PHOENIX (Legal Newsline) - The Arizona Supreme Court ruled last week that the state's Consumer Fraud Act provides for restitution to consumers, but not a direct disgorgement to the state attorney general.
The issue was one of many before the state's high court in a case brought against Nevada-based AutoZone Inc. by former state Attorney General Terry Goddard. Current Attorney General Tom Horne was elected to succeed Goddard in November 2010.
In 2001, the Arizona Department of Weights and Measures began investigating the car parts retailer over its compliance with a state statute, 41-2081, otherwise known as the Pricing Act.
The Pricing Act prohibits mispricing, and requires a seller to display prices on merchandise or at the point of display.
As a result of its investigation, the department fined AutoZone for violating the act several times from 2001 to 2006.
Later, in 2006, Goddard sued AutoZone under the CFA, requesting injunctive relief, civil penalties and restitution to consumers.
"Price accuracy is a fundamental consumer right which these companies have repeatedly abused," Goddard said at the time.
"The State has made every effort to work with both of these retailers to no avail. When retailers fail to post and scan correct prices, there is no reasonable way for Arizona consumers to comparison shop. Shopping should not be a game of chance."
The State moved for partial summary judgment, arguing that a clause in statute 44-1522(A) imposes strict liability for not pricing goods as required by the Pricing Act.
AutoZone cross-moved, arguing in part that any failure to price goods was governed by another clause in 44-1522(A) -- the Omission Clause -- prohibiting "omission of any material fact with intent that others rely upon such... omission."
The retailer also sought summary judgment with respect to the State's restitution claim.
In response, the State abandoned its claim for restitution to consumers under 44-1528(A)(2).
Instead, it sought disgorgement to the attorney general of sums acquired in violation of the CFA under 44-1528(A)(1). The statute allows a court to "make such orders or judgments as may be necessary to... prevent the use or employment by a person of any unlawful practices."
The Maricopa County Superior Court denied both parties' motions.
It agreed with AutoZone that the Omission Clause governed the alleged non-pricing, but found disputed issues of fact as to whether the retailer had acted with the intent to mislead, as required by that clause.
The court also held that disgorgement to the State may, under some circumstances, be appropriate under 44-1528(A)(1).
AutoZone and the State again moved for summary judgment based on sharply different interpretations of the superior court's rulings.
A new judge heard those motions and, although finding disputed issues of material fact, nonetheless entered summary judgment in AutoZone's favor "by necessity."
The state Court of Appeals, Division One, vacated that judgment and remanded the case for further proceedings.
The appeals court explained that because the Pricing Act imposes a statutory duty to price items, any failure to do so was not an omission, but rather an "act," and thus governed by the Act Clause.
It also concluded that the Act Clause required proof only of "intent to do the act involved."
Finally, the appeals court held that the CFA permits disgorgement to the State, and awarded the State attorney's fees and costs.
The Supreme Court granted review on three specific issues:
- Whether the Act Clause or the Omission Clause governs the State's "non-pricing" claims;
- Whether the CFA authorizes disgorgement to the State; and
- Whether the appeals court erred by awarding the State interlocutory attorney's fees.
In its May 15 ruling, the Court said it accepted neither the State nor AutoZone's argument.
"We find no indication in the text of the CFA that the legislature intended to blur the generally recognized distinction between an act and an omission. Nor does the CFA provide that failure to perform a duty imposed by a separate statute, such as the Pricing Act, should be automatically covered by the Act Clause. Rather, the CFA itself imposes the actionable duty -- to refrain from a "deceptive act or practice" or an "omission of any material fact with intent that others rely" thereon," Vice Chief Justice Andrew D. Hurwitz wrote.
"The CFA, in contrast, does not confer rulemaking power on the Arizona attorney general, nor does it provide that failure to comply with some other statute is always evaluated under the Act Clause."
Hurwitz continued, "If the State's complaint had alleged only a single instance or isolated instances of non-pricing, the Omission Clause would provide the appropriate standard for adjudicating CFA liability. The complaint, however, alleged routine and repeated instances of non-pricing."
As to the disgorgement issue, the Court said such a remedy -- the forced giving up of profits obtained by illegal or unethical acts -- is unauthorized.
"As an initial matter, if the legislature intended in § 44-1528(A)(1) to authorize disgorgement to the State simply because that remedy 'prevented the use or employment... of any unlawful practices,' it is difficult to understand why § 44-1528(A)(2), which provides for restitution to consumers, is necessary, because restitution surely also serves such a purpose," Hurwitz wrote in the Court's 15-page opinion.
"The CFA expressly provides for restitution to consumers, but not disgorgement to the State."
The Court also vacated the appeals court's award of fees and costs to the State.
"We cannot imagine that the legislature would authorize an award of fees to the State for an unsuccessful suit," Hurwitz noted.
The case was remanded to the superior court.
From Legal Newsline: Reach Jessica Karmasek by email at email@example.com.