Title: Paramount Builders Inc. v. Commonwealth

State: virginia

Issuer: Virginia Supreme Court

Document:

Present:  Carrico, C.J., Lacy, Hassell, Koontz, and Kinser, 
JJ., and Compton and Whiting, Senior Justices 
 
PARAMOUNT BUILDERS, INC., ET AL. 
 
v.  Record No. 991696 
 OPINION BY JUSTICE ELIZABETH B. LACY 
 
 
 
June 9, 2000 
COMMONWEALTH OF VIRGINIA 
 
FROM THE CIRCUIT COURT OF THE CITY OF VIRGINIA BEACH 
Alan E. Rosenblatt, Judge 
 
 
In this appeal, Paramount Builders, Inc. and its 
president Edward Augustine assert that the trial court should 
have set aside a civil investigative order issued against 
them.  We conclude, however, that the application for the 
order complied with the requirements of Code § 59.1-201, and 
we will affirm the judgment of the trial court refusing to set 
aside the order. 
 
The Commonwealth's Attorney for the City of Virginia 
Beach (the Commonwealth) filed an application for a civil 
investigative order pursuant to § 59.1-201.  The Commonwealth 
sought documents and other information from Paramount 
Builders, Inc., and from Edward Augustine, individually and in 
his capacity as president of Paramount Builders, Inc., in 
connection with the solicitation of customers for their home 
improvement business.  The ex parte application was granted by 
the circuit court on January 8, 1999. 
Pursuant to § 59.1-201(C), Paramount and Augustine moved 
to set aside the order and, in the alternative, moved to 
modify the order and for a protective order.  Both sides filed 
memoranda and, following argument of counsel, the trial court 
entered an order granting the motion to set aside the 
investigative order as to Augustine in his individual 
capacity.  The trial court modified the terms of the civil 
investigative order but refused to set it aside as to 
Paramount and Augustine as president of Paramount. 
In their appeal, Paramount and Augustine (hereinafter 
collectively "Paramount") assign error to the trial court's 
order refusing to set aside the investigative order, asserting 
that the Commonwealth and the application for the civil 
investigative order failed to meet the good faith or 
impracticality requirement and the reasonable cause 
requirement of subsections (A) and (B) of § 59.1-201. 
 
Section 59.1-201 provides in relevant part: 
A.  Whenever the attorney for the Commonwealth 
. . . has reasonable cause to believe that any 
person has engaged in, or is engaging in, or is 
about to engage in, any violation of § 59.1-200, 
the attorney for the Commonwealth . . . after 
making a good faith effort to obtain such 
information, is unable to obtain the data and 
information necessary to determine whether such 
violation has occurred, or that it is impractical 
for him to do so, he may apply to the circuit 
court . . . for an investigative order . . . . 
 
B.  The circuit courts are empowered to issue 
investigative orders, . . . .  An application for 
an investigative order shall identify: 
 
1.  The specific act or practice alleged to be in 
violation of § 59.1-200; 
 
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2.  The grounds which shall demonstrate 
reasonable cause to believe that a violation of 
§ 59.1-200 may have occurred, may be occurring or 
may be about to occur; 
 
3.  The category or class of data or information 
requested in the investigative order; and 
 
4.  The reasons why the attorney for the 
Commonwealth. . . is unable to obtain such data 
and information, or the reason why it is 
impractical to do so, without a court order. 
 
Paramount argues that before a civil investigative order 
can be issued, the Commonwealth must demonstrate "factual" 
compliance with subsection (A) of § 59.1-201 and "formal" 
compliance with subsection (B) of that section.  According to 
Paramount, subsection (A) requires the Commonwealth to make a 
factual showing that it had reasonable cause to believe that a 
violation of § 59.1-200 of the Virginia Consumer Protection 
Act, Code §§ 59.1-196 through –207 (Consumer Protection Act) 
had occurred, was occurring, or would occur, and that it had 
made a good faith effort to acquire the desired information 
and was unsuccessful, or that it was impractical to seek the 
information without a court order.  Subsection (B), Paramount 
continues, requires that the application for the order comply 
with the "formal" requirements listed in the subsection's 
subparts.  Under Paramount's analysis, failure to comply with 
either of these "factual" or "formal" requirements defeats the 
request for a civil investigative demand. 
 
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We disagree with Paramount's construction of these 
provisions.  Subsection (A) describes the circumstances under 
which an application for a civil investigative order is 
appropriate and subsection (B) incorporates those 
circumstances into conditions which must be identified in the 
application before a circuit court can issue a civil 
investigative order.  This statutory scheme does not, however, 
impose a two-step compliance process as suggested by 
Paramount.  Thus, in resolving this appeal, we are concerned 
only with Paramount's allegations that the application did not 
comply with the requirements of subsection (B)(1), (2), and 
(4).1
Compliance with § 59.1-201(B)(1) and (B)(2). 
 
