The defendant below and appellant herein, Suarez Corporation Industries (hereinafter "SCI"), appeals an order of the Circuit Court of Kanawha County granting a preliminary injunction restricting the method and manner by which SCI may solicit consumers in West Virginia in the sale of jewelry and other products either manufactured or distributed by SCI. In reaching its decision, the circuit court found that there was reasonable cause to believe that SCI was engaging in or is likely to engage in conduct in violation of specific provisions of the West Virginia "Prizes and Gifts Act," W.Va.Code 46A-6D-1 to -10 (1992), and accordingly granted the preliminary relief requested prohibiting specified conduct found to be in violation of the Act. We affirm this ruling, with a modification limiting the duration of the temporary injunction.
The genesis of this injunction proceeding was a complaint filed by the Attorney General of West Virginia alleging violations of unlawful acts and practices under the West Virginia Consumer Credit and Protection Act, W.Va.Code 46A-6-104 (1974), and the West Virginia Prizes and Gifts Act, W.Va. Code 46A-6D-1 to -10 (1992), which is fully contained within the Consumer Credit and Protection Act, against four companies whose common business practice included the sale of consumer products through direct mail solicitations. SCI was not one of those named in the original civil action. Following additional investigation, however, the number of defendants in the original civil action was expanded to include SCI.
The factual underpinnings alleged by the Attorney General to support the request for injunctive relief concerned the deceptive and misleading methods utilized by SCI to sell various products. The central theme of the alleged deceptive and misleading practices used by SCI was to sell a product by convincing West Virginia consumers that they had won a prize or gift when, in reality, the award of the prize or gift was an illusion and nothing more than an elaborate ruse to sell SCI's product. This method of selling a product was alleged to have violated various provisions of the West Virginia Prizes and Gifts Act (hereinafter the "Act"), including: misrepresentation of having won a prize in violation of W.Va.Code 46A-6D-3 (1992); misrepresentation of eligibility to win or receive a prize in violation of W.Va.Code 46A-6D-4 (1992); misrepresentation of being a specially selected person in connection with the sale of a product in violation of W.Va. Code 46A-6D-5 (1992); and the improper use of simulated checks in connection with a sale of a product in violation of W.Va.Code 46A-6D-6 (1992).
The legal foundation for the temporary injunction was the exercise of the Attorney General's power to enforce the provisions of the Consumer Credit and Protection Act and, specifically, the power to temporarily enjoin any violation of the Act or any fraudulent or unconscionable conduct as contemplated within the West Virginia Consumer Credit and Protection Act, all as recited in W.Va. Code 46A-7-110 (1974).
The Circuit Court of Kanawha County conducted two separate hearings relating to the requests for temporary relief. The first hearing resulted in the granting of a temporary injunction on September 9, 1994. The second hearing resulted in a modification of that initial order, emerging from a motion filed by SCI to dissolve the initial injunction. It is this order, entered on November 3, 1994, which granted temporary injunctive relief, from which SCI appeals.
(1) No phase of SCI's sales scheme violates the Act;
(2) The method by which SCI sells its products in West Virginia is not "unconscionable conduct" within the meaning of W.Va. Code 46A-7-110 (1974);
(3) The method and manner by which SCI communicates with potential West Virginia consumers is protected "commercial speech" under the First Amendment to the United States Constitution and Article III, Section 7 of the West Virginia Constitution, and therefore cannot be prohibited;
(4) The Act, as applied, violates the Commerce Clause of the United States Constitution (Article I, Section 8) by application of the doctrine of the "dormant" or "negative" Commerce Clause which, by negative implication, limits a State's right to interfere with interstate commerce.
In order to better understand SCI's challenge to the temporary injunction, we need to scrutinize with some particularity the various methods used by SCI to sell its products in West Virginia. The Suarez sales scheme is an ingenious blueprint to persuade a potential consumer to purchase an article of jewelry or personal accessory of questionable value by creating the elaborate illusion that by purchasing the product the consumer not only acquires a valuable possession, but also joins a select group of people eligible to win a great deal of money.
