These appeals arise from an action brought by the Attorney General against George Brown, Jr. and others
The following facts were found by the court. They are not challenged on appeal and we therefore take them as true.
Brown hired Neil Hausam, a civil engineer and land surveyor, to survey and plat the land. Hausam studied the possibility of flooding and concluded that a reoccurrence was unlikely. Prior to approving the plat, the Matanuska-Susitna Borough requested that the Army Corps of Engineers conduct a flood-hazard evaluation of the Windsong Subdivision. The Corps concluded that virtually all of the subdivision was in a highhazard area. Although Hausam disagreed with that conclusion and informed the Borough of this, the Borough required that the first page of the Windsong plat contain a flood-warning notation.
In 1976, Brown commenced selling lots. To assist him, he hired a salesman, John Dryer, and a property manager, Lawrence Brouse. Although purchasers were given the second page of the Windsong plat, they never received the first page containing the flood warning. In addition, Brown represented to purchasers, among other things, that: (1) Lake George had not formed since the Good Friday earthquake of 1964; (2) it would take another earthquake of equal magnitude for the lake to form again; (3) experts, including the Army Corps of Engineers, had concluded that the possibility of flooding was remote; (4) purchasers of Windsong lots would be able to obtain flood and mortgage insurance; and (5) construction financing was readily available. None of these representations were true.
In December 1977, the Consumer Protection Section of the Attorney General's Office began investigating the sale of Windsong lots. Upon learning of that investigation, Brown sent all purchasers a letter telling them that certain unfounded complaints were being directed at the Windsong development. The purpose of that letter was to make purchasers feel secure about their investments and continue making their property payments. In late January of 1978, a meeting was held at which Brown, Brouse, Hausam and various representatives of the Attorney General's Office were present. At that meeting Brown was told that the State had received several consumer complaints regarding the sale of Windsong lots. He was also shown letters that the State had received from various experts indicating the existence of a flood hazard at the Windsong Subdivision.
Immediately following this meeting, Brown contacted between sixty and seventy lot purchasers and induced them to sign a preprinted form affidavit entitled "Declaration and Memorandum of Understanding." This was drafted by Brown's attorneys for the purpose of lining up favorable witnesses in case of future litigation. At the time the document was presented to purchasers, Brown reassured them that the possibility of flooding was still remote and that property values had increased. Signing purchasers were not given a meaningful opportunity to study the document, and the language contained therein was not comprehensible to the average purchaser. In effect, the affidavits purported to be a vote of confidence by investors in the Windsong development. Those purchasers whom Brown knew to be dissatisfied with their investments were not offered the memorandum.
B. Proceedings Below
In February 1978, the State filed a complaint in superior court against Brown seeking injunctive relief and civil penalties. The State alleged various violations of the
In June 1978, the State filed its amended complaint, this time alleging that Brown had violated the Uniform Land Sales Practices Act ("ULSPA"), AS 34.55.004-34.55.046. Shortly thereafter, the State moved for a preliminary injunction to enjoin Brown from disposing of Windsong lots in violation of ULSPA and the administrative regulations promulgated thereunder, 3 AAC 20.010-.130. After a lengthy hearing, the lower court entered a preliminary injunction against Brown ordering him to disclose fully to prospective purchasers the Windsong Subdivision's flooding potential, and enjoining him from disposing of land in violation of ULSPA and its implementing regulations. Brown was also enjoined from taking any adverse action against lot purchasers who, after being notified by the State of the court's preliminary findings, elected to rescind their land purchase contracts. Such purchasers were directed to make all future payments to the court registry. Approximately seventy purchasers indicated that they wished to rescind their contracts and obtain restitution.
In December 1978, the State amended its complaint again to add First National Bank of Anchorage as a defendant. The Bank's involvement in this case stems from loans it made to Brown to finance the Windsong development. In 1977, First National loaned $200,000 to Knik River Estates to purchase materials for constructing a sewer system in the Windsong Subdivision. In accordance with its collateral and loan agreement, Knik River Estates pledged to the Bank the promissory notes and deeds of trust executed by lot purchasers. When, in the early part of 1978, Brown formed Commonwealth Mortgage Corporation to assume ownership of the Windsong Subdivision, Commonwealth continued to pledge to the Bank the promissory notes and deeds of trust received from the sale of Windsong lots. In August 1978, First National loaned Commonwealth $500,000 to retire the balance of the earlier loan and to install electric and telephone utilities at Windsong.
The 1977 and 1978 loan agreements were substantially identical. Neither involved actual endorsement of the promissory notes that had been pledged as security and delivered to First National. Instead, the loan agreements authorized the Bank to endorse the notes to itself on behalf of the borrower. In late November of 1978, First National endorsed over to itself all of the promissory notes in its possession. It then sent collection letters to all Windsong lot purchasers who were delinquent in their payments. First National informed these purchasers that unless all delinquent payments were paid within fifteen days, the entire balance would become due immediately. The Bank also told these purchasers that their payments to the court registry, pursuant to the preliminary injunction, would not be credited toward the amounts claimed due.
