AGíS POSITION ON PERSONAL LIABILITY FOR CORP. OFFICER UPHELD BY APPEALS COURT RULING
Attorney General J. Joseph Curran, Jr., announced today that the Court of Special Appeals issued a decision holding that the Consumer Protection Division had properly ordered a corporate officer to pay penalties and a consumer restitution for his corporationís unfair and deceptive trade practices. The appeal questioned whether Jerome Kossol could be ordered to pay restitution for fraudulent acts committed by his corporation even though he didnít receive money directly from the people who were defrauded.
In 1997, the Division ordered Kossol and Mousa Ayoub, operators of a food service company called Continental Food Network, to pay $6,000 in consumer restitution and $265,000 in civil penalties for unfair and deceptive trade practices. From 1990 through mid-1996, Continental Food Network sold food plans and freezers to consumers through in-home sales presentations. The Division found that Continental falsely claimed that a plan would feed a family of four for up to a year, when the food lasted only six months; falsely claimed that the plan provided USDA prime meat; falsely claimed that consumers would save money, when Continentalís prices were substantially higher than grocery store prices; and promised that the freezers would be free, when in fact customers had to pay for them for three years. The food plans ranged in price from $3,175 to $1,347.
Kossol was secretary of Mt. Ephraim Meat Shop, Inc. and vice-president of Cummings & Wildwood, the two companies that traded as Continental Food Network. He helped develop the sales procedures and sales manuals used in selling the food plans, helped design the commission structure for sales representatives, and trained the sales people. Therefore, the Court reasoned that Kossol actively participated in the development of the deceptive trade practices of Continental, and benefitted from them as an officer and shareholder. The Court referred to other cases in which state and federal courts have held that officers of corporations are liable if they "participated directly in" unfair or deceptive trade practices or had the authority to control them.
In 1999, the State of Maryland Central Collection Unit sued Kossol, seeking to obtain a money judgment to collect the penalty and restitution ordered by the Division in 1997. On March 21, 2000, the Circuit Court for Baltimore City ordered the payment of the civil penalty, but held that the restitution was improper because the consumersí payments had not gone to Kossol individually. The Court of Special Appeals has reversed that decision.