Surf Sales Company, Inc.

Text (OCR of the scan at left; may contain errors)

IN THE MATTER OF SURF SALES CO:MP ANY, INC., ET AL.

ORDER, ETC., IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE COl\I1\IISSION ACT Docket 6612. COlJ1.p laint kll(l. 20, 1956-Decision, Oct. , 1957 Order requiring Chicago sellers of cameras, electric appliances, and other merchandise, to cease furnishing to operators and members of the public various plans of merchandising-incJlH1ing push cards and instructions for their use-which involved the oper8tion of games of chance or lottery schemes in the sale of the goods to the consuming public. 1/11'. 1Villian1 A. Smners for the Commission. 1/fr. florace J. Donnelly, JT. of '\Yashington, D. , for respondents. INITIAL DECISION BY FRANK BIER :HEARING EXAMINER On August 20, 1956, complaint herein was issued against respondents charging them with unfair acts and practices in commerce in violation of the Federal Trade Commission Act in the sale of merchandise in commerce by games of chance, gift enterprises and lottery schemes. Individual respondent Thomas F. l\larsh was charged with being president of corporate respondent and individual respondent Samuel Specter was charged with being manager thereof, and they were alleged to direct and have dominant control of the sales activities of the corporate respondent. Respondents' answer admits corporate existence, address of corporate respondent, and that the respondent l\1arsh was president thereof, and generally denies al1 other allegations of the complaint, except that the corporation respondent was engaged in the business of selling merchandise to the public, and for that purpose it distributes literature describing such merchandise, with sales prices, and inviting orders therefor. As separate additional affirmative defenses respondents allege that the complaint fails to state a cause of action, that the Federal Trade Commission lacks jurisdiction, that the transactions were intrastate rather than interstate, that the Federal Trade Commission Act is unconstitutional and void, and that the present action denies the constitutional right to due process of law. Three hearings were held resulting in 99 pages of transcript and individual respondents ap-six exhibits. At the first hearing, both peared in response to subpoenas, but declined to answer any questions after stating their names and addresses because their answers might tend to incriminate them-in other words, both took the Fifth Amendment. Taking of evidence closed March 26, 1957, and there- Findings 54 F.

after proposed findings and conclusions were filed by all c.ounsel on consideration of which, and the entire record herein, the hearing examiner finds that this proceeding is brought in clear and substantial public interest and makes the following findings of fact. FINDINGS OF FACT 1. Respondent Surf Sales Company, Inc., is a corporation organized January 25, 1956, and since doing business under and by virtue of the laws of the State of Illinois, with its office and principal place of business located at 4309 'Vest Lake Street, in the City of Chicago, Illinois. Respondent Thomas F. 1Ifarsh is an individual and president of respondent corporation. Answer to the complaint denies that respondent Samuel Specte-r is manager of the corporate respondent and that the policies and sales activities of the latter are directed and controlled by these individual respondents. There being no evidence to the contrary, it is concluded that Thomas F. ~larsh as president, exercises the direction and control of the corporate respondent which that office ordinarily connotes. As to Samuel Specter, the record shows that he several times represented himself to be the manager to a representative of Dun and Bradstreet, although to a Federal Trade Commission investigator he said he was' a part-time bookkeeper. However, he was the man to whom the investigator was referred when on a visit the latter asked to speak to an official of the corporate respondent. Furthermore, when these gentlemen called at the corporate respondent's office and asked the receptionist or switchboard operator to speak to someone in authority, they were referred to Samuel Specter. From this it is concluded that he was either the manager of the corporate respondent or had authority and responsibility and did exercise the authority and direction of its affairs which that office connotes. 2. Respondents are now engaged in the sale and distribution of cameras, electric appliances and other articles of merchandise and have caused said merc.handise when sold to be transported from their place of business in Chicago, Illinois, to purchasers thereof located in the various states of the United States other than Illinois and in the District of Columbia. There is now and has been for more than one year last past a course of trade by respondents in such merchandise in commerce, as "commerce" is defined in the Federal Trade Commission Act, between and among the various states of the United States and in the District of Columbia. The record does not show the extent of this commerce.