Trial of the case commenced on March 16, 1979. On the first day, the lower court orally granted summary judgment against the State in favor of Hausam, Brown's engineer. The basis for the court's ruling was that AS 34.55.006,
Counsel for the State interjected stating that it was the State's position that "lulling conduct" by Brown which occurred after the effective date of the ULSPA amendments could supply the basis for granting restitution to purchasers who bought lots before the amendment's effective date. The court reserved ruling on that question and allowed the case to proceed.
On October 25, 1979, the trial court entered its final judgment in the matter. That judgment permanently enjoined Brown from disposing of Windsong lots without first obtaining a purchaser's signature on a document, drafted by the court, fully disclosing the flood risk at Windsong. It also enjoined Brown from making any statements inconsistent with those contained in that document. In addition, Brown was enjoined from engaging in certain acts and practices prohibited by the administrative regulations implementing ULSPA. With respect to the State's claim for restitution, the trial court entered judgment against Brown in favor of the State, as trustee for those purchasers who had elected to rescind, for $1,611,357.60. The basis for this award, however, was not ULSPA, upon which the State had predicated its case and upon which Brown had defended. Instead, the lower court sua sponte ordered restitution on the basis of common law fraud, and specifically declined to rule on the applicability of ULSPA. In all, the court's judgment listed seventy-one purchasers who were eligible for restitution, eighteen of whom had bought lots after and fifty-three of whom had bought lots before September 21, 1977, the effective date of the ULSPA amendments. Finally, the lower court awarded the State attorney's fees and costs of $42,000 and $1,894.24, respectively.
C. Contentions on Appeal
On appeal, Brown contends that the trial court erred in ordering restitution to Windsong lot purchasers on the basis of common law fraud. Brown asserts that the State is without authority to pursue the common law rights of defrauded land purchasers. In essence, Brown claims that the trial court was bound to apply ULSPA, under which the lower court's restitution order would not have been proper since, Brown asserts, ULSPA cannot be retroactively applied. Brown also contends that application of ULSPA to in-state subdividers is unconstitutional, and that the administrative regulations promulgated under ULSPA are invalid as applied to him. Finally, Brown claims that the lower court erred in refusing his request for a jury trial.
The State, on the other hand, argues that the trial court did not err in granting relief on the basis of common law fraud. The State also contends that the trial court's judgment would have been proper under ULSPA, and under the Consumer Protection Act as well. The State does, however, claim that the trial court erred in dismissing its claim against First National Bank of Anchorage. The State also contends that the trial court erred when, shortly following the issuance of the preliminary injunction, it denied the State's request for prejudgment attachment of certain property belonging to Brown.
II. APPLICATION OF THE CONSUMER PROTECTION ACT TO SALES OF REAL PROPERTY
We begin by addressing the State's contention that the trial court's judgment can be affirmed under the Unfair Trade Practices and Consumer Protection Act, AS 45.50.471-45.50.561. We address this argument first because, as the State points out, AS 45.50.501 specifically authorizes the Attorney General to bring suit to enjoin violations of the Act, and expressly empowers the court in such cases to award restitutory relief.
AS 45.50.471(a) provides:
Standing alone, this language could be construed as prohibiting misrepresentations made by sellers of real property. Added by way of amendment to the Act in 1974, see Ch. 53, § 1, SLA 1974, subsection (a) was intended "to make the prohibitory language ... of the present Act more responsive to the needs of the Alaskan consuming public and the business community."
Nevertheless, we are persuaded that the entire thrust of the Consumer Protection Act is directed at regulating practices relating to transactions involving consumer goods and services. Immediately following AS 45.50.471(a) is a list of twenty-five specific
It is our judgment that the trial court properly invoked the rule of ejusdem generis to construe the language of AS 45.50.471(a). "[W]hen particular words are followed by general terms, the latter will be regarded as referring to things of a like class with those particularly described." Chugach Electric Ass'n v. Calais Co., 410 P.2d 508, 509-10 (Alaska 1966). The doctrine is equally applicable when, as here, specific words comprehending a class of activity follow a more general description. 2A C. Sands, Sutherland Statutory Construction § 47.17, at 103 (4th ed. 1973). In our view, real property falls outside of the class "particularly described," i.e., "goods and services." The list of proscribed activities found in AS 45.50.471(b) suggests that the Act is directed solely at regulating transactions involving "products and services sold to consumers in the popular sense." Neveroski v. Blair, 141 N.J.Super. 365, 358 A.2d 473, 480 (N.J. 1976). In Neveroski, the court was called upon to construe the word "merchandise," which was defined in the New Jersey Consumer Fraud Act to include "anything offered, directly or indirectly, to the public for sale." Id. 358 A.2d at 479. Because that language was preceded by the words "objects, wares, goods, commodities, [and] services," the court invoked the doctrine of ejusdem generis to hold that misrepresentation by a real estate broker in connection with the sale of real property was not actionable under the New Jersey Act. Id. 358 A.2d at 479-81. The broad language of AS 45.50.471(a), like that involved in Neveroski, "can logically be attributed to a legislative desire to incorporate other consumer transactions" which may not be regulated by the specific prohibitions found in subsection (b). Neveroski, 358 A.2d at 480.
