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District Cablevision Limited Partnership v. Bassin

July 17, 2003

DISTRICT CABLEVISION LIMITED PARTNERSHIP, APPELLANT/CROSS APPELLEE,
v.
ROBERT BASSIN AND SHERL WEEMS, APPELLEES/CROSS APPELLANTS.



Appeal from the Superior Court of the District of Columbia (CA No. 11754-94) (Hon. Leonard Braman, Trial Judge)

Before Wagner, Chief Judge, and Glickman and Washington, Associate Judges.

The opinion of the court was delivered by: Glickman, Associate Judge

Argued December 7, 2000

The District of Columbia Consumer Protection Procedures Act affords a panoply of strong remedies, including treble damages, punitive damages and attorneys' fees, to consumers who are victimized by unlawful trade practices. In this case two consumers sued District Cablevision Limited Partnership (DCLP) under the Act on behalf of a class of cable television service subscribers who, they alleged, paid illegally excessive late payment fees levied by DCLP. The trial court ruled that the causes of action were governed by a three-year statute of limitations rather than a four-year statute as the plaintiffs proposed. After a jury trial, the plaintiffs obtained a judgment against DCLP for $3,414,411.00 in compensatory damages before trebling. In a second phase of the trial, the jury awarded an additional $3,274,080.00 in punitive damages. The trial court upheld the plaintiffs' cause of action under the Consumer Protection Procedures Act and the jury's compensatory damage award, but ruled that the evidence was insufficient to support punitive or treble damages. Accordingly, the court set aside the punitive damages award. The court also ruled that the plaintiffs were not entitled to prejudgment interest on their award. Finally, the court awarded the plaintiffs $425,916.25 in attorneys' fees. Both the plaintiffs and DCLP have appealed.

Except in two significant respects, we affirm the trial court's rulings. In agreement with the trial court, we hold that the plaintiffs were entitled to invoke the Consumer Protection Procedures Act to remedy DCLP's violation, in charging a late fee, of common law requirements for a valid liquidated damages clause. We also hold that DCLP was entitled, despite the invalidation of its liquidated damages provision, to prove and recoup the actual damages it sustained as a result of late payments by its subscribers. We agree as well with the trial court's ruling that the plaintiffs' action was governed by a three-year statute of limitations. Hence we uphold the jury's determination of compensatory damages. We hold, however, that theplaintiff class is entitled to prejudgment interest on those damages. Further, while we agree with the trial court that the evidence was insufficient to justify punitive damages, we hold that the plaintiff class is entitled to treble damages.

I.

During the years relevant to this appeal, DCLP provided cable television service to over 100,000 subscribers in the District of Columbia under the franchise awarded by the Council pursuant to the Cable Television Communications Act of 1981. See D.C. Code § 34-1213.01 (2001). Subscribers entered into standardized contracts with DCLP under which they agreed to pay DCLP a monthly fee for the level of cable service they selected. Subscribers also agreed to pay a late charge or administrative fee if they were late with their payments, in an amount to be set from time to time by DCLP. DCLP's ostensible purpose in imposing this late fee was not merely to recover the time value of the delayed payments, i.e., DCLP's carrying costs, but more importantly to defray the expenses that DCLP incurred in its efforts to collect delinquent accounts.

In 1990, DCLP unilaterally increased the late fee it charged its subscribers from $2.00 to $5.00. The new fee was half the charge for basic cable service. DCLP did not base the increase to $5.00 on any analysis or estimate of the costs it actually incurred or anticipated incurring as a result of late payment. In hearings before the District's Office of Cable Television, *fn1 DCLP's general manager candidly acknowledged that the $5.00 late fee was not cost-based and explained that it was designed simply to "motivate" subscribers to pay in a timely fashion. "The whole point," according to DCLP, was "that we would like them to pay as soon as possible. . . . If this is a way to facilitate that payment, then that is exactly what we would like them to do." The Office of Cable Television expressed concerns that the increased late fee was not achieving this goal and was larger than necessary to cover the administrative cost burden attributable to late payments. The Office did not insist that the fee be reduced, however. The Office also voiced concerns that DCLP's bills and billing procedures in charging the late fee were confusing to its subscribers. In response to the Office's concerns, DCLP changed the format of its bills, but it kept the late fee at the $5.00 level. At that level, the late charge was comparable to what some cable service providers charged in other localities, though it was higher than what most others charged. DCLP's late fee also was significantly higher than the late fees typically charged by public utilities for gas, electric and similar services.

