American Foods, Inc.

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

IN THE MATTER OF A:l1ERICAN FOODS, INC. , ET AI,.

CONSENT ORDER, ETC. IN REGARD TO THE ALLEGED VIOLATION OF THE FEDERAL TRADE CO).MISSION ACT Docket C-1377. Complaint, July 10, .1968-Decision, July 10, 1968 Consent order requiring five affliated sellers of freezer-food plans to cease delaying or failing to deliver purchasers' orders, substituting inferior quality merchandise, and failing to disclose that sales contracts might be sold to finance companies.

COMPLAINT Pursuant to the provisions of the Federal Tmde Commission Act, and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that American Foods, Inc., a corporation (formerly American Food Plan of Minnesota, Inc. ), American Food Plan of Iowa, Inc. , a corporation, American Foods of Nebraska, Inc., a corporation, American Foods, Inc., of South Dakota, a corporation, American Foods of North Dakota, Inc. , a corporation, and Walter L. Lange, individually and as an offcer of said corporations, trading and doing business as American Foods, Inc., American Foods, American Food Plan, American Food Plan, Inc. , and American Foods Service, Inc. hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint, stating its charges in that respect as follows: PARAGRAPH 1. Respondent American Foods, Inc. , is a corporation organized, existing and doing business under and by virtue of the laws of the State of Minnesota, with its principal offce and place of business located at 1255 East Highway 36, St. Paul Minnesota, which corporation was formerly known as American Food Plan of Minnesota, Inc.

Respondent American Food Plan of Io\va, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of Iowa, with its principal place of business located at 337 University Avenue, Des Moines, Iowa. Respondent American Foods of Nebraska, Inc. , is a corporation organized, existing and doing business under and by virtue of the laws of the State of Nebraska, with its offce and principal place AMERICAj\ FOODS , INC. , ET AL. 155 154 Complaint of business located at Post Offce Box 307, South Sioux City, Nebraska.

Respondent American Foods, Inc. , of South .Dakota is a corporation organized, existing' and doing business under a,-d by virtue of the laws of the State of South Dakota, with its offce and principal place of business located at 1815 East loth Street Sioux Fans, South Dakota.

Respondent American Foods of North Dakota, Inc. , is a corporation organized: existing and doing business under and by virtue of the laws of the State of North Dakota, with its offce and and place of business located at 737 20th Street, N., Fargo, North Dakota.

Respondent Walter L. Lange is the chief executive offcer of an the corporate respondents and he formulates, directs and controls the acts and practices of said respondentsincIuding the acts and practices hereinafter set forth. In addition, in his individual capacity from time to time, he has traded and done business as American Foods, Inc., American Foods, Alnerican Food Plan, American Food Plan, I TIC., and American Foods Service Inc. His business address is the same as that of the corporate address of American Foods, Inc. , of St. Paul, :vinnesota, described above. His home address is 1282 Sherburne Avenue, St. Paul 4, Minnesota.

PAR. 2. Respondents are now and for some time last past have been engaged in the advertising, offering for sale, sale and distribution of freezers and foods, as "food" is defined in the Federal Trade Commission Act, by means of a so-caned freezer food plan.

PAR. 3. In the course and conduct of their business, respondents now cause, and for some time last past have caused, their freezers and food when sold, to be shipped from their places of business respectively in the States of Minnesota, Iowa, Nebraska South Dakota, and North Dakota to purchasers thereof located in various other States of the United States, and maintain, and at an times mentioned herein have maintained, a substantial course of trade in said freezers and food in commerce as "commerce " is defined in the Federal Trade Commission Act. PAR. 4. In the course and conduct of their business, at an times mentioned herein, respondents have been in substantial competition, in commerce with corporations, firms and individuals in the sale of freezers, food and freezer food plans. PAR. 5. In the course and conduct of their business, respond- Complaint 74 F.

ents have disseminated, and caused the dissemination of, certain advertisements concerning the said food and freezer food plan by the United States mails, and by various means in commerce, as commerce" is defined in the Federal Trade Commission Act, including but not limited to, advertisements by means of circulars brochures, and by radio broadcasts, by stations having suffcient power to carry such broadcasts across State lines, for the purpose of inducing, and which were likely to induce, directly or indirectly, the purchase of food, as the term "food" is defined in the Federal Trade Commission Act; and have disseminated ami caused the dissemination of advertisements by various means including those aforesaid, for the purpose of inducing, and which were likely to induce, directly or indirectly, the purchase of food and freezers in commerce, as "commerce" is defined in the Federal Trade Commission Act.