This construction of subsection (a) also finds support in other provisions of the Act. AS 45.50.561(6) defines a "consumer" as "a
In sum, we hold that the sale of real property is not within the regulatory scope of the Consumer Protection Act. Accordingly, Brown's liability for restitution to Windsong lot purchasers could not properly be predicated on asserted violations of that Act.
III. THE UNIFORM LAND SALES PRACTICES ACT
After the trial court dismissed the Consumer Protection Act claim against Brown, the State amended its complaint to allege violations of the Uniform Land Sales Practices Act (ULSPA), AS 34.55.004-34.55.046. Throughout the remainder of the proceedings, the State consistently asserted and Brown consistently denied liability under this Act. At the conclusion of the case, the lower court declined to rule on the applicability of ULSPA, relying instead on the common law. The State contends that the judgment would have been proper under ULSPA. Brown, on the other hand, maintains that ULSPA cannot constitutionally apply to him since the 1977 amendments, which made the Act applicable to in-state land sales, were enacted in violation of article II, section 13 of the Alaska Constitution. Brown also claims that a court is without authority to award restitution in a suit brought under ULSPA by the Attorney General. Finally, Brown argues that even if the court could award restitution, it could not do so as to those purchasers who bought their lots prior to the effective date of the ULSPA amendments.
A. The Constitutional Validity of the ULSPA Amendments.
Article II, section 13 of the Alaska Constitution
That every section of Chapter 138, SLA 1977 in some respect concerns land is not disputed. However, it is just as clear that many of its provisions have nothing else in common. Thus, the issue to be resolved is
To determine if a bill is confined to one subject,
Thus, "what constitutes one subject for purposes of art. II, § 13 is broadly construed."
In Gellert v. State, 522 P.2d 1120 (Alaska 1974), we upheld a bill that provided for the issuance of bonds to finance flood control and small boat harbor projects. These two topics were found to be confined to one subject because they both pertained "to one ongoing plan for the development of water resources." Id. at 523. More recently, in North Slope Borough v. Sohio Petroleum Corp., 585 P.2d 534, 545 (Alaska 1978), we upheld "An Act Relating to Taxation; And Providing for an Effective Date." Because its various provisions, although diverse, all related to "state taxation," we found no violation of the one-subject rule. Id. at 544-46. In light of these decisions, we must likewise conclude that "land" is not an unduly broad subject for purposes of article II, section 13. Consequently, Chapter 138, SLA 1977, the provisions of which all relate to this subject, is constitutionally valid.
B. Restitution Under ULSPA in a Public Action.
Unlike the Consumer Protection Act, ULSPA does not expressly authorize the court to award restitutory relief in a suit instituted by the State. Although restitution is expressly available in a private action under ULSPA, AS 34.55.030(b), with respect to public enforcement, the Act merely provides that the State "may bring an action in the superior court ... to enforce compliance with this chapter or a regulation or order under this chapter." AS 34.55.020(c). According to Brown, the absence of a provision authorizing restitution in a public action impliedly circumscribes the court's power to award such relief unless
In People v. Superior Court, 9 Cal.3d 282, 107 Cal.Rptr. 192, 507 P.2d 1400 (Cal. 1973), the California Supreme Court was confronted with substantially the same issue involved here. In that case, the California Attorney General brought suit under a statute that authorized the Attorney General to sue to enjoin misleading advertising, "but was silent as to the power of the trial court to order restitution in such a proceeding." Id. 107 Cal. Rptr. at 194, 507 P.2d at 1402. Noting that the statute involved "did not restrict the court's general equity jurisdiction `in so many words, or by a necessary and inescapable inference,'" id., quoting Porter v. Warner Holding Co., 328 U.S. 395, 398, 66 S.Ct. 1086, 1089, 90 L.Ed. 1332, 1337 (1946), the court held that "a trial court has the inherent power to order, as a form of ancillary relief, that the defendants make or offer to make restitution to the consumers found to have been defrauded." 507 P.2d at 1402. In support of its holding the court relied on a number of analogous federal cases that had reached the same conclusion. See Mitchell v. DeMario Jewelry, Inc., 361 U.S. 288, 291-92, 80 S.Ct. 332, 334, 4 L.Ed.2d 323, 326 (1960); Porter v. Warner Holding Co., 328 U.S. 395, 398-99, 66 S.Ct. 1086, 1089, 90 L.Ed. 1332, 1336-38 (1946); Securities and Exchange Comm'n v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1307-08 (2d Cir.1971); McComb v. Frank Scerbo & Sons, 177 F.2d 137, 138-39 (2d Cir.1949). See also Interstate Commerce Comm'n v. B & T Transportation Co., 613 F.2d 1182, 1184-85 (1st Cir.1980). But see United States v. Parkinson, 240 F.2d 918 (9th Cir.1956).