DCLP subsequently reported to the Office of Cable Television that it was collecting revenues of $1.2 million annually from late fee payments at the new $5.00 rate. Some twenty-five percent of DCLP's subscribers incurred the $5.00 charge each month.

In November of 1994, Robert Bassin and Sherl Weems filed a class action lawsuit in Superior Court on behalf of all subscribers who had paid DCLP's $5.00 late fee in the preceding four years. Mirroring the concerns previously raised by the Office of Cable Television, the plaintiffs challenged DCLP's late fee practices as predatory in two main respects. First, they claimed that DCLP violated the District of Columbia Consumer Protection Procedures Act ("CPPA"), D.C. Code §§ 28-3901-3911 (2001), by intentionally employing confusing and deceptive bills and billing procedures to mislead and manipulate subscribers into paying late fees that they did not owe or could have avoided by paying their bills more promptly. Second, the plaintiffs claimed that DCLP violated the CPPA, as well as the common law and the liquidated damages provision in the Sales Article of the Uniform Commercial Code, D.C. Code § 28:2-718 (2001), by imposing an exorbitant penalty for late payment. The plaintiffs charged that the $5.00 fee was an illegal penalty and not a valid liquidated damages provision because it bore no reasonable relationship to the anticipated or actual losses that DCLP sustained on account of late-paying subscribers. Moreover, the plaintiffs contended, the late fee was misleading because DCLP did not disclose that its "actual purpose" in levying the fee was to enhance its revenues rather than to recover damages legitimately attributable to late payment. In addition to compensatory damages (disgorgement of accumulated late fees), the plaintiffs sought an award under the CPPA of treble or punitive damages and attorneys' fees and costs.

At trial, both sides presented extensive testimony and other evidence regarding DCLP's billing practices and the costs that DCLP sustained when its subscribers did not pay their bills on time. We need not recount that evidence in detail for the reader to understand the issues raised in this appeal. It suffices for present purposes to note that the validity of the $5.00 late fee primarily turned on the amount and the reasonableness of the direct and indirect costs that DCLP incurred to collect payments owed by delinquent subscribers. *fn2 Although DCLP had not based the $5.00 charge originally on any analysis or estimate of its anticipated costs, DCLP contended that the charge was justified nonetheless by the collection costs it actually did incur. DCLP's accounting expert calculated that these collection costs ranged from $11.00 to $12.58 per late payer, or more than twice the $5.00 fee that DCLP had imposed. The plaintiffs challenged DCLP's post-factum cost analysis and countered with evidence that DCLP had incurred no collection costs at all in the majority of cases because most delinquent subscribers paid their bills promptly after being assessed the late fee, before any collection efforts commenced in their cases. The sole cost that DCLP had incurred in those cases, the plaintiffs contended, was the comparatively minimal cost of funds, which supported a much smaller average late fee than DCLP had charged. *fn3

In arguing that the liquidated damages provision in their cable service contracts violated the Uniform Commercial Code (U.C.C.) as well as common law, the plaintiffs sought to invoke the four-year statute of limitations provided in the Sales Article of the U.C.C. for breach of contract claims. See D.C. Code § 28:2-725 (1) (2001). Before sending the case to the jury, however, the trial court ruled that while the U.C.C. governed the transactions generally (which DCLP disputed), the four-year statute of limitations did not apply to the plaintiffs' causes of action. Rather, the court ruled, the case was subject to the three-year limitations period provided in D.C. Code § 12-301 (8) (2001) for actions "for which a limitation is not otherwise specially prescribed."