3. In the course and conduct of their business as described in Paragraph 2 hereof, respondents in soliciting the sale of and in sell- SURF SALES CO. , INC. , ET AL. 485 483 Findings ing and distributing their merchandise furnish and have furnished various plans of merchandising which involve the operation of games of chance, gift enterprises or lottery schemes when said merchandise is sold and distributed to the purchasing and consuming public. Among the methods and sales plans adopted and used by respondent.s and which is typical of the practices of respondents, is the following:

Respondents distribute, and have distributed, to operators and to members of the public. certain literature and instructions including, among other things, push cards, order blanks, circulars including thereon illustrations and descriptions of said merchandise, and circulars explaining respondents' plan of selling and distributing their merchandise and of allotting it as premiums or prizes to the operators of said push cards; and as prizes to members of the purchasing and consuming public who purchase chances or pushes on said cards. One of respondents' said push cards bears 75 feminine names with ruled eolumns on the back of said card for writing in the name of the purc.haser of the push corresponding to the feminine name selected. Said push card has 75 partially perforated discs. Each of said discs bears one of the feminine names corresponding to those on the list. Concealed within each disc is the number which is disclosed only when the customer pushes or separates a disc from the cant The push card also has a larger master seal and concealed within the master seal is one of the feminine names appearing on the disc. The person selecting the name corresponding with the one under the master seal recei yes a camera. The push card bears the following legend or instructions:

Lucky Name Under Seal Received CAl\lFIELD' S New (Picture of Pan) (Picture of Pens) ELECTRIC-FRI PAN ;\os. 7 anti 19 1\'0 more burnt bacon or eggs! Balanced heat each recein~ a means crisp) , even frying at all times. Cooks beautiful NE\V and sel',es right at the table. . . an ideal serv- BALL POI~'l' ant for every home. A.C. operation, 110 Volts. TYPE pen. French Fry Dome Cover :1Dc1 new recipe book No. 1 pays II; included. Comes with (i-foot lleavy duty cord. No. 7 pays 7 PUSH OU'I' WITH PENCIL No. I:! pays 12.t 1'\0. 19 pays 19~~ !\ o. 26 pays 261;

Al1 others pay 391',:

Kane HIGHEH (i\Jaster Seal) \Vrite Your Name on Reverse Side Opposite Name You Select 486 FEDERAL TRADE COMJ\IISSION DECISIONS Findings 54 F.

Another of respondents' push cards:

Lucky Name Under Seal Receives This ALUMINUM ELECTRIC Coffee Set For the perfect hostess an exquisite matched gleaming Coffee Service.

(Picture of coffee set) Stunning Electric Percolator in beautiful urn design. Sparkling in its new ULby modern-design and highly polished finish. Special heating element insures quick percolating and keeps coffee hot. Enterprise l\lakes up to 8 cups. Includes cord set Manufacturer~ of the World Famous beautiful sugar and creamer and lus- Drip- lator trous 12-in. handy utility tray. Highly polished for long-lasting briUia.nce.

The Better Drip Coffee :Maker Guaranteed fully. llo- 120-volt, AC or DC.

Made in USA Guaranteed Pure Aluminum Reg US Pat Off (Picture of pens) (Master Seal) PUSH OUT WITH PENCIL Nos. 1 and 6 receive a handsome retractible Ball Point Pen.

No. 1 pays Ie No. 12 pays 12c No. 6 pays 6c No. 19 pays 19c ALL OTHERS PA 3~Jc (Panel bearing feminine names) NONE HIGHER Write Your Name on Reverse Side Opposite Name You Select Sales of respondents' merchandise by means of said push cards are made in accordance with the above-described legend or instructions, and said prizes or premiums are allotted to the customers or purchasers from said cards in accordance with the above legend or instructions. "'\7\Thether a purchaser receives an article of merchandise or nothing for the amount of money paid, and the amount to be paid for the merchandise, or the chance to receive said merchandise, are thus determined wholly by lot or chance. The articles of merchandise have a value substantially greater than the price paid for each chance or push.