We find the California Supreme Court's reasoning persuasive and therefore hold that the trial court has the inherent power to order restitution in an action brought by the State under ULSPA. Nothing in that Act or in its legislative history suggests that the legislature intended to restrict the court's traditional equity powers when properly invoked. That the legislature saw fit to provide a private right of action for restitution under ULSPA does not, in our judgment, operate to curtail the court's power to award such relief at the instance of the State. See Pierce v. Superior Court, 1 Cal.2d 759, 37 P.2d 460, 461 (Cal. 1934).
There remains, however, the question of how the State must proceed in a case of this nature; an issue that has received scant attention from the courts. As we perceive it, the principal difference between this case and one brought as a private class action is that the State is not a member of the class of persons whom it seeks to represent.
We likewise conclude that guidance as to the procedural aspects of a case such as this may be found in our own rule governing the maintenance of representative actions, Civil Rule 23. Of particular importance
Alaska R.Civ.P. 23(c)(2). Following this procedure will assure that those individuals who elect to be represented by the State will be bound by the judgment, "like any other persons whose claims are prosecuted by an authorized representative." McComb v. Frank Scerbo & Sons, 177 F.2d 137, 140 (2d Cir.1949) (Hand, C.J., concurring). And ensuring that the judgment has this res judicata effect will promote judicial economy by lending finality to litigation and protect the defendant from the unfair risk of being subjected to multiple lawsuits arising from the same claim. See Note, New York City's Alternative to The Consumer Class Action: The Government As Robin Hood, 9 Harv.J.Legis. 301, 345-47 (1972); California Corporations Code Section 25530(b): Government Agency Suit Versus The Private Class Action, 27 Hastings L.J. 265, 279-80 (1975).
In the instant case, the trial court instructed the State to notify all Windsong lot purchasers of the State's action against Brown. The purpose of such notice was to determine which purchasers wished to participate in any order of restitution ultimately decreed by the court. This notice, however, did not comport with the requirement discussed above that the notice state that those electing to participate will be bound by the final judgment, whether favorable or not. Consequently, whether the lower court's judgment in this case would be binding on each Windsong lot purchaser remains open to question. However we do not believe that this defect requires that the case be remanded for further proceedings. Before an individual lot purchaser receives money under a judgment ordering restitution, he should first consent in writing to be bound by that judgment. That will, under the circumstances of this case, in large part accomplish the goals of the notice requirement of Rule 23(c)(2).
C. Brown's Liability Under ULSPA
We must now determine whether the lower court's restitution order can be upheld under ULSPA.
AS 34.55.006 provides:
A person who disposes of subdivided land
AS 34.55.030(a). See Stepanov v. Gavrilovich, 594 P.2d 30, 33 (Alaska 1979).
With respect to the eighteen individuals who purchased Windsong lots on or after September 21, 1977, the date when ULSPA became applicable to sales of in-state land, Brown does not seriously dispute his liability. The trial court found that Brown knew, prior to developing Windsong, of the facts relating to the flood hazard. Brown does not contest those findings, nor does he contest the trial court's findings that the facts he misrepresented or omitted to mention were material. Since Brown had ample opportunity but failed to show facts which could constitute a defense under AS 34.55.030(a), ordering restitution under ULSPA was proper as to those individuals who purchased their lots on or after September 21, 1977.
The vast majority of purchasers on whose behalf restitution was ordered bought their lots prior to this date, however. Liability as to those purchasers under ULSPA, Brown argues, would require impermissible retrospective application of the Act to in-state subdividers. The State contends that because ULSPA is "remedial," it can be given retroactive effect. The State further claims that liability as to the pre-September 21, 1977 purchasers can be predicated on conduct by Brown that occurred after that date, thereby avoiding retrospective application of ULSPA.
AS 01.10.090 provides that "[n]o statute is retrospective unless expressly declared therein." Chapter 138, Sections 1-8, SLA 1977, which added AS 34.55.006 and amended ULSPA to apply to in-state subdividers, contains no such express declaration. Nor does its legislative history indicate that retrospective application was intended.
Matanuska Maid, Inc. v. State, 620 P.2d 182, 187 n. 8 (Alaska 1980). In that case we did hold that "mere procedural changes which do not affect substantive rights are not immune from retrospective application." Id. at 187. But the broad prohibitory language of AS 34.55.006 can hardly be characterized as bringing about mere procedural changes. Thus, we hold that ULSPA cannot be retrospectively applied to hold Brown liable for conduct predating its application to in-state land sales.