Subparagraphs (1) and (2) of § 59.1-201(B) require 
identification of the alleged acts or practices which violate 
the Consumer Protection Act and the grounds which demonstrate 
reasonable cause to believe the alleged violations have 
occurred, are occurring, or may occur.  Paragraph 6 of the 
application states that "upon information and belief" 
Paramount's agents, through directives from Paramount, (1) 
induced consumers to execute a waiver of their "three-days 
right to cancel" by certain misrepresentations such as 
                     
 
1 Paramount also complains that the trial court should 
have conducted an evidentiary hearing; however, Paramount did 
not assign error to this issue.  Rule 5:17(c). 
 
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obtaining a "'special price'" or other non-emergency 
situations in violation of the Virginia Consumer Protection 
Act, § 59.1-200(9), (14), and (19); (2) failed to leave copies 
of the contracts and signed "right to cancel" waivers at 
consumers' homes or failed to give such copies to consumers 
upon request in a timely manner in violation of §§ 59.1-
21.4(2) and 59.1-200(19); (3) misrepresented that Paramount 
was the "sole distributor" or only "locally authorized dealer 
of various building supplies" in violation of § 59.1-200(3); 
and (4) "made it difficult for consumers to cancel within the 
three days' cancellation period" by delaying requests until 
after the time period had expired and refusing to accept 
delivery of notice of cancellation in violation of § 59.1-
200(19). 
To demonstrate that the Commonwealth had reasonable cause 
to believe Paramount engaged in the conduct listed in 
Paragraph 6, as required by § 59.1-201(B)(2), the application 
stated in Paragraph 7 that 19 complaints had been received by 
or referred to the Consumer Affairs Division of the 
Commonwealth Attorney's Office and that affidavits by a former 
employee and a former officer of Paramount recited that the 
actions described in Paragraph 6 are "being authorized and 
conducted in the regular course of business" by Paramount 
against other consumers who may not have yet filed a 
 
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complaint.  Copies of the affidavits and two of the 19 
complaints were attached as exhibits to the application.  
Paragraph 8 explained the pattern of operation recited in the 
exhibits which the Commonwealth believed showed a practice of 
past and continuing violations of the Consumer Protection Act. 
 
Paramount first argues that these allegations are 
insufficient because they reflect only opinions and 
conclusions, not facts.  Paramount further asserts generally 
that there is no evidence of any directives by Paramount or 
its representatives to misrepresent Paramount's role as sole 
distributor, to induce customers by false pretenses to sign a 
waiver of their right to cancel, or any evidence that 
Paramount agents were directed not to leave contracts or 
signed waivers with the customers or to delay or make it 
difficult for customers to cancel their contracts. 
Paramount maintains that the signed waivers were not part 
of the sales contract required to be supplied to the customer, 
that failure to provide the signed waiver was not part of a 
policy to thwart consumer's efforts to cancel, and, finally, 
that the waivers themselves did not violate the Home 
Solicitation Act because that Act only declares such waivers 
void, not in violation of that Act.  Therefore, Paramount 
contends that these actions were not violations of § 59.1-200.  
In summary, Paramount asserts that the actions alleged either 
 
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did not occur or that they were not violations of the Consumer 
Protection Act.  
 
We disagree with Paramount.  The recitations in the 
application and the attached exhibits indicate that 
Paramount's agents, at the direction of Paramount and 
Augustine, engage in a standard procedure that includes 
offering "showcase home" discounts tied to the execution of 
"right to cancel" waivers, failing to give copies of the 
waivers to the customers, and enforcing sales contracts 
regardless of the validity of the waivers.  This pattern of 
action, as stated in one of the complaints attached to the 
affidavit, leaves the consumer with the impression that the 
waiver was valid and that the sales contract could not be 
cancelled.  The application clearly alleges that these acts 
and practices violate the Consumer Protection Act. 
An application for an investigative order must also show 
that there is "reasonable cause to believe" that a violation 
of the Consumer Protection Act has occurred, is occurring, or 
will occur.  § 59.1-201(A).  The "reasonable cause" standard 
requires less than the probable cause standard and does not 
require a showing that a violation has in fact occurred.  As 
stated by the Commonwealth, "[a]t this point in the 
investigation it is not necessary for the Commonwealth to 
prove that any customer has actually been deceived; that is to 
 