4. The persons to whom respondents furnish and have furnished said push cards use the same in selling and distributing respondents merchandise in accordance with the aforesaid sales plans. Respondothers the means ofents thus supply to and place in the hands of SURF SALES CO., INC., ET AL. 487 483 Order conducting games of chance, gift enterprises or lottery schemes the sale of their merchandise in accordance with the sales plan hereinabove set forth. The use by respondents of said sales plans or methods in the sale of their merchandise and the sale of said merchandise by and through the use thereof and by the aid of said sales plans or methods is a practice which is contrary to an established public policy of the Government of the United States. 5. The sale of merchandise to the purchasing public in the manner above alleged involves a game of chance or the sale of a chance to procure one of the said articles of merchandise at a price much less than the normal retail price thereof. :Many persons are attracted by said sales plans or methods used by respondents and the element of chance involved therein and thereby are induced to buy and sell respondents' merchandise.

The use by respondents of a sales plan or method involving distribution of merchandise by means of chance, lottery or gift enterprise is contrary to the public interest and constitutes an unfair act and practice in commerce within the intent and meaning of the Federal Trade Commission Act.

6. The aforesaid acts and pra.ctices of respondents as herein alleged are a.ll to the prejudice and injury of the public and constitute unfair acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act.

ORDER It is ordered That respondent Surf Sales Company, Inc. , a corporation, and its officers, and respondents Thomas F. l\1arsh and Samuel Specter individually, and respondents' representatives agents, and employees, directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of watches, electric coffee sets, fry-pan, or other merchandise in commerce, as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: 1. Supplying to or placing in the hands of others push cards or any other lottery devices, either with merchandise or separately, which are designed or intended to be used in the sale or distribution of respondents' merchandise to the public by means of a game of chance, gift enterprise or lottery scheme. 2. Selling or otherwise disposing of any merchandise by means of a game of chance, gift enterprise, or lottery scheme. 488 FEDERAL 'TRADE COM:MISSION DECISIONS Opinion 54 F.

OPINION OF THE COMMISSION By GWYNNE, Chairman:

The complaint, filed under the Federal Trade Commission Act charges respondents with selling merchandise in commerce by means of games of chance, gift enterprises or lottery schemes. After a hearing, the initial decision ",as filed directing respondents to cease and desist from:

1. Supplying to or placing in the hands of others push cards any other lottery devices, either with merchandise or separately, which are designed or intended to be used in the sale or distribution of respondents' merchandise to the public by means of chance, gift enterprise or lottery scheme.

2. Selling or otherwise disposing of any merchandise by means or a game of chance, gifl enterprise or lottery scheme. The appeal of respondents was presented by written briefs and oral argumen R.respondent, Surf Sales Company, Inc., is a corporation located t.in Chieago, Illinois, and engaged in the sale and distribution cameras, electric appliances and other articles of merchandise. A part, if not all of the merchandise is distributed by means of push cards. The description of such cards and the method of operation is set out in Paragraph of the initial decision as follows: Respondents distribute, and have distributed, to operators and to members of the public certain literature and instructions including, among other things, push cards, order blanks, circulars including thereon illustrations and descriptions of said merchandise, and circulars explaining respondents ' plan of selling and distributing their merchandise and of allotting it as premiums or prizes to the operators of said push cards; and as prizes to members of the purchasing and consuming public 1"ho purchases chances or pushes on said cards. One of respondents' said push cards bears 75 feminine names with ruled columns on the back of said card for writing in the name of the purchaser of the push corresponding to the feminine name selected. Said push card has 75 partially perforated of the feminine names corre-discs. Each of said discs bears one sponding to those on the list. Concealed within each disc is the number which is disclosed only when the customer pushes or separates a disc from the card. The push card a.lso has a larger master seal and concealed within the master seal is one of the feminine names appearing on the dise. The person selecting the name corresponding with the one under the master seal receives a camera. The push eard bears the following legend or instructions: SURF SALES CO. , INC., ET AL. 489 483 Opinion Lucky Name Under Seal Received CAMFIELD' S New (Picture of Pa n (Picture of Pens) ELECTRI-FRI PAN Nos. 7 and 19 each receive a beautiful ::\0 more burnt bacon or eggs! BaJ- NEW BALL POINT TYPE pen. anced heat means crisp, even frying at an timf'~. CooJ;:s and senes right at the table. . . an ideal sel'Want for every henne. C. operation 110 Volts. French Fry Dome Cover and new recipe book included. Comes with foot heavy duty cord.

