Keavney, Walter J

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IN THE MA'ITER OF JOHN F. EBERHARD, WALTER J. KEAVNEY, AND EDMUND DIAZ COMPLAINT, FINDINGS, AND ORDER IN REGARD TO THE ALLEGED VIOLATION OF SEC. li OF AN ACT OF CONGRESS APPROVED SEPT. 26, 1914 Docket 4639. Complaint, Nov. 'U, 1941-Decision, May !4, 1943 Where three Individuals, operating over a period of years through different corporations which successively became insolvent; engaged directly and through salesmen In securing signatures to contracts providing for the purchase of magazine subscriptions and scientific books, both selected by the purchaser from the list furnished, at specified combination or group prices- ( a) Represented that purchasers under any of their combination or group ofter plans would receive the books, magazines, and periodicals listed in such plan upon payment of the purchase price;

(b) Represented that various books or magazines were given free to purchasers with their combination or group offer plans; and (c) Itepresented that the scientific books concerned were original, standard, unabrhlged editions expensively bound and printed, and worth at least $6 a volume ;

When in tact It was their frequent practice to collect the snbscrlption price without making remission to the publishers of the periodicals requested, with tbe result that purchasers failed to receive any magazine or, in some Instances, received only part of their selection, or other periodicals than those ot·dered; Items which they represented as being free were In fact usually Included bY them In their group offers, the price being thus actually included In the regular price for the particular combination; and the scientific books In question were not original, standard, unabridged editions, and worth said amount, but were monographs or condensed articles by the n.uthors named, printed on cheap paper and cheaply bound;

With effect of misleading and deceiving a substantial portion or the purchasing public Into the erroneous belief that such representations wet·e true and to induce It, because of such mistaken belief, to purchase their books and . magazines ol'fered as aforesaid:

Held, That said acts and practices, under the circumstances set·forth, were aU to ' the prejudice and injury or the public and constituted unfair and deceptive acts and practices In commerce.

Defore Mr. Webster Ballinger, trial examiner. Mr. J. W. Carter, Jr., for the Commission.

Col\IPLAINT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said act, the Federal Trade Commission, having reason to believe that John F. Eberhard, 'Valter J. Keavney, and Edmund Diaz, individuals, hereinafter rP· ferred to as respondents, have' violated the provisions of said act, and it appearing to the C~m~ission that a proceeding by it in 'respect I JOHN F. EBERHARD, ET .AL. 765 764 Complaint thereof would be in the public interest, hereby issues its complaint, stating its charges in this respect as follows: PARAGRAPH 1. Respondent, John F. Eberhard, is an individual, residing at 148 Marcellus Road, Mineola, Long Island, N. Y. Respondent, lValter J. Keavney, is an individual, whose business address is in care of the Transportation and Express Department of Time, Inc., 330 East Twenty-second Street, Chicago, Ill. Respondent, Edmund Diaz, is an individual, doing business under the style and trade name of Physicians' Circulation Service with his principal place of business located at 11 West Forty-second Street, New York, N.Y.

PAR. 2. From October 1932 to July 1!>37, the Cyclopedia Corporation of America was actively engaged in selling and distributing certain combination or club' offers consisting of scientific books and subscriptions to various magazines and periodicals, maintaining offices at 120 'West Forty-second Street in the city of New York, N.Y. Although not originally members of this corporation, respondents, John B. Eberhard and ·walter J. Keavney, prior to the year 1937, became associated with, and eventually took over, the entire business of this corporation. In 1937, due to financial difficulties, the corporation was forced to submit to its creditors a reorganization plan under the bankruptcy act. That plan was accepted by the creditors and resulted in the organization of the Professional Circulation Co., Inc., which took over the business formerly conducted by the Cyclopedia Corporation of America. Respondents, John F. Eberhard and 'Valter J. R:eavne.y, together with respondent Edmund Diaz, were actively engaged in the operation of the Professional Circulation Co., Inc. In 1938, the Professional Circulation Co., Inc., made an assignment for the benefit of its creditors, and thereafter John F. Eberhard, Walter J. Keavney, and Edmund Diaz, as individuals, continued to · operate the same business under tJ1e style and trade name of Professional Sales Corporation until the latter part of 1939, with their principal office and place of business located at 55 '\Vest Forty-second Street, New York, N.Y.

