Sunshine Art Studios, Inc

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

In ree Marrer or SUNSHINE ART STUDIOS, INC., ET AL.* ORDER, OPINION, ETC., IN REGARD TO’ THE ALLEGED VIOLATION OF THE FEDERAL TRADE COMMISSION ACT Docket No. 8825. Complaint, Dec. 8, 1970—Decision, Nov. 30, 1972 Order requiring three Springfield, Massachusetts, sellers of greeting cards and an affiliated collection agency, among other. things to cease Shipping and seeking payment for unordered merchandise; making deceptive “free” offers ; using misleading order forms; Sending substitute shipments without offering refunds; and collecting delinquent accounts through subterfuge. Complaint 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 Sunshine Art Studios, Inc., Junior Sales Club of America, Inc., Sales. Leadership Club, Inc., and Guardian Collection Agency, Inc., corporations, and Ryland E. Robbins, individually and as an officer of said corporations, 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: Paracrary 1. Respondents Sunshine Art Studios, Inc., Junior Sales Club of America, Inc., Sales Leadership Club, Inc., and Guardian Collection Agency, Inc., are corporations organized, ‘existing and doing business under and by virtue of the laws of the Commonwealth of Massachusetts with their principal office and place of business located at 45 Warwick Street, Springfield, Massachusetts. Respondent Ryland E. Robbins is an individual and an officer of each of the corporate respondents. He formulates, directs and controls the acts and practices of the corporate respondents, including the acts and practices hereinafter set forth. His address is the same as that of the corporate respondents.

Respondents cooperate and act together in carrying out respondents’ business as hereinafter set forth.

Par. 2. Respondents are now, and for some time last. past have been, engaged in the advertising, offering for sale, sale and distribution of greeting cards to the public and to retailers for resale to the public *The complaint is reported as amended by the hearing examiner’s order of Feb. 12, 1971, reflecting the change of name of Trans-American Collection Agency, Inc. to Guardian Collection Agency, Ine.

SUNSHINE ART STUDIOS, INC., ET AL. 837 836 : Complaint and in the collection of allegdly delinquent accounts arising therefrom.

Par. 3. In the course and conduct of their business as aforesaid, respondents now cause, and for some time last past have caused, their products, when sold, to be shipped from their place of business in the. Commonwealth of Massachusetts to purchasers and prospective purchasers thereof located in various other States of the United States, and maintain, and at all times mentioned herein have maintained, a substantial course of trade in said products. in commerce, as “commerce” is defined in the Federal Trade Commission Act. oe Par. 4. In the course and conduct of their business, respondents ship greeting cards to many persons who have neither requested nor consented to the shipment of respondents’ greeting cards to them. Respondents also ship greeting cards to many persons who have specifically requested that respondents not ship greeting cards to them. Enclosed with the greeting cards sent as aforesaid is an “approval. invoice” which sets forth the price which respondents expect to obtain for the cards and bears the following language: Your Special Price Bill Here are the beautiful new money-making Sunshine Christmas Assortments you requested, sent to you on approval and billed at a Special Offer Price of only $3.75. Save money by sending your payment now. Pay only $3.75 and return this invoice to us within ten days and we will mark this bill Paid In Full. : SAVE TODAY.

Par. 5. By and through the use of the statements and representations as set forth in Paragraph Four and other statements and representations contained in form letters and notices sent to persons who fail to respond to such approval invoices, respondents represent, directly or by implication, that:

1. Some contract, agreement or understanding exists between respondents and the recipient of the greeting cards. 2. The recipient of the cards is under an obligation to pay for the cards or return them to respondents.

Par. 6. In truth and in fact:

1. No contract, agreement or understanding exists between respondents and the persons to whom respondents have sent cards under the circumstances set forth in Paragraph Four hereof. 2. Such persons are not under any obligation to return the aforesaid cards to respondents or to pay for them unless the recipient decides to purchase them or use them and not then if the law of the recipient’s state permits him to use unsolicited merchandise without payment.

838 FEDERAL TRADE. COMMISSION DECISIONS Complaint. 81 F.T.C.

Therefore, the statements and representations as set forth in Paragraphs Four and Five hereof were, and are, false, misleading and deceptive. ; ' Par. 7. In the further couise and conduct of their business, respond- - ents send, or cause to be sent, to persons to whom respondents have shipped greeting cards and from whom respondents have not received payment, various form letters and notices seeking payment from such allegedly delinquent debtors. Among and typical, but not all inclusive, of the statements and representations contained in such letters and notices are the following:

(a) Guardian Collection Agency, Inc.

' : 45 Warwick Street Springfield, Massachusetts 01101 Collections “Repossessions Tracing -. Personal Calls Credit. Reports Wages Garnished - Your account with. Sunshine Art: Studios, Ine., of Springfield, Massachusetts, has been referred to us due:to nonpayment of your 1967 All-Occassion Sample Assortment.

The sample assortments were sent..to you on approval; since you did not return them, it has been assumed that you were using the samples and that you intend to pay for them.

The Sunshine Art Studios have sent you five notices which you have not acknowledged. It now becomes our task to insist upon payment. (bo) Guardian Collection Agency, Inc.

45 Warwick Street Springfield, Massachusetts 01101 The Junior Sales Club of America of Springfield, Massachusetts has placed your long overdue account with us for IMMEDIATE SETTLEMENT. if we do not receive your payment of $9.50 within 15 days, action may be started by our attorney without further notice. (¢) Guardian Collection Agency, Inc.

45 Warwick Street “Springfield, Massachusetts 01101 FINAL NOTICE You have failed to settle your long-overdue account with our client, Junior Sales Club of America, Springfield, Massachusetts, although we previously ‘wrote to you a detailed letter concerning this important obligation. To avoid action by our attorney, we urge you to immediately send a $9.50 money order or check made payable to the Junior Sales Club of America. DO IT TODAY.

Par. 8. By and through the use of the aforesaid statements and representations contained in Paragraph Seven hereof, and others of ‘SUNSHINE ART STUDIOS, ING, ET AL, 839.

