Rein v. Koons Ford, Inc.

RODOWSKY, Judge. Under the Maryland law of conflict of laws Maryland courts do not enforce the “penal” laws of other states or nations. The principal question in this case is whether a Virginia consumer protection statute on which the instant transitory action is based is a “penal” statute in the conflict of laws sense. As hereinafter explained, we shall hold that the statute is not penal.

The judgment appealed from was entered on a motion to dismiss. Appellant, Bert W. Rein (Rein), filed a complaint in the Circuit Court for Montgomery County against the appellee, Koons Ford, Inc. (Koons). Rein is a resident of Montgomery County, Maryland, who, we are told, works in the District of Columbia. Koons is a Virginia corporation which conducts an automobile dealership business in Falls ¹³³ Church, Virginia.

Rein purchased an automobile from Koons at the Falls Church location in April 1988. The complaint alleges that, throughout the Washington, D.C., metropolitan area, Koons advertised that various models could be purchased at specified prices, plus “taxes and tags” and freight. Rein further avers that, because Koons also charged a $99.90 “document preparation” fee without disclosing that fee in its advertisement, Koons violated Virginia Code Ann. § 18.2-216 (1960, 1988 Repl.Vol.) which provides: “Any person, firm, corporation or association who, with intent to sell or in anywise dispose of merchandise, securities, service or anything offered by such person, firm, corporation or association, directly or indirectly, to the public for sale or distribution or with intent to increase the consumption thereof, or to induce the public in any manner to enter into any obligation relating thereto, or to acquire title thereto, or any interest therein, makes, publishes, disseminates, circulates or places before the public, or causes, directly or indirectly to be made, published, disseminated, circulated or placed before the public, in a newspaper or other publications, or in the form of a book, notice, handbill, poster, blueprint, map, bill, tag, label, circular, pamphlet or letter or in any other way, an advertisement of any sort regarding merchandise, securities, service, land, lot or anything so offered to the public, which advertisement contains any promise, assertion, representation or statement of fact which is untrue, deceptive or misleading, or uses any other method, device or practice which is fraudulent, deceptive or misleading to induce the public to enter into any obligation, shall be guilty of a Class 1 misdemeanor.” Rein sues on his own behalf and seeks also to sue on behalf of a class consisting of “all persons similarly situated in Maryland who purchased new automobiles from [Koons] ¹³⁴ within three years of the filing of [the] Complaint.” 1 The complaint does not specify where Rein read the allegedly deceptive ad and, consequently, does not exclude Rein’s having read it in Virginia. For himself, and for each member of the proposed class, Rein seeks $100 pursuant to Virginia Code Ann. § 59.1-68.3 (1950,1987 Repl.Vol.).

That section in relevant part reads: “Any person who suffers loss as the result of a violation of Article 8 (§ 18.2-214 et seq.), Chapter 6 of Title 18.2 or Chapter 2.1 (§ 59.1-21.1 et seq.) of Title 59.1 of this Code shall be entitled to bring an individual action to recover damages, or $100, whichever is greater. ... Notwithstanding any other provision of law to the contrary, in addition to the damages recovered by the aggrieved party, such person may be awarded reasonable attorney’s fees.” Koons moved to dismiss the complaint for the reasons set forth in a legal memorandum filed in support of the motion. At a hearing on that motion the circuit court expressly declined to rule concerning the grounds advanced by Koons. The court dismissed the complaint based on its conclusion that § 59.1-68.3 was a penal statute which the court could not enforce.

Rein appealed to the Court of Special Appeals, and this Court issued the writ of certiorari prior to review by the intermediate appellate court. Appellant contends that § 59.1-68.3 of the Virginia Code is not penal. Koons now joins issue on that point. Additionally, Koons asserts that, even if the reason given by the circuit court was incorrect, the judgment is supported by the other reasons advanced by Koons in the trial court.

Essentially these arguments are that (A) the statute requires actual damage, which has not been alleged; (B) the statute cannot be applied extraterritorially; and (C) the action is an improper class action so that claims of the class ¹³⁵ members cannot be aggregated to meet the minimum monetary jurisdiction of the circuit court. I “Most causes of action, whether based on statutes or on common law, are transitory, which means that actions can be maintained upon such causes of action in states other than that in which the cause of action arose.” R. Leflar, American Conflicts Law, at 85 (3d ed. 1977). Rein’s theory of the case is that § 59.1-68.3 of the Virginia Code created a transitory cause of action on which Rein sues in Maryland. Koons does not challenge the jurisdiction of the Circuit Court for Montgomery County over its person.