Respondents have acted in conjunction and in cooperation with each other, in performing the acts and practices hereinafter set forth. PAR. 3. Acting in their individual capacities. and as officers and rep- ~esentatives of the Cyclopedia Corporation of America prior to 1937, of the Professional Circulation Co., Inc., from 1937 to 1938, and trading under the style and firm name of Professional Sales Corporation Until the latter part of 1939, respectively, respondents have engaged in the sale and distribution in commerce of scientific books, magazines, aij.d periodicals under "Selected Gro~p Offers" and have caused such 766 l"EDFlR'AL TRADE COl\IMISSifON DECISIONS Complalut 36F.T.0.

books and magazines, when sold, to be transported from the publisher's place of business to the purchasers thereof at their respective points of location in the various States of the United States and in the District of Columbia.

Respondents at all times mentioned herein have maintained a course of trade in said books and magazines in commerce among and between the various States of the United States and in the District of Columbia. ran. 4. In the course and conduct of the aforesaid business, as aforesaid, respondents have engaged in the practice of representing: that purchasers of any of respondents' "Selected Group Offers" would receive the books and magazines listc.>d in such "Selt•ded Group Offers" upon the payment of the purchase price; that various books or magazines were given free to purchasers of respondents' various "Selected Group Offers"; that the books sold and distributed by respondents in or with the various "Selected Group Offers" were origillal, standard, unabridged editions, expensively bound and printed, and worth at least $6 a volume; that the price at which respondents were offering their "Selected Group Offers" was less than the price usually charger] by respontlents for such "Selected Group Offers." The respondents have further represented as the publisher's regular price, for subscriptions to the various magazines listed in respondents' "Selected Group O!fers," a sum larger than is actually charged by the publishers for such subscriptions.

PAn. 5. The foregoing representations, and others of a like nature but not specifically set out herein, were false and misleading. Purchasers of the various "Selected Group Offers" did not receive the magazines selected and paid for, but in many instances failed storeceive any magazines and in many other instances received only a part of their selection, or magazines other than those selected. Respondents did not give either books or subscriptions to magazines free with any of the various "Selected Group Offers" listed in their contracts. The list of items comprising each "Selected Group Offer" included such so-culled free goods and the various "Selected Group Offers" so listed were regulady and customarily offered for sale and sold by the respondents at the price set forth in said contracts and the price of the so-called free goods, represented by respondents as helongiug to or accompanying any particular "St>lect.ed Group Offl'r," whether books or subscriptions to magazines, was adually included in und made a part of the price regularly and customarily chnrgt•d by rrspondents for that particular "Selected Group Offer'' arHl set forth in respondents contracts as such. The books sold and distributed by the respondents were not original, standard, unabridged editions, hut were monographs or condensed articles by the authors named and were not e~· JOHN F. EBERHARD, ET AL. 767 76-l Findings pensively bound or printed, and were not worth $6 a volume, but were cheaply bound and printed on a cheap grade of paper. PAR. 6. The use by respondents of the foregoing, false, deceptive, and misleading representations, and others of a like nature, but not specifically set out herein, has had the tendency and capacity to, and did, mislead and deceive a substantial portion of the purchasing public into the erroneous and mistaken belief that such representations were true, nnd to induce a sub~.:tantial portion of the purchasing public, because of such erroneous and mistaken belief, to purchase respondents' "Seleeted Gt·oup Offers" of books and magazines. P.m. 7. The aforesaid acts and practices of respo!ldents, as herein alleged, are all to the prejudice and injury of the public, and constitute unfair and deceptive acts and practices in commerce within the intent and meaning' of the Federal Trade Commission Act. · REronT, FINDINGS AS TO THE Facts, AND ORDER Pursuant to the provisions of the Federal Trade Commission Act, the· Federal Trade Commission on the 21st day of November 1941 issued and subsequently served its complaint in this proceeding upon the respondents, John F. Eberhard, 'Valter J. Keavney, and Edmund Diaz, individuals, charging them with the use of unfair and deceptive acts and practices in commerce in violation of the provisions of said act. After the issuance of said complaint and the filing of answer thereto by respondent Edmund Diaz (the remaining respondents not having filed an answer), testimony and other evidence in support of ahd in opposition to the allegations of said complaint were introduced before a trial examiner of the Commission theretofore duly designated by it, and said testimony and other evidence were duly recorded and filed in the office of the Commission. Thereafter, this Proceeding regularly eame on for final hearing before the Commission Upon said complaint, answer thereto, testimony, and other evidence, report of the trial examiner upon the evidence and exceptions filed thereto, and brief in support of the complaint (no brief having been filed by the respondents or oral argument requested) ; and the Comnlission, having duly considered the matter and being now fully ad- \'ised in the premises, finds that this proceeding is in the interest of the public and makes this its findings as to the fuets and its conclusion drawn therefrom.

