State v. Mandatory Poster Agency, Inc., 74978-1-I

Decision Date03 July 2017
Docket NumberNo. 74978-1-I,74978-1-I
Citation398 P.3d 1271,199 Wash.App. 506
CourtWashington Court of Appeals
Parties STATE of Washington, Respondent, v. The MANDATORY POSTER AGENCY, INC., d/b/a Corporate Records Service, The Washington Labor Law Poster Service, Washington Food Service Compliance Center, and Steven J. Fata, Thomas Fata, and Joseph Fata, individually and in their corporate capacity, Appellant.

Michael K. Vaska, Kathryn Carder McCoy, Jacqueline Constance Quarri, Foster Pepper PLLC, 1111 3rd Ave., Ste. 3000, Seattle, WA, 98101-3292, Philip Albert Talmadge, Talmadge/Fitzpatrick/Tribe, 2775 Harbor Ave. S.W., Third Floor, Ste. C, Seattle, WA, 98126-2138, for Appellant.

Marc Worthy, Jeffrey George Rupert, Washington Attorney General's Office, 800 Fifth Ave., Ste. 2000, Seattle, WA, 98104-3188, for Respondent.

Verellen, C.J.¶1 The first element of a Consumer Protection Act (CPA) violation is an unfair or deceptive act or practice.1 An act is deceptive if it is likely to mislead a reasonable consumer. Such an act satisfies the first element if it has the capacity to deceive a substantial portion of the public. When the underlying facts are undisputed, the question whether the acts are likely to mislead—an objective inquiry—is a question of law. Whether such a deception has the capacity to reach a substantial portion of the public is a question of fact precluding summary judgment, unless the undisputed facts establish that capacity.

¶2 Here, the undisputed facts show The Mandatory Poster Agency, Inc. (MPA) sent mass mailings under the assumed name Corporate Records Service (CRS) to more than 79,000 Washington corporations. As a matter of law, the undisputed format, images, and content of the mailings created a net impression likely to mislead a reasonable consumer into believing CRS is associated with a governmental agency and that the recipients were obligated to fill out and return the solicitations with a fee of $125. Notably, the mass mailings include language, tone, and imagery prohibited by MPA's 2008 "Assurance of Discontinuance," and such violations are prima facie evidence of a CPA violation.

¶3 Further, the undisputed scope of the extensive mass mailings generating payments by 2,901 consumers reveals a capacity to reach and thus deceive a substantial portion of the public. The trial court did not err in granting summary judgment that MPA engaged in a deceptive act or practice.

¶4 CRS contends the $793,540 penalty imposed by the court is excessive. On cross appeal, the State argues the penalty is too lenient. The trial court did not abuse its broad discretion in setting a penalty of $10 per mailing, together with a provision requiring CRS to fund restitution.

¶5 The trial court adequately engaged in a lodestar calculation of attorney fees, but failed to make the required findings for an award of nonlawyer time. And the trial court should not have awarded expert witness fees as costs.

¶6 Because the State is the prevailing party on appeal, it is entitled to fees on appeal.

¶7 We affirm in part and reverse in part.

FACTS

¶8 Steven Fata, Thomas Fata, and Joseph Fata each own one-third of MPA and jointly undertake all corporate decisions. CRS has a mailbox in Olympia, Washington at a United Parcel Service store.

¶9 Several years ago, the Attorney General's Office initiated an investigation into MPA's mass marketing of posters summarizing state and federal legal requirements. The State alleged MPA used mailers with various business names to deceive consumers into believing they must purchase posters from the company in order to comply with state and federal law. The MPA advertisements appeared to originate from the government or an organization associated or in contact with the government. The ads also used names that evoked "an official government tone" and emblems that "mimic a state agency emblem."2 The ads also used a postal drop box with an Olympia address. The language suggested a necessity to act, such as "Advisory," "advisement," "achieve compliance," and "effective immediately."3

¶10 In February 2008, at the conclusion of the Attorney General Office's investigation, MPA entered into an Assurance of Discontinuance prohibiting the company and its officers, directors, and principals from engaging in a variety of unfair or deceptive practices, including sending misleading solicitations to consumers that create the impression that the solicitations are from a government agency. The Assurance of Discontinuance also barred the use of specific terms and practices, along with the following provision:

This Assurance of Discontinuance shall not be considered an admission of violation of the Consumer Protection Act for any purposes, but failure to comply with this Assurance of Discontinuance shall be prima facie evidence of violations of RCW 19.86.020, thereby placing upon the Respondents, and their officers, directors, and principals, the burden of defending against imposition by the court of damages, injunctions, restitution, civil penalties of up to $2,000.00 per violation and costs including reasonable attorney's fees. In addition, pursuant to RCW 19.86.140 [,] violations of the injunctive provisions of this Assurance of Discontinuance may result in court imposed civil penalties of up to $25,000.00.[4 ]

¶11 In 2012 and 2013, CRS sent "Annual Minutes Records Form" solicitations to Washington consumers. Joseph Fata designed the solicitation; Steven Fata and Thomas Fata approved its use in Washington.

