State Of Washington, Resp/x-app v. The Mandatory Poster Agency Inc, Apps/x-resps

- FILED
'COURT OF APPEALS WV I
STATE OF WASHINGTON
2011 JUL -3 AM 8:[}3
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
STATE OF WASHINGTON, ) No. 74978-1-1
)
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 ) PUBLISHED OPINION
J. FATA,THOMAS FATA, AND )
JOSEPH FATA, individually and in their ) FILED: July 3, 2017
corporate capacity, )
)
Appellant. )
)
VERELLEN, C.J. — The first element of a Consumer Protection Act(CPA)violation
is an unfair or deceptive act or practice.' 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.
I Ch. 19.86 RCW.
No. 74978-1-1/2
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.
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.
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.
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.
Because the State is the prevailing party on appeal, it is entitled to fees on
appeal.
We affirm in part and reverse in part.
2
No. 74978-1-1/3
FACTS
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.
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
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:
2 Clerk's Papers(CP)at 488.
3 CP at 488.
3
No. 74978-1-1/4
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[J violations of the injunctive provisions of this Assurance
of Discontinuance may result in court imposed civil penalties of up to
$25,000.00•[4J
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.
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."6 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
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
4 CP at 492.
5 CP at 1011, 1025, 1028.
6 CP at 1011, 1025, 1028.
7 CP at 1006, 1012-13, 1023-24, 1029, 2199-200.
4
No. 74978-1-1/5
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."8 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."1°
This disclaimer was surrounded by other text and was located one-third of the way
down from the top of the form.
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
at 2199; CP at 1010-14(CRS did not include the corporation number in its
8 CP
February 2013 mailings, totaling approximately 5,619 mailings).
9 CP at 1012-13, 1023-24, 1027, 1029, 2199.
19 CP at 1012-13, 1023-24, 1029, 2199-200.
11 CP at 1024.
12 CP at 1024.
13 CP at 484-85.
5
No. 74978-1-1/6
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
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.
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
14 CP at 1006.
15 CP at 1015-21.
16 CP at 1019.
17 CP at 1591.
6
No. 74978-1-1/7
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.18
CRS appeals. The State cross appeals.
ANALYSIS
We review a summary judgment decision de novo.2° 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
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.
The CPA forbids luinfair 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
unfair or deceptive act or practice,(2) occurring in trade or commerce, and (3) public
interest impact."24 Unlike a private plaintiff under the CPA,the State is not required to
18 CP at 2046.
19 CP at 2125-27.
Keck v. Collins, 181 Wash. App. 67, 78, 325 P.3d 306 (2014), affirmed, 184
29
Wn.2d 358(2015).
21 Id. at 78-79 (quoting CR 56(c)).
22 CR 56(e).
23 RCW 19.86.020.
24 State v. Kaiser, 161 Wash. App. 705, 719, 254 P.3d 850 (2011).
7
No. 74978-1-1/8
prove causation or injury.25 A CPA case brought by the State is an equitable action,
and there is no jury tria1.26
The "unfair or deceptive act" element can be established in one of three ways:
(i) per se unfair or deceptive conduct,27 (ii) an act that has the capacity to deceive a
substantial portion of the public,28 or (iii) an unfair or deceptive act or practice not
regulated by statute but in violation of the public interest.29 A plaintiff does not need to
show the act was intended to deceive,"only that it had the capacity to deceive a
substantial portion of the public."30 "'Deception exists "if there is a representation,
omission, or practice that is likely to mislead" a reasonable consumer.'"31 The CPA
does not define "deceptive," but "the implicit understanding is that 'the actor
misrepresented something of material importance!"32 A deceptive act or practice is
measured by "the net impression" on a reasonable consumer.33
25 Id.
26 RCW 19.86.080; State ex rel. Dep't of Ecology v. Anderson, 94 Wash. 2d 727,
730, 620 P.2d 76(1980).