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32 96.999290 thes 1 2 9 3 7 1496 2037 181 44 96.719696 following5 1 2 9 3 8 1689 2043 197 31 96.589088 statements5 1 2 9 3 9 1898 2042 69 32 96.288002 anda 1 2 9 4 0 643 2080 1161 50 -1 5 1 2 9 4 1 643 2080 286 39 96.814850 representations5 1 2 9 4 2 942 2081 37 32 96.873413 in5 1 2 9 4 3 992 2082 279 35 93.268059 advertisements5 1 2 9 4 4 1285 2081 178 42 84.124176 and.others 1 2 9 4 5 1474 2088 142 42 96.928024 printed5 1 2 9 4 6 1629 2091 175 34 83.985252 materials 1 2 9 4 7 1794 2076 15 58 88.672127 :3 1 2 10 0 0 678 2148 1287 40 -1 4 1 2 10 1 0 678 2148 1287 40 -1 5 1 2 10 1 1 678 2148 69 25 40.770679 IT’S5 1 2 10 1 2 762 2150 97 25 96.273018 EASY5 1 2 10 1 3 871 2151 49 25 96.625977 TO5 1 2 10 1 4 934 2152 51 24 96.331467 BE5 1 2 10 1 5 998 2152 25 24 96.592239 A5 1 2 10 1 6 1039 2153 114 26 95.838036 SALES5 1 2 10 1 7 1169 2154 156 27 96.352654 LEADERS 1 2 10 1 8 1339 2157 75 25 96.310516 GETS 1 2 10 1 9 1429 2158 202 27 93.702866 FABULOUS5 1 2 10 1 10 1647 2160 135 26 96.501923 PRIZES5 1 2 10 1 11 1799 2162 50 24 96.611794 OR5 1 2 10 1 12 1864 2160 101 28 96.100395 CASH3 1 2 11 0 0 712 2200 1180 27 -1 4 1 2 11 1 0 712 2200 1180 27 -1 5 1 2 11 1 1 712 2200 13 14 85.256401 *5 1 2 11 1 2 904 2202 14 14 52.239853 *5 1 2 11 1 3 1099 2205 13 14 64.191360 *5 1 2 11 1 4 1294 2207 13 15 73.968887 *5 1 2 11 1 5 1489 2209 13 15 85.067093 *5 1 2 11 1 6 1684 2211 14 14 88.858139 *5 1 2 11 1 7 1841 2218 2 2 31.344910 75 1 2 11 1 8 1879 2213 13 14 49.091499 ae3 1 2 12 0 0 637 2230 1332 132 -1 4 1 2 12 1 0 676 2230 1293 54 -1 5 1 2 12 1 1 676 2241 56 24 87.379715 For5 1 2 12 1 2 748 2230 87 42 96.903847 many5 1 2 12 1 3 850 2250 93 24 96.520950 years,5 1 2 12 1 4 959 2245 161 27 96.500191 thousands5 1 2 12 1 5 1137 2247 59 25 96.500191 likes 1 2 12 1 6 1212 2255 56 22 96.801010 you5 1 2 12 1 7 1283 2250 76 24 96.801010 have5 1 2 12 1 8 1375 2250 136 26 96.220726 followed5 1 2 12 1 9 1528 2252 49 25 96.208694 thes 1 2 12 1 10 1594 2252 82 26 96.751091 Sales5 1 2 12 1 11 1694 2253 178 31 96.007111 Leadership5 1 2 12 1 12 1889 2255 80 25 72.471428 Club’4 1 2 12 2 0 638 2283 1324 40 -1 5 1 2 12 2 1 638 2283 71 29 95.505119 plans 1 2 12 2 2 724 2285 29 23 96.962852 to5 1 2 12 2 3 769 2291 123 25 96.405525 success,5 1 2 12 2 4 907 2286 64 29 96.405525 just5 1 2 12 2 5 988 2288 36 29 96.557091 by5 1 2 12 2 6 1039 2289 133 29 96.077980 showings 1 2 12 2 7 1187 2297 54 18 96.077980 ours 1 2 12 2 8 1256 2293 209 29 90.279556 easy-to-carry5 1 2 12 2 9 1481 2295 202 28 96.033951 personalized5 1 2 12 2 10 1701 2295 164 27 96.723038 Christmas5 1 2 12 2 11 1884 2298 78 25 96.709862 Card4 1 2 12 3 0 637 2325 943 37 -1 5 1 2 12 3 1 637 2325 105 25 95.959511 Albums 1 2 12 3 2 757 2328 31 23 96.035233 to5 1 2 12 3 3 802 2328 121 30 96.035233 friends,5 1 2 12 3 4 939 2331 146 29 96.490601 relatives,5 1 2 12 3 5 1100 2332 155 30 96.274490 neighbors5 1 2 12 3 6 1271 2335 57 24 93.283775 ands 1 2 12 3 7 1344 2335 236 26 88.328209 businessmen—3 1 2 13 0 0 673 2368 844 36 -1 4 1 2 13 1 0 673 2368 844 36 -1 5 1 2 13 1 1 673 2368 103 26 95.198532 EACH5 1 2 13 1 2 792 2370 102 25 96.110893 CARDS 1 2 13 1 3 912 2371 106 26 96.604874 WITH5 1 2 13 1 4 1036 2373 108 25 95.319321 NAMES 1 2 13 1 5 1161 2375 220 26 95.821465 IMPRINTED5 1 2 13 1 6 1400 2378 117 26 96.182510 FREE!3 1 2 14 0 0 708 2420 1180 28 -1 4 1 2 14 1 0 708 2420 1180 28 -1 5 1 2 14 1 1 708 2420 12 13 84.623192 *5 1 2 14 1 2 900 2422 13 14 84.472786 *5 1 2 14 1 3 1094 2425 12 15 90.736084 *5 1 2 14 1 4 1289 2427 12 15 85.159866 *5 1 2 14 1 5 1483 2429 13 16 83.736351 *5 1 2 14 1 6 1680 2431 13 15 84.347839 *5 1 2 14 1 7 1875 2433 13 15 89.512993 *3 1 2 15 0 0 635 2460 1320 77 -1 4 1 2 15 1 0 672 2460 1283 40 -1 5 1 2 15 1 1 672 2460 175 27 96.641762 AMAZING5 1 2 15 1 2 871 2463 134 25 94.972046 VALUE.5 1 2 15 1 3 1031 2466 72 25 95.361542 TOPS 1 2 15 1 4 1129 2466 169 30 95.757820 QUALITY5 1 2 15 1 5 1321 2469 124 25 96.158157 CARDS5 1 2 15 1 6 1471 2472 107 24 96.396355 WITH5 1 2 15 1 7 1602 2473 108 24 96.500198 NAMES 1 2 15 1 8 1735 2474 220 26 95.674606 IMPRINTED4 1 2 15 2 0 635 2503 608 34 -1 5 1 2 15 2 1 635 2503 101 24 96.273270 FREE5 1 2 15 2 2 754 2504 76 25 95.878983 FOR5 1 2 15 2 3 847 2506 91 27 95.777946 LESS5 1 2 15 2 4 955 2507 107 25 93.266518 THAN5 1 2 15 2 5 1080 2509 32 28 93.210045 6¢5 1 2 15 2 6 1131 2509 112 26 94.512222 EACH.3 1 2 16 0 0 633 2545 1324 78 -1 4 1 2 16 1 0 670 2545 1287 41 -1 5 1 2 16 1 1 670 2545 103 25 96.659386 YOURS 1 2 16 1 2 786 2546 228 28 95.546280 CUSTOMERS5 1 2 16 1 3 1028 2551 99 24 94.950394 WILL5 1 2 16 1 4 1140 2551 170 26 41.074135 RECEIVES 1 2 16 1 5 1324 2554 148 26 95.643799 EITHER5 1 2 16 1 6 1484 2556 42 29 96.763580 25,5 1 2 16 1 7 1540 2557 41 29 92.058479 30,5 1 2 16 1 8 1594 2557 36 24 95.836731 405 1 2 16 1 9 1642 2564 33 17 95.964798 or5 1 2 16 1 10 1688 2558 34 24 96.113136 505 1 2 16 1 11 1735 2558 222 27 95.838356 IMPRINTED4 1 2 16 2 0 633 2586 916 37 -1 5 1 2 16 2 1 633 2586 125 26 96.715797 CARDS5 1 2 16 2 2 773 2588 49 25 96.770370 OF5 1 2 16 2 3 836 2590 77 24 95.563782 ONES 1 2 16 2 4 928 2591 145 25 95.928726 DESIGNS 1 2 16 2 5 1086 2593 43 24 96.326340 IN5 1 2 16 2 6 1143 2594 104 25 93.389725 EACH5 1 2 16 2 7 1261 2596 79 24 95.561264 BOX5 1 2 16 2 8 1354 2597 195 26 94.239685 ORDERED.3 1 2 17 0 0 631 2644 1323 99 -1 4 1 2 17 1 0 676 2644 1278 54 -1 5 1 2 17 1 1 676 2644 81 32 86.646133 Par.5 1 2 17 1 2 775 2646 48 30 96.314575 11.5 1 2 17 1 3 841 2646 54 41 96.518364 By5 1 2 17 1 4 912 2647 69 31 96.590782 ands 1 2 17 1 5 997 2648 151 43 96.436882 through5 1 2 17 1 6 1164 2650 58 31 96.740791 thes 1 2 17 1 7 1240 2661 57 21 96.435242 uses 1 2 17 1 8 1313 2652 39 31 96.948547 of5 1 2 17 1 9 1368 2653 57 31 96.899818 thes 1 2 17 1 10 1442 2657 198 29 96.666893 statements5 1 2 17 1 11 1659 2656 67 31 96.573952 ands 1 2 17 1 12 1745 2662 209 36 92.835854 representa-4 1 2 17 2 0 631 2693 1321 50 -1 5 1 2 17 2 1 631 2693 91 32 96.989815 tions5 1 2 17 2 2 737 2705 38 22 96.862671 as5 1 2 17 2 3 790 2699 50 28 96.455505 sets 1 2 17 2 4 856 2696 96 32 96.455505 forth5 1 2 17 2 5 970 2698 35 31 96.754921 in5 1 2 17 2 6 1021 2699 206 43 96.186844 Paragraphs 1 2 17 2 7 1243 2696 71 37 96.242973 Tens 1 2 17 2 8 1330 2703 128 40 94.838875 hereof,5 1 2 17 2 9 1475 2704 69 33 96.809898 ands 1 2 17 2 10 1560 2705 115 32 96.354973 others5 1 2 17 2 11 1690 2706 37 31 96.990166 of5 1 2 17 2 12 1742 2707 133 33 93.234413 similar5 1 2 17 2 13 1890 2709 62 32 92.160568 im- Complainit 81 F.T.C.

port and meaning but not specifically set forth herein, respondents represented, directly or by implication, that: _ 1. All customers ordering cards from sales representatives of Sales Leadership Club would receive imprinted cards. 2. The imprinting was free. :

Par. 12. In truth and in fact:

1, During the 1969 Christmas season, respondents shipped a substantial number of cards without imprinting to sales representatives who had submitted prepaid orders for imprinted cards. Before making such shipments, respondents failed to advise their sales representa~ tives that their orders for imprinted: cards would-not be filled and failed to offer those sales representatives a refund. Respondents’ failure to take these actions had the capacity and tendency to mislead and: deceive such sales representatives into the mistaken belief that’ they had no choice but to accept the non- imprinted cards shipped to » them and: ‘were not entitled to a'cash refund.

O° The imprinting” was riot free because the: price: ‘of the cards included provision for the cost of imprinting. ~'Thereforé, the statements, representations and practices as set forth: in Paragraphs Ten and Eleven hereof were, and are, false, misleading and deceptive. :

‘Pak. 13. Respondents’ practice of sending merchandise to persons. who have not requested it and respondents’ efforts to collect therefor has the capacity and tendency to mislead many persons, to create doubts in their minds as to their rights and legal obligations in respect to such merchandise and caused many persons to pay for the merchandise because of the confusion and doubt so generated. The practice now has, and has had, the capacity and tendency to harass, inconvenience, intimidate and coerce persons into purchasing and paying for merchandise sent by respondents.

Par. 14. In the course and conduct of their aforesaid business, and at all times mentioned herein, respondents have been, and now are, in substantial competition, in commerce, with corporations, firms and individuals engaged in the sale of products of the same general kind and nature as those sold by respondents.

Par. 15. The use by respondents of the aforesaid false, misleading statements, representations and practices has had, and now has, the capacity and tendency to mislead members of the purchasing public into the erronéous and mistaken belief that said statements and representations were, and are, true and into the purchase of substantia! quantities of respondents’ products by reason of said erroneous and mistaken belief.