STANDARD OF REVIEW
As is our custom, we begin any appellate analysis by first establishing the appropriate standard of review. In reviewing the exceptions to the findings of fact and conclusions of law supporting the granting of a temporary or preliminary injunction, we will apply a three-pronged deferential standard of review. We review the final order granting the temporary injunction and the ultimate disposition under an abuse of discretion standard, West v. National Mines Corp., 168 W.Va. 578, 590, 285 S.E.2d 670, 678 (1981), we review the circuit court's underlying factual findings under a clearly erroneous standard,
There is another more pointed justification for our deferential standard of review of the circuit court's granting of temporary relief within the provisions of W.Va.Code 46A-7-110 (1974).
Consequently, the judicial function is to supply a stopgap measure pending a final hearing when more permanent relief is sought. Therefore, our analysis of granting temporary relief under W.Va.Code 46A-7-110 (1974) is more narrow than the typical motion for a preliminary injunction.
The method of analysis which governs the propriety and scope of an injunction under W.Va.Code 46A-7-110 (1974) deviates from the customary standard for the issuance of temporary relief and may best be described as whether the Attorney General has shown by the existence of some credible evidence, even if disputed, that reasonable cause exists to believe that the respondent is engaging in or is likely to engage in conduct sought to be restrained. In other words, the Attorney General need not prove the respondent has in fact violated the Act, but only needs to make a minimal evidentiary showing of good reason to believe that the essential elements of a violation of the Act are in view.
APPLYING THE STANDARDS OF REVIEW
Applying these standards of review, we conclude that the Attorney General has satisfied the burden of offering both credible anecdotal and documentary evidence sufficient to support good reasons to believe that the essential elements of a violation of the Act are in view to the extent that reasonable cause exists to believe that SCI is engaging in, or is likely to engage in conduct which is sought to be restrained.
We begin our analysis by describing the means by which SCI sells their wares.
THE SALE OF A CUBIC ZIRCONIUM STONE
Typical of the type of product sold by SCI is a CZ diamond, encased in a ring, pendant, or earrings mounting. The plan used to sell this product is to notify potential consumers that they have won a prize, identified as an unmounted 1-carat Lindenwold CZ diamond simulant,
The artifice of teasing potential consumers with the free gift is that the CZ diamond is basically worthless unless the stone is mounted for $19. This is how it works:
In order to persuade consumers not to accept just the unmounted CZ diamond, the text of the solicitation is directed toward telling consumers that the opportunity for
This method of selling a mounted cubic zirconium stone for $19 establishes reasonable cause to believe that SCI is engaging in or likely to engage in conduct which may violate the following provisions of the Prizes and Gifts Act:
(1) that part of the Act which proscribes obligating a consumer in order to receive the gift or prize
(2) that part of the Act which requires delivery of a gift at no expense to the recipient and within ten days of the representation
(3) that part of the Act which requires the disclosure of the true retail value of the prize
(5) that part of the Act which proscribes using language that would lead reasonable persons to believe that they had been specially selected when that particular solicitation is part of a mass mailing
THE SALE OF A CLUTCH PURSE ENSEMBLE
In this solicitation, SCI is selling a five-piece clutch purse ensemble. The inducement used to sell this product is to notify potential consumers that they have won a cash prize of "as much as" $1,000.
The consumers are told that their cash prize has been placed in one of the five clutch purses, all of which may be purchased for a price of $12 plus $2 for shipping and handling.
While the consumers are told that they need not purchase the clutch purse ensemble to claim their cash prize, SCI presents its solicitation in such a manner as to give consumers the impression that they will be given special preference if they purchase the purse ensemble.
This method of selling a five-piece clutch purse ensemble for $12 plus $2 shipping and handling establishes reasonable cause to believe that SCI is engaging in or likely to engage in conduct which may violate the following provisions of the Prizes and Gifts Act:
(1) that part of the Act which requires delivery of a gift at no expense to the recipient and within ten days of the representation
(2) that part of the Act which requires the disclosure of the true retail value of the prize
THE SALE OF CANDLESTICK HOLDERS
It is SCI's goal in this solicitation to sell a product described as a pair of 24% heavy lead crystal candlestick holders. The purchase price of this product is $19. As an inducement to purchase the candlestick holders, SCI offers consumers a bonus of a glass heart-shaped dish at no additional cost. The candlestick holder purchasers are also eligible to win a $1,000 cash prize. The consumers are told that they do not need to purchase the candlestick holders to remain eligible for the $1,000 prize.