27 Klem v. Wash. Mut. Bank, 176 Wash. 2d 771, 785, 295 P.3d 1179 (2013).
28 Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wash. 2d 778,
784, 719 P.2d 531 (1986); Behnke v. Ahrens, 172 Wash. App. 281, 290-92, 294 P.3d 729
(2012).
29 Klem, 176 Wash. 2d at 787; Panag v. Farmers Ins. Co., 166 Wash. 2d 27, 37 n.3,
204 P.3d 885 (2009).
39 Panag, 166 Wash. 2d at 47.
31 Rush v. Blackburn, 190 Wash. App. 945, 963, 361 P.3d 217(2015)(quoting id. at
50).
32 Kaiser, 161 Wash. App. at 719 (quoting Hiner v. Bridgestone/Firestone, Inc., 91
Wash. App. 722, 730,959 P.2d 1158(1998), rev'd on other grounds, 138 Wash. 2d 248, 978
P.2d 505 (1999)).
Panag, 166 Wash. 2d at 50(quoting Fed. Trade Comm'n v. Cvberspace.Com
LLC,453 F.3d 1196, 1200 (9th Cir. 2006)).
8
No. 74978-1-1/9
The parties dispute whether the first element of a CPA claim presents a question
of law or question of fact. Several cases have recognized the first element is a question
of law when the facts are undisputed.
In Leingang v. Pierce County Medical Bureau, Inc., the court noted:
Whether a party in fact committed a particular act is reviewable under the
substantial evidence test. However, the determination of whether a
particular statute applies to a factual situation is a conclusion of law.
Consequently, whether a particular action gives rise to a Consumer
Protection Act violation is reviewable as a question of law. Therefore,
since there is no dispute offacts as to what the parties did in this case,
whether the conduct constitutes an unfair or deceptive act can be decided
by this court as a question oflaw.1341
Twelve years later, our Supreme Court echoed the same standard in Panag v.
Farmers Insurance Company of Washington: "The next issue is whether.. . the first
[CPA]element has been established. Whether a particular act or practice is 'unfair or
deceptive' is a question of law."35 We have recognized this standard in several cases.36
34 131 Wash. 2d 133, 150, 930 P.2d 288(1997)(emphasis added)(citations
omitted).
36 166 Wash. 2d 27, 47, 204 P.3d 885(2009)(emphasis added)(citing Leingang,
131 Wash. 2d at 150).
36 Rush, 190 Wash. App. at 963-64 ("Whether undisputed conduct is unfair or
deceptive is a question of law, not a question of fact.")(quoting Lyons v. U.S. Bank
Nat'l Ass'n, 181 Wash. 2d 775, 786, 336 P.3d 1142 (2014)); Holiday Resort Cmtv. Ass'n v.
Echo Lake Assocs., LLC, 134 Wash. App. 210, 226, 135 P.3d 499(2006)("Whether an
alleged act is unfair or deceptive is a question of law.")(citing Leingang, 131 Wash. 2d at
150); Kaiser, 161 Wash. App. at 719 (citing Leinganq, 131 Wash. 2d at 150); Stephens v.
Omni Ins. Co., 138 Wash. App. 151, 166, 159 P.3d 10(2007)(citing Leingang, 131 Wash. 2d
at 150); Bavand v. OneWest Bank, 196 Wash. App. 813, 840, 385 P.3d 233(2016)(citing
Leingang, 131 Wash. 2d at 150); Keyes v. Bollinger, 31 Wash. App. 286, 289,640 P.2d 1077
(1982); Barkley v. GreenPoint Mortg. Funding, Inc., 190 Wash. App. 58, 68, 358 P.3d
1204(2015)(citing Leinganci, 131 Wash. 2d at 150); Walker v. Quality Loan Serv. Corp.,
176 Wash. App. 294, 318, 308 P.3d 716(2013); Wellman & Zuck, Inc. v. Hartford Fire Ins.
Co., 170 Wash. App. 666, 678, 285 P.3d 892(2012); Brown ex rel. Richards v. Brown,
157 Wash. App. 803, 815, 239 P.3d 602(2010); Carlile v. Harbour Homes, Inc., 147 Wn.
App. 193, 211, 194 P.3d 280(2008)(citing Leingang, 131 Wash. 2d at 150); Shields v.