SUNSHINE ART STUDIOS, INC., “ET AL. 841 836 Initial Decision Par. 16. The aforesaid acts and practices of respondents, as herein alleged, were, and are, all to the prejudice and injury of the public and of respondents’ competitors and constituted, and now constitute, unfair methods of competition in commerce and ‘unfair and deceptive. acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

Mr. John McCarty, Mr. Martin J. Dolan, Jr., and Mr. Richard J. Walsh, Boston, Mass. supporting the complaint. Mr. Edward J. Barry, Robinson Donovan Madden & Barry, spring: field, Mass. for respondents. _ Inrrian Deciston, By Donatp R. Moore, Hrarrne EXAMINER DECEMBER 20, 1972 -CONTENTS ; -. Page No.

PRELIMINARY. STATEMENT-_-__-_----------------- —- 842 FINDINGS OF FACT_--------+----+-+--------------- - 843 - L Respondents and ‘Their Business-_-----_----------- 843 -- .° AY Sunshine Art Studios, Inc__--.------ .-------- “844 B. Junior Sales Club of America, Inc__.----------" 845 C. Sales Leadership Club, Inc__------------------ 846 - D. Guardian Collection Agency, Inc +#__---------- 846 E. Related Corporations___.-.--.---.----------- 847 F. Cooperation of. Respondents in a Single Enterprise ___...-.----------------------- 847 G. Role of Individual Respondent_~_------------- 850 II. The Challenged Practices__._._.-_..----------------- 851 A. Unordered Merchandise and Dunning Commu- oe nications __._..._------------------------- 851 B. Collection Practices___._.---.--~------~------- 859 C. Refunds for Nondelivery of Merchandise as Ordered __.-__.-_------------------=------- 861 D. Use of the Word “Free”___------------------- 864 III. Summary and Analysis__._.-.-._----------------- 865 A. Unordered Merchandise and Dunning Commnications ___-------------------------------- 865 B. Collection Practices______------------------- 871 C. Refunds for Nondelivery of Merchandise as Ordered ..---.----------+----------~-------- 871 D. Use of the Word “Free”__.._----------------- 8T4 EK. Coverage of the Order_____-------------------. 877 CONCLUSIONS -_------------------------------------ 879 ORDER __ ~~ ee ---------------------- 888 1Name changed to Guardian Collection Agency, Inc. See Order Amending Complaint Gated February 12, 1971.

494—841—73——5 4 Initial Decision 81 F.T.C.

PRELIMINARY STATEMENT The complaint i in this proceeding, charging unfair and deceptive practices in the sale of greeting cards, was issued on December 8, 1970, and was duly served on respondents. Thereafter, the complaint _ was amended to reflect the change of name of the respondent Trans- American Collection Agency, Inc., to Guardian Collection Agency, Inc. (Order Amending Complaint, ‘February 12, 1971). Respondents filed their answer on March 1, 1971, in which they admitted certain of the factual allegations of the complaint but. denied generally any violation of law. The complaint was further amended by Pre-Hearing - Order filed on March 24, 1971, and respondents filed their amended ‘answer on March 25, 1971. - _ After a prehearing conference and various prehearing procedures, 23 days of hearings were held between August.17,.1971, and September 17,1971, at Springfield, Massachusetts. — At the hearings, testimony and other evidence were offered in support of and in opposition to the allegations of the complaint. Dur- . ing the course of the case in support of the complaint, respondents | offered the testimony. of two witnesses and offered in evidence certain documents, ' but did not otherwise avail themselves of the opportunity to present: a defense; they rested their case at the close of the Government’s case-in- chief, The testimony and evidence presented have been duly recorded and filed.

The parties were represented by counsel and were afforded full opportunity to be heard, to examine and to cross-examine witnesses, and to introduce evidence bearing on the issues. After the presentation of evidence, proposed findings of fact and conclusions of law and a proposed form of order were filed by counsel supporting the complaint and by counsel for respondents, together with briefs in support thereof. Reply briefs were also filed. Those proposed findings not adopted, either in the form proposed or in substance, are rejected as lacking support in the record or as involving immaterial matters.

Having heard and observed the witnesses and having carefully reviewed the entire record in this proceeding, together with the proposed findings and briefs filed by the parties, the hearing examiner makes the following findings of fact, enters his resulting conclusions, and issues an appropriate order.

As required by Section 3.51(b) (1) of the Commission’s Rules of Practice, the findings of fact include references to the principal supporting items of evidence in the record. Such references are intended SUNSHINE ART STUDIOS, INC., ET AL. ~~ 843 836 ; Initial Decision to serve as convenient guides to the testimony and to the exhibits supporting the findings of fact, but they do not necessarily represent complete summaries of the evidence considered in arriving at such findings. Where references are made to proposed findings submitted by the parties, such references are intended to include their citations to the record unless otherwise indicated.

References to the record are made in parentheses, and certain abbreviations are used as follows:

CB—Brief of Counsel Supporting the Complaint in Support of Proposed. Findings of Fact, Conclusions of Law and Order. CPF—Proposed Findings of ‘Fact, Conclusions of Law and Order filed by Counsel Supporting Complaint.

CRB—Reply Brief of Complaint Counsel.

CX—Commission Exhibit.

RB—Respondents’ Brief.

RPF—Respondents’ Proposed Findings of Fact and Conclusions of Law.

RRB—Respondents’ Reply Brief.

R-X—Respondents’ Exhibit.

Tr.—Transcript.

References. to the proposed findings and briefs of counsel are to page numbers, preceded by one of the abbreviations listed above. References to testimony sometimes cite the name of the witness and the transcript page number without the abbreviation “Tr.”—for example, Robbins 134.

FINDINGS OF FACT I. Respondents and Their Business ”

Respondents Sunshine Art Studios, Inc. (Sunshine) ; Junior Sales Club of America, Inc.. (JSC); Sales Leadership Club, Inc. (SLC) ; and Guardian Collection Agency, Inc. (Guardian), are corporations organized, existing, and doing business under and by virtue of the laws of the Commonwealth of Massachusetts. The principal office and place of business of all the respondents is located at 45 Warwick Street, Springfield, Massachusetts. Respondent Ryland E. Robbins is an individual who serves as an officer {treasurer) and director of respondents Sunshine, JSC, and 27The facts found herein are essentially undisputed and are supported by the record as follows: Complaint, as amended, and Respondents’ Answer, as amended; Order Amending Complaint (February 12, 1971) ; CXs 157. 7830 A-~H; Robbins 134-172, 410-16, 1910- 42, 1950, 1953-2014, 2020-24, 2035-2198; O'Hara 1791-92; Ward 1399-1423, 1557-58 ; Pray 1622-24, 1681-82, 1694-95, 1704-08, 1769-71, 1823-25 Initial Decision 81 F-L.C.

SLC and as a director of respondent Guardian. 3 He is also a ‘principal stockholder in Sunshine, JSC, and SLC.

' Respondents Sunshine, JSC, and SLC are now, and for more than 10 years have been, engaged in the advertising, offering for sale, sale, and distribution of greeting cards to the public, and respondents Sunshine and JSC, in the collection of allegedly delinquent accounts arising from such sales, Each such-respondent ships greeting cards from its place of business in the Commonwealth of Massachusetts to prospective purchasers and to purchasers thereof located in various other States of the United States. Each such corporate respondent maintains and for more than 10 years. has maintained a substantial course of trade in greeting cards in commerce, as “commerce” is defined in the Federal Trade Commission Act. :

Respondent Guardian Collection Agency, Tne., is now, and for more than 10 years has been, engaged in the collection of outstanding accounts arising from transactions involving shipments of greeting cards by respondent Sunshine and respondent JSC and maintains and: for more than 10 years has maintained a ‘substantial ‘coursé ‘of trade in such services in commerce, as “commerce” is defined in the Feder: al Trade Commission Act.

In the course and. conduct of their business, respondents Sunshine, JSC, and SLC have been and now are in substantial competition. in commerce with corporations, firms, and individuals engaged in the sale of products of the same general kind and nature as those sold by respondents.

More detailed information about each of the respondents is set, forth in the findings that follow.

A. Sunshine Art Studios, Ine.

Sunshine Art Studios, Inc., is the successor corporation to a company founded in 1926 under the direction of E. I. Robbins, who was the grandfather of respondent Ryland E. Robbins. In about 1933, Willard S. Robbins, the father of respondent Ryland E. Robbins, joined the company. The business was conducted by these two men until about 1944, when E. I. Robbins died. Respondent Ryland I. Robbins became associated with the company in 1946. On January 29, 1953, respondent Sunshine was incorporated under the laws of the Commonwealth of Massachusetts. It is engaged in the business of manufacturing and selling greeting cards and related paper products. The officers of respondent Sunshine are Willard S. Robbins, president; Grace B. Robbins (wife of Willard S. Robbins and mother of 3Compare Respondents’ Answer, Paragraph One; CX 730 C; and Robbins 1930, 1937, 2086-88.

SUNSHINE. ART STUDIOS, INC., ET AL, 845 836 Initial Decision respondent Ryland E. Robbins), vice-president; and respondent Ryland E. Robbins, treasurer and general manager. These individuals also constitute the board of directors of respondent Sunshine and are the only stockholders. Of a total of 350 shares of stock outstanding, respondent Ryland E.. Robbins owns 140. shares, with the remaining ~ 210 shares held between Willard S. Robbins and Grace B. Robbins. _ In addition to general offices at 45 Warwick Street, Springfield, Massachusetts, respondent Sunshine has a manufacturing plant in . East Longmeadow, Massachusetts. Most of the greeting cards sold by respondent Sunshine are manufactured, folded, boxed and shipped from the East Longmeadow plant.