FINDINGS AS TO TIIE FACTS PARAGRAPH 1. Respondent., John F. Eberhard, is an individual, residing at 148 Marcellus Road, Mineola, Long Island, N. Y. Respondent, 'Valter J. Keavney, is an individual, whose business address is in 768 !FEUEIR'/.L TRADE COM.MISISTON D·ECISIONS Findings 30F.T.C.

care of the Transportation and Express Department of Time, Inc., 330 East Twenty-second Street, Chicago, Ill. Respondent, Edmund Diaz, is an individual, doing business under the trade name of Physicians' Circulation Service, with his principal place of business located at 11 West Forty-second Street, New York, N. Y.

PAn. 2. During the periods of time hereinafter mentioned, the respondents, individually and as officers and representatives of corporations hereinafter described, have been engaged in the sale and distribution of scientific books, magazines, and periodicals by means of various combination or group offer plans whereby the respondents offered to purchasers and prospective purchasers a combination subscription to several magazines and periodicals, to be selected by the purchaser from a list of popular and scientific magazines and periodicals submitted by the respondents, together with the delivery by the respondents of one or more scientific books at a combination price designated by th~ respondents. Respondents have caused such books, magazines, and periodicals~ when sold, to Le transporte,d from respondents' places of business in the State of New York and from the publishers' places of business to purchasers thereof located in various States of the United States other than the State of New York and the States in which the places of business of the publishers of said scientific books, magazines, and periodicals were located. Hespondents, at all times mentioned herein, have maintained a course of trade in said books, magazines, and periodicals in commei·ce among and between the various States of the United States.

P.AR. 3. In 1933 respondents, John F. Eberhard., \Valter J.Keavney, and Edmund Diaz, became associated with a corporation known as Cyclopedia Sales Corporation, which corporation was engaged in the sale anu distribution of scientific books, magazines, and periodicals by means of certain combination or group offer plans. In 1931 the name ·of the corporation was changed to Cyclopedia Corporation of America, and thereafter John F. Eberhard and \Valter J. Keavney, as president and vice president, respectively, acquired all the stock of the corporation and were the sole operating officials. Respondent, Edmund Diazt was district sales manager and salesman for said corporation.