Morgan Financial, Inc., 130 Wash. App. 750, 755, 125 P.3d 164 (2005); Shah v. Allstate
9
No. 74978-1-1/10
CRS points to Behnke v. Ahrens37 and Holiday Resort Community Association v.
Echo Lake Associates, LLC38 for the proposition that a question of fact may exist. But
those cases hold that the capacity to reach a substantial portion of the public may
present a question of fact, not that the fact finder is asked to determine whether
undisputed facts are likely to mislead a reasonable consumer.39
The Holiday Resort court acknowledged that whether an act is unfair or
deceptive is a legal question, but "whether the 1997 Rental Agreement has the capacity
to deceive a substantial portion of the public is a question of fact."49 In that case, the
trial court dismissed the plaintiffs' suit and ruled there was no connection between the
alleged CPA violation and the plaintiffs' injuries.'" On appeal, this court concluded the
language in the rental agreement violated a statute and was an unfair act or practice
Ins. Co., 130 Wash. App. 74, 86, 121 P.3d 1204(2005); Robinson v. Avis Rent A Car
System, Inc., 106 Wash. App. 104, 114,22 P.3d 818(2001)(citing Leirmanq, 131 Wash. 2d
at 150); Dwyer v. J.I. Kislak Mortq. Corp., 103 Wash. App. 542, 546, 13 P.3d 240(2000)
(citing Leinganq, 131 Wash. 2d at 150); Griffith v. Centex Real Estate Corp., 93 Wash. App.
202, 214, 969 P.2d 486(1998)(citing Leinganq, 131 Wash. 2d at 150); Sign-O-Lite Signs,
Inc. v. DeLaurenti Florists, Inc., 64 Wash. App. 553, 560, 825 P.2d 714 (1992).
37 172 Wash. App. 281, 294 P.3d 729(2012).
38 134 Wash. App. 210, 135 P.3d 499(2006)
39 The comments to the pattern jury instruction are consistent with this
interpretation: "Whether an act has the capacity to deceive a substantial portion of the
public is a question of fact. If the facts about a party's act or practice are not in dispute,
the trial court may decide whether that act or practice was deceptive as a matter of law."
6A WASHINGTON PRACTICE: WASHINGTON PATTERN JURY INSTRUCTIONS: CIVIL 310.08, at
43(6th ed. Supp. 2013)(citing Behnke, 172 Wash. App. at 281; Leinganq, 131 Wash. 2d at
149-50).
40 Holiday Resort, 134 Wash. App. at 226-27.
41 Id. at 217-18.
10
No. 74978-1-1/11
under the CPA as a matter of law.42 But it also noted that whether that act "has the
capacity to deceive a substantial portion of the public is a question of fact," reasoning:
Here, the tenants allege the language in the 1997 Rental Agreement not
only misstates the law but also has the capacity to deceive a portion of the
public because it is available for dissemination to the more than 500
[Manufactured Housing Communities of Washington] members who are
mobile home park owners or managers.[431
In Behnke, citing Holiday Resort, this court also recognized "[w]hether a
deceptive act has the capacity to deceive a substantial portion of the public is a
question of fact."44 This court specifically emphasized,"In applying the requirement that
the allegedly deceptive act has the capacity to deceive 'a substantial portion of the
public,' the concern of Washington courts has been to rule out those deceptive acts and
practices that are unique to the relationship between plaintiff and defendant."45 We also
recognized that "[t]he definition of 'unfair' and 'deceptive' must be objective to prevent
every consumer complaint from becoming a triable violation of the act."46
CRS's reliance on Holiday Resort and Behnke is misplaced. Those cases
recognize only that the substantial portion of the public component of a deceptive act or
practice may present a question of fact, not that a fact finder weighs whether a
representation, omission, or practice is likely to mislead a reasonable consumer.47
