State v. Cottman Transmissions Systems, Inc.

CATHELL, Judge. Cottman Transmission Services, Inc. (“Cottman”), a Pennsylvania corporation, is a franchisor of numerous automotive transmission repair facilities throughout the United States. In 1988, the Attorney General’s Office of the State of Maryland (“State”) filed a four count complaint against Cottman in the Circuit Court for Baltimore City. Counts 1 ⁷¹⁸ through 3, citing the Maryland Consumer Protection Act (“CPA”), Md.Com.Law Code Ann. § 13-101 et seq., 1 alleged that Cottman engaged in trade practices which were unfair and deceptive under § 13-301(1), (3), (7) and (9).

In Count 1, the State asserted that Cottman was selling unnecessary transmission inspections to its customers by misleading them into believing that the inspections were required by Cottman to form an estimate of the repair costs. Count 2 alleged that Cottman induced customers to authorize and pay for unnecessary repairs. Count 3 stated that Cottman had charged customers for fictitious repairs. Count 4 alleged that Cottman had violated the Automotive Repair Facilities Act (“ARFA”), Md.Com.Law Code Ann. § 14-1002, and § 13-301(13)(vi) 2 of the CPA by failing to provide written estimates of parts and labor costs.

The State filed a Motion for an Interlocutory Injunction pursuant to Md.Com.Law Code Ann. § 14-406(a), seeking to halt the alleged unfair and deceptive trade practices. At a conference prior to a hearing on the injunction, the trial judge ordered that the case files be sealed. He also closed the courtroom to the public and prevented the State from communicating with the press about the case. After a denial of a Motion to Reconsider the closure order, the State appealed.

This Court reversed the closure and limited the order, 3 so as to proscribe only those comments which were ⁷¹⁹ relative to the merits of the case. State v. Cottman Transmission Systems, 75 Md.App. 647 , 542 A.2d 859 (1988) (“Cottman I”). The hearing on the State’s Motion for Interlocutory Injunction was then held, and the motion was denied. The trial judge granted an oral motion by Cottman for summary judgment on the issue of agency, ruling that no principal/agent relationship existed between Cottman and its Maryland centers with respect to the recommendation and sale of unnecessary repairs by its franchisees.

The State appealed. State v. Cottman Transmission Systems, [No. 1430, 1988 Term, per curiam, filed April 26, 1989] (citations omitted) (“Cottman II”). In our discussion of the motion for interlocutory injunctive relief, we necessarily dealt with the likelihood of success on the merits, and held that the State had at that stage failed to prove that Cottman’s Maryland shops were agents of the Pennsylvania corporation. Thus, we affirmed the trial court’s refusal to issue the requested interlocutory injunction.

After subsequent hearings, the trial judge granted a summary judgment motion by the State regarding Cottman’s 4 withholding of diagnostic and price information from consumers, ruled that Cottman’s participation constituted a deceptive practice, and enjoined its continuance. In the instant appeal, we shall decide the validity of that summary judgment. The entry of summary judgment ultimately resulted in the entry of final judgment for the State as to Count 1, and ⁷²⁰ final judgment for Cottman as to Counts 2, 3, and 4. 5 Cottman’s franchisees were not parties, and were held not to be its agents, so they were not ordered to do anything. A $100,000 civil penalty was imposed on Cottman, and a permanent injunction was issued requiring it to “issue new policy directives to its franchises ... directing ... them to no longer withhold from consumers material price and diagnostic information immediately after performance of any road test and external transmission inspection and before the consumer commits to paying for an internal transmission inspection____” The judge denied the State’s motion for restitution to the consumers involved.

The State presents these questions on this appeal: I. Is restitution under the Consumer Protection Act only available to consumers who received no goods or services after being deceived?

II

Did the lower court err in failing to order the disclosure of material price information, the omission of which would tend to deceive consumers?