No issue of forum non conveniens has been raised. Compare Johnson v. G.D. Searle & Co., 314 Md. 521 , 552 A.2d 29 (1989) (personal injury actions by nonresidents based upon foreign products liability law erroneously dismissed on forum non conveniens grounds absent condition that defendant waive statute of limitations at more convenient forum). In dismissing the instant action the circuit court relied on the rule that “[n]o action will be entertained on a foreign penal cause of action.” Restatement (Second) of Conflict of Laws § 89 (1969). Of course, to apply the rule one must identify that which is “penal” within the meaning of the rule.

This Court recognizes the rule and identifies penal statutes by the test established in Huntington v. Attrill, 146 U.S. 657 , 13 S.Ct. 224 , 36 L.Ed. 1123 (1892), rev’g, 70 Md. 191 , 16 A. 651 (1889). See Texaco, Inc. v. Vanden Bosche, 242 Md. 334 , 219 A.2d 80 (1966); Lambros v. Brown, 184 Md. 350 , 41 A.2d 78 (1945). In Huntington, this Court had refused to enforce a New York statute making liable for corporate debts those officers who had signed a false report. The Supreme Court reversed, holding that the New York statute was not penal under the following test: “The question whether a statute of one State, which in some aspects may be called penal, is a penal law in the ¹³⁶ international sense, so that it cannot be enforced in the courts of another State, depends upon the question whether its purpose is to punish an offence against the public justice of the State, or to afford a private remedy to a person injured by the wrongful act.” 146 U.S. at 673-74 , 13 S.Ct. at 230 , 36 L.Ed. at 1130 .

Our Lambros decision, applying the Huntington test, held that the Emergency Price Control Act of 1942 was not penal even though the statute permitted the buyer who had been overcharged to bring an action for the greater of $50 or three times the excess of the consideration paid over the applicable maximum price. Texaco, Inc. v. Vanden Bosche, supra, involved a Virginia statute imposing personal liability on the directors, officers and agents of a foreign corporation which transacted business in Virginia without having obtained a certificate of authority. Judge Hammond, writing for the Court, cleared certain pre-Huntington underbrush from Maryland law and decided that the Virginia statute was “primarily compensatory to creditors and not penal.” 242 Md. at 339 , 219 A.2d at 83 . The proper focus, therefore, is on whether the individual plaintiff sues to vindicate a private right.

Loucks v. Standard Oil Co. of New York, 224 N.Y. 99 , 120 N.E. 198 (1918). The fact that the statute additionally punishes the wrongdoer or helps to deter unwanted conduct does not turn the statute into a penal law. Chief Judge Cardozo, speaking for the Court of Appeals of New York in Loucks , stated: “A statute penal in [the international sense] is one that awards a penalty to the state, or to a public officer in its behalf, or to a member of the public, suing in the interest of the whole community to redress a public wrong. ... The purpose must be, not reparation to one aggrieved, but vindication of the public justice.” 224 N.Y. at 102-03 , 120 N.E. at 198 .

Restatement (Second) Conflict of Laws, § 89, comment a puts the concept this way: ¹³⁷ “[The penal law exception] applies only to actions brought for the purpose of punishing the defendant for a wrong done by him____ [T]he rule does not apply to actions brought by a private person or public body to recover compensation for a loss.” In the matter at hand the two Virginia statutes illustrate the distinction between penal and nonpenal laws, and Rein clearly bases his action on the nonpenal statute. Section 18.2-216 creates a statutory misdemeanor. That portion of § 18.2-216 set forth above is nearly verbatim “a Model Statute drawn up in 1911 by Mr. Harry D. Nims at the instance of Printer’s Ink, a magazine published for advertisers. The statute became known as the Printer’s Ink Model Statute and soon received the indorsement of the various organizations interested in truthful advertising.

The statute made advertisers criminally responsible for false or misleading statements or representations of fact in any type of advertising, excluding only oral statements. It did not require knowledge or intent to deceive on the advertiser’s part, or reliance on his statement by, or damage to anyone. It imposed absolute responsibility on anyone guilty of the prohibited act.” Comment, Untrue Advertising, 36 Yale L.J. 1155 , 1156-57 (1927) (footnote omitted). The Printer’s Ink Model Statute was enacted in Virginia by the 1924 Acts of Assembly, ch. 409.