42 Id. at 226.
43 Id. at 226-27 (emphasis added).
44 Behnke, 172 Wn. App. at 292(citing id.).
45 Id. at 292-93.
46 Id. at 293.
47 Additionally,Behnke cites Holiday Resort, which in turn cites Hangman Ridqe,
105 Wash. 2d at 789-90, where our Supreme Court held only that the separate public
interest element is a question of fact. CRS also cites Deegan v. Windermere Real
Estate/Center-Isle, Inc., 197 Wash. App. 875, 391 P.3d 582(2017) and Rhodes v. Rains,
11
No. 74978-1-1/12
The undisputed facts show each of the 79,354 solicitations included an envelope
that(1) contained bolded text reading,"IMPORTANT"Annual Minutes Requirement
Statement";(2) depicted a large eagle on the top right side of the green colored
envelope;(3) stated "Business Mail - Time Sensitive";(4) directed the recipient to
"[p]lease forward to an authorized employee representative Immediately"; and (5) used
authoritative language similar to a government document.48 The solicitation inside the
envelope (1) contained selective citations to Washington corporate statutes,(2) directed
"IMPORTANT! FOLLOW INSTRUCTIONS EXACTLY WHEN COMPLETING THIS
FORM,PLEASE PRINT,"(3) referred to the recipient's Washington State corporation
uniform business identifier number, and (4) recited the recipient's incorporation date.49
Although the CRS form is not identical to the Secretary of State's annual report form,
the tone is similar to a mandatory governmental form.
The CRS mass mailings are likely to mislead a reasonable consumer because
the undisputed format, images, and content do mimic government-related forms and
create the net impression that the recipient is obligated to return the form and pay $125
to CRS. CRS contends its solicitations were not deceptive because they accurately
stated Washington corporate law requirements. But "[e]ven accurate information may
be deceptive 'if there is a representation, omission or practice that is likely to
195 Wash. App. 235, 381 P.3d 58(2016), but neither case affects the outcome of this
matter. Deegan stands for the proposition that causation under the CPA is a question
of fact, and Rhodes merely suggests that disputed facts should be resolved by the trier
of fact.
48 CP at 1011, 1025, 1028.
49 CP at 1012-13, 1023-24, 1027, 1029, 2199.
12
No. 74978-1-1/13
mislead.'"5° Here, it is clear that consents in lieu of director and shareholder meetings
may satisfy Washington annual meeting and recordkeeping requirements. But the
accuracy of those statements does not eliminate their likelihood to mislead in the
context of the annual minutes solicitation. Consumers are likely misled by the net
impression that CRS is associated with the government and that consumers are
required to return the completed form with a fee.
CRS also focuses on its disclaimers, but courts have recognized that disclaimers
do not always cure the potential for deception.51 Here, the disclaimer "THIS IS NOT A
GOVERNMENT DOCUMENT" is just underneath the return address on the envelope
and is overshadowed by a large all caps and bold "IMPORTANT" notation on the face
of the envelope just above "Annual Minutes Requirement Statement." The all-caps
disclaimer in the instructions, that CRS is not a government agency and does not have
a contract with a government agency is one-third down the page surrounded by
unrelated instructions. Considering the format and placement, the disclaimers do not
cure the potential for deception. Notwithstanding the disclaimers, CRS's solicitation
created the misleading net impression that CRS is associated with a government
agency and that consumers were obligated to return the form with a fee.
50 Kaiser, 161 Wash. App. at 719 (internal quotation marks omitted)(quoting
Panaq, 166 Wash. 2d at 50).
51 Panag, 166 Wash. 2d at 50; Cyberspace.Com,453 F.3d at 1200 (solicitation
masquerading as a rebate check was misleading notwithstanding fine print notices
accurately disclosing its true nature); Floersheim v. Fed. Trade Comm'n,411 F.2d 874,
876 (9th Cir.1969)(disclaimer did not cure deceptive impression that demand letter was
issued by United States government, as many individuals "would be unlikely to notice
respondent's inconspicuous disclaimer or understand its import"); Indep. Dir. Corp. v.