III

Did the lower court err in determining on summary judgment that Cottman is not responsible for its centers’ sale of unnecessary transmission repairs, despite evidence that Cottman’s centers are required to follow all directives Cottman issues concerning both overall policies and day-to-day operations, that Cottman hires and fires center personnel, that Cottman encourages the sale of unnecessary repairs, and that Cottman requires the use of procedures that result in the sale of unnecessary repairs? [ 6 ] In its conclusion, the State clarifies its requested relief: [T]he lower court’s denial of restitution [should] be reversed and remanded for any necessary proceedings to ⁷²¹ provide consumers with the restitution contemplated by the Consumer Protection Act, that the lower court’s refusal to order Cottman to disclose the maximum price [of transmission repairs] be reversed and remanded for entry of an order requiring such a disclosure, and that the Order ... granting judgment to Cottman on Counts II, III, and IV be reversed and that the case be remanded for a jury trial on those counts. Cottman filed a cross appeal, asking: 1. Whether the circuit court erred in interpreting the general Consumer Protection Act to add a requirement to the more specific Automotive Repair Facilities Act. 2. Whether the court impermissibly amended the Automotive Repair Facilities Act. 3.

Whether the court erred in holding that the “RCI” method is a deceptive practice under the Consumer Protection Act. 4. Whether the court erred in failing to assess the alternatives before finding that the RCI method was deceptive. 5. Whether the court erred in failing to require the State to proceed by rulemaking. 6. Whether the court erred by imposing penalties vicariously on Cottman for the acts of its non-agent licensees.[ 7 ] This multiplicity of questions may be reduced to three issues: ⁷²² 1) the propriety of the trial judge’s grant of summary judgment on each of the four counts; 2) whether the trial judge erred in interpreting the CPA and ARFA to allow a) the imposition of civil penalties, and b) issuance of a permanent injunction requiring Cottman to direct its franchisees to provide consumers with price and diagnostic information; 3) whether the.trial judge erred in refusing to grant restitution to consumers under Count 1.

We shall address these three issues as is necessary within our discussion of summary judgment with respect to the individual counts, and discuss the other issues as we deem necessary. The Summary Judgment Standard In Lone v. Montgomery Co., 85 Md.App. 477, 503-04 , 584 A.2d 142 (1991), this Court discussed the appellate standard of review of summary judgment: Maryland Rule 2-501(e) provides that: The court shall enter judgment in favor of or against the moving party if the pleadings, depositions, answers to interrogatories, admissions, and affidavits show that there is no genuine dispute as to any material fact and that the party in whose favor judgment is entered is entitled to judgment as a matter of law. In reviewing a grant of summary judgment, we must first determine whether a dispute of material fact exists. Arnold Developer, Inc. v. Collins, 318 Md. 259, 262 [ 567 A.2d 949 ] (1990). “A material fact is a fact the resolution of which will somehow affect the outcome of the case.” Id. at 261 [ 567 A.2d 949 ] (quoting King v. Bankerd, 303 Md. 98, 111 [ 492 A.2d 608 ] (1985)).

Where the facts are susceptible to more than one permissible inference, the choice between inferences should be made by the trier of fact, and should not be resolved on a motion for summary judgment. Honaker v. W.C. & A.N. Miller Dev. Co., 285 Md. 216 [ 401 A.2d 1013 ] (1979), aff'd, 291 Md. 241 [434 ⁷²³ A.2d 564] (1981); Miller v. Nissen Corp., 83 Md.App. 448, 458 [ 575 A.2d 758 ] (1990); Barb v. Wallace, 45 Md.App. 271 [ 412 A.2d 1314 ] (1980). When a determination is made as to whether a factual dispute exists, all inferences must be resolved against the moving party, even if the underlying facts are disputed.