Superficially, it would appear that this method of selling a product is rather benign and an acceptable business practice. However well intended SCI may have acted in this method of selling a product, this marketing technique would also likely fail under the Act's scrutiny.
In order to entice consumers into purchasing the candlestick holders, SCI presents the text of the solicitation in such a way that would lead consumers to believe that their opportunity for winning the $1,000 cash prize improves if they purchase the candlestick holders. As with the mounted cubic zirconium stone and clutch purse schemes, SCI places numerous obstacles in the path of those who do not want to order the candlestick holders but wish to remain eligible for the $1,000 cash prize,
This method of selling candlestick holders for $19 establishes reasonable cause to believe
(1) that part of the Act which requires the true retail value of the prize or gift
(2) that part of the Act which proscribes the use of a simulated check without conspicuously disclosing its true value and purpose
While the product and technique used in each of the various solicitations may vary, there is a commonality that pervades every one of SCI's marketing schemes: SCI induces consumers to purchase its products through misleading statements, thereby creating in the minds of the consumers a false expectation that if they purchase the product, they will enhance their chances of winning a prize of significantly greater value than the product being sold, and if they do not purchase the product and merely accept the worthless gift, their chances of winning the substantial prize are greatly reduced. SCI's sweepstakes are nothing more than ingeniously crafted deceptive methods to sell its merchandise by deluding consumers with expectations of greater rewards if they purchase the product that is the subject of the solicitation.
SCI'S CHALLENGE TO TEMPORARY INJUNCTION
We earlier placed each of the reasons why SCI contends that the preliminary injunction granted by the circuit court should be dissolved upon this appeal into four categories.
Sufficiency of Evidence to Support Temporary Injunction Restraining Violations of the West Virginia Consumer Credit Protection Act and the Prizes and Gifts Act
We have described — with possibly more detail than necessary — how and why the
The West Virginia Prizes and Gifts Act was designed by the West Virginia Legislature to assist in protecting West Virginia citizens from being victimized by misleading and deceptive practices when a seller is attempting to market a product using a prize or gift as an inducement.
The record, which has been developed during the two hearings upon the preliminary injunction and placed before this Court, supports the circuit court's account of the evidence as being plausible when the record is viewed in its entirety. Accordingly, the finding that SCI is engaged in misleading and deceptive practices as enumerated in the temporary injunction order is not clearly erroneous. See supra note 6 for Syllabus Point 1, in part, In the Interest of: Tiffany Marie S., 196 W.Va. 223, 470 S.E.2d 177 (1996). SCI asserts that the findings of fact are flawed in that there was not a specific finding that any of the solicitations amounted to material misrepresentations. SCI maintains that when viewing the solicitations in their totality, they contain nothing more than standard puffing and hyperbole that is an acceptable and lawful practice when attempting to sell a product.
The circuit court found, however, and we agree that:
(1) SCI has used official sounding language in violation of W.Va.Code 46A-6D-5 (1992) to misrepresent special selection when, in fact, such letters go to thousands of consumers;
(2) That SCI's mailings deceive recipients as to the value of the prize or the item ordered; and
(3) That consumers mistakenly believe they are obtaining a bargain when, in fact, the fee or charge is often more than what the prize and the purchased item are worth combined.
While admittedly these findings do not use the words "material misrepresentation" or "actually misleading," such findings are not a necessary predicate to support a temporary injunction under W.Va.Code 46A-7-110 (1974).
It is clear from this record that SCI's solicitations induce a consumer to purchase a product, not necessarily with direct misrepresentations about a product,
We hold that under the West Virginia Prizes and Gifts Act, once the circuit court makes a finding that deceptive practices are used to affect a consumer's decision to purchase a product, then the circuit court is authorized, within the bounds of reason, to infer that the deception will constitute a material factor in a consumer's decision to purchase the product. See F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374, 392, 85 S.Ct. 1035,
We next address whether SCI, as a result of its solicitations, has engaged in unconscionable conduct. The circuit court, in denying SCI's motion to dissolve the temporary injunction, concluded that SCI's solicitations constituted unconscionable conduct.