Sunshine sells greeting cards to respondents JSC and SLC; to some 200 wholesalers; to 2,700 organizations, including schools and churches; and to 11 ,000 “direct dealers,” consisting primarily of individuals—including housewives and children—who are seeking supplemental income. In: addition, it sells to 18,000 business and professional accounts for their own use rather than for resale. Although Sunshine annually enrolls some 20,000 dealers, who request samples on approval, about half of these are lost each year. In other words, half of them make no sales.other than of the samples. Thus, there are about 11,000 active dealers, who have placed one or more orders for cards after receiving samples. These continuing dealers account for 75 percent of total dealer business. Most dealer customers are obtained through magazine advertising, with about 5 percent resulting from direct mail solicitation. Total annual sales of Sunshine have ranged from $3.5 million in fiscal 1967 to more than $5 million in fiscal 1971. Sales to direct dealers account for approximately 15 percent of total Sunshine sales. B. Junior Sales Club of America, Inc.

Junior Sales Club of America, Inc., was incorporated under the laws of the Commonwealth of Massachusetts on June 2, 1955. Its officers are Willard S. Robbins, president; Ryland E. Robbins, treasurer; and Grace B. Robbins, clerk. These individuals also constitute the board of directors, and two of them are stockholders. There are 100 outstanding shares of stock distributed as follows: Willard S. Robbins, 40; Ryland E. Robbins, 40; and Arthur O’Hara, 20.4 JSC sells all-oceasion cards and Christmas cards on a national basis, with annual sales of approximately $1 million. As indicated by the corporate name, it operates as a club that appeals to children from age 10 to early teen age to sell cards in order to win prizes or to earn ‘The record identifies this stockholder as B. P. O'Hara (Robbins 1926), but see O’Hara 1800; RPF 9; CPF 3.

846 -—Ss FEDERAL TRADE COMMISSION DECISIONS Initial Decision _ /. 8L EVE, cash. Its solicitations for club membership are made through published advertising in comic books and in such magazines as Boys’ Life and American Girl and through direct mail literature. Boxes of cards. to be sold are shipped only on specific written order and are accompanied by an invoice specifying that the cards are to be paid for or returned within 30 days.

