Consumer Protection Division v. Outdoor World Corp.

WILNER, Chief Judge. The Consumer Protection Division of the Office of the Attorney General, after extensive hearings, concluded that appellee, Outdoor World Corporation (OWC), had engaged in unfair and deceptive trade practices in violation of the State Consumer Protection Act, whereupon the Division entered an Administrative Order providing broad injunctive and restitutionary relief. The Circuit Court for Baltimore City vacated that order in its entirety, however, concluding that the Division had no jurisdiction to control the activities addressed by the order. The Division appeals from that decision.

I. Procedural History OWC, a Pennsylvania corporation, owns a number of campgrounds along the East Coast, none of which are in Maryland. The company sells memberships in these campgrounds, allowing the purchaser to use a site, subject to certain restrictions and fees. Its marketing strategy is centered around the mass mailing of written material which neither identifies OWC nor mentions anything about campsites. Instead, it states that the recipient has definitely won at least one prize from among several listed in the material and strongly suggests that he or she may also have won or be eligible to win a. prize of considerable value.

The notice recites no conditions to claiming the prize other ²⁷⁹ than appearing at a particular location, being in all cases one of OWC’s campgrounds. Using different aliases, OWC mails out some 30 to 40 million of these notices each year. When, in response to them, people arrive to collect their prizes, they are told that, in order to obtain the prize, they must first take a tour of the campground and listen to a sustained and aggressive sales pitch, all of which can take the better part of a day. Although prizes may eventually be given, they are generally of little value and, in many instances, require payment of a “redemption” fee.

The Division asserts, without contradiction, that OWC has been mailing these notices to Maryland residents since 1984, that in the 10-month period from November, 1988 through September, 1989, it mailed nearly six million notices to Maryland residents, that some 43,000 Marylanders visited OWC campgrounds since 1986, and that approximately 5,000 Marylanders purchased campsite memberships. OWC informs us that it has collected or is entitled to collect about $60,000,000 from the sale of these 5,000 memberships. On May 31, 1989, the Division formally charged OWC with false and misleading solicitations and unfair and deceptive sales tactics. In support of the first charge, the Division alleged that the OWC notices mailed to Maryland residents had the effect of causing the recipients to believe that they had won or were likely to win a valuable prize when in fact there was but a minuscule likelihood that such was the case, that the notices failed to disclose that they were, in reality, solicitations to sell campsites, that by the use of assumed and misleading names the notices also represented that OWC had a sponsorship or affiliation that it did not have, that the notices failed to inform the recipients that they would be required to pay money or take a tour in order to claim the prize, and that the notices failed to disclose on the first page the retail value of the prize and the odds against winning it. ²⁸⁰ The first charge centered on the solicitations mailed into Maryland; the second charge dealt principally with OWC’s conduct at the campsites.

In it, the Division complained about the length of the tour and the length and nature of the sales promotion to which prospective customers were subjected, including assertions that, in the course of the promotion, OWC made false statements regarding the nature and availability of its facilities, false assurances concerning the customers’ right to rescind contracts, and false representations that the price demanded for a campsite was valid only for that day and would be higher thereafter. The conduct complained of was alleged by the Division to violate Md.Code, Comm. Law art., §§ 13-303 and 13-305. Section 13-303 prohibits a person from engaging in any “unfair or deceptive trade practice, as defined in this subtitle” in the sale or offer for sale of any consumer realty, consumer goods, or consumer services.

The term “unfair or deceptive trade practice” is defined in § 13-301 as including any false or misleading oral or written statement which has the capacity, tendency, or effect of deceiving or misleading consumers (§ 13-301(1)), any representation that consumer realty has a “sponsorship” which it does not have (§ 13-301(2)), any failure to state a material fact if the failure deceives or tends to deceive (§ 13-301(3)), any false or misleading representation of fact which concerns either the reason for, existence, or amount of a price reduction or a comparison with the price offered by the seller at a past or future time (§ 13-301(6)), and any deception, misrepresentation, or omission of material fact with the intent that the consumer rely on it in connection with the promotion or sale of consumer goods, realty, or service (§ 13-301(9)). Section 13-305 deals specifically with the offering of prizes. Subsection (b) makes it unlawful, as part of an advertising scheme, to notify a person that he has won a prize or has been selected or is eligible to receive anything of value if the person is required to purchase goods or services, pay any money, or submit to a sales promotion effort in order to claim the prize. Subsection (c) requires ²⁸¹ that, in any prize-offering scheme not prohibited by subsection (b), the seller must disclose to the offeree, clearly and conspicuously, certain information, including a statement that the purpose of the promotion is to solicit the purchase or rental of real estate, the number of prizes in each category that will be available, the suggested or comparable retail price of the prizes, and the odds against winning each prize.