SCI argues that mail solicitations do not place the same amount of pressure as would accompany a personal solicitation, thereby lacking the requisite level of overreaching necessary to constitute unconscionability. We agree that mail solicitations generally subject the consumer to a lesser degree of coercion than face-to-face or even telephone solicitations, see Shapero v. Kentucky Bar Ass'n, 486 U.S. 466, 475-76, 108 S.Ct. 1916, 1922-23, 100 L.Ed.2d 475 (1988) (discussing the coercive nature of solicitations in the context of a blanket prohibition on attorney solicitations which were not found to be misleading or deceptive),
One of the principals of SCI is Benjamin D. Suarez, whose design for a successful sales campaign through mail solicitation is contained in an exhibit introduced during one of the hearings upon the motion for preliminary relief. In his book, 7 Steps to Freedom II: How to Escape the American Rat Race, Mr. Suarez expresses a recurrent theme of assuring the sale of a product through a mail solicitation by baiting the sale with promises of prizes and rewards and warning the consumers that if they do not purchase a product and respond within a prescribed time period, they risk forfeiture of these prizes and rewards.
While we believe that mail solicitations require greater scrutiny than perhaps that of a personal or telephone solicitation, the record which we have reviewed supports the circuit court's conclusion of SCI's unconscionable conduct based upon an examination of the solicitations scheme, as a whole, measured against what Mr. Suarez attempted to accomplish in his manual for a successful sales campaign.
Are SCI's Solicitations Protected Under the Commercial Speech Doctrine and Therefore Cannot be Restrained?
SCI contends that all of its solicitations with potential West Virginia consumers are protected by the First Amendment to the United States Constitution and Article III, Section 7 of the West Virginia Constitution, and therefore cannot be restrained, and to the extent that the temporary injunction does just that, it cannot be enforced.
In order to fully understand SCI's position on this important constitutional consideration of the temporary injunction, we must briefly examine the evolution of the commercial speech doctrine.
The protection of commercial speech
In 1976, the Court in Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976), without expressly overruling either Valentine or Breard, held that commercial speech did not lack First Amendment protection. The cycle of commercial speech jurisprudence was completed in 1980 with the Court's decision in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n, 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980), in which the Court promulgated a four-part test for analyzing commercial speech cases.
Application of the
Central Hudson Test
In order to determine whether the text of the communications between SCI and its targeted consumers in West Virginia is entitled to any free speech protection within the meaning of the commercial speech doctrine, we are required to apply the four-step analysis mandated in Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n of New York, 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980).
What distinguishes the attack raised by SCI in this case from the typical commercial speech case, which concentrates on the governmental restriction expressed in a statute or regulation, is that SCI is not directly opposing the language or the provisions of the Prizes and Gifts Act. Instead, SCI confines its objections to the terms of the temporary injunction, which restricts its right to communicate with its customers and is therefore a violation of the First Amendment as applied to SCI. Accordingly, we will apply the Central Hudson four-part test to the terms of the temporary injunction to determine whether or not they improperly restrict SCI's right to sell its product through direct mail solicitation.
With this standard as a guide, we apply Central Hudson. The four steps in Central Hudson to determine the constitutionality of any restriction or regulation of commercial speech are as follows:
(1) The speech must concern lawful activity and not be misleading.
(2) Whether the State has a substantial interest in restricting the speech.
(3) Does the restriction directly advance the State's interest? (and)
(4) Is there a reasonable fit between the regulation and the State's interest?
Central Hudson Gas & Elec. Corp. v. Public Serv. Comm'n of New York, 447 U.S. 557, 564, 100 S.Ct. 2343, 2350, 65 L.Ed.2d 341 (1980).
The first step of Central Hudson is nothing more than an extension of the holding in Virginia State Bd. of Pharmacy, which extended First Amendment protection to commercial speech, but refused to extend that protection to deceptive commercial speech. Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 771, 96 S.Ct. 1817, 1830, 48 L.Ed.2d 346 (1976) ("Obviously, much commercial speech is not provably false ... but only deceptive or misleading. We foresee no obstacle to a State's dealing effectively with this problem.") This concept was then incorporated as step one in the Central Hudson test: "[f]or commercial speech to come within [First Amendment protection], it at least must concern lawful activity and not be misleading." Central Hudson, 447 U.S. at 566, 100 S.Ct. at 2351.
