State Collection v. Kossol, 936

• Decision Date: 27 April 2001
• Docket Number: No. 936,936
• Citation: 138 Md. App. 338,771 A.2d 501
• Parties: STATE of Maryland CENTRAL COLLECTION UNIT, v. Jerome L. KOSSOL.
• Court: Court of Special Appeals of Maryland

771 A.2d 501

138 Md. App. 338

STATE of Maryland CENTRAL COLLECTION UNIT, v. Jerome L. KOSSOL.

No. 936, Sept. Term, 2000.

Court of Special Appeals of Maryland.

April 27, 2001.

Michael Scott Friedman, Assistant Attorney General (J. Joseph Curran, Jr., Attorney General, on the brief), Baltimore, for appellant.

Brian S. Jablon (Saltzman & Jablon, LLC, on the brief), Ellicott City, for appellee.

Argued before JAMES R. EYLER, KRAUSER, and RAYMOND G. THIEME, Jr. (Ret., specially assigned), JJ.

JAMES R. EYLER, Judge.

This appeal questions whether the Consumer Protection Division (CPD) of the Office of the Attorney General of Maryland may order an officer of corporate entities to pay restitution to Maryland consumers who were the victims of deceptive or misleading trade practices. We shall answer that question in the affirmative.

Background

The State of Maryland Central Collection Unit (CCU), appellant,¹ filed suit seeking a money judgment based on an order issued by CPD in its quasi-judicial capacity. No petition for judicial review was filed, and the order became final. The order directed Jerome L. Kossol, appellee, to pay $6,000,000 in restitution, $265,000 in civil penalties, and $9,816 in costs as a result of appellee's participation in deceptive and misleading business practices in the sale of food plans and freezers to Maryland consumers. Appellant, in addition to the items in the CPD order, also sought a 17% collection fee. Appellant and appellee each filed a motion for summary judgment.

On December 27, 1999, a hearing was held on the competing motions, and on March 21, 2000, the Circuit Court for Baltimore City issued a memorandum opinion granting appellant's motion with respect to the civil penalties but denying it with respect to the other relief sought. The court reasoned that CPD's decision was entitled to preclusive effect with respect to appellee's liability, but he could not be required to pay restitution because the money generated by the deceptive practices was not paid directly to him. The court did not explain its denial of costs and collection fees.

On March 31, 2000, appellant filed a motion to amend the judgment, arguing that the restitution and costs awarded in CPD's unappealed order, and in addition, collection fees, were proper and should be allowed. The circuit court, on June 1, 2000, reversed its prior holding with respect to costs and collection fees, but continued to deny appellant's claim for restitution. Appellant appealed, and appellee filed a cross-appeal.

The questions raised by appellant are:

1. Whether the circuit court erred as a matter of law in denying full preclusive effect to CPD's restitution order. 2. Whether the circuit court erred in holding that appellee could not be required to pay restitution.

The question raised by appellee is:

3. Whether the circuit court erred in holding that CPD could assess civil penalties against appellee.

Facts

During the period from 1990 through mid-1996, Mt. Ephraim Meat Shop, Inc. and Wildwood and Cummings, Inc., trading as Continental Food Network (Continental), sold food plans and "free" freezers to consumers. Four separate plans were available, costing from $3,175 for a full plan to $1,347.50 for a half-menu reduced plan.

Consumers were assured that the food purchase would last for the period of the plan, and any shortages would be replenished without charge. Budgets were prepared by the sales representatives, including the food items to be provided, based upon the number of people in the home and current food bills. The customers were led to believe they would be saving money. Despite being told that the freezers were free and could be returned at the end of the plan, the customers were required to sign contracts to pay $1,450 over 36 months, plus interest, for the freezers.

Consumers who contracted with Continental learned almost immediately that the food they received would not last for the term of the contract; that the food they received was not the type they had been led to believe they would receive; that the quality of the food was not the top grade they had been promised; that they were only approved for a lesser term than provided in the contracts they had signed; that nothing they received could be returned; that the freezers had a value between $500 and $800, not the $1,450 they were required to pay; and that any promises of additional food required additional cash payment. Consumers were required to resume their pre-contract food buying due to Continental's refusal to deliver what it had promised. The freezer contracts, furthermore, were being enforced irrespective of the continuation of the food plans.