These disclosures must appear on the first page of the prize notification document. Hearings were conducted on the Division’s complaint before a hearing officer. On April 2, 1990, the hearing officer filed his proposed findings of fact and conclusions of law. After citing and relying upon a great deal of the testimonial and documentary evidence presented to him, he found that, by virtue of their language and composition, the notices mailed into Maryland (1) created a false impression that the recipient had won and would receive a major prize — an expensive car, a considerable amount of cash, an expensive television set, for example — when, in fact, there was very little likelihood that such was the case, and (2) deceived the recipient as to the value of the awards.

He found that that false impression induced Maryland residents to visit the OWC campsites in Pennsylvania and Virginia, which they would not otherwise have done, that many people so induced had no interest in campsites or camping and did not know that OWC’s purpose in luring them there was to sell them a campsite, and that the sole purpose of their visit was to claim the prize they believed they had won. Once at the campsite, the hearing examiner found, the people were required to take a tour of the premises as part of a high-pressure sales promotion that lasted as long as nine hours and was designed to peel away their resistance and cause them to act swiftly to purchase a membership. They were not allowed to consult among themselves or with anyone else and were unlikely to review the contract documents put before them, and, when they did ultimately agree to buy a membership, the contract documents contained terms and conditions different than those orally ²⁸² agreed upon. OWC, he determined, misrepresented the pricing of the memberships, the ability of customers to rescind the contract and receive a refund of their money, and their ability to transfer or assign their memberships.

Upon these findings, the hearing officer concluded that (1) both the written notices mailed to persons in Maryland and certain oral statements made by OWC personnel at the campgrounds had the capacity, tendency, or effect of deceiving or misleading consumers, and therefore constituted an unfair or deceptive trade practice under § 13-301(1); (2) the Division had failed to prove that OWC, despite the use of fictitious names in its notices, had engaged in any practice that misrepresented its sponsorship or affiliation in violation of § 13-301(2); (3) through its notices, coupled with its conduct at the campgrounds, OWC failed to disclose to consumers material facts, the nondisclosure of which tended to deceive them, in violation of § 13-301(3); (4) through representations made at the campground regarding price discounts, OWC had made false or misleading statements concerning price reductions and price comparisons, in violation of § 13-301(6); (5) by subjecting consumers to high pressure sales tactics and other conduct at the campgrounds, OWC had demonstrated an intent that consumers rely on the various misrepresentations and omissions found by the hearing officer, in violation of § 13-301(9); (6) by requiring persons to submit to a tour and other sales promotion efforts in order to claim their prize, OWC violated § 13-305(b); (7) by failing to include certain disclosures on page 1 of the notice, OWC violated § 13-305(e) and (g); and (8) to the extent that OWC’s practices were unfair or deceptive and thus in violation of § 13-301, they also constituted unfair or deceptive trade practices in violation of § 13-303. OWC filed lengthy exceptions to the hearing officer’s proposed findings, conclusions, and order. It claimed that the hearing officer was biased, that many of his findings and certain provisions in his proposed order were not supported by substantial evidence, that the blanket prohibition ²⁸³ in the Maryland law against requiring the taking of a tour in order to receive a gift transgressed OWC’s freedom of commercial speech and its right to engage in interstate commerce, that there was no evidence that any consumer purchased a campsite or suffered any damage as a result of the solicitation mailed into Maryland, and, generally, that “Maryland lacks the power to reach sales practices occurring outside her borders.” OWC’s exceptions were heard by William Leibovici, Chief of the Division, who, on September 14, 1990, adopted the hearing officer’s findings and conclusions, with minor amendments. Concomitantly, Mr. Leibovici overruled the specific exceptions OWC had filed to the proposed findings and conclusions and, on behalf of the Division, entered a final administrative order.