As we have detailed at some length in prior portions of this opinion, we agree with the circuit court's findings that SCI's solicitations, particularly in the sale of the cubic zirconium stones, clutch purses, and crystal candlesticks were misleading and deceptive.
We recognize that the effect of the temporary injunction is to impose prior restraints upon SCI's method and manner of selling its product to West Virginia consumers. Many courts have found repugnant any prior restraints on noncommercial speech, as well as certain types of commercial speech. Organization for a Better Austin v. Keefe, 402 U.S. 415, 419, 91 S.Ct. 1575, 1578, 29 L.Ed.2d 1 (1971) ("Any prior restraint on expression comes to this Court with a `heavy presumption' against its constitutional validity."); Nebraska Press Ass'n v. Stuart, 427 U.S. 539, 96 S.Ct. 2791, 49 L.Ed.2d 683 (1976). However, there is not a similar reluctance to uphold a prior restraint on misleading or deceptive speech. See United States Postal Serv. v. Athena Products, Ltd., 654 F.2d 362
As we have stated, the West Virginia Legislature, in W.Va.Code 46A-7-110 (1974), has empowered the Attorney General to obtain a temporary injunction against any conduct which provides reasonable cause to believe that there is either a violation of the Prizes and Gifts Act or that there is likely to be a violation of the Act. We hold that the Legislature is accorded considerable deference in restricting and regulating solicitations which are or may be deceptive or misleading, even to the extent of permitting prior restraints upon the deceptive solicitation. W.Va.Code 46A-7-110 (1974), as applied to the facts of this case, does not trespass upon First Amendment values.
While SCI does not specifically object to the absence of any time constraints within the injunction, we are troubled by any prior restraint that may extend longer than is necessary to effect the purpose of the Act. While the State has the right in this case to restrain deceptive commercial speech under the standard of proof required for a temporary injunction under W.Va.Code 46A-7-110 (1974), the restrictions imposed within the temporary injunction should not endure longer than is necessary to bring this matter to a final conclusion. Accordingly, we shall modify the temporary injunction by limiting it to a period not to exceed one hundred eighty (180) days after the mandate of this Court is issued.
Does the Temporary Injunction Violate the Dormant Commerce Clause?
SCI argues that the Prizes and Gifts Act as applied to it under the facts of this case violates United States Constitution, Article I, Section 8.
The central theme of this argument is that West Virginia, as expressed through the temporary injunction restraining SCI from specified business practices in violation of the Prizes and Gifts Act, is interfering with interstate commerce. SCI contends that West Virginia is interfering with interstate commerce in two ways. First, since no West Virginia residents were among the defendants named in the original and amended complaint, then by implication West Virginia is favoring West Virginia businesses. Second, West Virginia is enforcing the Prizes and Gifts Act in such a manner that it imposes a burden on interstate commerce that exceeds its supposed purpose. We reject both contentions.
Nothing in the Commerce Clause of the United States Constitution expressly restricts the power of a State to regulate a subject of interstate commerce. Emerging, however, from the absence of any language explicitly limiting a State's power to interfere with interstate commerce is the doctrine linked to the Constitution's silence known as the negative or dormant Commerce Clause.
The dormant Commerce Clause is a judicially framed doctrine that no State has the unlimited, unrestricted power to interfere with the flow of interstate commerce. In other words, through a series of decisions, the United States Supreme Court has developed a rule that no State may legislate that certain products may not enter through its borders. See H.P. Hood & Sons, Inc. v. Du Mond, 336 U.S. 525, 69 S.Ct. 657, 93 L.Ed. 865 (1949); City of Philadelphia v. New Jersey, 437 U.S. 617, 98 S.Ct. 2531, 57 L.Ed.2d 475 (1978). While the doctrine expressed as the dormant Commerce Clause has been sharply criticized both in case and scholarly comment, it survives to the extent we must respond to its application to the facts of this case.