The State's argument in large part centers on the Act's definition of "offer."
We think it would be straining the language of the Act to hold that post-sale conduct designed to induce the continuation of payments constitutes an "offer" as that term is defined above. The continuation of payments under the land sales contracts involved here did not result in the acquisition by purchasers of further interests in land. Legal title to the property vested in the purchasers at the time the contracts were signed.
The State's reliance on Husted v. Amrep. Corp., 429 F.Supp. 298 (S.D.N.Y. 1977) is misplaced. That case involved the question whether a violation of the antifraud provisions of the federal Interstate Land Sales Full Disclosure Act could occur after the sale of land so that the plaintiff's claim would not be barred by the applicable statute of limitations. The court held that such a violation could occur, but emphasized that unlike S.E.C. Rule 10b-5, upon which the section at issue was in part modelled, the Act did not require that the violation occur "in connection with" the sale. Id. at 307. See also Fogel v. Sellamerica, Ltd., 445 F.Supp. 1269, 1274-75 (S.D.N.Y. 1978). AS 34.55.006, like the S.E.C. Rule, requires that the conduct complained of occur "in connection with" the sale.
This is not to say that fraudulent post-sale conduct could never constitute a violation of AS 34.55.006. If such conduct in fact occurred "in connection with" the offer, sale or purchase of subdivided land, then it would be actionable. Our review of federal decisions construing the scope of the "in connection with" requirement of S.E.C. Rule 10b-5 suggests that activity post-dating the time that the initial contract to
Id. at 412. In such an instance, the fraudulent conduct must occur at or before "the time when the parties to the transaction are committed to one another." Id., quoting Radiation Dynamics, Inc. v. Goldmuntz, 464 F.2d 876, 891 (2d Cir.1972). See also Clinton Hudson & Sons, v. Lehigh Valley Cooperative Farms, Inc., 73 F.R.D. 420, 425 (E.D. Pa.), aff'd mem., 586 F.2d 834 (3d Cir.1977).
Applying these principles to the instant case, we conclude that Brown's post-sale "lulling" conduct directed at pre-September 21, 1977 purchasers was not "in connection with" the sales to such purchasers. Brown's relationship with these purchasers was "in effect, a `one-shot deal,'" Goodman, 582 F.2d at 412, rather than one involving a "series of `investment decisions.'" Id. at 413. The parties were committed at the time the contracts were executed and the continued payments required thereunder involved nothing more than a means of effectuating "the ministerial exchange of the money" for the land. Id. at 412. Accordingly, Brown's liability, if any, to pre-September 21, 1977 Windsong lot purchasers cannot be predicated on violations of ULSPA.
IV. COMMON LAW FRAUD
We must now decide whether restitution as to the fifty-three purchasers who bought lots before the effective date of the ULSPA amendments can be upheld on the basis of common law fraud. This was in fact the basis for the trial court's restitution order. Brown contends that the State was without authority to enforce the common law rights of these purchasers. In addition, he argues that the trial court erred in applying the common law since the parties had tried the case under ULSPA.
A. The Attorney General's Common Law Powers
The duties of the Attorney General are statutorily set forth in AS 44.23.020(b). Among other things, that statute states that the Attorney General shall "perform all other duties required by law or which usually pertain to the office of attorney general in a state." AS 44.23.020(b)(7). In Public Defender Agency v. Superior Court, Third Judicial District, 534 P.2d 947, 950 (Alaska 1975), we stated that this language "indicates that the office of the Attorney General is to function with those powers and duties normally ascribed to it at common law." We further noted:
Id. (Citations omitted).
We believe that the above language forecloses any argument that the State is without authority to bring suit in the absence of express statutory authority. This view finds ample support in the decisions of other jurisdictions where the attorney general's common law powers are recognized. See, e.g., State v. Bristol-Myers Co., 470 F.2d 1276, 1278 (D.C. Cir.1972) (construing Illinois Law); D'Amico v. Board of Medical Examiners, 11 Cal.3d 1, 112 Cal.Rptr. 786, 520 P.2d 10, 20 (Cal. 1974); State ex rel. Shevin v. Yarborough, 257 So.2d 891, 894-96 (Fla. 1972) (Ervin, J., concurring); Lowell Gas Co. v. Attorney General, 377 Mass. 37, 385 N.E.2d 240, 247-48 (Mass. 1979); Michigan State Chiropractic Ass'n v. Kelly, 79 Mich.App. 789, 262 N.W.2d 676, 677 (Mich. 1977); Gandy v. Reserve Life Insurance Co., 279 So.2d 648, 649 (Miss. 1973); Hyland v. Kirkman, 157 N.J.Super. 565, 385 A.2d 284, 289-90 (N.J. Super. 1978); State ex rel. Derryberry v. Kerr-McGee Corp., 516 P.2d 813, 818 (Okl. 1973). This authority has been held to confer standing on the attorney general to seek redress for common law fraud. Lowell Gas Co. v. Attorney General, 377 Mass. 37, 385 N.E.2d 240; 247-48 (Mass. 1979); Hyland v. Kirkman, 157 N.J.Super. 565, 385 A.2d 284, 289-90 (N.J. Super. 1978).