In each of the years 1967 through 1970, JSC had 50,000 names in. its active file and 200,000 names in its inactive file. The inactive file 5 1 3 1 1 2 778 1004 153 38 96.750969 includes5 1 3 1 1 3 943 1004 97 32 96.875145 those5 1 3 1 1 4 1053 1003 78 32 96.898407 who5 1 3 1 1 5 1142 1002 89 32 96.435768 have5 1 3 1 1 6 1242 1001 74 33 96.838135 sold5 1 3 1 1 7 1329 1001 70 31 96.623497 ands 1 3 1 1 8 1410 998 85 43 96.623497 paid5 1 3 1 1 9 1507 1010 40 20 96.449188 or5 1 3 1 1 10 1559 998 78 31 96.990265 who5 1 3 1 1 11 1648 997 87 32 96.713394 have5 1 3 1 1 12 1748 994 159 34 96.572296 returned5 1 3 1 1 13 1919 995 58 32 96.774460 thes 1 3 1 1 14 1989 986 114 41 89.654762 cards..2 1 4 0 0 0 777 1046 1330 152 -1 3 1 4 1 0 0 777 1046 1329 152 -1 4 1 4 1 1 0 814 1046 1292 50 -1 5 1 4 1 1 1 814 1050 207 46 95.679993 ‘Complaints 1 4 1 1 2 1039 1052 136 34 96.618538 counsels 1 4 1 1 3 1195 1052 46 32 96.993271 do5 1 4 1 1 4 1256 1055 61 28 96.509674 not5 1 4 1 1 5 1335 1050 177 42 96.509674 challenges 1 4 1 1 6 1531 1059 68 31 96.334396 any5 1 4 1 1 7 1618 1051 125 38 95.898743 aspects 1 4 1 1 8 1750 1046 40 33 95.898743 of5 1 4 1 1 9 1807 1044 59 35 96.342224 thes 1 4 1 1 10 1908 1046 57 34 96.342224 JSC5 1 4 1 1 11 1981 1055 125 46 88.250107 opera-4 1 4 1 2 0 777 1095 1330 44 -1 5 1 4 1 2 1 777 1106 75 32 96.376518 tions 1 4 1 2 2 871 1101 97 37 96.593719 others 1 4 1 2 3 986 1105 87 32 96.998329 than5 1 4 1 2 4 1090 1103 46 32 95.575829 its5 1 4 1 2 5 1153 1113 60 22 95.575829 uses 1 4 1 2 6 1230 1102 39 32 96.888725 of5 1 4 1 2 7 1286 1103 60 31 96.943352 thes 1 4 1 2 8 1363 1099 184 35 96.396973 Guardian5 1 4 1 2 9 1564 1098 189 34 96.569031 Collections 1 4 1 2 10 1770 1089 143 50 96.792465 Agency5 1 4 1 2 11 1930 1095 142 33 96.998787 devices 1 4 1 2 12 2063 1106 44 21 93.102394 in.4 1 4 1 3 0 778 1147 1326 51 -1 5 1 4 1 3 1 778 1157 140 41 96.674438 dealings 1 4 1 3 2 936 1155 86 33 96.331665 with5 1 4 1 3 3 1039 1154 199 42 96.200935 delinquent5 1 4 1 3 4 1258 1145 160 40 96.177658 accounts5 1 4 1 3 5 1441 1151 70 42 95.784019 (sees 1 4 1 3 6 1528 1144 107 48 92.974495 infra,5 1 4 1 3 7 1654 1160 33 31 92.974495 p.5 1 4 1 3 8 1706 1151 40 30 89.809563 235 1 4 1 3 9 1771 1148 49 42 82.271072 [p.5 1 4 1 3 10 1841 1150 70 38 93.291870 859,5 1 4 1 3 11 1929 1141 175 51 88.720985 herein]).2 1 5 0 0 0 772 1221 1351 382 -1 3 1 5 1 0 0 780 1221 567 43 -1 4 1 5 1 1 0 780 1221 567 43 -1 5 1 5 1 1 1 776 1218 43 41 89.363571 C.5 1 5 1 1 2 830 1224 98 47 96.707024 Sales5 1 5 1 1 3 940 1222 211 42 96.422592 Leadership5 1 5 1 1 4 1165 1221 100 41 76.187347 Club,5 1 5 1 1 5 1274 1221 73 32 91.854019 Inc.3 1 5 2 0 0 779 1246 1344 331 -1 4 1 5 2 1 0 821 1246 1288 77 -1 5 1 5 2 1 1 821 1269 222 54 96.649757 Respondents 1 5 2 1 2 1064 1280 97 34 96.433495 Sales5 1 5 2 1 3 1182 1277 213 44 96.512642 Leadership5 1 5 2 1 4 1417 1277 100 40 76.046204 Club,5 1 5 2 1 5 1538 1277 84 40 93.062691 Inc.,5 1 5 2 1 6 1643 1286 69 22 96.569862 was5 1 5 2 1 7 1734 1274 240 42 96.758308 incorporated5 1 5 2 1 8 1990 1246 119 74 93.287857 under4 1 5 2 2 0 772 1297 1329 77 -1 5 1 5 2 2 1 772 1334 67 33 96.983047 thes 1 5 2 2 2 854 1334 84 35 96.182648 laws5 1 5 2 2 3 954 1331 38 34 96.903664 of5 1 5 2 2 4 1007 1332 60 32 96.465324 thes 1 5 2 2 5 1081 1329 292 36 79.300278 Commonwealth5 1 5 2 2 6 1389 1328 39 33 96.281975 of5 1 5 2 2 7 1442 1297 267 77 94.551285 Massachusetts5 1 5 2 2 8 1723 1337 43 21 95.203453 on5 1 5 2 2 9 1783 1325 147 34 95.203453 October5 1 5 2 2 10 1944 1325 50 40 96.638641 21,5 1 5 2 2 11 2009 1325 92 30 96.752228 1958.4 1 5 2 3 0 781 1349 1328 78 -1 5 1 5 2 3 1 781 1385 52 31 96.721008 Its5 1 5 2 3 2 855 1382 126 34 96.671516 officers5 1 5 2 3 3 1004 1394 58 21 96.303001 ares 1 5 2 3 4 1082 1381 153 43 93.217255 Willard5 1 5 2 3 5 1257 1380 35 34 93.088211 S.5 1 5 2 3 6 1314 1379 164 40 96.425011 Robbins,5 1 5 2 3 7 1501 1377 191 42 96.543213 president;5 1 5 2 3 8 1715 1376 141 51 96.591911 Ryland5 1 5 2 3 9 1876 1376 40 31 39.421520 KE.5 1 5 2 3 10 1939 1349 170 64 95.760872 Robbins,4 1 5 2 4 0 779 1413 1324 63 -1 5 1 5 2 4 1 779 1438 187 38 93.382027 treasurer;5 1 5 2 4 2 988 1433 69 32 96.678917 ands 1 5 2 4 3 1076 1432 110 34 92.810837 Grace5 1 5 2 4 4 1203 1432 41 31 92.810837 B.5 1 5 2 4 5 1253 1429 174 41 96.853394 Robbins,5 1 5 2 4 6 1444 1429 103 32 96.870361 clerk.5 1 5 2 4 7 1565 1428 109 32 96.147522 These5 1 5 2 4 8 1690 1428 95 31 96.357132 three5 1 5 2 4 9 1801 1413 212 45 96.894699 individuals5 1 5 2 4 10 2030 1425 73 31 96.894699 also4 1 5 2 5 0 780 1476 1343 43 -1 5 1 5 2 5 1 780 1485 187 39 71.564941 constitute.5 1 5 2 5 2 978 1484 60 32 81.366394 thes 1 5 2 5 3 1054 1482 109 33 96.268906 boards 1 5 2 5 4 1180 1482 40 32 97.014122 of5 1 5 2 5 5 1237 1482 174 38 7.230820 directors.5 1 5 2 5 6 1422 1480 83 34 7.230820 Thes 1 5 2 5 7 1522 1477 224 42 96.214569 outstanding5 1 5 2 5 8 1758 1476 132 42 96.674767 capital5 1 5 2 5 9 1906 1476 102 35 95.377754 stocks 1 5 2 5 10 2023 1476 100 41 28.190300 (110°.4 1 5 2 6 0 780 1525 1326 78 -1 5 1 5 2 6 1 780 1536 137 41 94.749092 shares).5 1 5 2 6 2 933 1534 29 33 94.749092 is5 1 5 2 6 3 976 1534 137 42 96.368256 equally5 1 5 2 6 4 1126 1533 144 42 79.657120 divided5 1 5 2 6 5 1281 1532 149 32 95.680000 between5 1 5 2 6 6 1443 1525 152 78 86.562592 Willard5 1 5 2 6 7 1610 1528 35 34 93.172440 S.5 1 5 2 6 8 1658 1527 155 35 96.055244 Robbins5 1 5 2 6 9 1825 1527 69 33 96.055244 ands 1 5 2 6 10 1906 1526 139 42 93.282410 Ryland5 1 5 2 6 11 2058 1526 48 31 85.999512 E..2 1 6 0 0 0 747 1582 202 56 -1 3 1 6 1 0 0 747 1582 202 56 -1 4 1 6 1 1 0 747 1582 202 56 -1 5 1 6 1 1 1 747 1636 2 2 15.608223 .5 1 6 1 1 2 781 1582 168 46 91.619263 Robbins..2 1 7 0 0 0 781 1605 1330 475 -1 3 1 7 1 0 0 782 1605 1329 326 -1 4 1 7 1 1 0 822 1605 1289 74 -1 5 1 7 1 1 1 822 1638 56 41 96.572807 By5 1 7 1 1 2 901 1647 115 21 96.572807 means5 1 7 1 1 3 1039 1635 39 33 96.550980 of5 1 7 1 1 4 1100 1634 183 42 96.736870 published5 1 7 1 1 5 1306 1632 216 41 96.694092 advertising5 1 7 1 1 6 1543 1631 68 31 96.645233 ands 1 7 1 1 7 1634 1629 109 33 96.122444 directs 1 7 1 1 8 1764 1629 84 31 96.122444 mails 1 7 1 1 9 1870 1605 241 58 92.290604 solicitations,4 1 7 1 2 0 782 1678 1327 65 -1 5 1 7 1 2 1 782 1688 207 55 96.551674 respondents 1 7 1 2 2 1009 1686 87 33 93.969437 SLC5 1 7 1 2 3 1117 1685 126 32 96.592323 enrolls5 1 7 1 2 4 1261 1684 155 32 96.771217 children5 1 7 1 2 5 1435 1686 36 29 96.443390 to5 1 7 1 2 6 1489 1682 63 31 96.164413 sells 1 7 1 2 7 1572 1680 191 34 96.370049 Christmas5 1 7 1 2 8 1780 1689 58 23 96.647568 cards5 1 7 1 2 9 1897 1689 36 21 96.647568 in5 1 7 1 2 10 1951 1678 100 32 95.613297 orders 1 7 1 2 11 2068 1680 41 28 66.223068 to:4 1 7 1 3 0 782 1727 1324 52 -1 5 1 7 1 3 1 782 1738 69 34 96.703056 wins 1 7 1 3 2 864 1737 111 42 96.751686 prizes5 1 7 1 3 3 988 1748 40 21 95.842834 or5 1 7 1 3 4 1039 1740 36 29 95.326088 to5 1 7 1 3 5 1088 1746 81 22 95.326088 earns 1 7 1 3 6 1182 1745 131 31 95.834190 money.5 1 7 1 3 7 1329 1734 93 33 96.648880 Such5 1 7 1 3 8 1435 1731 214 42 96.759995 advertising5 1 7 1 3 9 1660 1731 63 31 96.683723 has5 1 7 1 3 10 1735 1728 193 44 96.639000 appeared5 1 7 1 3 11 1919 1740 39 21 91.928436 in5 1 7 1 3 12 1969 1727 137 33 91.928436 Ameri-4 1 7 1 4 0 782 1778 1323 50 -1 5 1 7 1 4 1 782 1800 64 21 95.608231 cans 1 7 1 4 2 868 1788 89 40 96.621414 Girl,5 1 7 1 4 3 989 1799 10 20 96.621414 a5 1 7 1 4 4 1021 1786 179 42 96.468040 magazines 1 7 1 4 5 1221 1784 182 43 96.702545 published5 1 7 1 4 6 1423 1784 45 40 96.442795 by5 1 7 1 4 7 1489 1783 59 32 96.580574 thes 1 7 1 4 8 1570 1782 77 33 96.288582 Girls 1 7 1 4 9 1669 1781 120 34 96.495293 Scouts5 1 7 1 4 10 1810 1779 40 33 96.525841 of5 1 7 1 4 11 1868 1778 175 40 80.928406 America;5 1 7 1 4 12 2066 1777 39 32 93.762497 in4 1 7 1 5 0 782 1803 1321 97 -1 5 1 7 1 5 1 782 1835 102 65 91.800926 Boys’5 1 7 1 5 2 900 1838 92 40 96.479630 Life,5 1 7 1 5 3 1006 1848 20 22 83.799583 a5 1 7 1 5 4 1041 1836 178 42 96.312859 magazines 1 7 1 5 5 1233 1834 183 42 96.569595 published5 1 7 1 5 6 1429 1835 45 41 96.569595 by5 1 7 1 5 7 1488 1833 61 32 96.757896 thes 1 7 1 5 8 1563 1833 75 41 96.419014 Boys 1 7 1 5 9 1653 1831 122 34 96.795784 Scouts5 1 7 1 5 10 1788 1830 40 32 96.867714 of5 1 7 1 5 11 1842 1829 174 41 88.618706 America;5 1 7 1 5 12 2033 1803 70 57 96.945175 anda 1 7 1 6 0 782 1850 1320 81 -1 5 1 7 1 6 1 782 1890 38 32 96.536858 in5 1 7 1 6 2 837 1889 92 35 96.143692 Gold5 1 7 1 6 3 946 1890 79 41 96.825188 Keys 1 7 1 6 4 1042 1888 143 33 95.603180 Comics.5 1 7 1 6 5 1204 1887 75 32 96.001930 Thes 1 7 1 6 6 1295 1885 99 34 96.893425 cards5 1 7 1 6 7 1411 1896 59 21 96.934242 ares 1 7 1 6 8 1483 1884 78 32 96.643173 sold5 1 7 1 6 9 1577 1886 169 39 96.216835 pursuant5 1 7 1 6 10 1760 1885 39 28 96.598434 to5 1 7 1 6 11 1813 1880 147 42 96.360420 prepaid5 1 7 1 6 12 1976 1850 126 75 95.691086 orders.3 1 7 2 0 0 781 1932 1325 148 -1 4 1 7 2 1 0 823 1932 1283 43 -1 5 1 7 2 1 1 823 1941 75 32 95.878777 Thes 1 7 2 1 2 916 1940 154 32 96.727036 business5 1 7 2 1 3 1089 1938 38 33 96.153343 of5 1 7 2 1 4 1149 1938 86 33 96.028786 SLC5 1 7 2 1 5 1255 1938 29 31 94.760345 is5 1 7 2 1 6 1303 1935 216 40 96.328430 substantial,5 1 7 2 1 7 1539 1933 85 33 96.444580 with5 1 7 2 1 8 1643 1932 275 43 96.451035 approximately5 1 7 2 1 9 1937 1932 111 39 94.976402 35,0005 1 7 2 1 10 2068 1934 38 28 94.976402 to4 1 7 2 2 0 783 1980 1323 52 -1 5 1 7 2 2 1 783 1993 112 39 96.723808 50,0005 1 7 2 2 2 919 1994 183 29 96.693253 customers5 1 7 2 2 3 1125 1989 69 32 96.700127 ands 1 7 2 2 4 1217 2000 21 20 96.888336 a5 1 7 2 2 5 1260 1988 86 32 96.608162 totals 1 7 2 2 6 1368 1986 128 32 96.523277 annual5 1 7 2 2 7 1518 1985 87 32 96.657082 sales5 1 7 2 2 8 1626 1983 135 33 96.641083 volumes 1 7 2 2 9 1782 1982 149 41 96.079498 ranging5 1 7 2 2 10 1952 1981 91 32 96.605019 from5 1 7 2 2 11 2063 1980 43 38 96.611351 $44 1 7 2 3 0 781 2040 442 40 -1 5 1 7 2 3 1 781 2043 134 32 95.184196 millions 1 7 2 3 2 934 2046 37 28 96.815758 to5 1 7 2 3 3 991 2040 40 40 96.902138 $55 1 7 2 3 4 1053 2040 144 33 93.267433 million.5 1 7 2 3 5 1221 2070 2 2 88.882317 .2 1 8 0 0 0 779 2104 1331 454 -1 3 1 8 1 0 0 779 2104 743 44 -1 4 1 8 1 1 0 779 2104 743 44 -1 5 1 8 1 1 1 779 2111 44 32 91.653938 D.5 1 8 1 1 2 849 2109 180 34 95.526749 Guardian5 1 8 1 1 3 1046 2107 191 35 95.954285 Collections 1 8 1 1 4 1252 2106 153 42 96.336258 Agency,5 1 8 1 1 5 1421 2106 72 31 91.970993 Inc.5 1 8 1 1 6 1519 2104 3 3 11.533798 —3 1 8 2 0 0 779 2158 1331 400 -1 4 1 8 2 1 0 826 2158 1282 50 -1 5 1 8 2 1 1 826 2169 179 34 96.951248 Guardian5 1 8 2 1 2 1021 2166 190 34 96.447784 Collections 1 8 2 1 3 1225 2166 153 42 93.144165 Agency,5 1 8 2 1 4 1393 2165 83 38 90.839172 Inc.,5 1 8 2 1 5 1492 2173 70 22 96.880585 was5 1 8 2 1 6 1577 2160 239 43 96.597427 incorporated5 1 8 2 1 7 1831 2159 108 33 96.337570 under5 1 8 2 1 8 1952 2158 58 33 96.598854 thes 1 8 2 1 9 2025 2158 83 33 96.620277 laws4 1 8 2 2 0 782 2210 1326 43 -1 5 1 8 2 2 1 782 2220 40 32 95.781197 of5 1 8 2 2 2 847 2220 58 31 96.259865 thes 1 8 2 2 3 931 2217 295 36 96.190750 Commonwealth5 1 8 2 2 4 1251 2216 39 32 96.190750 of5 1 8 2 2 5 1314 2215 268 33 96.310463 Massachusetts5 1 8 2 2 6 1606 2224 44 21 95.506844 on5 1 8 2 2 7 1676 2212 85 42 95.506844 July5 1 8 2 2 8 1788 2214 49 37 96.474609 10,5 1 8 2 2 9 1864 2212 88 30 95.576439 1961.5 1 8 2 2 10 1979 2210 35 32 96.674301 It5 1 8 2 2 11 2041 2219 67 22 96.942886 was4 1 8 2 3 0 779 2247 1331 65 -1 5 1 8 2 3 1 779 2270 189 42 96.582367 originally5 1 8 2 3 2 985 2270 125 32 96.622437 known5 1 8 2 3 3 1126 2279 38 22 91.395729 as5 1 8 2 3 4 1182 2265 313 34 91.395729 Trans-Americans 1 8 2 3 5 1511 2264 192 34 96.689125 Collections 1 8 2 3 6 1719 2247 153 57 96.857422 Agency,5 1 8 2 3 7 1888 2262 82 39 90.863144 Inc.,5 1 8 2 3 8 1986 2260 62 32 96.313751 but5 1 8 2 3 9 2063 2260 47 31 96.598824 its4 1 8 2 4 0 781 2285 1327 77 -1 5 1 8 2 4 1 781 2333 99 21 96.634003 names 1 8 2 4 2 900 2332 71 21 95.607666 was5 1 8 2 4 3 989 2320 156 42 95.607666 changed5 1 8 2 4 4 1163 2323 37 28 96.713303 to5 1 8 2 4 5 1220 2318 181 34 96.587227 Guardian5 1 8 2 4 6 1421 2316 190 34 96.576782 Collections 1 8 2 4 7 1630 2316 152 40 93.297600 Agency,5 1 8 2 4 8 1803 2312 109 41 92.961441 Inc.,5 1 8 2 4 9 1908 2323 32 21 96.274605 in5 1 8 2 4 10 1961 2285 147 59 94.547974 October4 1 8 2 5 0 783 2362 1326 50 -1 5 1 8 2 5 1 783 2373 91 33 95.916611 1970.5 1 8 2 5 2 892 2373 53 32 96.343201 Its5 1 8 2 5 3 962 2370 120 34 96.788788 stocks 1 8 2 5 4 1073 2382 31 21 96.223473 is5 1 8 2 5 5 1120 2370 129 42 96.637909 wholly5 1 8 2 5 6 1267 2369 118 32 96.510826 owned5 1 8 2 5 7 1401 2367 47 43 96.848946 by5 1 8 2 5 8 1464 2366 208 42 96.397964 respondents 1 8 2 5 9 1690 2364 180 34 96.326080 Sunshine.5 1 8 2 5 10 1887 2362 222 42 96.451500 Respondent4 1 8 2 6 0 784 2414 1325 52 -1 5 1 8 2 6 1 784 2424 139 42 93.296455 Ryland5 1 8 2 6 2 939 2424 42 31 91.560844 E.5 1 8 2 6 3 999 2421 154 34 96.955658 Robbins5 1 8 2 6 4 1169 2431 69 22 96.996803 was5 1 8 2 6 5 1254 2424 171 28 97.004066 treasurer5 1 8 2 6 6 1441 2418 93 32 96.842651 from5 1 8 2 6 7 1551 2419 80 30 96.992706 19615 1 8 2 6 8 1649 2420 36 29 91.444046 to5 1 8 2 6 9 1702 2417 103 38 91.187157 1965,°5 1 8 2 6 10 1822 2415 61 32 96.867844 but5 1 8 2 6 11 1897 2414 60 32 96.939079 thes 1 8 2 6 12 1972 2415 137 40 96.371704 presenta 1 8 2 7 0 784 2463 1324 44 -1 5 1 8 2 7 1 784 2475 125 32 95.313843 officers5 1 8 2 7 2 925 2485 58 21 96.705376 ares 1 8 2 7 3 997 2473 55 33 96.828064 his5 1 8 2 7 4 1067 2472 117 33 96.691917 father5 1 8 2 7 5 1199 2472 69 31 96.454865 ands 1 8 2 7 6 1283 2470 141 33 96.454865 mother.5 1 8 2 7 7 1441 2469 109 33 96.441917 These5 1 8 2 7 8 1564 2468 97 33 96.961861 three5 1 8 2 7 9 1674 2465 212 34 96.480377 individuals5 1 8 2 7 10 1900 2464 72 33 92.936485 also5 1 8 2 7 11 1986 2463 122 33 92.936485 consti-4 1 8 2 8 0 781 2524 541 34 -1 5 1 8 2 8 1 781 2530 73 28 96.272644 tutes 1 8 2 8 2 867 2526 58 31 96.600777 thes 1 8 2 8 3 940 2524 106 33 96.506287 boards 1 8 2 8 4 1060 2524 40 31 96.780777 of5 1 8 2 8 5 1112 2524 175 32 90.584320 directors.5 1 8 2 8 6 1320 2538 2 2 19.204880 —2 1 9 0 0 0 814 2605 538 28 -1 3 1 9 1 0 0 814 2605 538 28 -1 4 1 9 1 1 0 814 2605 538 28 -1 5 1 9 1 1 1 814 2611 10 12 96.352623 55 1 9 1 1 2 834 2609 45 21 95.499031 Sees 1 9 1 1 3 889 2609 118 20 95.544777 footnotes 1 9 1 1 4 1018 2608 21 24 75.127838 3,5 1 9 1 1 5 1051 2614 22 19 93.119812 p.5 1 9 1 1 6 1085 2608 15 19 90.804787 45 1 9 1 1 7 1115 2608 36 24 84.741470 [p.5 1 9 1 1 8 1163 2606 48 21 93.175514 8445 1 9 1 1 9 1223 2605 129 25 91.336800 herein]). SUNSHINE ART STUDIOS, INC., ET AL. 847 836 Initial Decision E. Related Corporations Other related corporations (not named as respondents) include the following:

Sunshine Art Studios of California, Inc. (Sunshine of California), all of the stock of which is owned by respondent Sunshine. Its principal office is at El Monte, California, with plants there and at Livermore, California. It is engaged in the manufacture and sale of greeting cards and engages in business transactions with respondents Sunshine and SLC.

Sunshine Realty Corporation (Sunshine Realty), which owns the land and the building where the offices of the respondents are located. Its officers include Willard S. Robbins as president and Ryland E. Robbins as treasurer. The board of directors consists of Ryland E. Robbins and his parents, and these three also constitute the only stockholders. Ryland E. Robbins owns 220 shares, and the remaining 780 shares are owned by his parents.

Windsor Art, Inc. (Windsor), a corporation of which Willard 8. Robbins is president and respondent Ryland E. Robbins is treasurer. — These two individuals are directors of Windsor along with Grace B. Robbins. The outstanding capital stock of 1,000 shares is equally divided between Willard S. Robbins and Ryland E. Robbins. Windsor sells greeting cards, some of which are purchased from respondent Sunshine.

Northeast Land Development Trust (Northeast Land), which owns the premises that houses the Sunshine plant at East Longmeadow, Massachusetts. Shareholders are respondent Sunshine, respondent SLC, Sunshine Realty, and possibly Windsor. The trustees are respondent Ryland E. Robbins and his parents. F. Cooperation of Respondents in a Single Enterprise In the words of the complaint (Paragraph One), respondents “cooperate and act together in carrying out respondents’ business.” Despite the corporate forms utilized, respondents constitute a single economic entity—a unitary enterprise—designed to sell greeting cards manufactured by respondent Sunshine.