Berkey v. Delia, 287 Md. 302 [ 413 A.2d 170 ] (1980); Maloney v. Carling Nat’l Breweries, Inc., 52 Md.App. 556 [ 451 A.2d 343 ] (1982). COUNT 1 The judge made certain rulings with respect to this count. We list them as we shall hereafter address them. He (A) entered summary judgment for the State concerning the issue of Cottman’s deceptive business practices, finding Cottman in violation of the CPA for its policy of requiring its franchisees to conceal material information from consumers; (B) granted an injunction; and (C) assessed a civil penalty; (D) ruled that, as a matter of law, there was no agency relationship between Cottman and its franchisees; and (E) denied the State’s request for restitution to consumers.

A. Deceptive Business Practices The CPA defines a deceptive trade practice in this context as either a “[f]ailure to state a material fact if the failure deceives or tends to deceive,” Md.Com.Law Code Ann. § 13-301(3) (1990); or “[djeception, fraud, false pretense, false premise, misrepresentation, or knowing concealment, suppression, or omission of any material fact with the intent that a consumer rely on the same in connection with,” § 13-301(9); or as a violation of the ARFA, § 13-301(14)(vi). An omission is considered material if a significant number of unsophisticated consumers of the goods or services would attach importance to the information in deciding on a course of action. Golt v. Phillips, 308 Md. 1, 10 , 517 A.2d 328 (1986). See also Charles of the Ritz Distributors ⁷²⁴ Corp. v. Federal Trade Comm’n, 143 F.2d 676, 679-80 (2d Cir.1944).

We think that a material fact, in the context of the case at bar, is one which a reasonable consumer of transmission repairs would consider important when deciding whether to give a mechanic permission to work on his car. The trial judge granted partial summary judgment for the State on Count I. He ruled, inter alia, that: 2. Cottman withholds diagnostic and price information from consumers before the consumers commit to an internal transmission inspection (the “RCI”, remove, check and install);[ 8 ] 3. this diagnostic and price information is material to consumers; 4. the practice of withholding this diagnostic [the type of repairs needed] and price [the cost of the repairs] information is a deceptive practice as that term is defined under Sections 13-301(3) and (9) of the [CPA] and violates Section 13-303 of the [CPA]____ According to the trial court, Cottman’s directive to its franchisees, requiring them to withhold diagnostic information, when that information was known and thus was a material fact, was a deceptive practice by Cottman, independent of whether there was an agency relationship. 9 ⁷²⁵ We agree that the diagnostic information is important, because a reasonable consumer would attach importance to learning that an overhaul is needed, prior to committing to an internal inspection which is marketed as necessary to determine that very fact. Omission of this information is a deceptive business practice, because when a transmission repairperson externally inspects a vehicle’s transmission a diagnosis always occurs.

The court asked Cottman’s vice-president, James Corkran: Do you know for certain whether or not once you go through the 21 point inspection and it’s test driven and the external examination has been done ... whether or not it, at a minimum, it requires a soft part overhaul? THE WITNESS: Yes. THE COURT: You would know that with what I would say is a 99 percent certainty? THE WITNESS: Yes.

THE COURT: And the customer is not advised of that, correct? THE WITNESS: Yes[.] THE COURT: The customer is advised that for 200 dollars an RCI can be conducted and the exact price then can be quoted. Is that correct? THE WITNESS: Yes, it is[.] We have not located any evidence in the thousands of pages of the record extract which contradicts this testimony.

We hold, therefore, that there is no dispute of fact regarding Cottman’s concealment of diagnostic information. The price information is likewise important, as even Cottman concedes: “The problem with overhaul and maximum prices is that consumers attach the wrong importance to that information.” (Emphasis in original.) The consequences of consumer acquisition of price information may not be to Cottman’s liking, but that information is unquestionably a material fact. There is no dispute that the minimum and maximum price for an overhaul of any particular transmission may be readily determined. The mini ⁷²⁶ mum price stems from the cost of the time and materials which always must be expended on any overhaul for that brand (called a “soft parts” overhaul by the parties).