Fed. Trade Comm'n, 188 F.2d 468(2d Cir.1951)(solicitation disguised as renewal
notice deceptive notwithstanding fine print disclosures).
13
No. 74978-1-1/14
Additionally, because there is no dispute that the mass mailing was sent to over
79,000 consumers, generating 2,901 paid responses, there is no question of fact
whether the misleading mailings reached, and thus had the capacity to deceive, a
substantial portion of the public.
There is no issue of material fact for the trier of fact to decide.
Further, contrary to CRS's contentions, the mailings violated the Assurance of
Discontinuance and are prima facie evidence of deceptive acts. The Assurance of
Discontinuance precluded "[u]se of the term 'confidential','important information',
'approved','effective immediately','compliance','issued', or any terms ofsimilar
import."52 CRS used the words "IMPORTANT" and "Requirement" on its envelope and
instructed recipients "IMPORTANT! FOLLOW INSTRUCTIONS EXACTLY WHEN
COMPLETING THIS FORM."53
The Assurance of Discontinuance barred language suggesting that "an enclosed
solicitation requires immediate or other mandated response."54 CRS used "Annual
Minutes Requirement Statement," "If addressed name is incorrect, please forward
document to an authorized employee representative Immediately," and "TIME
SENSITIVE" on the envelope.55 CRS also referred to a corporate uniform business
identifier number on the vast majority of the solicitations.56
52 CP at 489, Assurance of Discontinuance(AOD)2.1(b)(3)(emphasis added).
53 CP at 1011-12, 1028-29.
54 CP at 489, AOD 2.1(b)(5).
55 CP at 1011, 1028.
56 CP at 1029.
14
No. 74978-1-1/15
We conclude CRS's mailers violated the Assurance of Discontinuance. The
violations are prima facie evidence of a CPA violation.
II. Penalties
CRS argues the trial court abused its discretion in imposing an excessive penalty
because the State did not prove each recipient was deceived by the solicitation. In its
cross appeal, the State contends the penalties were too lenient.
The CPA includes specific provisions for civil penalties, authorizing a penalty up
to $2,000 per violation.57 We review the trial court's assessment of civil penalties within
the statutory limits for an abuse of discretion.58 Each deceptive act is a separate
violation. In State v. Ralph Williams' North West Chrysler Plymouth, Inc., our Supreme
Court recognized that the CPA "vests the trial court with the power to assess a penalty
for each violation."58 And CPA penalties are valid even though "the trial court did not
find that the consumers relied on appellants' wrongful conduct."8° Similarly, because
each of CRS's 79,354 solicitations had the capacity to deceive, each mailing was a
violation, whether or not the recipient purchased its product.
57 RCW 19.86.140.
55 See Ethridge v. Hwang, 105 Wn. App. 447,459, 20 P.3d 958(2001)(award of
enhanced damages under the CPA reviewed for abuse of discretion); United States v.
ITT Continental Baking Co., 420 U.S. 223, 229 n.6, 95 S. Ct. 926,43 L. Ed. 2d 148
(1975)(reviewing lower court assessment of civil penalty within statutory limits for
Federal Trade Commission Act violation for abuse of discretion); see also Progressive
Animal Welfare Soc'y v. University of Wash., 114 Wash. 2d 677, 683-84, 688-89, 790 P.2d
604(1990)(reviewing trial court's calculation of attorney fees mandated by statute for
abuse of discretion).
59 87 Wash. 2d 298, 317, 553 P.2d 423(1976)(also recognizing the potential for
multiple violations per consumer).
69 Id.
15
No. 74978-1-1/16
Both parties cite United States v. Reader's Digest Association Inc., a similar
mass mailing case under an analogous consumer protection standard, where a federal
district court held that Reader's Digest committed 17,940,521 violations on the rationale
that "each letter distributed in the Digest's mass mailings constituted a separate
violation."61 The United States Court of Appeals for the Third Circuit affirmed, holding
"each letter included as part of a mass mailing constitutes a separate violation."62 The
court also identified five factors to consider in determining the appropriate penalty: (1)
whether defendants acted in good faith,(2) injury to the public,(3) defendant's ability to
pay,(4) desire to eliminate any benefits derived by the defendants from the violation at
issue, and (5) necessity of vindicating the authority of the law enforcement agency.63
Here, the trial court focused on lack of good faith without addressing the other
Reader's Digest factors. While the factors are helpful guidelines, we reject any
suggestion by either party that a trial court is compelled to expressly address each
factor.
