State ex rel. Redden v. Discount Fabrics, Inc.

• Decision Date: 08 September 1980
• Docket Number: No. A7703-03602,A7703-03602
• Citation: 615 P.2d 1034,289 Or. 375
• Parties: STATE ex rel. James A. REDDEN, Petitioner, v. DISCOUNT FABRICS, INC., an Oregon Corporation, Respondent. ; CA 14380 and SC 26874.
• Court: Oregon Supreme Court

Page 1034

615 P.2d 1034

289 Or. 375

STATE ex rel. James A. REDDEN, Petitioner, v. DISCOUNT FABRICS, INC., an Oregon Corporation, Respondent.

No. A7703-03602; CA 14380 and SC 26874.

Supreme Court of Oregon.

Argued and Submitted June 2, 1980.

Decided July 23, 1980.

Rehearing Denied Sept. 8, 1980.

[289 Or. 376-A] Erik G. Sten, Asst. Atty. Gen., Portland, argued the cause for petitioner. With him on the briefs were James A. Redden, Atty. Gen., and Walter L. Barrie, Sol. Gen., Salem.

R. Alan Wight, Portland, argued the cause for respondent. With him on the brief was Miller, Anderson, Nash, Yerke & Wiener, Portland.

Before DENECKE, C. J., and TONGUE, HOWELL, LENT, LINDE and PETERSON, JJ.

TONGUE, Justice.

This case involves a civil suit brought by the state Attorney General against defendant, Discount Fabrics, Inc., for alleged violations of Oregon's Unlawful Trade Practices Act (UTPA), ORS 646.605 et seq. The suit was tried in circuit court before a jury which returned a special verdict for defendant. Plaintiff appealed from the resulting decree.

Plaintiff's sole assignment of error is that the trial court erred in its instruction to the jury that evidence of alleged "wilful" conduct by the defendant in violation of the Oregon Unlawful Trade Practices Act "must be clear and convincing, as distinguished from a mere preponderance of the evidence." The Court of Appeals affirmed without opinion. 44 Or.App. 295, 605 P.2d 760 (1980).

Defendant operates a chain of 61 retail fabric stores covering six western states and British Columbia. In October of 1976 an investigator for the Consumer Protection Division of the Oregon Department of Justice purchased twelve samples of various fabrics from three of defendant's stores located in the Portland metropolitan area. Seven of these fabrics were labeled as containing 100 percent wool; one was labeled 80 percent wool; and four were labeled "wool blend." The actual wool content varied between 9 percent and 83 percent. ¹

The state filed suit in Multnomah County Circuit Court, alleging twelve violations of the Unlawful Trade Practices Act in that "the false and incomplete descriptions of the boards of fabric offered for sale and the practice of misrepresentations by defendant were in violation of ORS 646.608(1) (e) and (g)." ² By its first cause of suit the state sought a decree ordering defendant to pay a civil penalty of $25,000 for each of the twelve violations. ³ By its second cause of suit the state sought a decree enjoining defendant from further violations of the statute, ordering defendant to make restitution to consumers who had purchased mislabeled fabrics, and an award of reasonable attorney fees. ⁴

A jury was impaneled to hear the state's first cause of suit: the question of defendant's liability for a civil penalty. ⁵ ORS 646.642(3) provides that the state may recover such a civil penalty upon a finding that "a person is wilfully using or has wilfully used a method, act or practice declared unlawful by ORS 646.607 or 646.608 * * *." (Emphasis added). ORS 646.605(9) provides that "a wilful violation occurs when the person committing the violation knew or should have known that his conduct was a violation." (Emphasis added)

At trial defendant did not contest the evidence offered by the state that identified the actual percentage of wool in the twelve pieces of fabric purchased by the Consumer Protection Division inspector. Instead, nearly all of the evidence presented by the state and by defendant went to the question whether defendant "knew or should have known" that the labels on the fabrics were incorrect.

It appears from the record that the manufacture of the fabrics involved in this case involves various steps and often several different companies. Fabrics begin as "grey goods," followed by dyeing and finishing. The manufacturer of the "grey goods" is required by federal law (15 U.S.C. § 68c) to identify by a label or tag the percentage of wool content.

Distributors of finished goods will "guarantee" that the fabrics they sell are as labeled. Defendant normally requested "guarantees" from its suppliers. In purchasing the fabrics involved in this case, however, defendant had not requested any such "guarantees."

