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State v. LA Investors, LLC

Court of Appeals of Washington, Division 2

February 13, 2018

LA INVESTORS, LLC d/b/a LOCAL RECORDS OFFICE and ROBERTO ROMERO, a/k/a JUAN ROBERTO ROMERO ASCENCION, individually and as a member and manager of LA INVESTORS, LLC, and on behalf of the marital community comprised of Roberto Romero and Laura Romero; and LAURA ROMERO, individually and as a member and manager of LA INVESTORS, LLC, and on behalf of the marital community comprised of Roberto Romero and Laura Romero, Appellants.

          MELNICK, J.

         LA Investors, LLC, d/b/a Local Records Office (LRO), appeals from the trial court's order granting partial summary judgment to the Washington State Attorney General's Office (State), and denying LRO's cross-motion for partial summary judgment.

         We conclude that the trial court properly analyzed whether LRO's mailer had a capacity to deceive a substantial portion of the public as a matter of law and that the trial court properly granted the State summary judgment. We also conclude that the trial court did not err by imposing civil penalties against LRO for each mailer sent to consumers. We affirm.


         LRO is a California based company that solicits business in a number of jurisdictions, including Washington. LRO engages in the sale of goods and services, including marketing and selling copies of real property deeds. It is registered as a foreign limited liability company in Washington and has a mailbox at a United Parcel Service store in Olympia. Roberto Romero and his wife, Laura Romero, own, manage, and operate LRO.

         I. The Mailers

         In 2012, LRO began sending mailers to Washington consumers who had either recently purchased or refinanced a home. LRO also sent similar mailers to consumers in other states. In its mailer, LRO offered its product, a copy of the consumer's property deed, "the only document that identifies [you] as the property owner of [your home] by a recently recorded transferred title on the property" and a "property profile" that provided the "property address, owner's name, comparable values, and legal description or parcel identification number, property history, neighborhood demographics, public and private schools report." Clerk's Papers (CPO at 24. LRO charged $89 for its product. A copy of the mailer envelope follows.

         (IMAGE OMITTED) CP at 22.

         The envelope contained LRO's two page mailer. It had no graphics or logos, only text.[1]The first page listed LRO's Olympia address at the top of the page and, underneath, the consumer's name, address, and a barcode.

         A copy of the first page follows.

         (IMAGE OMITTED) CP at 24.

         Underneath the disclaimer was a detachable coupon. The coupon included a "PROPERTY ID NO., " a reference to the $89 "SERVICE FEE, " a "PLEASE RESPOND BY" date, and "CHECK NO." CP at 24.

         The second page of the mailer contained a list of largely irrelevant legal definitions related to real property and property ownership. Near the bottom of the page, a fourth disclaimer read in the same type:

DISCLAIMER: * Local Records Office is not affiliated with any State or the United States or the County Records. Local Records Office is an analysis and retrieval firm that uses multiple resources that provide supporting values, deeds, and evidence that is used to execute a property reports [sic] and deliver a requested deed.
Local Records Office is not affiliated with the county in which your deed is filed in, nor affiliated with any government agencies. This offer serves as a soliciting for services and not to be interpreted as bill due.

CP at 25.

         LRO tracked the total number of mailings, complaints, stop payment requests, and refund requests it received, but did not track information as to customer satisfaction with its product.

         Between June 2012 and February 2016, LRO mailed 256, 998 solicitations to Washington consumers. Nine thousand six hundred ninety-five Washington consumers purchased LRO's product, a 3.9 percent response rate.

         During this time, the State received numerous complaints regarding LRO's solicitations. Numerous government offices, media outlets, and consumer watchdog agencies nationwide disseminated consumer alerts regarding LRO's mailer, many of which characterized the mailer as a scam.

         II. The Lawsuit

         In November 2013, the State filed a lawsuit against LRO and the Romeros, alleging a violation of the Consumer Protection Act (CPA).[2] Two years later, the State moved for summary judgment. It argued that LRO's mailer was a deceptive act that created a net impression that it was from a government agency or was a bill consumers had to pay. The State further argued that no material issues of fact were in dispute, and that the only disputed issue involved a question of law. The issue was whether LRO's mailer was unfair or deceptive. The State requested that LRO be enjoined from their allegedly deceptive practices and moved for restitution, civil penalties, and attorney fees and costs.