Next, CRS argues RCW 19.86.140 limits the total civil penalty to $25,000.
RCW 19.86.140 provides, in relevant part:
Every person who shall violate the terms of any injunction issued as
in this chapter provided, shall forfeit and pay a civil penalty of not more
than twenty-five thousand dollars.
Every person who violates RCW 19.86.020 shall forfeit and pay a
civil penalty of not more than two thousand dollars for each violation.
61662 F.2d 955, 959-60 (3rd Cir. 1981).
62 Id. at 966 (emphasis added).
63 Id. at 967.
16
No. 74978-1-1/17
The $25,000.00 limit from the first paragraph does not apply here because the
State did not plead or seek to enforce the Assurance of Discontinuance injunctive
provisions. Instead, the State pleaded relief for violations of ROW 19.86.020 for
deceptive acts. The trial court determined that the violations of the assurance of
discontinuance constituted prima facie evidence of such CPA violations.
Relying on BMW of North America, Inc. v. Gore, CRS also argues this civil
penalty violates due process.64 To determine whether a $2,000,000 punitive damages
award to one plaintiff in Gore violated due process, the United States Supreme Court
looked to the reprehensibility of the defendant's conduct by considering specific
factors.65 But in Perez-Farias v. Global Horizons, Inc., our Supreme Court expressly
declined to apply the Gore factors to cases involving statutory damages, noting "no
state public policy or due process principles require reduction in the total damages
mandated by statute."66 And CRS does not provide any compelling authority67 that
courts have applied the Gore factors to cases involving statutory damages.68
64 517 U.S. 559, 116 S. Ct. 1589, 134 L. Ed. 2d 809(1996).
65 The court in Gore looked at whether the harm caused was physical or
economic, the conduct showed an indifference to or a reckless disregard of the health
or safety of others, the target of the conduct had financial vulnerability, the conduct
involved repeated actions or was an isolated incident, and if the harm was the result of
intentional malice, trickery, or deceit. Id. at 575.
66 175 Wash. 2d 518, 533-34, 286 P.3d 46(2012).
67 CRS cites to State Farm Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408, 123 S.
Ct. 1513, 155 L. Ed. 2d. 585 (2003), but that case makes no mention of the applicability
of the Gore factors to cases involving statutory damages.
68 Although the State offers analysis as to how, if considered, the Gore factors
would apply in this case, we need not apply those factors. See Perez-Farias, 175
Wash. 2d at 532 n.15.
17
No. 74978-1-1/18
On cross appeal, the State argues the trial court did not impose penalties
adequate to deter future violations, but does not establish that the trial court's decision
was outside the range of acceptable choices. The trial court specifically noted the
acceptable range of penalties in its order:
The civil penalty set herein is less than the maximum potential civil penalty
of $2,000 per violation, which would total $158,708,000. There is no
mandatory "cap" on the penalty in this situation. The amount is also less
than the potential harm of $9,919,250 that Defendants could have caused
if all Washington consumers who had received Defendants' deceptive
mailer had purchased the $125 product based on Defendants'
deception.[691
The penalties, combined with the restitution provisions, ensure compensation to injured
consumers and, considering the likely response rate for such mass-mail solicitations, far
exceed any potential profits. The penalty does deter similar misleading mailings.
We conclude the trial court did not abuse its discretion in setting the amount of
penalties.
III. Fees
CRS argues the trial court abused its discretion in calculating and awarding the
State a fee award in the amount of $337,593.20.