The second level of judicial review recognizes that when a State acts to safeguard the health, safety, and welfare of its citizens, then, inevitably, there will be incidental burdens on interstate commerce which may be unavoidable. In these situations, the Court has adopted a more flexible approach by framing a balancing test which is best described in Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844, 847, 25 L.Ed.2d 174 (1970) as:
As we have indicated, SCI contends that the temporary injunction constitutes "simple economic protectionism," since no West Virginia-based business is included in the universe of defendants whose mail solicitations are being scrutinized. SCI is not criticizing the Prizes and Gifts Act as not being worded in a manner that is even-handed to effectuate a legitimate local purpose; instead it is asserting that the manner in which the Act is enforced is a de facto economic blockade of out-of-state businesses. We find nothing in this record to support a purposeful or even incidental exclusion of West Virginia businesses who are engaged in the same or similar activities as SCI.
We can only speculate that the reason the Attorney General did not join any West Virginia-based businesses was either (1) there are no businesses in West Virginia engaged in the same or similar business activities; or (2) if there are West Virginia businesses who are engaged in the same or similar business activity, then their method of doing business does not follow the same business practices as the out-of-state businesses, including SCI.
In any event, the burden of producing some credible evidence suggesting a selective enforcement of the Act would be on SCI, which it has failed to sustain.
Finally, SCI contends that even if the Act is non-discriminatory, both in terms of language and enforcement, the Act as applied to SCI imposes a burden on interstate commerce that exceeds its putative purpose and is therefore invalid. This argument requires the application of the balancing test outlined in Pike v. Bruce Church, Inc., supra.
SCI complains that while the Act properly promotes West Virginia's legitimate interest in protecting its citizens against misleading and deceptive sales techniques, the injunction goes too far in its reach by prohibiting not only deceptive and misleading solicitations in violation of the Act, but also representations that are wholly truthful. The breadth of the injunction, argues SCI, is "clearly excessive in relation to the putative local benefits" and thus fails the balancing test in Pike v. Bruce Church, Inc., supra.
The fallacy in SCI's position is that the only conduct which is restrained by the temporary
The temporary injunction does not violate the dormant Commerce Clause.
We have reviewed the temporary injunction issued by the circuit court exclusively within the perspective of W.Va.Code 46A-7-110 (1974), which manages the temporary enforcement of the Prizes and Gifts Act until a final hearing can be conducted on the merits of all the relief sought in the amended complaint.
Measured by the standards introduced in this opinion for reviewing a temporary injunction under W.Va.Code 46A-7-110 (1974), we find that the Attorney General has offered sufficient evidence to establish reasonable cause to believe that SCI is engaging in or is likely to engage in conduct proscribed by the Prizes and Gifts Act. For this reason, the decision of the Circuit Court of Kanawha County granting the temporary injunction is affirmed, with the modification that its terms shall remain in effect for a period not to exceed one hundred eighty (180) days from and after the mandate of this Court.
Affirmed, as modified.
MILLER, Retired Justice, sitting by temporary assignment.
ALBRIGHT, J., did not participate.
(emphasis added) (Note: Because of the structure of the statute, subparts i, ii and iii listed under subpart (2) also apply to subpart (1).).
In connection with a consumer transaction, no person may issue any writing which simulates or resembles:
Id. at 2-82 (emphasis added).
Id. at 2-91 to 2-92.
Id. at 2-92.
Id. at 2-98 (emphasis added).
Id. at 2-99 (emphasis added.)
Id. at 2-100 (emphasis added).
Sir Walter Scott, Marmion, Poetical Works 89, 161 (J. Logie Robertson ed., 1967).
It is the tangled web of the total SCI sales campaign that the circuit court found to be unconscionable.
Id. at 259-60, 107 S.Ct. at 2826 (Scalia, J., concurring, in part, and dissenting, in part) (citations omitted).
There is also a substantial body of scholarly comment and criticism of the dormant Commerce Clause. One of the more exhaustive treatments of this subject is Patrick C. McGinley, Trashing the Constitution: Judicial Activism, the Dormant Commerce Clause, and Federalism Mantra, 71 Or.L.Rev. 409 (1992).