See Comment, Untrue Advertising, supra, at 1157 n. 11. 2 Section 59.1-68.3 incorporates § 18.2-216 by reference and entitles “[a]ny person who suffers loss as the result of a violation of” the incorporated section “to bring an individual action to recover damages, or $100, whichever is greater.” The statute was first enacted by 1973 Virginia Acts of Assembly, ch. 537. The later enactment seems clearly ¹³⁸ intended to provide a private civil remedy as an alternative to criminal prosecution for the same conduct proscribed by § 18.2-216. The monetary recovery is awarded to the person who suffered the loss as a result of the violation, and not to the Commonwealth of Virginia or to any of its political subdivisions. Section 59.1-68.3 is not a penal statute in the conflict of laws sense.

Koons contends that the later statute is penal because enforcement of the civil remedy is contingent on a violation of the earlier enacted criminal statute. But the criminal statute is “penal” only if it is directly enforced by the state. It is not “penal” when used, through incorporation by reference, to provide elements of a cause of action for damages. Mexican Nat’l R. Co. v. Slater, 115 F. 593 (5th Cir.1902), aff'd, 194 U.S. 120 , 24 S.Ct. 581 , 48 L.Ed. 900 (1904), illustrates that a statute may be remedial even though the acts which give rise to civil liability also constitute a criminal offense.

In that case the plaintiffs were the surviving wife and children of a party killed in Mexico by the negligence of the defendant. The law of Mexico created a class of crimes termed “negligent crimes.” In addition, commission of the crimes gave rise to civil liability. In a suit brought in Texas based on Mexican law the defendant demurred, asserting that the remedy was based upon a penal statute. The court separated the civil remedy from the criminal liability provided by the Mexican law and held that the law was not penal in the international sense.

It created a civil action to recover damages for a civil injury. Id. at 603. Osborn v. Borchetta, 129 A.2d 238 (Conn.Super.Ct.1956), is also analogous to the case at bar. That case involved a wrongful death action in Connecticut based on a New York dramshop act.

Section 65 of the New York Alcoholic Beverage Control Law, McK.Consol.Laws, C. 3-B, made it a crime to sell intoxicating beverages to an intoxicated person. Id. at 239 . Section 16 of New York’s Civil Rights Law, McK.Consol.Laws, C. 6, gave a ¹³⁹ cause of action to any person injured by an intoxicated person against any person “who shall, by unlawfully selling liquor to such intoxicated person, have caused or contributed to the intoxication.” Id. (emphasis added).

The Superior Court of Connecticut found that the civil action in Connecticut was not barred by the penal law exception. The court distinguished between statutes imposing punishment for an offense against the state and those giving a private action against the wrongdoer. See id. at 240 . The dramshop act had important remedial features and any damages recovered did not inure to the state.

Id. Becker v. Computer Sciences Corp., 541 F.Supp. 694 (S.D.Tex.1982), involved the California Invasion of Privacy Act which makes unauthorized recording of confidential communications a crime. Id. at 699-700 . The act also provides a civil remedy for “[a]ny person who has been injured by a violation of [the act].” Id. at 700 .

A counterclaim based on the statute was allowed to proceed. The court recognized that the civil remedy was in some aspects penal because it was part of a comprehensive act designed to deter wrongful conduct. Id. at 702 . Nevertheless, the civil section of the act was more remedial than penal and would be enforceable in Texas.

And see Porter v. Household Fin. Corp., 385 F.Supp. 336 (S.D.Ohio 1974); Farmers & Merchants Trust Co. v. Madeira, 261 Cal.App.2d 503 , 68 Cal.Rptr. 184 (1968); State v. Pitner, 42 N.J. 251 , 200 A.2d 104 (1964). Compare Insurance Research Serv., Inc. v. Associates Fin. Corp., 134 F.Supp. 54 (M.D.Tenn.1955) (refusing to imply private cause of action in Missouri criminal libel statute which did not require publication).

Koons also cites Henry v. R.K. Chevrolet, Inc., 219 Va. 1011 , 254 S.E.2d 66 (1979), in support of its argument that the two “integrally linked” Virginia statutes are penal. In Henry the Supreme Court of Virginia faced the question whether the statutes applied where the alleged deceptive statement of fact was made orally. Holding that the statutes did not apply under those circumstances, the court ¹⁴⁰ stated that “[tjhis is a penal statute and must be construed strictly.” Id. at 1104 , 254 S.E.2d at 68 . Henry uses the term “penal” in the context of a well recognized rule of statutory construction.

That rule of construction continues to apply to an underlying criminal statute when it forms the basis for a civil remedy. For example, in Smith v. Higinbothom, 187 Md. 115, 130-31 , 48 A.2d 754, 762 (1946), dealing with a statute regulating election practices, we said that “[tjhere is no impropriety in putting a liberal construction on a remedial clause, and a literal construction on a penal clause in the same statute.” Simply because the Virginia criminal statute receives a strict construction when incorporated in the