State by Humphrey v. Alpine Air Products, Inc., C8-92-740

• Citation: 490 N.W.2d 888
• Decision Date: 15 September 1992
• Docket Number: No. C8-92-740,C8-92-740
• Parties: 1992-2 Trade Cases P 69,966 STATE of Minnesota, by Hubert H. HUMPHREY, III, its Attorney General, Respondent, v. ALPINE AIR PRODUCTS, INC., et al., Appellants.
• Court: Minnesota Court of Appeals

Page 888

490 N.W.2d 888

1992-2 Trade Cases P 69,966

STATE of Minnesota, by Hubert H. HUMPHREY, III, its Attorney General, Respondent, v. ALPINE AIR PRODUCTS, INC., et al., Appellants.

No. C8-92-740.

Court of Appeals of Minnesota.

Sept. 15, 1992.

Review Granted Nov. 17, 1992.

Syllabus by the Court

1. Violations of consumer protection statutes must be proven by a preponderance of the evidence.

2. Vertical price-fixing arrangements are a per se violation of Minnesota antitrust law.

3. There is no right to a jury trial in purely equitable cases seeking restitution and injunctive relief.

4. Findings of fact will not be set aside unless clearly erroneous.

5. The granting of equitable relief, including restitution, is within the discretion of the trial court.

6. An award of attorney fees is within the discretion of the trial court.

7. The imposition of a civil penalty is within the discretion of the trial court.

8. Following a court trial, the submission of additional testimony is within the discretion of the trial court.

9. A corporate officer may be held personally liable in a consumer fraud and antitrust case where the officer directly participated in the violations.

Hubert H. Humphrey, III, Atty. Gen., Tracy M. Smith, Special Asst. Atty. Gen., St. Paul, for respondent.

William A. Erhart, Marvin & Erhart, Anoka, for appellants.

Considered and decided by LANSING, P.J., and PETERSON and AMUNDSON, JJ.

OPINION

AMUNDSON, Judge.

The state initiated this consumer fraud and antitrust action against appellant Alpine Air Products, Inc. (Alpine), a manufacturer of ozone-producing air purifiers, and its president, appellant William Converse. The trial court found Alpine engaged in false, deceptive and misleading claims about its products and violated Minnesota antitrust law by engaging in vertical price-fixing. Appellants challenge the judgment and the denial of their new trial motion. We affirm.

FACTS

On July 3, 1990, the State of Minnesota sued Alpine Air Products, Inc. and its president, William Converse, in connection with their ozone-producing air purifiers. The state alleged violations of Minnesota's false advertising statute, Minn.Stat. Sec. 325F.67 (1990); the Deceptive Trade Practices Act, Minn.Stat. Secs. 325D.43-325D.48 (1990); and the Consumer Fraud Act, Minn.Stat. Secs. 325F.68-325F.70 (1990). The state also alleged Alpine's vertical price-fixing arrangement was in violation of Minnesota's antitrust law, Minn.Stat. Secs. 325D.49-325D.66 (1990).

Alpine is a Minnesota corporation that manufactures and markets portable air purifiers. The air purifiers were designed to emit ozone for the stated purpose of cleaning indoor air, including the removal of smoke, certain chemical gases, pollens, odors, dust, static electricity, bacteria and mold. Ozone is a highly reactive form of oxygen that occurs naturally. Above certain concentrations, ozone can be a respiratory irritant. Ozone exposure can cause chest tightness, chest pain, coughing and reduced lung function.

The state alleged Alpine air purifiers are capable of emitting unsafe levels of ozone. Alpine purifiers have no mechanism for regulating ozone production. The purifiers have a control knob that allows the user to adjust the amount of ozone, but no means of measuring the amount of ozone emitted. Additionally, the purifiers do not have a shutoff or warning mechanism to avoid excessive levels of ozone. Alpine did not warn consumers either that breathing ozone was hazardous or that the machine may emit potentially hazardous levels of ozone. Consumers were advised to set the air purifiers by their sense of smell.

Alpine uses a multilevel, independent sales organization to market the purifiers. Dealers must sign a written contract with Alpine to sell the purifiers at the manufacturer's suggested retail price as a condition of the relationship.

Following a bench trial, the trial court determined appellants violated the consumer protection and antitrust statutes. The court ordered certain injunctive relief including full restitution to consumers, imposed civil penalties of $70,000 and awarded the state $104,165.20 in attorney fees and costs. The court also determined Converse was personally liable.

The trial court denied appellants' motion for a new trial and other post-trial relief. This appeal followed.

ISSUES

1. Did the trial court err in determining that in a consumer protection case the state must prove its case by a preponderance of the evidence rather that by clear and convincing evidence?

2. Did the trial court err in determining Alpine's vertical price-fixing arrangement was a per se violation of Minnesota antitrust law?