The jury's verdict was mixed. The jury rejected entirely the plaintiffs' claim that DCLP had violated the CPPA by employing misleading billing practices. *fn4 The jury agreed with the plaintiffs, however, that DCLP's $5.00 late fee did not bear a reasonable relationship to the anticipated or actual loss that DCLP was caused by late paying subscribers and so was not a valid liquidated damages provision. The jury found that DCLP had incurred actual costs attributable to late payment of only $2.43 per delinquent subscriber - rather more than the plaintiffs had acknowledged, but less than half of what DCLP had charged and far less than what DCLP had claimed at trial. Coupled with the trial court'sruling on the applicable statute of limitations and certain other trial court rulings that will be described momentarily, these findings translated into a compensatory damages award to the plaintiff class of slightly over $3.4 million.

The jury further found that in charging the invalid $5.00 late fee, DCLP had acted maliciously or outrageously so as to subject itself to punitive damages. Based on that finding, the trial court decided to permit the jury to consider awarding either punitive or treble damages under the CPPA. In making this decision, the court rejected both DCLP's contention that its imposition of an invalid late fee was not a violation of the CPPA and the plaintiffs' contention that the CPPA entitled them to elect to receive treble damages as an alternative to punitive damages without further jury consideration. Following the receipt of evidence pertaining to DCLP's net worth in a second phase of the trial, the jury rejected the option of treble damages and awarded punitive damages of nearly $3.3 million.

In the aftermath of the jury's verdict, both sides submitted post-trial motions. In deciding those motions the trial court rendered key rulings that shaped the ultimate award and that are central to this appeal. The court set forth these rulings with care and clarity in written memoranda that we have found very helpful in resolving this appeal. First, the court upheld the jury's determination that the $5.00 late fee was not a valid liquidated damages provision and ruled that DCLP's unilateral imposition of the fee constituted an unfair trade practice within the meaning of the CPPA. Based on this ruling, the court awarded the plaintiff class over $425 thousand in attorneys' fees, relief that the CPPA made available to prevailing plaintiffs. Second, although the CPPA also permitted the award of punitive damages in appropriate cases, the court ruled as a matter of law that the evidence adduced at trial was insufficient to establish malicious or outrageous conduct on DCLP's part by clear and convincing evidence. The court therefore set aside the jury's $3.3 million punitive damages award. The court's ruling that malice had not been shown also cleared the way for DCLP to recoup its actual late payment damages as measured by the jury's determination that $2.43 of the late fee was cost-justified. The court therefore required DCLP to disgorge only the unjustified excess portion, or 51.4 percent, *fn5 of the late fee revenues it had collected instead of the entire amount; as a consequence, the compensatory damages award was $3.4 million rather than nearly twice that amount. Third, and finally, the court denied prejudgment interest on the compensatory damages award.

In sum, the monetary judgment in favor of the plaintiff class consisted of compensatory damages plus attorneys' fees and costs, and totaled approximately $3.85 million.

II.

On appeal, DCLP does not challenge the jury's determination that the $5.00 late fee was not a valid liquidated damages provision, and hence DCLP does not seek to overturn the $3.4 million compensatory damages award. For their part,the plaintiffs do not challenge the jury's determination that the costs that DCLP actually incurred on account of late payments would have justified a late fee amounting to $2.43. Nor do the plaintiffs seek to overturn the jury's rejection of their claim that DCLP's billing practices (aside from the imposition of the late fee itself) were misleading and violated the CPPA. Therefore we take those jury determinations as a given, and as the starting point for our review of the challenges that the parties do make in this court.

DCLP contends that the trial court erred in ruling that its imposition of an invalid late fee was actionable under the CPPA and that the plaintiffs could recover their attorneys' fees under that statute. We reject these contentions and affirm both rulings.

The plaintiffs raise several issues. They contend that the trial court erred in refusing to let them elect to receive treble damages under the CPPA in lieu of punitive damages, and in setting aside the punitive damages award after the jury found that DCLP's conduct was malicious and outrageous. The plaintiffs further contend that the court erred in allowing DCLP to recoup its actual damages, i.e., in failing to require DCLP to disgorge all the late fee revenues it collected. Finally, the plaintiffs contend that the court erred in refusing to apply the U.C.C.'s four-year statute of limitations for breach of contract actions, and in refusing to award prejudgment interest. We hold that the CPPA entitled the plaintiffs to an award of treble damages. We also ...


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