No.~o. 71 payspa~'s '/ No. 12 pays 12~ PCSH OUT 'WITH PENCIL No. 19 pays 19(;

No. 2(; pnys 2G~~ All otllers pay 39(;

NO:\' E HICHEn (Mastel' Seal) Write Your Name on Heverse Side Opj)osite Xal1le You Select respondent Thomas F. ~I:1rsh, is president of the respondent corporation. This is admitted by respondents' answer. The answer denies, however, that respondent Thomas F. 1\1arsh has dominant control of the policy.ies and sales activities of the respondent corporation. The hearing examiner found that there being no evidence to the contrary, "Thomas F. 1\1arsh, as president, exercises the direction and control of the corporate respondent which that office ordinarily connotes. 'IV e see no reason to upset that finding. The respondent corporation was engaged in the business of selling merchandise. The record shows that it distributed punch cards, utilized the services of mailing brokers to distribute their punch card literature, received money in the amount stated on the card, and distributed merchandise to the persons who sent in the required money. This activity is not ultra vires. It appears to be an integral part of the respondent corporation s scheme of doing business. 'Yhere the corporation is shown to have violated public policy, the oflicer who is normally in charge of the corporation may be inferred to have managed and instituted the violation. The court in 111 odernistic Oandie8~ Inc., et ell. v. 145 F. 2.d 454 , said \Ve have also held that those who aid and abet such a method of merchandising, those pa?"ticipes criminis with gamblers and their schemes, are likewise engaged in unfair trade practices contrary to public policy." And while this is not a criminal action, certain prin- 490 FEDERAL TRADE CO1\1lVIISSION DECISIONS Opinion 54 F.

ciples there applicable also apply here. The court in Oarolene Products 00. , et al. v. United States 140 F. 2d 61, said "There is ample authority in support of the principle that the directing head of a corporation which is engaged in an unlawful business may be held eriminally liable for the acts of subordinates done in the normal course of business, regardless of whether or not these directing heads personally supervised the particular acts done or were personally present at the time and place of the eommission of these acts. See United States v. Dotterweich 64 S. Ct. 134, decided by Wood v. United Statesthe Supreme Court on November 22 , 1943; 4 Cir. , 204 Fed. 55; Anstes8 v. United States 7 Cir., 22 F. 2d 594; v. United StatesJohn-son v. United States 9 Cir. , 62 F. 2d 32; Reid v. Commonwealth 1905, 1037 Cir., 44 F. 2d 51; O?' all Ostrander Va. 855 , 49 S.E. 638; People v. Detroit vVhite Lead Works 1890 v. Gilbert 1933, 21382 l\lich. 471 , 46 N.'V. 735, 9 L. A. 722; State ,Vis. 196, 251 N.'V. 478; State v. BuTna?r/; 1912, 71 'Vash. 199 , 128 218.

Respondent Thomas F. :Marsh, having elected not to testify in response to a subpoena and the hearing examiner not requiring him to testify, did not overcome such inferences that would follow his admission as to his holding the office of president of a corporation that in the normal course of business sold merchandise through means of punch eards.