We therefore hold that the State has the authority to bring suit in the public interest on the basis of common law fraud to obtain restitution for defrauded land purchasers. While it is not the court's function to pass upon the Attorney General's determination of what is or is not in the "public interest," see Public Defender Agency v. Superior Court, Third Judicial District, 534 P.2d 947, 950 (Alaska 1975), we do note that the trial court in this case found:
B. Brown's Liability For Common Law Fraud
The State did not allege that Brown should be held liable on the basis of common law fraud. The focus of the State's case against Brown was on ULSPA. On the first day of the trial, the lower court granted summary judgment in favor of Brown's engineer, Hausam, on the theory that his involvement in the Windsong development ceased prior to the effective date of the ULSPA amendments, which could not be retroactively applied. In response to a question by Brown's counsel, the trial court indicated that this ruling would apply to Brown as well, or in other words that Brown too could not be held liable for acts pre-dating September 1, 1977. During the trial, Brown presented evidence relating only to the defense of innocent misrepresentation provided in AS 34.55.030(a), the civil remedies section of ULSPA. Nevertheless, the trial court sua sponte relied on common law fraud to hold Brown liable for restitution to all Windsong lot purchasers who had elected to participate in the State's action, regardless of when they purchased their lots.
We agree with Brown that his right to a fair trial was jeopardized by the trial court's adoption of a new theory of the case. The focus of the pleadings, discovery, preliminary hearings, and earlier motions on ULSPA, coupled with the trial court's
We conclude, therefore, that as to Brown's liability to pre-September 21, 1977 purchasers, the case must be remanded for supplemental evidentiary hearings. On remand the parties and the lower court should devote particular attention to the issue of reliance, a necessary element to a common law claim for rescission of a land sales contract. Cousineau v. Walker, 613 P.2d 608, 612 (Alaska 1980). Although the lower court here found that all Windsong lot purchasers had relied on the false information supplied them by Brown, the present record does not support this finding. In all, only twelve of the purchasers listed in the court's restitution order testified either at the hearing on the preliminary injunction or at the trial. Of these twelve, only ten bought their lots prior to September 21, 1977. Because of this evidentiary void, we believe that it would be unfair, on the present record, to hold Brown liable to the pre-September 21, 1977 purchasers on the basis of common law fraud. See Landex, Inc. v. State ex rel. List, 582 P.2d 786, 790-92 (Nev. 1978). While Brown may have had the burden of going forward to produce evidence of non-reliance in order to avoid liability,
We do not agree with our dissenting colleague that the State's case against Brown as to the pre-September 21, 1977 purchasers should simply be dismissed. The trial court had inherent discretionary authority to inject the theory of common law fraud into the case. A trial court's authority to require the presentation of new legal theories is implied in Alaska R.Civ.P. 16(e) authorizing amendment of a pre-trial order without limitation as to time "to prevent manifest
The authority to decide a case on an unplead legal theory should be sparingly exercised. In particular it should only be used when the new theory applies to the transaction in issue, is related to the theories presented by the parties, and is necessary for a proper and just disposition of the case. Here, those standards can be reasonably regarded as having been fulfilled.
Where prejudice will result a court either should not employ a new theory or should take steps to eliminate the prejudice by giving notice that the new theory will be used and affording an opportunity to the parties to present evidence and arguments relevant to it. The error committed by the trial court in this case was not in invoking the theory of common law fraud, but in failing to give the parties notice that it would do so along with an opportunity to adjust their cases accordingly.
In MacCormack v. Robins Construction, 11 Wn.App. 80, 521 P.2d 761 (Wash. App. 1974) the plaintiffs brought suit alleging that the defendants had sold them defective homes in violation of the State's Consumer Protection Act. The lower court concluded that plaintiffs were not entitled to relief under the state act but, on its own initiative, transformed the suit into a claim for damages based on common law breach of warranty. The lower court then granted the defendants' motion to reopen the case to present additional evidence. When the case was later appealed, this action by the trial court was upheld as within its discretion.
Id. 521 P.2d at 763.
Here, remand will do what the trial court should have done once the decision to invoke common law fraud was made. It will give Brown an opportunity to present evidence relevant to the common law fraud theory and thus eliminate the possibility of prejudice which would otherwise result from the court's reliance on that theory. That trial of the common law fraud issue may result in Brown being liable to pre-September 1977 purchasers, whereas under the statute he is not, is not the type of prejudice which precludes a remand. See Wright v. Vickaryous, 598 P.2d 490, 496-97 (Alaska 1979).