In a CPA enforcement action, the trial court has discretion to award the prevailing
party the costs of the action, including reasonable attorney fees." To determine a
reasonable attorney fee, the court starts with the "lodestar" calculation.71 That
69 CP at 2045.
70 RCW 19.86.080(1); Ralph Williams, 87 Wash. 2d at 314-15.
71 Berryman v. Metcalf, 177 Wash. App. 644, 660, 312 P.3d 745(2013).
18
No. 74978-1-1/19
calculation includes "the number of hours reasonably expended on the litigation
multiplied by a reasonable hourly rate."72
Here, the trial court engaged in the lodestar analysis and found that the hourly
rates of the attorneys were reasonable. CRS argues that the requested government
attorney rates are artificially high, but it was within the discretion of the trial court to
accept the identified rates.73 The trial court also concluded that the time detailed in the
State's declarations was reasonable and appropriate. The State submitted a 28-page
spreadsheet listing the individual time entries for which it sought fees. As CRS notes,
several entries are vague and general. But the majority of the entries contain
information identifying the nature of the work itemized. The trial court did not abuse its
discretion in accepting the itemizations.
CRS argues the State failed to segregate its time spent on its abandoned theory
that CRS misrepresented the legal standards for Washington corporate recordkeeping.
The time itemized for a case should be discounted for hours spent on unsuccessful
claims or otherwise unproductive time.74 A reduction is warranted if "the hours at issue
were unproductive or that they were not sufficiently related to the successful claim."75
72 Id.
73 See W. Coast Stationary Enq'rs Welfare Fund v. City of Kennewick, 39 Wn.
App. 466, 474-75, 694 P.2d 1101(1985)(allowing fees for city attorney); Metro. Mortg.
& Secs. Co., Inc. v. Becker, 64 Wn. App. 626,632-33, 825 P.2d 360(1992)(reasonable
hourly rate for in-house counsel not limited to actual salary). We note that in the
absence of any specific objection to the hourly rates, the record before us is not well
developed regarding the basis for a challenge on appeal to the reasonableness of those
rates.
74 Berryman, 177 Wash. App. at 662 (quoting Bowers, 100 Wash. 2d at 597).
75 Pham v. Seattle City Light, 159 Wash. 2d 527, 539, 151 P.3d 976(2007).
19
No. 74978-1-1/20
The trial judge "is in the best position to determine which hours should be included in
the lodestar calculation."76
Here, the question of segregation was squarely presented to the trial court. CRS
argued a segregation was necessary for time spent by the State on its allegation that
CRS inaccurately stated Washington corporate recordkeeping standards. Specifically,
CRS pointed to the June 18, 2015 letter by the assistant attorney general as evidence
the State abandoned that theory late in the litigation. The State replied:
While the focus of the case has been on whether Defendants' solicitation
created the deceptive net impression that the solicitation came from a
government agency that consumers were required to return and whether
Defendants violated the 2008 Assurance of Discontinuance (AOD),
Defendants also engaged in deceptive acts and practices by offering to
provide meeting minutes while actually providing corporate consents.n
The June 18 letter is largely consistent with the State's argument.78 Although the State
may have refined its theory of a corporate recordkeeping misrepresentation and the trial
court granted summary judgment only on the "net impressions" theory, both alleged
unfair and deceptive acts based on the same core of underlying facts of the contents of
the mass mailings. Where the plaintiffs' claims involve a common core of facts and
related legal theories, "'a plaintiff who has won substantial relief should not have his
attorney's fee reduced simply because the [trial] court did not adopt each contention
76 Id. at 540.
77 CP at 2111.
78 The letter purports to clarify the State's legal theories and then reconcile its
clarified position with an earlier interrogatory answer: "Mt is our position that the
Washington Business Corporation Act requires a corporation to take certain actions
through a meeting or through executed consents. If a meeting is held, then minutes
must be kept as permanent records. If a meeting is not held, and corporate actions are
approved through executed consents, there is no requirement to prepare annual
minutes... . We believe the State's response to Interrogatory No. 13 is consistent with
the State's Causes of Action as plead." CP at 2088, 2090.