Just as Guardian constitutes a Sunshine subsidiary as a matter of law, so JSC and SLC constitute Sunshine subsidiaries as a matter of fact. They are, in effect, sales subsidiaries of Sunshine. More broadly, all the corporate respondents are instrumentalities of the Robbins family. The only stockholders of the greeting card companies (Sunshine, JSC, and SLC) are Ryland E. Robbins and his parents, except for a 20 percent stock ownership in JSC held by a former employee. The distribution of the profits realized on the opera- 848. FEDERAL TRADE. COMMISSION DECISIONS Initial. Decision 81 F.T.C.

tions of the corporate respondents is not detailed in this record, but there is no. dispute that such profits have necessarily inured to the benefit of respondent Ryland E. Robbins and to his father and his mother (Robbins 163-72;. Tr. 2197-98). And these 3 members of the Robbins family constitute the officers and directors of all the respondent corporations.

With such close family ownership and control, corporate formalities have not been observed. Meetings of stockholders and of directors, as such, have been infrequent and informal, with no minutes kept (Robbins 142-48 ; 2128-29 ; O’Hara 1800-01).

Although each corporation has separate general ledgers and subsidiary financial, records, these are maintained by the Sunshine comptroller under the supervision of Ryland E. Robbins (Robbins 1986-92, 2110-13; Pray 1702-03). These records reflect financial transactions between respondents and between respondents ‘and other Robbinsowned entities, that warrant a finding that they have been using a common treasury (Robbins 2083-2105, 2116-70,.2190-92). ‘In these transactions, as well as in other joint arrangements, respondents and other family-owned entities cooperate. with one another on an informal basis. In effect, they have pooled their physical 7 and financial resources in conjunction with other family-owned enterprises.

Employees of one corporate respondent perform work for another— sometimes for 2 others. Salaries are paid out of a consolidated payroll account, and they are not necessarily allocated in proportion to _ the duties performed by various personnel for two or more of the respondent corporations (Robbins 1934-36, 1982-83, 1991-92, 1997— 98, 2087-44, 2113-16, 2135-36, 2142; Ward 1389-90, 1899, 1539-43, 1551-52; Pray 1607-17, 1690-94, 1720-31, 1867-68, 1906; O’Hara 1776~77, 1804-05.

Supplies for each corporation are ordered on a consolidated basis through Sunshine (Robbins 1987-91; Pray 1618-20). Moreover, in view of the common ownership and control of the corporate respondents, it is clear that respondents do not deal at arms length with one another.

For example, when the Sunshine printing plant found it impossible to deliver all the name-imprinted Christmas cards ordered by SLC in 1969 (infra, p. 27 [p. 861, herein]), there was a conference to determine what course of action to follow. The decision to ship the cards without the names imprinted was made jointly by Willard S. Robbins and Ryland E. Robbins in conjunction with the manager of the Sunshine printing plant. According to Ryland E. Robbins, his SUNSHINE ART STUDIOS, INC., ET AL. 849 .

836 Initial Decision father (Willard S. Robbins) was participating as president of SLC, although he was also president’ of Sunshine, whereas Ryland E. Robbins was involved as general manager of Sunshine, although he was also treasurer of SLC (Tr. 2053). Some of the name-imprinting was also being done by Sunshine of California, and Ryland E. Robbins directed that company to ship the SLC cards without names imprinted. He said he issued this order in his capacity as treasurer of SLC (Tr. 2036).

An even more striking anomaly was developed in testimony concerning financial transactions between SLC and Sunshine. Ryland E. Robbins testified that as treasurer of SLO, he authorized SLC to make a “progress payment” to Sunshine and that, as general manager and treasurer of Sunshine, he did not object to—in fact, he welcomed— receiving the money on behalf of Sunshine (Tr. 2193-94), The unitary nature of the operation and the blurring of corporate lines of demarcation are also suggested in the lack of concern over the allocation of costs as among the various corporate respondents. Another evidentiary: fact that sheds light on the family and corporate relationships is that Ryland E. Robbins was not sure whether he was currently an officer of respondent Guardian (see footnote 3, p. 4 [p. 844, herein], supra).

Although, in selling greeting cards to the public, Sunshine, JSC, and’ SLC each has its own distinguishable type of sales and advertiseing program, each is designed to sell greeting cards printed by respondent Sunshine (Robbins 2006; Pray 1620-21). All three share in Sunshine arrangements and facilities for shipping by mail or by United Parcel Service the cards that they sell (Robbins 1999-2000, 2055-56; Pray 1686-88, 2043, 2054-58).

The manner in which Sunshine bills its affiliates for products and services furnished and the manner in which such intra-enterprise accounts are handled emphasize the unitary nature of the operation. (Compare RPF 7-8.) Each greeting card company utilizes the same advertising agency. When two or more of them advertise in the same publication, each is treated as an “affiliate” of the other, and as a result, each knowingly enjoys a lower advertising rate as a result of volume discounts or frequency discounts based on the cumulation or the conibination of the separate advertisements placed by both or by all 3. (Musen 1181-84, 1189, 1193—A, 1219-1317, 1879-85 ; Kiger 246, 1642-43 ; Johnson 269-71, 325-83, 353-55, 361; Dorr 1451-84; ; Pray 1737-38 ; CXs 69 A-F, 80-94, 113, A~D, 116, 119, 120, 124, 127, 128, 182, 184, 135, 137,5 1 2 8 9 13 1667 2629 71 39 90.983482 188,5 1 2 8 9 14 1751 2629 88 41 96.907600 140.)3 1 2 9 0 0 681 2640 1283 82 -1 4 1 2 9 1 0 681 2640 1283 82 -1 5 1 2 9 1 1 681 2640 172 76 96.259796 Sunshine5 1 2 9 1 2 871 2672 68 31 94.630775 ands 1 2 9 1 3 958 2646 31 59 63.547001 J5 1 2 9 1 4 985 2672 57 33 89.810478 SC5 1 2 9 1 5 1060 2647 91 58 96.215675 both5 1 2 9 1 6 1162 2670 118 50 95.971985 utilizes 1 2 9 1 7 1299 2650 186 58 96.126678 Guardian5 1 2 9 1 8 1498 2688 37 21 95.786377 as5 1 2 9 1 9 1554 2688 20 21 44.438843 a5 1 2 9 1 10 1591 2688 116 22 78.076675 Means5 1 2 9 1 11 1725 2652 40 58 93.727974 of5 1 2 9 1 12 1783 2680 181 42 96.418442 collecting 850 FEDERAL TRADE COMMISSION. DECISIONS ‘ Initial Decision 81 FTC.

allegedly delinquent accounts, and SLC has used it in efforts to collect on bad checks. Guardian has no. separate employees or. office facilities, and its functions are carried out by employees of Sunshine and JSC. {Robbins 1930-31, 1992-97, 2118-20; Ward 1389-90, 1399, 1539-40, 1551-52; Pray 1720-81, 1765-67, 187 57 8). The respondent corporations have their offices in the same office building which is owned by another Robbins family corporation, (Sunshine Realty), and they are served by a common telephone switchboard. All: utilities for this building are billed to. Sunshine. * (CX 730 A-C; Robbins 148, 1931-33, 2006-07) ; ... Ryland E. Robbins is ‘the general manager of Sunshine, while Wilder T. Pray is the general manager of both JSC and SLC and is in turn subject to the supervision and control of Ryland E. Robbins (CX 730 A-D; Robbins 1985; Pray 1609-10, 1659, 1903-04). Sunshine is the only corporate respondent that is a member of the regional Better Business Bureau, but. the executive director of the bureau considers that such membership also includes JSC and SLC. The Better Business Bureau has operated on the assumption that JSC and SLC are subsidiaries or divisions of Sunshine and has so indicated in communications to the public, apparently with the knowledge of respondents. (Webb 1065-67, 1088-1109; Robbins 2012-14; CX 727) The principal circumstance suggesting corporate separateness rather than togetherness is the fact that the respondent corporations file separate income tax returns rather than a consolidated tax return (Robbins 2179-83). This is a factor to be taken into account, but it does not negate the finding, based on numerous other factors, that respondents essentially constitute a single enterprise. G. Role of Individual Respondent The evidence does not permit a finding that respondent Ryland E. Robbins alone formulates, directs, and controls the acts and practices of the corporate respondents as alleged in Paragraph One of the complaint, or that the corporate respondents are his alter ego, as contended by complaint counsel (CPF 44). However, the evidence does permit such a finding as to Ryland E. Robbins jointly with his father, Willard S. Robbins.

Even without uncontradicted evidence that Willard S. Robbins, as president of all the corporate respondents, participates in and has the final word as to corporate decisions, the examiner would have to assume that respondent Ryland E. Robbins, as his son and as a subordinate officer, is subject to the direction and control of Willard S. Robbins. Nevertheless, Ryland E. Robbins has played a key role. While his decisions are subject to veto, it is clear that they are frequently _ SUNSHINE ART STUDIOS, INC., ET AL. 851 836 oO Initial Decision final. Moreover, the record indicates a division of responsibility between father and son that is significant for the purposes of the proceeding: Willard S. Robbins is “active in the creative end of the business” whereas Ryland E. Robbins is more active in the business and financial end (Tr. 1985-86).

