State ex rel. Spaeth v. Eddy Furniture Co., 11036

• Decision Date: 13 May 1986
• Docket Number: No. 11036,11036
• Citation: 386 N.W.2d 901
• Parties: STATE of North Dakota ex rel. Nicholas J. SPAETH, Attorney General, Plaintiff and Appellant, v. EDDY FURNITURE CO., a North Dakota Corporation, d/b/a Eddy's Furniture, or Eddy's, Inc., Defendant, and William L. Peterson, a resident of Minnesota; and William L. Peterson Associates, Inc., a Minnesota Corporation, Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 901

386 N.W.2d 901

STATE of North Dakota ex rel. Nicholas J. SPAETH, Attorney General, Plaintiff and Appellant, v. EDDY FURNITURE CO., a North Dakota Corporation, d/b/a Eddy's Furniture, or Eddy's, Inc., Defendant and William L. Peterson, a resident of Minnesota; and William L. Peterson Associates, Inc., a Minnesota Corporation, Defendants and Appellees.

Civ. No. 11036.

Supreme Court of North Dakota.

May 13, 1986.

Allen C. Hoberg, Asst. Atty. Gen., Bismarck, for plaintiff and appellant.

Lundberg, Nodland, Lucas & Schulz, Bismarck, for defendants and appellees; argued by Ardell C. Tharaldson.

LEVINE, Justice.

The State appeals from a district court judgment dismissing its action against William L. Peterson, individually, and William L. Peterson Associates, Inc. ¹ We affirm.

In April 1983, Porter C. Eddy, president of Eddy Furniture Company [Eddy Furniture] employed Peterson ² to conduct a going-out-of-business sale for Eddy Furniture's Jamestown store. The going-out-of-business sale lasted from June 5, 1983, to October 29, 1983, when Eddy Furniture closed its Jamestown store.

On the advice of Peterson, Eddy Furniture hired additional employees to assist with the sale and ordered substantial amounts of new furniture to be sold, along with its existing inventory, during the going-out-of-business sale. Included in the new furniture ordered was merchandise from factories and suppliers with which Eddy Furniture had not previously done business.

The sale was advertised in area newspapers as a "going-out-of-business" sale. Included in these advertisements were phrases such as: "Price crash"; "Forget any prices you have seen on Furniture!"; "Everything must be sold regardless of cost"; and, "It's panic selling."

The State commenced this action against Eddy Furniture and Peterson alleging that the content and manner of the advertising of the sale and the operation of the sale itself constituted violations of Chapter 51-12, N.D.C.C. [False Advertising], and Chapter 51-15, N.D.C.C. [Consumer Fraud and Unlawful Credit Practices]. Following dismissal of the State's complaint against Eddy Furniture, the State and Peterson entered into a stipulation of facts. Both sides subsequently moved for summary judgment, and the trial court issued findings of fact, conclusions of law, order for judgment, and judgment dismissing the State's action against Peterson. The parties agree on appeal that the trial court drew inferences from the stipulated facts and that our review of the factual issues is therefore governed by Rule 52(a), N.D.R.Civ.P. ³

The following issues are raised on appeal:

1) In a consumer protection or false advertising claim based upon fraud, must the State prove fraud by clear and convincing evidence?

2) Were the trial court's findings clearly erroneous?

Initially, we must determine the appropriate evidentiary standard to be applied in a proceeding brought by the State alleging a violation of the consumer fraud or false advertising statutes, where the claim is based upon alleged fraudulent conduct. Peterson contends that the fraud must be established by clear and convincing evidence; the State contends that only a preponderance of the evidence is required. Although not specifically addressing this issue, it appears from the record that the trial court applied the "preponderance of the evidence" standard, rather than the "clear and convincing evidence" standard.

The issue presented is one of first impression in this court. Although we have acknowledged that, in general, an allegation of fraud in a civil case must be proved by evidence which is clear and convincing, e.g., Russell Land Co. v. Mandan Chrysler-Plymouth Inc., 377 N.W.2d 549, 552 (N.D.1985), we have not previously applied that standard to the special circumstances presented by a consumer fraud or false advertising case. There appears to be a split among the various jurisdictions which have considered the issue. See Dunlap v. Jimmy GMC of Tucson, Inc., 136 Ariz. 338, 343-44, 666 P.2d 83, 88-89 (Ct.App.1983) (clear and convincing evidence standard does not apply in action brought under Arizona Consumer Fraud Act); Smith v. Baldwin, 611 S.W.2d 611, 616 (Tex.1980) (common law fraud burden of proof inapplicable in action brought under Deceptive Trade Practices Act). But see Munjal v. Baird & Warner, Inc., 138 Ill.App.3d 172, 182-184, 92 Ill.Dec. 809, 818-819, 485 N.E.2d 855, 864-865 (1985) (implying that clear and convincing evidence required to establish fraud under the Illinois consumer fraud act); Deer Creek Construction Co., Inc. v. Peterson, 412 So.2d 1169, 1173 (Miss.1982) (clear and convincing evidence required to establish fraud under Mississippi consumer protection statute).