The following facts are relevant to appellee's involvement in the practices found to be deceptive by CPD. Appellee (1) was Secretary of Mt. Ephraim Meat Shop, Inc. and a 17% shareholder in that company; (2) was Vice President of Wildwood and Cummings, Inc.; (3) participated in developing the sales procedures, forms, and sales manuals used in selling food plans; (4)was sales manager of Mt. Ephraim's Salisbury office and at times manager of its Delaware office; (5) participated in the design of the commission structure for sales representatives, handled most of the complaints received in the Salisbury office, and trained the sales people.

CPD initiated administrative proceedings against appellee, Mt. Ephraim Meat Shop, Inc., Cummings and Wildwood, Inc., and Mousa Ayoub, Vice President of Mt. Ephraim Meat Shop, Inc., based on the deceptive and misleading practices used in selling the food plans and freezers. In December, 1966, an administrative law judge (ALJ) conducted a hearing over a four-day period. The sole issue to be decided was whether the respondents violated certain provisions of the Consumer Protection Act, Md.Code (1990 Repl.Vol., 1996 Supp.), Commercial Law § 13-101 et seq., and if so, whether an order granting relief or imposing sanctions would be appropriate under the Act.

The corporations were served and failed to appear. Appellee did not appear on the first day of the hearing, but he was present on the second, third, and part of the final day. He was not represented by counsel. Mr. Ayoub was present without counsel on all four days.

The proceedings were governed by the contested case provisions of the Administrative Procedure Act, Md.Code (1995, 1996 Supp.), State Government Article, § 10-201 through 10-226. After hearing testimony from eight witnesses, receiving exhibits, and hearing argument, the ALJ issued a proposed decision and order recommending that respondents, including appellee, be held jointly and severally liable for restitution, civil penalties, and costs of the proceedings. The ALJ concluded that, based on appellee's extensive participation and intimate involvement in deceptive trade practices, he was individually liable and subject to penalties and restitution.

CPD adopted the decision and recommendations of the ALJ and issued a cease and desist order, setting forth the conditions under which respondents could continue to market their products. The restitution and civil penalties imposed by CPD's order were calculated as follows. Over the six-year period from 1990 to 1996, Continental made at least 40 sales per month and the sales produced $2,000,000 per year from Maryland consumers. Of the $12,000,000 Continental received during the six-year period, CPD concluded that the consumers were entitled to a 50% refund of the money paid. The 50% refund was based on a finding that the consumers received only 50% of the food they contracted to purchase and the freezers were not "free" but cost twice their actual value. Consequently, appellee and the other respondents were ordered to pay restitution in the amount of $6,000,000.

In addition, appellee was assessed a civil penalty for each violation of the Consumer Protection Act from October 9, 1995 through May 1, 1996. CPD concluded that 260 sales were made to Maryland consumers during that period. It imposed a penalty in the amount of $1,000 for each violation, for a total of $260,000. In addition, a $5,000 penalty was imposed for a direct sale made by appellee to a Maryland consumer. Pursuant to the CPD's order, appellee was jointly and severally liable for the $6,000,000 restitution, $260,000 in penalties, and $9,816 in costs. Appellee was solely liable for the additional $5,000 penalty.

Neither appellee nor the other respondents sought judicial review of CPD's decision, although they were advised of their right to do so.

Discussion

1.

Appellant contends that CPD's decision is entitled to full preclusive effect. Relying on the general principles set forth in Batson v. Shiflett, 325 Md. 684, 701, 602 A.2d 1191 (1992), appellant points out that CPD was acting in a judicial capacity, the issues challenged on appeal were actually litigated before the agency, and the resolution of those issues was necessary to the decision.

We agree with the proposition that generally administrative decisions are entitled to full preclusive effect when the above conditions are present. See Cogley v. Schnaper & Koren Constr. Co., 14 Md. App. 322, 326-27, 286 A.2d 819 (1972)

(employer who fails to appeal orders issued by Workers' Compensation Commission may not collaterally attack the decision after it becomes final in an attempt to avoid the declarations made by the agency). Appellee does not argue to the contrary. Instead, appellee argues that if the administrative agency's decision turned on an error of law, it is not necessarily entitled to full preclusive effect. See Klein v. Colonial Pipeline Co., 55 Md.App. 324, 338-41, 462 A.2d 546 (1983)(if an administrative decision is solely the product of an error of law, it is not entitled to res judicata effect); Board of County Comm'rs v. Racine, 24 Md.App. 435, 452, 332 A.2d 306 (1975)(same).

Appellee does not argue that CPD does not have the power to award restitution. Indeed, he could not do so....