V. JURY TRIAL
The State correctly notes that Brown did not demand a jury trial until more than thirty days after he had answered the State's second amended complaint. Under Civil Rule 38, demand for a jury trial must be made not later than 10 days after the service of the last pleading directed at an issue for which the right to a jury trial is claimed. Alaska R.Civ.P. 38(b). The Rule further provides that the untimely filing of such a demand constitutes a waiver of the right Alaska R.Civ.P. 38(d); Hollembaeck v. Alaska Rural Rehabilitation Corp., 447 P.2d 67, 68 (Alaska 1968). But, as Brown points out, the State twice amended its complaint after Brown's jury demand, each time adding additional parties and raising new issues. We need not decide, however, whether Brown's demand was timely, for, even if it was, it is clear that Brown had no right to a jury trial in this case.
Article I, section 16 of the Alaska Constitution provides in relevant part:
At common law, the existence of a right to trial by jury depended upon whether the claim asserted was legal or equitable in
VI. VALIDITY OF THE INJUNCTION
As part of its final judgment, the lower court permanently enjoined Brown from engaging in certain practices prohibited by the administrative regulations promulgated under ULSPA, 3 AAC 20.010-20.390.
The challenged regulations were adopted after publication of the following notice:
Article 1. General Provisions Article 2. Filing Procedures Article 3. Unfair Acts and Practices Article 4. Advertising and Promotion Plans Article 5. Protection of Purchasers Article 6. Severability
Brown contends that this notice was insufficient to convey any meaningful description of the proposed agency action.
AS 44.62.100(a) establishes a rebuttable presumption that the procedural requirements for the promulgation of administrative regulations have been satisfied. When a regulation is challenged for failure to comply with these requirements, the violation must be "substantial" before the regulation will be declared invalid. AS 44.62.300; Kingery v. Chapple, 504 P.2d 831, 834 (Alaska 1972). We think that Brown has failed to show a violation of the informative summary requirement substantial enough to overcome the statutory presumption of validity. The contents of the above summary gave members of the public sufficient information to decide whether their interests could be affected by the agency action and thus whether to make their views known to the agency.
VII. FIRST NATIONAL BANK AS A DEFENDANT
The relief sought by the State against First National Bank of Anchorage was a declaratory judgment that the Bank was not a "holder in due course" of the Windsong lot purchasers' promissory notes. The Bank held these notes as security for its loans to Brown used to finance the Windsong Subdivision. Although when delivered the notes were unendorsed, the collateral and loan agreements between Brown and First National authorized the Bank to endorse the notes to itself on Brown's behalf. After a time it did so and then notified purchasers that they were obligated to make their payments to the Bank, despite the lower court's directive that those purchasers seeking restitution should make their payments to the court registry. It was at this point that the State amended its complaint to add First National as a defendant.
The lower court dismissed the State's action against the Bank, reasoning that the State was without standing to
We have already had occasion to discuss the Attorney General's broad common law powers. What we have said is equally applicable to the question of the State's authority to sue the Bank.
Public Defender Agency v. Superior Court, Third Judicial District, 534 P.2d 947, 950 (Alaska 1975) (emphasis added). And, subject to constitutional bounds, what is or is not in the public interest is a matter committed to the Attorney General's sound discretion. Id. That the State saw fit to try to prevent First National from collecting on notes executed by persons whom it had reason to believe may have been the victims of fraud, is not a decision subject to the control or review of the courts. The trial court's concern that allowing the State to sue First National in the absence of a specific statutory violation by the Bank would create a "horrendous risk of overreaching" by the State as litigant, is answered by the observation that "the fact that the exercise of power may be abused is no sufficient reason for denying its existence." United States v. San Jacinto Tin Co., 125 U.S. 273, 284, 8 S.Ct. 850, 856, 31 L.Ed. 747, 751 (1888).
We conclude, therefore, that the trial court erred in dismissing the State's claim against First National. On remand, the State must be given the opportunity to show, with respect to the individual purchasers represented,
The judgment is AFFIRMED in part and REVERSED in part and the case is REMANDED for further proceedings consistent with this opinion.
RABINOWITZ, Chief Justice, dissenting in part.
My only disagreement with the court's disposition of the various issues in this appeal concerns its holding that determination of Brown's liability to pre-September 21, 1977 purchasers on the basis of common law fraud must be remanded for a second trial. The court reaches its remand conclusion on the following rationale: "The state did not allege that Brown should be held liable on the basis of common law fraud." Agreeing that Brown's right to a fair trial was jeopardized by the trial court's adoption of a new theory of the case, and refusing to countenance the trial court's re-engineering of the case to hold Brown liable for common law fraud, the majority has concluded that the matter should be remanded for trial of the common law fraud question.
I do not believe that a remand to address the issue of common law fraud is appropriate.