respondent Samuel Specter, is an employee of the respondent corporation. Both the respondents' answer and the brief on appeal emphatically deny that Samuel Speeter is more than a part time bookkeeper. And at the hearing, he utilized the Fifth Amendment and refused to testify on the grounds of self-incrimination. The hearing examiner found from the evidence that Samuel Specter ",as either the manager of the corporate respondent or had the authority and responsibility and did exercise the authority and direction of its aHairs which that office connotes. There is evidence in the record that on more than two occasions, Samuel Specte.r represented himself to be the manager of the respondent corporation to a representative from Dun and Bradstreet. In addiofficetion, when an investigator from the Commission went to the of the corporate respondent and asked the receptionist or switchthe girl re-board operator to see an official of the corporation, turned with Samuel Specter. During the course of the interview Samuel Specter authorized the investigator to consult with the atrepresented himselftorney for the corporate respondent. He thus as manager, was represented as an official by the receptionist or switchboard operator, and authorized consultation with the attorney for the corporation. This must be weighed against a statement . .

SURF SALES CO. , INC., ET AL. 491 483 Opinion by Samuel Specter to the Commission investigator claiming that he was only a part time bookkeeper. At the hearing, Specter, having elected not to testify, did not offer any evidence as to his capacity. The hearing examiner had the benefit of hearing the testimony and observing the demeanor of the witnesses. 1Ve see no reason to upset his findings.

respondents argue that there is no substantial, credible or convincing evidence establishing proof of the allegations of the complaint.. They claim that the testimony of the public witnesses is hearsay. 'With this, we cannot agree. The record discloses that the respondent corporation sent push cards bearing its name, together with sales literature, to the witnesses who reside in Indiana. The witnesses testified they received the mailings, sold the chances on the push cards, collected the money from such sales, sent the money in to the respondent corporation and received the merchandise from the respondent corporation. ""\17 e feel that counsel in support of the complaint has fully sustained the burden of proof and that the finding of the hearing examiner should not be disturbed. Respondents argue that, since the record does not show the extent of commerce, there is "no proof that there is now and has been for more than one year last past a substantial course of trade by respondents in commerce Although the specific instances of sales are not great in number, they are taken to be merely illustrative of the commerce e.ngaged in by respondents. The record sho\ys two interstate transactions in Indiana and Samuel Specter gave the Commission investigator a typical mailing originally sent to an individual in California ,which was returned because of miss finding. direction. The record as a whole justifies the examiner The statute does not require that sales in commerce be substantial before the Commission can proceed; substantiality of sales is merely one of the elements considered by the Commission in determining whether a matter involves suftieie.nt public interest to warrant attention. Docket 5672 , lVilZia?11 S. La R. 47 F. C. 1472. The respondents are engaged in the business of selling merchandise in interstate commerce by means of push cards. "One is en- Qlv)'edt:":- in a business when he has such artic.le for sale to any person question is notwho may a.apply for it for the seller s profit. The State determined by the number of sales that may be made. .Je1vett Jlarket 00. 228 N.""\V. 288. It is not the amount of commerce which provides the criteria, but whether the practices in ,rhich the respondents engage violate the Act. The court in Fox pam. Corporation v. 296 Feet 353, held """\Yhile the findings of t.he Commission embraced but three pictures where the unfair methods ,were praeticed, that is sufficient to support the order to 3::; 528577-(;0- , . .

492 FEDERAL TRADE COl\IMISSION DECISIONS Opinion 54 F.

cease and desist. . . One act that constitutes an unfair practice may of itself be offensive to the Act.

In "determining whether a proceeding is in the public interest the Commission exercises a broad discretion Dr. lV. B. Caldwell 11 F. 2d 891; C. v. l(lesner 280 U.S. 28, and "the use of a game of chance for the distribution of merchandise is an unfair act or practice in commerce. . . and a proceeding to prevent its further use is in the public interest." lVolf v. 135 F. 2d 564; l( ritzik v. F. T.C. , 125 F. 2d 351. Respondents next contend "the proposed order to cease and desist is not within the jurisdiction and authority of the Federal Trade Commission" in that "the mailing of material advertising goods for sale in which is included a push card which may be independently used by the recipient as a means of awarding an article of merchandise as a prize is not against the public policy of the United States Respondents argue that since there are four specific statutes of the United States with respect to lotteries, that these specific statutes remove that specific subject from a statute which speaks only in general terms.