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be established at trial.  Rather, what is important is that 
the Commonwealth has made its prima facie case of reasonable 
cause to investigate."  The totality of information presented 
in the application and exhibits demonstrates that reasonable 
cause exists to believe that Paramount would engage in 
specific acts which violated § 59.1-200.  
Compliance with § 59.1-201(B)(4) 
Section 59.1-201(B)(4) requires identification of the 
reasons why the Commonwealth "is unable to obtain such data 
and information, or the reason why it is impracticable to do 
so, without a court order."  Paragraph 9 of the application 
states: 
The reason why the Office of Commonwealth's 
Attorney is unable to obtain the information/items 
as listed in Exhibit "A" is that upon information 
and belief and based upon the affidavits, the 
Office of Commonwealth's Attorney believes it 
would suffer irreparable damages that should a 
mere letter, rather than a court order, be sent to 
Paramount Builders, Inc., because under 
information and belief, Paramount Builders, Inc., 
would destroy many of the necessary documents. 
 
Paramount argues that this statement is insufficient to 
satisfy § 59.1-201(B)(4), because the application must 
identify either that the Commonwealth was unable to secure the 
information or that it was impractical to do so, but not both.  
In this case, Paramount asserts, the Commonwealth chose to 
assert that it was "unable to obtain" the data, not that it 
was "impractical" to do so.  Having stated that it was unable 
 
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to obtain the information, Paramount continues, the 
Commonwealth was required to but did not identify the reasons 
why it could not obtain the information.  Thus, Paramount 
concludes, the application fails to comply with the 
requirements of § 59.1-201(B)(4). 
 
We agree with Paramount that § 59.1-201(B)(4) is intended 
to require the application to identify one of two mutually 
exclusive circumstances, either of which will support the need 
for a court order.  The first circumstance is that, even 
though the Commonwealth made good faith efforts, it was 
"unable to obtain" the information.  The second circumstance 
is that such good faith efforts to obtain the information were 
not made because to do so would have been "impractical."2  
Paramount seeks to defeat the application in this case on the 
theory that the Commonwealth chose the former circumstance 
when it used the phrase "unable to obtain" in paragraph 9, 
and, therefore, is precluded from relying on any reason of 
impracticality to support the issuance of a court order.  We 
disagree. 
The identification requirement set out in the statute is 
that the application identify reasons why the applicant is 
"unable to obtain" information "without a court order" or the 
                     
2 Although the intent of § 59.1-201(B)(4) is not disputed, 
we nevertheless note that the specific language of the 
provision does not accurately reflect that intent. 
 
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reason why "it is impracticable" to obtain such information 
"without a court order."  Paragraph 9 of the application 
clearly states that the "reason why" the Commonwealth's 
Attorney is "unable to obtain" the information "without a 
court order" is because the Commonwealth's Attorney believes 
that "should a mere letter, rather than a court order, be sent 
to Paramount," Paramount "would destroy many of the necessary 
documents."  There is no confusion over the statement made in 
the application.  It clearly identifies the reason why it 
would be impractical to engage in efforts, good faith or 
otherwise, to obtain the information without a court order — 
because the Commonwealth's Attorney believed that the 
information would be destroyed.  The reasonableness of this 
belief was supported by the affidavits accompanying the 
application.  Compliance with subparagraph (4) of § 59.1-
201(B) is not defeated simply because the phrase "is unable to 
obtain" was used in identifying why it was impractical for the 
Commonwealth to try to obtain the information by letter, 
rather than court order.  Thus, we reject Paramount's claim 
that the application failed to comply with the requirements of 
§ 59.1-201(B)(4). 
 
Lastly we reject Paramount's argument that the order of 
the trial court was wrong because the order was based upon "a 
totally inadequate finding with respect to the good faith 
 
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requirements" of the Code.  The final order of the trial court 
states "IT APPEARING that the Commonwealth complied with 
§ 59.1-201 of the Code of Virginia (1950), as amended made 
good faith efforts and had sufficient reasonable cause."  
(Emphasis added.)  While the emphasized phrase seems to 
indicate a finding of good faith efforts and reasonable cause, 
the phrase is incomplete and its meaning unclear.  However, 
this confusion does not invalidate the trial court's order.  
The order clearly states the dispositive finding, that the 
requirements of § 59.1-201 were satisfied.  There is no 
requirement that a trial court's order reflect a specific 
finding as to each of the conditions required to be identified 
by § 59.1-201(B). 
Accordingly, for the reasons stated, we will affirm the 
judgment of the trial court. 
Affirmed.
 
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