20
No. 74978-1-1/21
raised.'"79 The trial court did not abuse its discretion in declining to require a
segregation.
We conclude the trial court did not abuse its discretion in awarding $310,422.40
for the work performed by the State's four attorneys.
CRS also contends the trial court abused its discretion when it awarded fees for
the State's paralegal and investigator.
For the recovery of fees of nonlawyers, the court must consider six factors
identified in Absher Construction Co. v. Kent School District.80 The State's declarations
regarding the work of its investigator and paralegal do not specify how the services
performed were legal in nature, whether they were supervised by an attorney, the
qualifications of the person performing the work, or the reasonable community
standards for the nature of work. CRS adequately raised the need to document
requested fees. The trial court failed to address the governing factors.
We conclude the trial court abused its discretion when it included $10,405.80 for
paralegal time and $16,764.90 for investigator time in the State's attorney fee award.
79 Martinez v. City of Tacoma, 81 Wash. App. 228, 243, 914 P.2d 86(1996)
(quoting Hensley v. Eckerhart, 461 U.S. 424,440,103 S. Ct. 1933, 76 L. Ed. 2d 40
(1983)).
8079 Wash. App. 841, 845, 917 P.2d 1086(1996)("(1) the services performed by
the nonlawyer personnel must be legal in nature;(2)the performance of these services
must be supervised by an attorney;(3)the qualifications of the person performing the
services must be specified in the request for fees in sufficient detail to demonstrate that
the person is qualified by virtue of education, training, or work experience to perform
substantive legal work;(4)the nature of the services performed must be specified in the
request for fees in order to allow the reviewing court to determine that the services
performed were legal rather than clerical;(5)as with attorney time, the amount of time
expended must be set forth and must be reasonable; and (6) the amount charged must
reflect reasonable community standards for charges by that category of personnel.").
21
No. 74978-1-1/22
/V. Costs
CRS argues the trial court erred in awarding costs beyond those allowed in
RCW 4.84.010.
The standard of review for an award of costs involves a two-step process.81
First, whether a statute, contract, or equitable theory authorizes the award is a matter of
law, which we review de novo.82 Second, if there is such authority, the amount of the
award is subject to the abuse of discretion standard.83
Costs in a CPA action are limited to those set out in RCW 4.84.010.84
RCW 4.84.010 does not authorize expert witness fees in an award of costs to the
prevailing party.85 Our Supreme Court has recognized that "'[w]here an expert is
employed and is acting for one of the parties', it is not proper to charge the allowance of
fees for such expert against the losing party as a part of the costs of the action.'"88
Here, the State included expert witness fees and the transcription of that expert
witness testimony in its cost bill.
We conclude the trial court erred in awarding costs for expert witness fees and
the transcription of that testimony.
81 Ester v. Hamilton, 148 Wash. App. 246, 259, 201 P.3d 331 (2008).
82 Id.
83 Id.
84 Mayer v. Sto Indus., Inc., 156 Wn.2d 677,693-94, 132 P.3d 115 (2006).
85 Estep, 148 Wash. App. at 263.
86 j.çj.(alteration in original)(quoting Fiorito v. Goeriq, 27 Wash. 2d 615, 620, 179
P.2d 316 (1974)).
22
No. 74978-1-1/23
V. Fees on Appeal
The State requests fees and costs on appeal.
The prevailing party is entitled to attorney fees and costs on appeal if applicable
law grants to a party the right to recover and that party includes such a request in its
opening brief.87 Under RCW 19.86.080(1), this court has discretion to award the
prevailing party reasonable attorney fees and costs.88
We conclude, upon compliance with RAP 18.1, the State is entitled to an award
of reasonable attorney fees and costs.
CONCLUSION
We reverse the portion of the fee award as it pertains to work performed by the
two nonlawyers and the award of costs relating to expert witness fees and transcription
of expert testimony. As to all other issues, we affirm the trial court.
WE CONCUR:
7
‘ 41n
87 RAP 18.1.
88 Kaiser, 161 Wash. App. at 726.
23