The maximum price is the cost of a completely rebuilt or exchanged transmission. The parties also do not dispute the difficulty of determining the exact cost in an intermediate situation, where it is evident from the external inspection that the transmission requires at least a “soft parts” overhaul, and possibly more. Failure to mention the possible total price, when that price is known to the merchant, under the circumstances of this case, is a deceptive practice. We hold that when a franchisor directs deceptive practices by using its economic and contractual clout to force its franchisees to commit deception, to the extent here exhibited, the franchisor equally commits a deceptive practice.

B. Scope of the Injunction The injunction defined price and diagnostic information as “material to the consumer” and directed that it be disclosed, but did not specify whether it was referring to minimum or maximum prices. Prior to the injunction’s issuance, the judge explained: I did not make a finding that minimum prices had to be quoted. I didn’t make that finding and I definitely didn’t make a finding about maximum prices. The finding or the order regarding minimum prices is only an affirmative injunctive act.

The minimum pricing was only the affirmative act trying to come to some terms with a way to dispose of this case. Given this somewhat ambiguous statement concerning the judge’s intended definition of price, we will interpret it and hold that price information must be given consistent with the diagnosis. The Golt definition of materiality forces the conclusion that the projected cost of repair is of vital concern to the ⁷²⁷ consumer if the repair is a possibility. For example, if an external inspection results in a diagnosis that a transmission requires a “soft parts” overhaul and possibly a new torque converter, the customer must be told exactly that.

The customer must also be informed of the minimum cost which has so far been ascertained; in this example, the cost of a “soft parts” overhaul plus the possible extra cost of replacing the torque converter. Thus, the customer must be given two categories of price information: (1) the cost of repair that is certain to be needed, and (2) the possible cost of repair that is likely to be required. The customer may then make an informed choice as to whether to proceed. C. The Civil Penalty Cottman contests the assessment of civil penalties against it on the ground that it should not be penalized for the actions of third parties over which it had no control.

In support, it points to our conclusion in Cottman II regarding Cottman’s total lack of control. We disagree. The CPA provides that for a first violation, a “merchant who engages in a violation of this title is subject to a [civil] fine of not more than $1,000 for each violation.” Section 13-410(a). Cottman, not its franchisees, was found to have violated the CPA, and is thus properly subject to penalties. 10 ⁷²⁸ We have heretofore specifically upheld the trial court’s ruling on the basis that Cottman itself participated in the deceptive practices.

Section 13-101(g) defines a merchant as one “who directly or indirectly either offers or makes available to consumers any consumer goods, consumer services, consumer realty, or consumer credit.” [T]he cardinal rule of statutory interpretation is to ascertain and effectuate the legislative intention. The language of the statute itself is the primary source of this intent; and the words used are to be given “their ordinary and popularly understood meaning, absent a manifest contrary legislative intention.” In re Arnold M., 298 Md. [515], 520, 471 A.2d 313 [ (1984) ]. Stated another way, where the language of the statute is free from ambiguity, courts may not disregard the natural import of the words used in order to extend or limit its meaning. Privette v. State, 320 Md. 738, 744-45 , 580 A.2d 188 (1990) (citations omitted).

See also D & Y, Inc. v. Winston, 320 Md. 534, 538 , 578 A.2d 1177 (1990); Taxiera v. Malkus, 320 Md. 471, 480 , 578 A.2d 761 (1990); Brodsky v. Brodsky, 319 Md. 92, 98 , 570 A.2d 1235 (1990); Morris v. Prince George’s Co., 319 Md. 597, 603 , 573 A.2d 1346 (1990); Davis v. State, 319 Md. 56, 60 , 570 A.2d 855 (1990); Kaczorowski v. City of ⁷²⁹ Baltimore, 309 Md. 505, 513 , 525 A.2d 628 (1987). The Legislature, by its inclusion of the word “indirectly” in its description of the acts which make one a merchant, strongly indicates that a merchant is not only one who has face to face dealings with consumers, but also one who substantially participates in the process, as Cottman did. We also note that the evidence introduced subsequent to our filing of Cottman II belies Cottman’s assertion of lack of control. For example, one of the deponents testified that the operations managers visited the repair shops periodically, and that Their job is to police the operation, to police the shop, to make sure the managers are following the sales tracks [memorized sales pitches], to make sure the managers aren’t giving out prices over the phone, to make sure they are writing up the repair orders, to make sure they are using the forms, check your files, check your cabinets.

