State v. Imperial Marketing

• Decision Date: 25 June 1998
• Docket Number: No. 24447.,24447.
• Citation: 203 W.Va. 203,506 S.E.2d 799
• Court: West Virginia Supreme Court
• Parties: STATE of West Virginia By and Through Darrell V. McGRAW, Jr., Attorney General, Plaintiff Below, Appellee, v. IMPERIAL MARKETING, et al., and Suarez Corporation Industries, Defendants Below, Suarez Corporation Industries, Defendant Below, Appellant.

506 S.E.2d 799

203 W.Va. 203

STATE of West Virginia By and Through Darrell V. McGRAW, Jr., Attorney General, Plaintiff Below, Appellee, v. IMPERIAL MARKETING, et al., and Suarez Corporation Industries, Defendants Below, Suarez Corporation Industries, Defendant Below, Appellant.

No. 24447.

Supreme Court of Appeals of West Virginia.

Submitted January 20, 1998.

Decided June 25, 1998.

Concurring Opinion of Justice Starcher November 24, 1998.

James M. Cagle, Esq., Charleston, West Virginia, and C. Allen Foster, Esq., Eric C. Rowe, Esq., Steven D. Hedges, Esq., Greensboro, North Carolina, Attorneys for the Appellant.

C. Cooper Fulton, Esq., Assistant Attorney General, Charleston, West Virginia, Attorney for the Appellee.

Deborah M. Zuckerman, Esq., Washington, D.C., Attorney for Amicus Curiae American Association of Retired Persons.

Velma McClure, Esq., Morgantown, West Virginia, Attorney for Amicus Curiae North Central West Virginia Legal Aid Society.

PER CURIAM:¹

This action is before this Court upon an appeal from the final order of the Circuit Court of Kanawha County, West Virginia, entered on April 25, 1997. Pursuant to that order, the circuit court granted summary judgment in favor of the appellee, the State of West Virginia by and through Attorney General Darrell V. McGraw, and against the appellant, Suarez Corporation Industries. Concluding that various direct mail marketing solicitations sent by Suarez to West Virginia consumers violated the West Virginia Consumer Credit and Protection Act and, particularly, the Prizes and Gifts Act (contained within the Consumer Credit and Protection Act), the circuit court ordered (1) that Suarez be permanently enjoined from committing such violations, (2) that a $500,000 civil penalty be assessed in the event Suarez fails to abide by the injunction order and (3) that Suarez engage in a consumer refund program under the supervision of a special commissioner.

This Court has before it the petition for appeal, all matters of record and the briefs and argument of counsel.² It should be noted that an earlier, temporary injunction in this matter was upheld by this Court in State By and Through Darrell V. McGraw, Jr., Attorney General, v. Imperial Marketing, 196 W.Va. 346, 472 S.E.2d 792, cert. denied, ___ U.S. ___, 117 S.Ct. 391, 136 L.Ed.2d 307 (1996). Upon a careful review of the record and for the reasons expressed herein, we now affirm the permanent injunction. However, this Court reverses the final order with regard to the $500,000 civil penalty. Furthermore, we direct the circuit court to enter an order modifying the consumer refund program.

I. PROCEDURAL HISTORY

Suarez Corporation Industries, located in Canton, Ohio, and its affiliated enterprises are in the business of selling consumer goods, such as simulated jewelry, through the use of direct mail marketing solicitations. Many solicitations were sent by Suarez to West Virginia residents prior to the institution of this action in 1994. The litigation surrounding the solicitations has been tempestuous to say the least and has resulted in the amassing of hundreds of pages of pleadings, exhibits and transcripts. The limited record currently before this Court, as designated by the parties, is quite voluminous.

Specifically, the Attorney General instituted this action in the Circuit Court of Kanawha County against numerous defendants, including Suarez, alleging that the solicitation activities of the defendants constituted multiple transgressions of the West Virginia Consumer Credit and Protection Act and, particularly, the Prizes and Gifts Act contained therein. W.Va.Code, 46A-1-101 [1974], et seq.; W.Va.Code, 46A-6D-1 [1992], et seq.³ As indicated in Imperial Marketing, supra, the mailings of Suarez were selected by the Attorney General as representative of the solicitations in question of all of the defendants. Ultimately, the litigation focused upon three specific marketing efforts of Suarez involving several thousand West Virginia consumers. The three solicitations, discussed below, included (1) the awarding to consumers of a 1-carat cubic zirconia diamond simulant and the related sale of a mounting for the stone, (2) the awarding of a cash prize to consumers and the related sale of a five-piece clutch purse ensemble and (3) the sale to consumers of a pair of crystal candle holders and a related bonus gift of a crystal heart-shaped dish.