The order contained a broad spectrum of both injunctive and restitutionary provisions. The injunctive sections directed OWC to cease and desist the mailing of solicitations into Maryland unless (1) they contain certain specified disclosures in 12-point bold type on page 1 of the solicitation, (2) all Marylanders visiting a campground in response to a solicitation are immediately given their prizes and a Notice, the form of which was attached to the order, (3) Marylanders were not required to pay any money to obtain their prizes, (4) the solicitations comply with § 13-305, (5) if a prize is offered, they make clear that the solicitation is from OWC and do not indicate that a prize is being offered or a promotion is being sponsored by any other entity, (6) responding consumers either will not be asked to enter into contracts on the day of their initial visit or are given a 10-day period in which to rescind the contract, (7) if the solicitations offer a prize, they do not mislead consumers regarding the likelihood of winning any particular prize, (8) they do not represent that the retail value of the prize is greater than it is, (9) they do not create a false sense of urgency, (10) OWC does not induce responding consumers to enter into contracts by use of a sales presentation that (i) conceals or misstates the nature or terms of the contract, (ii) makes misleading price compari ²⁸⁴ sons, (iii) misrepresents the nature and availability of discounts or the contents of contract documents, or (iv) fails to disclose all costs associated with an OWC membership prior to the consumer signing the contract, (11) OWC complies with any cancellation rights that consumers are told they have, and (12) OWC submits to the Division, in advance, a copy of any solicitation it plans to mail into Maryland along with certain information regarding any prizes it will be offering. Apart from these injunctive provisions, the order directed OWC to cease efforts to collect payments from Maryland consumers on their membership contracts until completion of a claims procedure established in the order. Under that procedure, Marylanders who visited OWC campsites on or after June 1, 1984 in response to an OWC solicitation that violated § 13-305 and who went on a tour or listened to a sales presentation in order to obtain their prize were given the right to rescind their membership contracts and receive a full refund of all monies they had paid on the contract.

Consumers who paid redemption fees in order to obtain prizes were entitled to a full refund of the amount paid and those who received redemption certificates but who had not yet paid any fee were entitled to their prize without payment of a fee. To implement this procedure, OWC was required to provide to the Division a list of all consumers who visited OWC in response to a solicitation mailed into Maryland on or after June 1, 1984 or who bought memberships after that date and separate lists of consumers who paid redemption fees or received redemption certificates. From these lists, the Division would notify the consumers of their respective rights under the order. OWC was directed to pay $30,000 toward the cost of the claims procedure and $1,000,000 into a restitution fund.

If the Division was unable to collect from OWC the full amount needed to implement the restitution program, each member’s refund would be reduced by $100 for each week he or she used an OWC campsite after becoming a member. ²⁸⁵ Distraught at both the administrative order and the findings and conclusions upon which it was based, OWC appealed to the Circuit Court for Baltimore City which, in a Memorandum and Order filed May 20, 1991, vacated in its entirety the Division’s order. The court did not reach OWC’s complaint that the Division’s findings were unsupported by substantial evidence, although at one point in its Memorandum it stated that “[tjhere is more than substantial evidence to support a finding that [OWC’s] mailpieces are misleading.” Instead, it concluded, as a matter of law, that “the Division’s final order exceeds its jurisdiction.” This, in turn, was based on its conclusion that the conduct the Division was seeking to regulate occurred entirely outside the State of Maryland — that the solicitations mailed into Maryland “do not cause Marylanders to purchase campground memberships,” but rather the memberships are sold through high-pressure sales promotions occurring in other States. The court explained, in this regard: “The Division could correct any illegalities in the mailing of deceptive solicitations into Maryland without restricting Outdoor World’s actions occurring solely outside this state. The Consumer Protection Division’s regulation of the actions occurring in Pennsylvania, Virginia, or other states reaches too far.

The nexus between the mail solicitation and the consummated sale of the campground membership is too tenuous to justify regulation as extensive as that provided for in the Division’s Final Order.” The court’s concern was that the administrative order “usurps the power of other states to regulate sales practices of corporations conducting business within their borders” and that it “unfairly assumes powers properly exercised by other States’ legislatures.” Though acknowledging that the solicitations mailed into Maryland were misleading, the court made no attempt to salvage those parts of the administrative order dealing just with those solicitations or to remand the case to the Division for a narrower order, but instead reversed the order in its entirety. ²⁸⁶ II. The Issues Although the parties have chosen to frame the issues before us in different terms, we see the appeal as initially presenting the following basic questions: If a solicitation mailed into Maryland in an effort to induce Marylanders to purchase or lease consumer goods, services, or realty would be regarded as constituting one or more unfair or deceptive trade practices, in violation of the Maryland Consumer Protection Act, had all of the conduct making