Even if I was persuaded that the issue of common law fraud had been raised and tried, in my view the appropriate disposition of the case would be to reverse a significant portion of the superior court's judgment ordering restitution to purchasers. As to these fifty-odd pre-September 21, 1977 purchasers, there is no evidence in the record concerning what misrepresentations, if any, were made to them or whether a particular purchaser relied on any such misrepresentation.
In my view, the court's disposition of the common law fraud issue also raises basic
Brown argued that he was exempt under this section because the transactions at issue were regulated under the Interstate Land Sales Full Disclosure Act, 15 U.S.C. §§ 1701-1720, which, Brown claimed, prohibits the practices alleged by the State in this case to violate AS 45.50.471. Although Brown had obtained an exemption from the registration provisions of the federal act, the trial court agreed that Brown was exempt from the Consumer Protection Act and granted summary judgment to Brown on that basis. Later in the case, however, the trial court concluded that the Consumer Protection Act did not apply to real property transactions. See Part II of this opinion, infra.
In City and Borough of Juneau v. Commercial Union Ins. Co., 598 P.2d 957 (Alaska 1979), we adverted to this provision as modifying to some extent the "iron-clad language" of AS 01.10.090. Id. at 958 n. 3. Thus, in Zurfluh v. State, 620 P.2d 690 (Alaska 1980), we held that AS 12.55.086, which relates to sentencing in criminal cases, could be retroactively applied for a 153-day period since "[t]he apparent intent of the legislature as [sic] that the benefits of this type of sentencing should be available to trial judges as soon as possible... ." Id. at 693.
While we have no quarrel with the rule suggested by Williston and the Restatement, its application
Hoffman v. Charnita, Inc., 58 F.R.D. 86, 91 (M.D.Pa. 1973). In our view, the absence of any notice to Brown that he was defending against common law fraud claims deprived him of a fair opportunity to rebut any inference of reliance that may have arisen.
Brown's due process argument is that since the regulations when promulgated applied only to out-of-state subdividers, he reasonably believed that he had no interest in them. Thus, he argues that application of the regulations to him without re-promulgating them denies him notice of and an opportunity to be heard in the administrative process. The only authority cited by Brown in support of his argument is City of Homer v. State, 566 P.2d 1314, 1319-20 (Alaska 1977). His reliance on that case is misplaced, however, since it involved due process requirements in connection with administrative action that is adjudicatory, rather than legislative, in nature. As Professor Davis notes, numerous regulations are promulgated without notice to or participation by those that might be affected. 1 K. Davis, Administrative Law Treatise § 6.01 (1958). In our judgment, Brown's due process argument is without merit.
For example, on the issue of Brown's alleged failure to inform purchasers that their riverside parcels might flood, several of the state's witnesses testified that they knew the area was prone to flooding. Another two witnesses explained that they were told by Brown's representative of the subdivision's history of flooding. Many purchasers told stories much like that told by Thomas Doggett, who explained that he had bought his lot "more or less on impulse" within two hours of first seeing it and that he "didn't think about it, didn't research it, didn't ask any of the neighbors nothing." In other words, even if the testimony of some purchasers established that those persons were entitled to rescind their transactions, that testimony also establishes that it is impossible to infer that Brown is liable to other purchasers; the testimony of record does not establish that all purchasers were in the same position or that they all were told the same thing.
Second, this is not a case in which defrauded consumers would be left without a remedy should the state be denied the remand opportunity to litigate the common law fraud issue on their behalf. Each and every landowner is free to maintain an individual suit should he or she wish to rescind the transaction or to recover damages.
Third, this is not a case in which significant judicial resources would be saved by litigating all purchasers' claims in a single class action type lawsuit. The state must prove its allegation of fraud as to each purchaser. On remand, the proceedings could become a confusing series of up to 53 mini-trials.
Fourth, this is not a case in which the state's objectives would be frustrated should individual purchasers be required to bring separate suits to vindicate their rights, if any. The state has repeatedly represented that its objective is not to redress individual purchasers' grievances but rather to vindicate its separate interest in "public law enforcement" by enjoining Brown from violating state law. Indeed, the state has already obtained precisely the relief that it claims to have been seeking, an injunction.
Fifth, this is a case in which Brown will suffer significant prejudice should the case be remanded for a second trial. There is the obvious prejudice of forcing Brown to incur the expense of a second trial which would not have been necessary had the state raised the theory that it now wishes to rely upon, and the prejudice of possible liability to purchasers who would not have been entitled to recover under the state's statutory theory of liability. Further, there is no assurance that Brown will not be faced with separate suits brought by individual purchasers after the state's suit comes to an end. The state's suit has no res judicata effect as to individual landowners, and landowners are not required to elect to participate in any judgment obtained by the state until after the lawsuit has drawn to a close. Thus, if the state loses, individual purchasers are free to ignore the state's suit and to file their own lawsuits; even if the state wins, no landowner is bound by the judgment, although it is plausible to assume that most landowners will elect to participate in the judgment rather than to bring separate suits.