'Vhile this rule generally prevails, we do not believe it is applicable here. As the court state.d in Un.ited States v. lVindle 158 F. 2d 196 'Ve recognize the rule that generally special terms of a statute prevail over general terms in the same or another statute which otherwise might control. . . . But the purpose of this rule is to give efl'e.ct to the presumed intention of the law-making body. The primary rule of statutory construction requires us to ascertain and give effect to the legislative intention. Flippin v. United States Cir. , 121 F. 2d 74, 2; United States v. Ii a?'t1.uell 73 U.S. 385 . . . As we said in C. v. R. B. James, Patrick Zurla, t1Ylding as Chicago Board CO?npCl'ny, Docket No. 6482: A. Title 15, Chapter :24 forbids the transportation in inter state commerce of "gmnbling devices" as defined in said Jaw. An exception is made howen'!' , in the case of shipments to an~- place in any state which lws enacted a law prl)viding for exemption fl'olll this law. TIle law further provides ill Sect ion 2 that:

1\otl1ing in this act shall be ('onstnlecl to interfere with or reduce t!H~ :1utlw!'ity or existing intel'l)retations of the alltl1Ority of Ule F'ecleJ'nl Trade Commission under the Federal Trade Commission Act as amended (15 v. C. 41-58). Report K o. 2760, sist Congress, 2d Sess., pages 0- , fiJe.c1 by the J-IOllse Committee on Interstate and Foreign Commerce states: Section ~ further proYitles that nothing in this act shan be col1strnefl to interfere ,vitll or reduce the autl1orit~' of the Feclcral Trade COll1ll1ission under the Federal 'Trade Cmmnission Act as amended. It is the purpose of this provision to lea,e nnaf'rectell the po',ers of the Federal Trade Commission "ith respect to tile use of lotteries, games of chance, or other gambling devices for the pH r- SURF SALES CO. , INC. , ET AL. 493 483 Order pose of merchandising. Such use has been held to be an unfair trade practice in violation of the Federal Trade Commission Act as amended. It thus clem.l~- appears that both the Congress ami the Federal Courts have conclu(led that it is contrary to the public policy of the United States to permit the shil)ment in commerce of punchboanls and pushcards which are designed 01' intended to be used in the sale 01' distribution of' merchandise to the public by means of a game of chance, gift enterprise 01' lottery scheme. Respondents next argue that the proceeding does not satisfy the requirements of due process of Jaw, assigning as their reasons that the hearing examiner was biased and that the hearing examiner allowed the hearing to continue without their counsel of record. "\Ve cannot agree with this contention. The use of the language that. both individual respondents "took the Fifth Amendment" is a statement of fact and does not show prejudice or bias. The record further discloses that the attorney of record agreed to the date for the' continuation of the hearing. After the subpoena had been served caning a witness for the specified day, the attorney for the respondents, on the day before the hearing was scheduled, protested that certain other matters required his presence elsewhere and asked for a continuance. This was denied by the hearing examiner. The time for the beginning of the hearing was then advanced one hour in order to ahow the attorney for the respondents to secure the attendance of his associate counsel. The associate counsel had been identified in the hearings as attorney for the respondents who "kne\, a1l the details of the company s operation." The associate counsel appeared and represented the respondents. "\Ve believe the respondents were adequately represented by counsel at all of the hearings.

The findings, conclusion and order of the hearing examiner are adopted as the findings, conclusion and order of the Commission. The appeal of respondents is denied and it is directed that an order issue accordingly.

FIN AL ORDER This matter ha.ving been heard by the Commission upon the appeal of the above-named respondents from the initial decision the hearing examiner a.nd upon the briefs filed in support of a.nc1 in opposition to the a.appeal and oral argument of counsel; and The Commission having rendered its de,cision denying the appeal and adopting the findings and conclusions and order contained in the initial decision:

j t is ordered That the respondents shall, within sixty (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 the order to cease and desist. contained in the aforesaid initial decision. 494 FEDERAL TRADE COlYIMISSION DECISIONS Decision 54 F.