The methods of doing business adopted by the respondents in opel'· ating the Cyclopedia Corporation of America were substantially the same as those followed by respondents in operating the subsequent organizations hereinafter described. The usual and customary method of doing business was for the respondents, both directly and through salesmen, to induce purchasers to sign contracts providing for the pur- JOHN: F. EBERHARD, ET AL. 769 764 IOn dings chase of several subscriptions to various popular or scientific magazines or periodicals, together with the purchase of certain scientific books at specified combination or group prices, all of which books, magazines, and periodicals were selected by the purchaser from lists furnished by the respondents. Such contracts provided for a part payment in cash with the order, a second payment upon -delivery of the scientific books, and final payment upon receipt of bill from the respondents. The moneys so received from said contracts were placed in the general fund of the corporation, from .which were paid the €Xpenses of the administration of the business a.nd the amount due publ~hers for the subscription price of the various magazines ·and periodicals requested by the purchasers.

The Cyclopedia Corporation of America was unable to fill a large number of contracts with its subscribers and in 1937 said Cyclopedia Corporation of America became insolvent and offered its creditors a reorganization plan under Section 77 (b) _of the Bankruptcy Act. The creditors accepted the plan, which resulted in the organization'of a corporation known as the Professional Circulation Co., Inc., with respondents, John F. Eberhard and Walter J. Keavney as sole owners and officers, and respondent, Edmund Diaz, as sales manager and salesman. The Professional Circulation Co., Inc., took over all the assets and business of Cyclopedia Corporation of America and ~ontinued to conduct, in the same manner and with the same sales force, the sale of various magazines, periodicals, and scientific books Under the same combination or group offer plan. In 1938 the Professional Circulation Co., Inc., became insolvent and 'Was unable to meet its obligations or fulfill its contracts with its subscribers and failed to remit the subscription price to the publishers <>f the various magazines requested by such subscribers, and respondents, John F. Eberhard and 'Valter J. Keavney, as officers of said cor- Poration, executed an assignment for the benefit of creditors to one Percy Croce, who proceedeu, as assignee, to liquillate the assets of the ~orporation.

Immediately after the execution of said assignment for the benefit <>f creditors, the respondents, John F. Eberhard nnd Edmund Diaz organized a new corporation known as Professional Sales Corporation. Respondent, Edmund Diaz, was designated as secretary of said corporation. There is some question in the record as to whether the organi- Zation of the Professional Sales Corporation was fully completed as a. corporation, but in any event respondent, John F. Eberhard, as sola owner, and respondent, Ellmund Diaz, as sales manager, continued to operate said business and to sell scientific books, magazines, and FEDE~AL TRIADE COMMISSWN DECISIONS 770 Findings 36F.T.C.

periodicals under the same combinations or group offer plan previously used by the respondents as hereinbefore described. Respondent, John F. Eberhard, continued to operate under the name Professional Sales Corporation until about August 1939, at which time he again became unable to meet his obligations or to fulfill the contracts with the purchasers of his combination or group offer plans and again made an assignment for the benefit of creditors, Shortly prior to this, in March 1939, respondent, Edmund Diaz, resigned his position as sales manager and discontinued his connection with the respondent, John F. Eberhard.

P .AR. 4. In the course and conduct of their business as hereinhffore described and during the times hereinbefore mentioned, the respondents engaged in a practice of representing to purchasers and prospective purchasers:

1. That purchasers of scientific books, magazines, or periodicals under any of respondents' combination or group offer plans would receive the books, magazines, and periodicals listed in such plan upon payment of the purchase price.

2. That various books or magazines were given free to purchasers in or with respondents' various combination or group offer plans. 3. That the scientific books sold and distributed by the respondents in or with the various combination or group offer plans were original, standard, unabridged editions expcnsirely bound and printed and worth at least $6 a volume.

