Woo v. Great Southwestern Acceptance Corp.

• Decision Date: 30 March 1978
• Docket Number: No. 5745,5745
• Citation: 565 S.W.2d 290
• Parties: Esther WOO, Appellant, v. GREAT SOUTHWESTERN ACCEPTANCE CORPORATION et al., Appellees.
• Court: Texas Court of Appeals

Page 290

565 S.W.2d 290

Esther WOO, Appellant, v. GREAT SOUTHWESTERN ACCEPTANCE CORPORATION et al., Appellees.

No. 5745.

Court of Civil Appeals of Texas,Waco.

March 30, 1978.

Rehearing Denied April 27, 1978.

Danny C. Wash and David L. Hodges, Wash & Hodges, Waco, for appellant.

Vance Dunnam and Jim Meyer, Dunnam, Dunnam & Dunnam, Waco, for appellees.

John L. Hill, Atty. Gen., Marleen Debra Lowenthal, Asst. Atty. Gen., Austin, for amicus curiae.

HALL, Justice.

The parties to this appeal are appellant Esther Woo, who was cross-plaintiff in the trial court, and appellees Success Motivation Institute, Inc. (hereinafter SMI) and Great Southwestern Acceptance Corporation (GSAC), cross-defendants on the trial. The uncontradicted proof shows that GSAC is the wholly-owned subsidiary and alter-ego of SMI.

SMI sells distributorships for the marketing of certain motivational products prepared by it. In 1970, and by amendment in 1973, SMI entered into a consent decree and order with the Federal Trade Commission which directed SMI to cease and desist from the following actions in connection with the sale of its distributorships:

"(1) Representing, directly or by implication, that

(a) No special ability or aptitude is required to become a successful franchisee or distributor of respondent's products; misrepresenting, in any manner, the experience, background, aptitudes or abilities required to become a successful franchisee or distributor of respondent's products.

(b) Franchisees or distributors will encounter no difficulty in selling respondent's products; misrepresenting, in any manner, the degree of effort required to sell respondent's products.

(c) Respondent's franchisees or distributors are uniformly successful and all enjoy substantial income; misrepresenting, in any manner, the degree of success or amount of income realized by respondent's franchisees or distributors.

"(2) Using any deceptive scheme, device or plan to obtain leads to prospective franchisees or distributors or to induce persons to become franchisees or distributors.

"(3) (a) Failing to determine in good faith, prior to having a prospective franchisee or distributor enter into an agreement to become a franchisee or distributor of respondent's products, through the evaluation of the personal history of the prospect and the administration of bona fide personality evaluation tests and within the error tolerances reasonably expected in the use of such predictive instruments, whether the prospect possesses the aptitude and abilities necessary to successfully sell respondent's products and to recruit other persons to sell respondent's products.

(b) Failing to inform prospective franchisees or distributors of the results of such evaluation and testing reasonably in advance of the execution of the agreement to become a franchisee or distributor.

"(4) Failing to furnish to prospective franchisees or distributors reasonably prior to such persons agreeing to become franchisees or distributors, a written tabulation or statistical summary showing, on an accumulative and comparative basis for each fiscal year, beginning with the fiscal year 1966, for each of the corporate respondent's operating divisions the following information:

(a) The median and mean gross sales to respondent's franchisees or distributors exclusive of initial inventories sold to new franchisees or distributors during the fiscal year.

(b) The number of franchisees or distributors at the beginning of the fiscal year, the number appointed during the year, the number terminated during the year, the number retained at the end of the year, and the length of time that those retained at the end of the year have been respondent's franchisees or distributors.

(c) The foregoing information shall be tabulated as a running 4-year analysis so that prospective franchisees or distributors will be furnished such information for the 4 fiscal years immediately preceding the year in which the information is to be furnished, provided that, the information for the fiscal year most recently completed prior to the year in which the information is to be furnished will be made available within 45 days of the close of that fiscal year.

"(5) Failing to deliver a copy of this order to cease and desist to all present and future salesmen or other persons engaged in the advertising and sale of franchises or distributorships to sell respondent's products, and failing to secure from each salesman or other person a signed statement acknowledging receipt of said order."