In September 1976, June Bert, the owner of another fabric shop in Lake Oswego, went to defendant's Lake Oswego store and purchased three samples of fabric labeled 100 percent wool. She ran a "burn test" and a "bleach test" on these fabrics and determined that they were about 50 percent wool. She then notified the Consumer Protection Division. In October one of its investigators, accompanied by Ms. Bert, went to defendant's Lake Oswego store. Ms. Bert selected by "feel" six fabrics that she thought contained less wool than was indicated on the label. The investigator then purchased a sample of each.

The investigator also went to two of defendant's other stores in the Portland area, unaccompanied by Ms. Bert. At those stores he purchased additional samples, some duplicates of those purchased at the Lake Oswego store, others that by "feel" he thought might be mislabeled.

The state offered testimony by other witnesses that in the case of at least some of the fabrics in question, it was fairly easy to tell by "feel" that they were not 100% wool and, further, that this could be determined by burning a sample (burning wool emits a strong odor) or by placing a sample in bleach (the wool fibers dissolve, leaving the man-made fibers).

Defendant offered the testimony of its employees to the effect that defendant handles a large volume of fabric; that it had relied upon labels furnished by reliable manufacturers and, further, that determining wool content by "feel" is very difficult. (At trial Ms. Bert was asked on cross-examination by the defense to identify several samples of wool cloth as being either 100% wool or wool blends. She demonstrated great difficulty in doing so.)

Two questions were submitted to the jury. First, as to each of the twelve fabrics, whether a misrepresentation had occurred. Second, if any misrepresentation had occurred, did defendant know or should it have known of such misrepresentation? As to the first question, the court instructed the jury that the state's burden of proof was "by a preponderance of the evidence." As to the second question, however, the court instructed the jury:

"On the second count, the instruction is a little bit different because it alleged wilful conduct on behalf of the defendant. And the evidence in that case must be clear and convincing, as distinguished from a mere preponderance of the evidence."

By a special verdict in response to these questions, the jury found that misrepresentations had been made by the defendant in selling eight of the twelve fabrics but that none of those eight misrepresentations had been "wilful," (i. e. defendant did not know nor should it have known of such misrepresentations).

The court then entered its Findings of Facts and Conclusions of Law incorporating the verdict in favor of the defendant on the first cause of suit and dismissing the second cause of suit for an injunction, restitution and attorney fees.

As previously stated, the state appealed to the Court of Appeals, urging a single assignment of error:

"The trial court erred by instructing the jury that plaintiff was required to establish its case by a clear and convincing burden."

In response, defendant contends that the instruction was proper and, if it was not proper, that the error was not prejudicial.

I. The proper standard or degree of proof.

ORS 17.250(5) provides:

" * * * that in civil cases the affirmation of the issue shall be proved, and when the evidence is contradictory, the finding shall be according to the preponderance of evidence ; that in criminal cases guilt shall be established beyond a reasonable doubt; * * *." (Emphasis added)

Oregon's Unlawful Trade Practices Act (UTPA) is a comprehensive statute for the protection of consumers and provides for both public and private enforcement of its provisions. ⁶ In both instances it is clear that the legislature intended that such enforcement be obtained through the use of civil remedies rather than criminal sanctions. ⁷

The act is silent, however, with respect to the degree of proof required in such proceedings. Thus, the question is presented whether the "preponderance of evidence" standard as provided in ORS 17.250(5) should apply in such proceedings, particularly in deciding the question whether defendant's conduct was "wilful," or whether a higher standard or degree of proof should be required in deciding that question in such cases.

In Cook v. Michael, 214 Or. 513, 330 P.2d 1026 (1958), this court held (at 525, 330 P.2d at 1032) that:

"Our treatment of ORS 17.250(5) should not be taken to mean that in civil cases an instruction in terms of a preponderance of the evidence is the only permissible charge. When an issue must be proved by clear and convincing evidence an instruction so stating does not run counter to ORS 17.250(5). Thus where the issue is fraud, a higher degree of proof is necessary." (Emphasis added)

And, further, (at 527, 330 P.2d at 1032):

"In ordinary civil cases the degree of proof required is a preponderance of the evidence; in some types of cases, such as those involving the issue of fraud, many courts require 'clear and convincing' evidence; * * *." (Emphasis added)

Thus, while the "preponderance of evidence" standard is the rule in most civil cases, an exception to that standard has been required in civil cases based upon common law fraud. See, e. g., Barkins v. The Stuyvesant Ins. Co., 255 Or. 222, 224, 465 P.2d 696 (1970).

Defendant contends that when, in proceedings under the UTPA, the remedy sought requires proof of "wilfulness," the degree of proof required must be "clear and convincing" because had "these same allegations been made by a purchaser of goods without reference to the Oregon statute...