PAR. 6. By means of advertisements disseminated, as aforesaid and by oral statements of sales representatives, respondents have represented, directly or by implication: 1. That food order forms and current price lists wil be forwarded to purchasers of freezer food plans or memberships in response to telephone or post card requests promptly or by return mail;

2. That food and grocery orders received from purchasers of freezer food plans or memberships wil be filled promptly, placed on trucks and normally delivered within a week, ten days, or two-week period after receipt of order by respondents; 3. That food or other merchandise wil be delivered to properly enrolled, nondefauhing purchasers of freezer food plans or memberships;

4. That name brand, high quality food and graded meats will be delivered to purchasers of freezer food plans or memberships in response to their orders;

5. That freezer, membership, and food contract payments, as well as related promissory note payments by purchasers of freezer food plans or memberships wil be paid only to respondents. PAR. 7. In truth and in fact:

1. Food order forms and current price lists were not forwarded promptly in response to requests by purchasers of freezer food plans or memberships. Such requests were frequently ignored or were not answered until one or two months after requests were mailed;

2. Food and grocery orders received from purchasers of freez- AMERICAN FOODS, INC. , ET AL. 157 154 Complaint er food plans or memberships were not filled promptly by respondents. Deliverjes of such orders by respondents were frequently delayed as much as two to three months from the date the order was requested:

delivered to properly 3. Food or other merchandise was not enrolled, non defaulting purchasers of freezer food plans or memberships in response to orders made by such purchasers; 4. )lame brand, high quality food and graded meats were not delivered as requested to purchasers of freezer food plans or memberships in response to their orders. Substitutions of different or lesser quality food or other merchandise were delivered to purchasers without prior acceptance by such purchasers; 5. Payments for memberships, freezers or food by purchasers of freezer food plans or memberships are not necessarily made only to respondents but are frequently required to be made to finance companies to which respondents have assigned contracts or negotiated promissory notes.

Therefore, the advertisements referred to in Paragraph Five were, and are misleading in material respects and constituted and now constitute "false advertisements" as that term is defined in thc Federal Trade Commission Act, and the statements and representations referred to in Paragraph Six were, and now are false, misleading and deceptive.

PAR. 8. In the course and conduct of their business respondents have caused, and do cause, purchasers to sign promissory notes in blank or in such other form that does not set forth the full purchase price and all of the terms and conditions connected with the purchase. Such acts and practices by respondents have the capacity and tendency to mislead and deceive purchasers .in regard to the total purchase price and in regard to the terms and conditions connected therewith.

PAR. 9. The use by respondents of the aforesaid false, misleading and deceptive statements, representations and practices has had, and now has, the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are true and into the purchase of substantial quantities of freezers, food and freezer food plans from respondents by reason of said erroneous and mistaken belief.

PAR. 10. The aforesaid acts and practices of respondents, as herein alleged, including the dissemination by respondents of false advertisements as aforesaid, were and are, a1J to the prejudice and injury of the public and of respondents' competitors and con- , , Decision and Order 74 F.

stituted, and now constitute, unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce within the intent and meaning of the Federal Trade Commission Act, and in violation of Sections 5 and 12 of said Act. DECISIO:- AND ORDER The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondents named in the captioli hereof, and the respondents having been furnished thereafter with a copy of a draft of complaint which the Bureau of Deceptive Practices proposed to present to the Commission for its consideration and which, if issued by the Commission, would charge respondents with violation of the Federal Trade Commission Act; and The respondents and counsel for the' Commission l1a ving thereafter executed an agreement containing a consent order, an admission by the respondents of all the jurisdictional facts sets forth in thc aforesaid draft of complaint, a statement that the signing said agreement is for settement purposes only and does not constitute an admission by respondents that the law has been violated as alleged in such complaint, and waivers and other provisions as required by the Commjssio Rules; and The Commission having thereafter considered the matter and having determined that it had reason to believe that the respondents have violated the said Act, and that complaint should issue stating its charges in that respect, and having thereupon accepted the executed consent agreement and placed such agreement on the public record for a period of thirty (30) days, now in further conformity with the procedure prescribed in S 2. 34 (b) of its Rules, the Commission hereby issues its complaint, makes the following jurisdictional findings, and enters the following order:

1. Respondent American Foods, Inc., which corporation was formerly known as American Food Plan of IVlinnesota, Inc. , is a corporation organized, existing and doing business under and hy virtue of the laws of the State of Minnesota, with its offce and principal place of business located at 1255 East Highway 36 , St. Paul, Minnesota.

Respondent American Food Plan of Iowa, Inc. , is a corporation organized, existing and doing business under and by virtue of the Jaws of the State of Iowa, with its offce and principal place of business located at 337 University Avenue, Des Moines, Iowa. Respondent American Foods of :\ ebraska, Inc., is a corpora- AMERICAN FOODS , INC. , ET AL. 159 154 Order tiOD organized, existing and doing business under and by virtue of the laws of the State of Nebraska, with its offce and principal place of business located at Post Offce Box 307, South Sioux City, Nebraska.