There was also testimony to the effect that the operations managers pressured the repair facilities to inflate their estimates so that minor preventive repairs would become major overhauls: [Y]ou should never have more PMS’s [preventive maintenance services] than you have major jobs. They also pull out the repair orders and look at what’s written on them and if it’s burnt fluid [discolored transmission fluid], or leaks, or whatever, they feel like those jobs should be major jobs and they tell you that the manager is not converting enough of those jobs into major jobs. Cottman did not merely exercise control over peripheral matters such as cleanliness or business hours; its control extended to every facet of the individual repair shop’s dealings with its customers as well as its internal business practices. The operations managers’ review of the records of each repair and their instructions regarding future repairs are inconsistent with Cottman’s averments of total lack of control.

For example, the establishment of sales pitches which were to be followed word for word, and quotas for the major and minor categories of transmission ⁷³⁰ repairs determine that the repair shop personnel had little discretion in their dealings with the individual customer. The result was a significant level of control over the day-today performance of the work, the manner in which it was to be done, and the way the deception was to be practiced upon the public. As we have indicated, this deception need not be grounded in an agency relationship in order to be prohibited. 11 It necessarily follows, and we so hold, that a franchisor who indirectly or directly offers goods, services, realty or credit may be a merchant as defined in the Act. The purposes stated in the Act support this holding. 12 As a merchant acting indirectly, it may be held liable for its deceptive practices.

When its deceptive practices result in violations, the correct penalty determination would be based on the franchisees’ furtherance of the franchisor’s deceptive practice with respect to individual consumers. Thus, each contact by the franchisees that perpetuates the franchisor’s ⁷³¹ deception is a prohibited act, for which either merchant may be held accountable. As we have indicated, the manner in which the fine was computed has not been attacked on appeal. We therefore affirm the trial court’s imposition of civil penalties against appellant for its deceptive practices.

D. The Agency Relationship Another summary judgment issue we shall discuss in connection with Count 1 concerns the issue of agency. The State reasons that by virtue of Cottman’s right of control, it is either a master and its franchisees servants, or that it is a principal and its franchisees agents. It argues that Cottman is, therefore, liable for the misrepresentations made by its service centers as either a master or a principal under the doctrine of respondeat superior. 13 Thus, we must determine the legal standards of (1) the principal/agent relationship, and (2) the master/servant relationship, to arrive at a definition of what a material fact is in this context. In Sanders v. Rowan, 61 Md.App. 40 , 484 A.2d 1023 (1984), this Court stated: ⁷³² [T]he principal/agent relationship is a generic one — a genus, of which the master/servant relationship is a species.

Thus, while all masters are principals and all servants are agents, there are some principals who are not masters and some agents who are not servants. Agents who are not servants are regarded as independent contractors. Id at 50, 484 A.2d 1023 . By definition, therefore, both independent contractors and servants are agents. 14 In the present case, we are asked by the State to make a determination as to the repair centers’ status, both as agents and as servants.

While we have determined that Cottman is liable independent of agency considerations, we nevertheless address this issue in order that it may be resolved. We must first determine whether there was a dispute of material fact as to agency; if there is, its resolution would be a matter for the trier of fact. There are three elements that are integral to an agency relationship: (1) The agent is subject to the principal’s right of control; (2) the agent has a duty to act primarily for the benefit of the principal; and (3) the agent holds a power to alter the legal relations of the principal. Restatement (Second) of Agency §§ 12-14 (1958).

