTORY

The genesis of this injunction proceeding was a complaint filed by the Attorney General of West Virginia alleging violations of unlawful acts and practices under the West Virginia Consumer Credit and Protection Act, W.Va.Code 46A-6-104 (1974), and the West Virginia Prizes and Gifts Act, W.Va.Code 46A-6D-1 to -10 (1992), which is fully contained within the Consumer Credit and Protection Act, against four companies whose common business practice included the sale of consumer products through direct mail solicitations. SCI was not one of those named in the original civil action. Following additional investigation, however, the number of defendants in the original civil action was expanded to include SCI. 1

SCI is an Ohio corporation 2 engaged in the business of selling consumer goods, such as simulated jewelry, by use of direct mailing. This direct mailing often takes the form of a "sweepstakes promotion," a device that informs potential consumers that they are eligible or "tied" to win a prize, often in the form of cash up to $10,000, or an automobile. This marketing scheme is designed to ultimately sell a product through the consumer's expectation of winning a valuable prize.

The factual underpinnings alleged by the Attorney General to support the request for injunctive relief concerned the deceptive and misleading methods utilized by SCI to sell various products. The central theme of the alleged deceptive and misleading practices used by SCI was to sell a product by convincing West Virginia consumers that they had won a prize or gift when, in reality, the award of the prize or gift was an illusion and nothing more than an elaborate ruse to sell SCI's product. This method of selling a product was alleged to have violated various provisions of the West Virginia Prizes and Gifts Act (hereinafter the "Act"), including: misrepresentation of having won a prize in violation of W.Va.Code 46A-6D-3 (1992); misrepresentation of eligibility to win or receive a prize in violation of W.Va.Code 46A-6D-4 (1992); misrepresentation of being a specially selected person in connection with the sale of a product in violation of W.Va.Code 46A-6D-5 (1992); and the improper use of simulated checks in connection with a sale of a product in violation of W.Va.Code 46A-6D-6 (1992).

The legal foundation for the temporary injunction was the exercise of the Attorney General's power to enforce the provisions of the Consumer Credit and Protection Act and, specifically, the power to temporarily enjoin any violation of the Act or any fraudulent or unconscionable conduct as contemplated within the West Virginia Consumer Credit and Protection Act, all as recited in W.Va.Code 46A-7-110 (1974). 3

The Circuit Court of Kanawha County conducted two separate hearings relating to the requests for temporary relief. The first hearing resulted in the granting of a temporary injunction on September 9, 1994. The second hearing resulted in a modification of that initial order, emerging from a motion filed by SCI to dissolve the initial injunction. It is this order, entered on November 3, 1994, which granted temporary injunctive relief, from which SCI appeals. 4

SCI mounts a global challenge to the temporary injunction in terms of every finding of fact, conclusion of law, and ultimately the order granting temporary relief, upon a variety of grounds including:

(1) No phase of SCI's sales scheme violates the Act;

(2) The method by which SCI sells its products in West Virginia is not "unconscionable conduct" within the meaning of W.Va.Code 46A-7-110 (1974); 5

(3) The method and manner by which SCI communicates with potential West Virginia consumers is protected "commercial speech" under the First Amendment to the United States Constitution and Article III, Section 7 of the West Virginia Constitution, and therefore cannot be prohibited;

(4) The Act, as applied, violates the Commerce Clause of the United States Constitution (Article I, Section 8) by application of the doctrine of the "dormant" or "negative" Commerce Clause which, by negative implication, limits a State's right to interfere with interstate commerce.

In order to better understand SCI's challenge to the temporary injunction, we need to scrutinize with some particularity the various methods used by SCI to sell its products in West Virginia. The Suarez sales scheme is an ingenious blueprint to persuade a potential consumer to purchase an article of jewelry or personal accessory of questionable value by creating the elaborate illusion that by purchasing the product the consumer not only acquires a valuable possession, but also joins a select group of people eligible to win a great deal of money.

II. STANDARD OF REVIEW

As is our custom, we begin any appellate analysis by first establishing the appropriate standard of review. In reviewing the exceptions to the findings of fact and conclusions of law supporting the granting of a temporary or preliminary injunction, we will apply a three-pronged deferential standard of review. We review the final order granting the temporary injunction and the ultimate disposition under an abuse of...

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