¶12 CRS mailed 79,354 solicitations to Washington consumers. The front of each envelope contained the language "IMPORTANT" in bold above "Annual Minutes Requirement Statement ," "TIME SENSITIVE," and "If addressed name is incorrect, please forward document to an authorized employee representative Immediately."5 The green colored envelope included a stylized eagle symbol in the upper right-hand corner and an Olympia return address. A notation "THIS IS NOT A GOVERNMENT DOCUMENT" was located just below the return address.6

¶13 Inside the envelope, CRS included a form entitled "2012—ANNUAL MINUTES RECORDS FORM."7 The form was addressed to the recipient's business and contained a key code, bar code, response date, and the recipient's date of incorporation. Each solicitation, excluding the February 2013 mailings, also included the "Corporation Number" consisting of the uniform business identifier number assigned by the State to the corporation.8 The first instruction on the form stated, "IMPORTANT! FOLLOW INSTRUCTIONS EXACTLY WHEN COMPLETING THIS FORM. PLEASE PRINT."9 CRS listed selected citations to the Washington Business Corporations Act near the top of the page. The form had the disclaimer "CORPORATE RECORDS SERVICE IS NOT A GOVERNMENT AGENCY AND DOES NOT HAVE OR CONTRACT WITH ANY GOVERNMENT AGENCY TO PROVIDE THIS SERVICE."10 This disclaimer was surrounded by other text and was located one-third of the way down from the top of the form.

¶14 CRS titled the second page "INSTRUCTIONS FOR COMPLETING THE ANNUAL MINUTES RECORDS FORM (Washington Corporations)."11 The instructions direct recipients to review the accuracy of their preprinted corporate name and address and to then complete seven steps to fill out the form. The instructions also note that "[m]aintaining records is important to the existence of all corporations."12 In response to the mailing, 2,901 Washington businesses submitted a completed form with the $125 fee.13

¶15 CRS sent a corporate minute book to Washington consumers who returned the Annual Minutes Records Form and $125.14 The corporate minute book contained "Unanimous Consent of Shareholders" and "Unanimous Consent of Directors" forms.15 The corporate minute book included instructions to sign and date the documents. It advised that "[y]our company will be in full compliance with the corporate minute records requirement after the Unanimous Consent documents are signed and dated."16

¶16 After receiving numerous complaints, the Attorney General's Office filed a lawsuit in King County Superior Court, alleging misrepresentation and violations of the CPA. Both parties moved for summary judgment. The trial court partially granted the State's motion and denied CRS's motion. The court concluded as a matter of law that the Annual Minutes Records Form solicitation was a deceptive act or practice that violated the Assurance of Discontinuance and the CPA. Specifically, the court determined CRS committed 79,354 separate violations by creating the deceptive net impression that its solicitations "were from a governmental agency and that Washington consumers were obligated to fill out and return the solicitations along with $125."17 The court also concluded as a matter of law that the "solicitations had the capacity to deceive a substantial number of Washington consumers" and because CRS engaged in trade and commerce, their actions affected the public interest.

¶17 The trial court entered an order imposing a civil penalty under RCW 19.86.140 in the amount of $793,540, $10 per violation, and instituted a restitution process requiring CRS to transmit the full amount of potential restitution, $362,625, to a claims administrator.18 The trial court also awarded the State $337,593.20 in attorney fees and $39,571.27 in costs.19

¶18 CRS appeals. The State cross appeals.

ANALYSIS

¶19 We review a summary judgment decision de novo.20 Summary judgment is appropriate if " ‘there is no genuine issue as to any material fact’ and ‘the moving party is entitled to a judgment as a matter of law.’ "21 A response to a summary judgment motion "must set forth specific facts showing that there is a genuine issue for trial."22

I. Unfair or Deceptive Act

¶20 CRS argues the trial court erred by concluding as a matter of law that its solicitation was an unfair or deceptive act under the CPA.

¶21 The CPA forbids "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce."23 The State must prove "(1) an...

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