The clearest analysis on the issue has been provided by the Court of Appeals of Arizona, in Dunlap v. Jimmy GMC of Tucson, Inc., supra, 136 Ariz. at 343-44, 666 P.2d at 88-89:

"In Arizona, common law fraud must be proved by clear and convincing evidence. General Accident Fire & Life Assur. Corp. v. Little, 103 Ariz. 435, 443 P.2d 690 (1968). This, however, is not a case of common law fraud. Consumer fraud is a cause of action which is separate and distinct from common law fraud. Murray v. Western American Mortgage Company, 124 Ariz. 387, 604 P.2d 651 (App.1979). The mere fact that the word 'fraud' appears in the title of our consumer protection statute does not give rise to an inference that the legislature intended to require a higher degree of proof than that ordinarily required in civil cases.

"The purpose of legislation such as Arizona's Consumer Fraud Act is to provide a remedy for injured consumers who need such protection to counteract the disproportionate bargaining power which is typically present in consumer transactions. The legislative intent behind the Consumer Fraud Act is to provide consumers with a claim for relief that is easier to establish than is common law fraud. To require the higher degree of proof would frustrate the legislative intent." [Footnote omitted.]

We agree with the reasoning of the Arizona court. We also note that it is generally recognized that consumer protection statutes are remedial in nature, and therefore must be liberally construed in favor of protecting consumers. E.g., State v. First National Bank of Anchorage, 660 P.2d 406, 412 (Alaska 1982); Sprayfoam, Inc. v. Durant's Rental Centers, Inc., 39 Conn.Supp. 78, ----, 468 A.2d 951, 953 (Super.Ct.1983); Barry v. Arrow Pontiac, Inc., 100 N.J. 57, 69, 494 A.2d 804, 811 (1985); Joseph v. PPG Industries, Inc., 674 S.W.2d 862, 865 (Tex.Ct.App.1984). In light of the strong public policy underpinnings of our false advertising and consumer fraud statutes, Chapters 51-12 and 51-15, N.D.C.C., we hold that when an action brought under either chapter is based upon allegations of fraudulent conduct the "clear and convincing evidence" standard does not apply; the alleged fraudulent conduct must be proved by a preponderance of the evidence.

The State contends on appeal that the trial court erred when it found that the advertising used to promote the going-out-of-business sale and the operation of the sale itself were not deceptive or fraudulent. The State alleges that Peterson violated Sections 51-12-01, 51-12-08, and 51-15-02, N.D.C.C., which provide:

"51-12-01. False and misleading advertising prohibited. No person, firm, corporation, or association with intent to sell, dispose of, increase the consumption of, or induce the public to enter into an obligation relative to, or to acquire title or interest in any food, drug, medicine patent and proprietary product, merchandise, security, service, medical treatment, paint, varnish, oil, clothing, wearing apparel, machinery, or anything offered to the public, shall make, publish, disseminate, circulate, or place before the public, ... in a newspaper, or other publication, ... an advertisement which contains any assertion, representation, or statement of fact, including the price thereof, which is untrue, deceptive, or misleading...."

"51-12-08. False advertising--Generally. It is unlawful for any person with intent directly or indirectly to dispose of real or personal property or to perform services, professional or otherwise, or anything of any nature whatsoever or to induce the public to enter into any obligation relating thereto, to make or disseminate or cause to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatever, any statement, concerning such real or personal property or services, professional or otherwise or concerning any circumstance or matter of fact connected with the proposed performance or disposition thereof, which is untrue or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading."

"51-15-02. Unlawful practices--Fraud--Misrepresentation. The act, use, or employment by any person of any deceptive act or practice, fraud, false pretense, false promise, or misrepresentation, with the intent that others rely thereon in connection with the sale or advertisement of any merchandise, whether or not any person has in fact been misled, deceived, or...