In noting that the control element is instrumental in proving the existence of an agency relationship, the Restatement explains that “[i]t is the element of continuous subjection to the will of the principal which distinguishes the ... agency agreement from other agreements.” Restatement (Second) of Agency § 1(1) comment b (1957)____ Schear v. Motel Management Corp., 61 Md.App. 670, 687 , 487 A.2d 1240 (1985). When an agency relationship is ⁷³³ sought to be inferred from the parties’ conduct, the party alleging the agency has the burden of proving its existence, nature and extent. Proctor v. Holden, 75 Md.App. 1, 20-21 , 540 A.2d 133 , cert. denied, 313 Md. 506 , 545 A.2d 1343 (1988). The State argues that “the determination of whether an agency relation exists ... is to be determined by evaluating five (not three) criteria____” (Emphasis in original.) It then lists the right to hire, fire, payment of wages, the right to control, and whether the work is performed as part of the regular business of the principal,' as the required factors.

As we have seen, this assertion is incorrect. The first determination of agency is made using the three Schear factors. The five factors urged upon us by the State are indicative of a master-servant relationship, and are only considered after a preliminary determination of agency has already been made. Only then is the inquiry focused on the possible existence of a master/servant relationship: One may be an agent of another, owing to his principal the fiduciary obligations of loyalty and general obedience, but at the same time not be sufficiently under the control of the principal to be considered a servant.

The relationship of master and servant exists only when the employer has the right to control and direct the servant in the performance of his work and in the manner in which the work is to be done. In Keitz v. National Paving Co., 214 Md. 479, 491 , 134 A.2d 296 (1957), this Court said: [T]here are at least five criteria that may be considered in determining the question whether the relationship of master and servant exists. These are: (1) the selection and engagement of the servant, (2) the payment of wages, (3) the power to discharge, (4) the power to control the servant’s conduct, (5) and whether the work is a part of the regular business of the employer. Standing alone, none of these indicia, ex ⁷³⁴ cepting (4), seems controlling in the determination as to whether such relationship exists____ Chevron, U.S.A. v. Lesch, 319 Md. 25, 32-33 , 570 A.2d 840 (1990) (emphasis added, citations omitted). 15 We note first that in Cottman, II, we were concerned with whether the trial judge was wrong in not finding the existence of an agency relationship.

In the present appeal, we are concerned with whether any trier of fact could have found the existence of an agency relationship. We are also concerned with whether there was a dispute of a material fact, and if not, whether the moving party was entitled to judgment as a matter of law. We shall, therefore, next apply the three Schear factors to the evidence. The licensing agreement between Cottman and its franchisees stated: The relationship between COTTMAN and OPERATOR is strictly that of a licensor and licensee and OPERATOR is an independent contractor.

This Agreement does not create a joint venture, partnership, or agency and any act or omission of either party shall not bind or obligate the other except as expressly set forth in this Agreement. This contractual disavowal of an agency relationship is borne out by the record. The evidence shows that Cottman received 20V2% of its franchisee’s gross sales, with the franchisees retaining 79V2%. In the record we have reviewed, we have not found any sufficient evidence that ⁷³⁵ the franchisees had a duty to act primarily for Cottman’s benefit.

While there may have been sufficient evidence, as to the other two factors, to generate a jury issue, there was none with respect to the second agency factor. 16 We hold, therefore, that there is no dispute of material fact regarding the absence of the principal/agent relationship between Cottman and its franchisees. The trial judge was correct in rendering summary judgment on this issue. E. Restitution The State also made a request, under Count 1, for restitution to the consumers involved in Cottman’s deceptions. The stipulated summary of the hearing reveals that the judge granted Cottman’s Motion to Dismiss on the restitution issue, apparently ruling that as the consumers received an internal transmission inspection for their money, the deception did not harm them.

Section 13-406 (c) provides, inter alia: The court may enter any order of judgment necessary to: (1) Prevent the use by a person of any prohibited practice; ⁷³⁶ (2) Restore to a person any money or real or personal property acquired from him by means of any prohibited practice.... The proper standard here is not whether the