On November 3, 1994, the circuit court awarded the Attorney General a temporary injunction restraining Suarez from violating the West Virginia Consumer Credit and Protection Act and the Prizes and Gifts Act.⁴ In particular, the circuit court enjoined Suarez from, inter alia, soliciting consumers in West Virginia with an offer "which denominates an item as a prize, gift, award, premium, or similar term that implies the item is free whether stated or represented in any way, when the intended recipient is required to spend any sum of money to make meaningful use of it." In March 1996, this Court, in Imperial Marketing, upheld the temporary injunction.

The facts relating to the three solicitations in question are more specifically set forth in the Imperial Marketing opinion. With regard to the first solicitation, potential consumers were notified by Suarez that they had been awarded a free 1-carat cubic zirconia diamond simulant. The consumers were also told, however, that the stone had already been mounted in a necklace or ring which could be purchased for $19. If consumers desired the stone without purchasing the mounting, consumers were required to follow a convoluted claim procedure.⁵ With regard to the second solicitation, consumers were notified that they had been awarded a cash prize of "as much as $1,000." The consumers were also told, however, that the prize had been placed in a five-piece clutch purse ensemble which could be purchased for $12, plus $2 for special packaging and insurance. The solicitation indicated that "priority handling" would be afforded to consumers purchasing the purse ensemble. If consumers desired the cash prize without purchasing the purse ensemble, consumers were required to follow a claim procedure similar to that concerning the diamond simulant.⁶ The third solicitation involved an offer to sell to consumers a pair of crystal candle holders for $19. As a bonus for the purchase, consumers were told that they would receive, as a gift, a crystal heart-shaped dish "worth over $15." Enclosed with the solicitation was a check for a nominal amount to be returned by the consumer to Suarez to help cover the cost of shipping and handling with regard to the dish. Problematic, as to this third solicitation, was the ambiguity surrounding both the value of the bonus gift and the nature of the enclosed check.

In considering those solicitations, and in affirming the circuit court's award of a temporary injunction, this Court, in Imperial Marketing, observed that the evidentiary standard for such relief in consumer protection cases is rather minimal. Focusing upon the Prizes and Gifts Act, this Court, in Imperial Marketing, stated that, in seeking temporary relief, "the Attorney General need not prove the respondent has in fact violated the [Prizes and Gifts Act], but only needs to make a minimal evidentiary showing of good reason to believe that the essential elements of a violation of the Act are in view." 196 W.Va. at 352, 472 S.E.2d at 798. Suarez appealed this Court's decision in Imperial Marketing to the United States Supreme Court. That Court, however, denied certiorari in November 1996.

In the meantime, the Attorney General moved for summary judgment against Suarez. In the motion, the Attorney General indicated that a permanent injunction was warranted because the "undisputed conduct" of Suarez, as demonstrated by the solicitations, constituted violations of West Virginia law.⁷ In response, Suarez alleged that, inasmuch as discovery in the action was "not complete," the motion of the Attorney General for summary judgment was premature. In addition, Suarez responded by filing a number of affidavits of its officers describing Suarez's business practices concerning its direct mail marketing efforts and denying that any violations of West Virginia law occurred. Moreover, Suarez asserted that various dissatisfied consumers brought to the attention of the circuit court by the Attorney General had simply "misinterpreted the plain meaning of promotions they received."

On December 13, 1996, the circuit court conducted a hearing upon the motion for summary judgment. Subsequently, on April 25, 1997, the circuit court entered the final order permanently enjoining Suarez from violating the West Virginia Consumer Credit and Protection Act and the Prizes and Gifts Act. In particular, the circuit court reaffirmed its previous findings concerning Suarez's solicitations (with regard to the temporary injunction) and concluded that "the only reasonable inference" that could be drawn from Suarez's practices was that deception constituted a material factor in consumer decisions to purchase the company's offers. As the final order stated, the evidence established that the solicitations "were actually misleading by virtue of material misrepresentations made, and that they exceed acceptable standards and practices allowing a certain degree of puffing in respect to sales transactions."⁸

As reflected in the final order, in addition to the award of a permanent injunction, the circuit court assessed a $500,000 civil penalty against Suarez payable in the event Suarez were to fail to abide by the injunction order. See n. 8, supra. Moreover, as more specifically described below, the circuit court directed Suarez to engage in a consumer refund program under the supervision of a special commissioner.

This appeal followed.

II. STANDARDS OF REVIEW

In Imperial Marketing, the issue before this Court was whether the circuit court had justification to conclude that the...