Respondent American Foods, Inc., of South Dakota is a corporation organized, existing and doing business under and by virtue of the laws of the State of South Dakota, with its offce and principal place of business located at 1815 East loth Street, Sioux Fails, South Dakota.

Respondent American Foods of North Dakota, Inc., is a corporation organized, existing and doing business under and by virtue of the laws of the State of North Dakota, with its principal place of business located at 737 20th Street, N., Fargo, North Dakota. Respondent Walter L. Lange is an offcer of said corporations; his business address is the same as the corporate address of American Foods, Inc. ; and his home address is 1282 Sherburne A venue, St. Paul 4, Minnesota.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents, and the proceeding is in the public interest.

ORDER PART I It is orde,' That respondents American Foods, Inc., a corporation, American Food Plan of Iowa, Inc., a corporation, American Foods of Nebraska, Inc., a corporation, American Food Inc. of South Dakota, a corporation, American Foods of North Dakota Inc. , a corporation, and their offcers, and Walter L. Lange, individually and as an offcer of said corporations, and respondents agents, representatives and employees, directly or through any corporate or other device, in or in connection vdth the offering for sale, sale or distribution of freezers, food or freezer food plans, or other merchandise, in commerce, as "commerce is defined in the Federal Trade Commission Act, do forthwith cease and desist from, 1. Representing, directly or by implication that food order forms and current price lists wil be forwarded in response to telephone or post card requests to purchasers of freezer food plans or memberships promptly or by return mail: Provided however That it shall be a defense in any enforcement procedure instituted hereunder for respondents to establish that such order forms and price lists were in fact forwarded promptly upon request or by return mail; Order 74 F.

2. Representing, directly or by implication that if a freezer food plan or membership is purchased, food and grocery orders received from purchasers of food plans or memberships wil be fiJJed promptly, or normally delivered within a week (or any other stated brief period of time) after being placed: Provided however That it shall be a defense in any enforcement procedure instituted hereunder for respondents to establish that such orders were fiJJed and delivered within the time, or times represented;

3. Failing or refusing to deliver food or other merchandise ordered by properly enrolled, nondefaulting purchasers of freezer food plans or memberships;

4. Delivering or substituting food or other merchandise of different or Jesser quality (a) than that represented as being available to prospective purchasers at the time they were induced to become purchasers of freezer food plans or membership; or (b) than food or other merchandise actually ordered by purchasers of freezer food plans or memberships; 5. Failing to disclose orally at the time of the sale and in writing on any conditional sales contract, promissory note or other instrument executed by the purchaser, with such conspicuousness and clarity as is likely to be read and observed by the purchaser that:

(a) Such conditional sales contract, promissory note or other instrument may, at the option of the seller and without notice to the purchaser, be negotiated or assigned to a finance company or other third party; (b) If such negotiation or assignment is effected, the purchaser wil then owe the amount due under the contract to the finance company or third party and may have to pay this amount in fuJJ whether or not he has claims against the seller under the contract for defects in the merchandise, nondelivery or the like; 6. Inducing purchasers of a freezer food plan, food, freezers or other merchandise to sign any promissory note or instrument of like nature unless said .instrument contains ajj of the terms and conditions of the promise and unless purchasers are fully apprised of the nature and contents thereof. PART II It is fU1'ther o1'dered That respondents American Foods, Inc. a corporation, American Food Plan of Iowa, Inc., a corporation American Foods of Nebraska, Inc., a corporation, American AMERICAN FOODS, INC. , ET AL. 161 154 Order Foods, Inc., of South Dakota, a corporation, American Foods of North Dakota, Inc., a corporation, and their offcers, and Walter L. Lange, individually and as an offcer of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or any other device, in or in connection with the offering for sale, sale or distribution of any food or purchasing plan involving food, do forthwith cease and desist from:

1. Disseminating or causing to be disseminated, any advertisement by means of the United States mails or by any means in commerce, as "commerce" is defined in the Federal Trade Commission Act, which advertisement contains any representation or misrepresentation prohibited in Part I of this order.

2. Disseminating or causing the dissemination of any advertisement by any means for the purpose of inducing or which is likely to induce, directly or indirectly, the purchase of any food, or any purchasing plan involving food in commerce, as "commerce" is defined in the Federal Trade Commission Act, which advertisement contains any of the representations or misrepresentations prohibited in Part I of this order.

3. Failing to deliver a copy of this Order to Cease and Desist to all operating divisions of each corporate respondent, and to all offcers, managers and salesmen, both present and future, of each franchized dealer, distributor and licensee; and to any other person now engaged or who becomes engaged in the sale of meat or other food products as respondents ' agent, representative or employee; and to secure a signed statement from each of said persons acknowledging receipt of a copy thereof.

It is further ordered That the respondents herein 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 this order. Complaint 74 F.