In October, 1974, by written contract, appellant Woo purchased a distributorship from SMI. The contract listed the cash price as $10,950.00. It listed the time price as $11,927.17 which included a time price differential of $977.17, and a cash down payment of $6,000.00. Woo made the cash down payment, and executed a promissory note in favor of SMI for the balance of $5,927.17. The note called for 29 monthly payments. It permitted acceleration at the holder's option in the event of default, allowed 10% interest after maturity on any unpaid balance, and provided for 15% attorneys' fees. Woo also executed a security agreement on the distributorship and the materials furnished her to secure payment of the note.

SMI assigned the note and security agreement to GSAC. After paying $1,385.00 on the note, Woo defaulted. GSAC accelerated the note and initiated this suit against Woo in February, 1976, for the balance on the note of $4,542.17, for 10% per annum on the balance from February 1, 1976, and for 15% attorneys' fees.

Woo answered GSAC's suit, then impleaded SMI and set up an action against GSAC and SMI for damages. By way of answer to GSAC's suit on the note and in support of her action for damages, Woo alleged that GSAC is the alter-ego of SMI; that in connection with the sale of the distributorship to her SMI committed detailed deceptive trade practices and unconscionable conduct violating every requirement of the consent order between SMI and the Federal Trade Commission. She sought treble damages for the violations under subsections (a)(1), (3), and (b)(1) of § 17.50 of the Deceptive Trade Practices Consumer Protection Act, V.T.C.A., Bus. & C. § 17.41 et seq. She also sought alternate remedies we need not detail.

The pertinent parts of the Deceptive Trade Practices Consumer Protection Act, supra, provide as follows:

§ 17.43. Cumulative Remedies. The provisions of this subchapter are not exclusive. The remedies provided in this subchapter are in addition to any other procedures or remedies provided for in any other law. . . .

§ 17.44. Construction and Application. This subchapter shall be liberally construed and applied to promote its underlying purposes, which are to protect consumers against false, misleading, and deceptive business practices, unconscionable actions, and breaches of warranty and to provide efficient and economical procedures to secure such protection.

§ 17.46. Deceptive Trade Practices Unlawful.

(a) False, misleading, or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

§ 17.49. Exemptions.

(b) . . . The provisions of this subchapter do apply to any act or practice prohibited . . . by a rule or regulation of the Federal Trade Commission.

§ 17.50. Relief for Consumers.

(a) A consumer may maintain an action if he has been adversely affected by any of the following:

(1) the use or employment by any person of (a false, misleading, or deceptive acts or practices in the conduct of any trade or commerce) declared to be unlawful by Section 17.46 of this subchapter;

(3) any unconscionable action or course of action by any person . . .

(b) In a suit filed under this section, each consumer who prevails may obtain:

(1) three times the amount of actual damages plus court costs and attorneys' fees reasonable in relation to the amount of work expended.

At the beginning of the trial, the parties stipulated that the balance due and owing on the note was $4,542.17, and that if GSAC recovered judgment against Woo on the note then the judgment should also provide for interest at 10% from February 1, 1976, on the note balance, plus 15% attorneys' fees.

The case was tried to a jury. In connection with the special issues submitted, the court gave the following instructions to the jury:

"The term 'false, misleading or deceptive acts or practices' means an act or series of acts the overall impression of which has a capacity or tendency to deceive an average or ordinary person, even though that person may have been ignorant, unthinking, or credulous."

"By the term 'acts or practices in the conduct of any trade or commerce' means the performing, carrying on or doing of some action or deed in the advertising, offering for sale, sale, lease or distribution of any work, labor, service, or property, either real, personal or otherwise."

"By the term 'unconscionable conduct' is meant conduct that is harsh and shocking to the conscience."

Answering special issues numbered as follows, the jury

Found (1) that SMI represented to Woo that no special ability or aptitude was required to become a successful distributor or SMI's products; (2) that the representation was a false, misleading or deceptive act or practice in the conduct of a trade or commerce; and (4) that the representation was a proximate cause of damages to Woo; but (3) failed to find that the representation was an unconscionable action or course of action.

Found (5) that SMI misrepresented to Woo the experience, background, aptitudes or abilities required to become a successful distributor of SMI's products; (6) that the misrepresentation was a false, misleading or deceptive trade, act, or practice in the conduct of a trade or commerce; and (8) that the misrepresentation was a proximate cause of damage to Woo; but (7) failed to find that the misrepresentation was an unconscionable action or course of action.

Found (9) that SMI represented to Woo...