PAR. 5. The foregoing representations were false, deceptive, and misleading. It has l1een the practice of the respo11dents from time to time and on many occasions to collect the subscription price for the magazines and periodicals listed in their combination or group offers without remitting such subscription price or any part thereof to the publb;hers of the magazines requeste'd, with the result that such purchasers have failed to receive any magazine or periodical or in some instances only part of their selection, or magazines and periodicals other than those ordered. Respondents did not give either scientific books or subscriptions to any magazine or periodical free with, or as a part of, any combination or group offer. The items which the respondents and their salesmen have represented as being free were in fact usually and customarily included by the respondents in their various combination and group offer plans for ·the price set· forth ·in respondents' contracts, and the price of such so-called free items was actually included in, and made a part of, the price regularly and customarily charged by respondents for the particular· combination or group offer. The scientific Looks sold and distributed by the respond· "' ' JOHN F, EBERHARD, ET AL. 771 764 Ot·der ents were not original, stanuard, unabridged editions, but were monographs or condensed articles by the authors named, and were not expensively bound or printed and were not worth $6 a volume, but were cheaply bound and printed on a cheap grade of paper. PAR. 6. The use by the respondents of ~he foregoing false., deceptive, and misleading representations and others of similar nature not specifically set out herein has had the tendency and capacity to, and did, mislead and deceive a substantial portion of the purchasing public into the erroneous and mistaken belief that such representations were true and to induce a substantial portion of the purchasing_ public, because of such erroneous and mistaken belief, to purchase respondents' selected group, offers .of books and magazines. CONCLUSION The aforesaid acts and practices of the respondents as herein :found are all to the prejudice and injury of the public and constitute unfair and deceptive acts and practices in commerce within the intent and meaning of th~ Federal Trade Commission Act. ORDER TO CEASE AND DESIST This proceeding having been heard by the Federal Trade Conunission upon the complaint of the Commission, answer of respondent, Rdmund Diaz, testimony and other evidence in support of and in opposition to the allegations of said complaint taken before a trial examiner of the Commission theretofore duly designated by it, report of the trial examiner upon the evidence and exceptions filed thereto, and brief filed in support of the complaint; and the Commission having lnade its findings as to the facts and its conclusion that said respondellts have violated the provisions of the Federal Trade Commission Act. It is ordered, That the respondents, John F. Eberhard, 'Valter J. 1\:eavney, and Edmund Diaz, individuals, and their respective representatives, agents, and employees, directly or through any corporate or other device, in connection with the offering for sale, sale, and distribution of scientific books, magazines, periodicals, or other similar t>ublications in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: 1. Representing that purchasers of books, mngazinPs, or periodicals sold by the respondents, or any of them, will receive the books, magazines, or periodicals selected, upon payment of the purchase price, \\>hen such purchasers do not receive any of such books, magazines, or periodicals or receive books, magazines, or periodicals other than those selected by such purchasers or receive only part of such selection. 772 FIDDDR'AL TRADE COMMISJSION D•ECiSTONS Order 36F. T. C.

2. Representing that purchasers of subscriptions to magazines or periodicals offered by the respondents, or any of them, will receive the magazines or periodicals so selected, upon payment of the purchase price, when the respondents do not remit the subscription price to the publishers or distributors of the magazines or periodicals selected so that the name of such purchaser can be. entered as a subscriber to the magazine or periodical selected.

3. Representing that any book, magazine, or periodical is given free to purchasers, which is regularly included in a combination offer with other books, magazines, or periodicals and the price of such item, represented as being free, is included in and made a part of the price · regularly and customarily charged for the particular combination offer.

4. Representing that any book offered for sale by the respondents, or any of them, is an original, standard, or unabridged edition, or that it is expensively bound and printed when such book is a monograph or condensed article cheaply bound and printed on a cheap grade of paper.

5. Representing as the customary or regular price or value of any of respondents' books, any price or value which is in fact in excess of the price at which said books are customarily offered for sale and sold in normal and usual course of businf)ss. It is further ordered, That the respondents shall, within 60 days after service upon them of this order, file with the Commission a report in writing, setting forth in detail the manner and form in which they have complied with this order.

NEO GRAVURE PRINTING CO., INC. ET AL. 773 Syllabus