3. Did the trial court err in denying Alpine a jury trial?

4. Did the trial court err in finding the sense of smell test to detect ozone is an unreliable measure for the safe operation of the Alpine air purifier and that the Alpine air purifier produces no positive health benefits?

5. Did the trial court err in directing Alpine to offer complete restitution to consumers?

6. Did the trial court err in ordering Alpine to pay $104,165.20 of the state's costs and attorney fees?

7. Did the trial court err in ordering Alpine to pay a $70,000 civil penalty?

8. Did the trial court err in not allowing Alpine to submit additional testimony to substantiate its claims?

9. Did the trial court err in determining William Converse is personally liable for the compensatory and injunctive relief?

ANALYSIS

I. Standard of Proof

Alpine argues the trial court erred in determining its alleged violations of the false advertising statute, the Deceptive Trade Practices Act, and the Consumer Fraud Act must be proven by a preponderance of the evidence rather than by clear and convincing evidence. We disagree.

The supreme court reviewed the history of the standard of proof to be applied in fraud cases in Martin v. Guarantee Reserve Life Ins. Co., 279 Minn. 129, 134-37, 155 N.W.2d 744, 747-49 (1968). In earlier cases, the court distinguished between two separate standards of proof for fraud. In a claim for damages based on fraud, preponderance of the evidence was the standard. Schmeisser v. Albinson, 119 Minn. 428, 432, 138 N.W. 775, 776 (1912). In cases seeking to avoid the fraudulent effects of a written contract, the standard of proof was clear and convincing evidence. Id.

Later the court seemed to alter its view, concluding there was no difference in the quantum of proof required to establish misrepresentation in an action to recover damages or to rescind the contract. Mandel v. Brooks, 165 Minn. 490, 491, 206 N.W. 727, 727 (1926). In either case, the court concluded a fair preponderance of the evidence is the correct standard. Id. But cf. Hafner v. Ritzinger, 256 Minn. 196, 201, 97 N.W.2d 839, 843 (1959) (court appears to reaffirm Schmeisser). Mandel, however, was reaffirmed by the Martin court, which stated:

While the post-Mandel cases have not always been consistent, most have abandoned the distinction and followed the view that a "fair preponderance of the evidence" justifies relief either in a suit for rescission or one for damages based on fraud in the inducement.

Martin, 279 Minn. at 136, 155 N.W.2d at 749.

Two years later, without discussing the Martin holding, the court appears to have returned to a higher standard of proof. In Weise v. Red Owl Stores, 286 Minn. 199, 203, 175 N.W.2d 184, 187 (1970) the supreme court stated:

Fraud must be proved by clear and convincing evidence, especially where a party seeks to avoid the effects of a written instrument.

In Sievert v. LaMarca, 367 N.W.2d 580, 589 (Minn.App.1985) (common law fraud action), pet. for rev. denied (Minn. July 17, 1985), this court concluded:

Whatever the basis for the Weise holding, we are aware of no case which has overruled Martin on the burden of proof standard. Therefore, we hold that a fair preponderance of the evidence is the rule in Minnesota for proof of fraud.

(Emphasis added). But see Taylor v. Sheehan, 435 N.W.2d 575, 577 (Minn.App.1989) (court followed Weise in applying a clear and convincing standard of proof in an action to rescind a contract), pet. for rev. denied (Minn. Apr. 24, 1989).

We reject Alpine's argument that the case law requires violations of the consumer protection statutes be proven by clear and convincing evidence where equitable relief is sought. Even if separate standards of proof apply in fraud cases, it is clear the heightened standard, clear and convincing evidence, only applies in cases involving a written instrument. The present case did not involve a written instrument. Therefore the case law supports application of a preponderance of the evidence standard of proof.

Other jurisdictions are split over the standard of proof in consumer fraud cases. See Dunlap v. Jimmy GMC, Inc., 136 Ariz. 338, 343-44, 666 P.2d 83, 88-89 (App.1983) (clear and convincing evidence standard does not apply in action brought under the Arizona Consumer Fraud Act); State v. Eddy Furniture Co., 386 N.W.2d 901, 903 (N.D.1986) (fraudulent conduct must be proven by preponderance of the evidence in an action brought under false advertising or consumer fraud statute). But see Munjal v. Baird & Warner, Inc., 138 Ill.App.3d 172, 92 Ill.Dec. 809, 818-19, 485 N.E.2d 855, 864-65 (1985) (implying that clear and convincing evidence required to establish fraud under the Illinois consumer fraud act); Deer Creek Constr. Co. v. Peterson, 412 So.2d 1169, 1173 (Miss.1982) (clear and convincing evidence required to establish fraud under Mississippi consumer protection statute).

We believe the better-reasoned cases support a preponderance of the evidence standard of proof for these reasons. First, this determination is supported by the language of the statutes. The statutes at issue do not provide for a heightened standard of proof. In numerous instances, the legislature has specifically raised the standard of proof to clear and convincing evidence. See e.g., ...