         LRO filed a cross-motion for partial summary judgment. It argued that, as a matter of law, LRO's mailer was not a bill and was not deceptive in that regard; neither LRO's envelope nor mailer as a whole resembled a mailing from a government agency or title company; and, that the disclaimers LRO used were sufficient to counter any net impression that the mailer was a bill or from a government agency or title company.

         The State supported its motion with 25 declarations from Washington consumers who received LRO's mailer. Some consumers stated that the timing of the mailer coupled with the "official looking" envelope and the Olympia address made it seem like it demanded attention and came from a government organization. CP at 625. Some stated that, upon receiving the mailer, they believed there was a problem with their property transaction. Others believed the mailer either came from a government agency or was a bill. Some believed that the sender would penalize them for failing to pay $89. Consumers also stated that the "respond by" date created a sense of urgency to comply. Even after reading the mailer and its disclaimers in full, some believed the mailer was suspicious, and that LRO was attempting to mislead or deceive homeowners. Others declared that only after paying and receiving a "very unofficial looking property profile" from LRO did they realize they were "scammed" and they asked for a refund. CP at 635, 638, 649.

         The State also submitted evidence that deeds were typically one to two pages in length, and that, by law, the Auditor's Office charged nominal amounts for certified and non-certified copies of deeds.[3] It also submitted evidence that companies such as offered detailed property profile reports for free and charged $19 thereafter for additional reports.

         Additionally, the State submitted evidence of enforcement actions or settlements multiple other states entered into with LRO regarding the same or similar deceptive conduct. It also submitted evidence that in 2011, Romero voluntarily surrendered his California real estate license to settle an action by the California Department of Real Estate which alleged "misrepresentations" and "fraud and/or dishonest dealing[s]" with consumers. CP at 415.

         Both parties supported their motions with their respective experts' reports and deposition testimony. The State retained Dr. Anthony Pratkanis, a psychology professor at the University of California, Santa Cruz. Pratkanis taught courses in social psychology, research methods, consumer psychology, marketing management, and buyer behavior. His primary area of research and study involved social influence and belief formation, including deceptive advertising and sales practices. He published numerous books and articles on these topics.

         Pratkanis reviewed the consumer declarations and complaints, consumer alerts from various government authorities, LRO's mailer, and LRO's response rate. Citing to studies and articles, Pratkanis opined that the response rate for LRO's mailers in Washington was "two to three times the expected rate of average response for comparable mailers." CP at 353. He noted that LRO's mailer enjoyed a high response rate, even though it failed to use many of the most effective methods used in direct mail to increase response rates, "such as offering free gifts and free trials, providing money-saving offers, highlighting testimonials concerning the value of the product, and featuring prominently money-back guarantees of satisfaction." CP at 353. As to the significance of complaint rates, he cited to a number of studies and opined:

In general, consumers do not often complain even when dissatisfied with a purchase and rarely complain to third parties such as the government. . . . When confronted with a defective service or product, the two most common responses by consumers ... is to (a) do nothing or (b) take private action such as quit purchasing the product or engage in negative word of mouth of the product.

CP at 370.

         Pratkanis opined that LRO engaged in a deceptive sales practice by leading consumers to believe they received a bill from a government agency or a title company, or that they needed to have a copy of a deed to prove ownership of their home. In reaching his opinion, Pratkanis used established theories, his knowledge of influence tactics, and the science of consumer behaviors and social influence. While he did not conduct an independent survey or focus group, he conducted a "social influence analysis" by reviewing the mailer and the influence tactics LRO used. CP at 993. In its response to the State's motion, LRO objected to Pratkanis's opinion, arguing that it was "demonstrably unscientific" and "not admissible under ER 702."[4] CP at 1009.

         LRO retained Dr. Albert Bruno, a marketing professor at Santa Clara University. Bruno taught courses in marketing, marketing research, and marketing strategy. Bruno opined that LRO's response rate was not necessarily an indication of a deceptive marketing strategy. He further noted that LRO's complaint rate was "relatively low" ...

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