It is undisputed that Ryland E. Robbins has established the sales policies of Sunshine and that as treasurer, director, and general manager, he bears a large measure of responsibility for its operations. And although he may have delegated more authority to subordinates in JSC and SLC, the record as a whole indicates that, as a stockholder, officer, and director, he likewise bears a large measure of responsibility for their business operations, as well as for the use of the Guardian collection letters. ;

Ryland E. Robbins has been deeply involved in the important business affairs of all the corporate respondents—in the hiring of personnel, in the. fixing of salaries, in the financial transactions, in the purchase of supplies,.in the handling of advertising, and in the capacity of corporate spokesman. And although Arthur O’Hara was largely responsible for the organization and development of JSC, SLC, and Guardian, he operated under the supervision and control of Ryland . E. Robbins, whom he considered to be the general manager of the entire operation. Mr. O’Hara’s tenure was from 1949 to 1965, but the role of Ryland E. Robbins has not materially changed, except in detail, in the ensuing 6 years.

(Record references: CX 730 A~D; Robbins 134-37, 418-20, 1935-42, » 1950-63, 1981-87, 2005, 2019-22, 2036-37, 2051-53, 2089-90, 2099-2100, 2104-05, 2128-29, 2149-50; O'Hara 1773-98, 1802-03, 1807, 1813-17 ; Pray 1609-10, 1625, 1659, 1676, 1727-28, 1903-04; Ward 1389-95; Musen 1189-93, 1317, 1382; Johnson 299-304, 3 56-58; CX 461; Dorr 1453-54, 1458-61; McIntyre 202-06, 213; Webb 1065-76, 1086, 1095-1106) II. The Challenged Practices A. Unordered Merchandise and Dunning Communications Respondent Sunshine has not only shipped cartons of greeting cards “on approval” to many persons who had neither requested nor consented to the receipt of such cards, but has also made shipments to persons who had specifically requested that Sunshine not send any more cards to them. The recipients of such unordered shipments were persons who had responded to advertisements published by Sunshine in youth magazines such as Boys’ Life, American Girl, Teen, and Young Miss, as well as in a variety of magazines for adults. These advertisements represented that persons who sold Sunshine greeting Initial Decision 81. FTC.

cards could earn substantial amounts of money in their: spare time. The — readership of some of the publications carrying Sunshine advertisements had an age level that ranged from 10 to 15 years, and the circulation of such publications was substantial. (CX 7 30 D-E; CXs 1-3, 5, 6, 8, 9, 18, 15, 22, 728; Musen 1320-23, 1334, 1338-40; “McIntyre 184; CXs 16-21, 64-67, 69 A-F; Ward 1404, 1575-76; O'Hara 1777-78) - ‘Typical advertisements published by Sunshine before December 1968 had contained coupons (“old coupons”) in which the would-be dealer requested that Sunshine send “box assortments on approval” (CXs 2, 3, 6, 481) or “Sample Boxes on approval” (CXs 5, 156). : Subsequent to December 1968, Sunshine advertisements typically included coupons (“new coupons”) in which the request was not only. - for specific sample box assortments, but also for “other seasonal samples on. approval as they are [or become] available” (CXs 8, 9, 18,. 15, 22, 478, 479, 483, 485, 486, 728; RX 189). | This new coupon was instituted in Sunshine advertising after am investigational visit by a Federal Trade Commission representative, probably because he raised questions about the language of the old - coupons (Ward 1424-27, 1559-62, 1572-75; Robbins 1943-53). To. individuals who submitted either type of coupon, ‘Sunshine shipped sample boxes of greeting cards which were intended to be sold by the recipient. Each carton contained an invoice designated as: | a “Special Price Bill.” But that was just the beginning. Without any further request, Sunshine continued to send box assortments twice a year, alternating between Christmas cards and all-occasion cards (also known as “everyday” cards). Christmas cards were shipped in June and July, and all-occasion cards, in December and January. The “Special Price Bill” that accompanied each carton shipped was | an invoice which listed the cards shipped with their price and offered a discount for payment within 10 days.* Some invoices noted that the cards had been sent “on approval” (CX 186), but others did not contain such language (CXs 565, 601, 621). The invoice used in 1971 contained the statement: “It is payable only if you decide to keep the merchandise” and requested notification if the recipient did not want the cards (CXs 515, 584, 635).

If payment was not received or if the cards were not returned, Sunshine then dispatched a series of inquiries and reminder notices, culminating in a collection letter on the letterhead of Guardian Collection Agency, Ince.

Except for a charge of misrepresentation in connection with. the Guardian letters (which is considered infra), no challenge is made to 6 Approximately 10 percent of Sunshine’s dealers take advantage of the discount for prompt payment (Ward 1436).

SUNSHINE ART STUDIOS, ING., ET AL. 853.

836 Initial Decision the efforts of Sunshine to obtain payment for or return of the first shipment of cards (CB 7). But this proceeding does challenge Sun-' shine’s practice of sending subsequent shipments of cards without any further request on the part of the dealer and then leading the dealer to believe that he has an obligation to pay for or return the cards. Although the follow-up procedures and the text of the letters to _ allegedly delinquent dealers have varied from year to year, the timing and the basic thrust of Sunshine’s dunning communications from 1967 to 1969 were essentially the same. However, beginning in 1970, after respondents knew that they were under Commission investigation, Sunshine made significant changes in the language purporting to explain the rights and duties of its dealers. “ Essentially, the procedure has been as follows: If no payment was received within 30 days, an inquiry letter was mailed to determine whethér the shipment was received and whether the recipient intended to pay or wanted Sunshine to pick up the cards. This first inquiry letter was followed at 30-day intervals by a series of from four to six additional notices that sought payment for or return of the cards.’ * One of the first in a series of collection letters used with reference to the Christmas assortment in 1967 was primarily a sales promotion letter that-contained a suggestion that the recipient could still get the special discount for early payment, even though the 10-day discount period had expired (CX 297).

Another collection letter used in connection with 1967 Christmas samples noted that the sample kit had neither been returned nor paid for and requested that payment be made by return mail (CX 252). In 1967, persons who had neither paid for nor returned the alloccasion sample assortment received a series of statements demanding payment. The first (CX 228) characterized the bill as “past due” and asked for remittance within 7 days. The second (CX 229) contained the following statement: “According to our records, the above amount is due for sample boxes mailed to you weeks ago. Your cooperation in paying this invoice by return mail will be greatly appreciated.” This was followed by a statement (CX 230) on which was printed in large bold face capital letters the following: Please—Please Send us your check or money order now! Thank you. The next statement (CX 231), which purported to come from the Credit Department, contained the following language: Our records show that you have not responded to our several prior notices advising that the above amount is due for sample cards shipped weeks ago. It is 7 Phe findings in this Section A are based not only on Sunshine documents in evidence but on the testimory of Sunshine’s office manager, Richard EH. Ward (Tr. 1388-1446, 1486— 1552, 1556-81).

854 FEDERAL TRADE COMMISSION DECISIONS — Initial Decision 81 FTC.

rapidly becoming impossible for us to continue to contact you in an amiable manner. We urgently request that you pay this invoice by return mail. By the time this statement (CX 231) was received, 95 percent of the “everyday” sample kits had been returned or had been paid for. The payment or return factor for Christmas card samples was not so favorable, amounting to 65 or 70 percent.

The dunning letters used in 1968 for recipients of both the Christmas ' card samples and the all-occasion card samples involved a somewhat different format. Although the first communication (CX 234) was comparable to the first. 1967 reminder (CX 227), the follow-up communications were in the form of letters rather than in the form of billing statements. The first of these 1968 letters (CX 235) referred to the billed amount as “overdue” and requested payment or prompt return of the goods.

This was followed by a letter (CX 236) noting that the samples had neither been returned-nor paid for and requesting the recipient to indicate on a preprinted tear-off form whether the samples had beén received, whether they had-been returned, or whether the remittance was being transmitted.

The next letter (CX 237) urged payment for the all-occasion cards so that the recipient might be eligible to receive sample Christmas cards.

This was followed by another letter (CX 238) stating that Sunshine was “entitled to an explanation or payment.” In 1969, the third in a series of dunning letters relating to 1969 Christmas cards (CX 253) requested payment or return of the samples or some explanation as to the status of the matter, for which a tear-off form was included similar to CX 236. The letter stated: “Our understanding was, that if you were not going to use them, you would return them at our expense. If you have used them, we, naturally, expected payment for them.” A similar letter (CX 245) was used with respect to 1970 all-occasion cards.

Collection letters used by Sunshine in connection with 1970 Christmas cards are in the record as CXs 248, 251, 725, 709. CX 248, although primarily a sales letter, also contained a mild request for payment. This letter, in addition, indicated that the dealer was “obligated in no way” and should pay for the sales kit only if he decided to use or sell the sample boxes. Contr: ariwise, a preprinted tear-off reply form indicated that the dealer was “not obligated to return these boxes” and might “consider them a gift.” And not only was the dealer also told that: he had authorized the shipment for advance examination, but the tear-off form purported to renew such authorization. SUNSHINE ART STUDIOS, INC., ET AL. 855 836 Initial Decision Certain dealers received a letter relating to unpaid 1970 Christmas samples (CX 251) in which they were told that the cards might be returned at Sunshine’s expense but that payment was “expected” if the cards were not returned, and that Sunshine “assumed” the samples had been used so that payment was due.

Another dunning letter used in 1970 (CX 725)—the third in a series for signers of the new coupon—demanded payment for or return of the sample boxes. The letter threatened “strong collection action” if there was hot a prompt response. 8 The third in a series of collection letters used in 1970 for signers of the old coupon requested payment for or return of the cards but contained the statement: _ Legally speaking, you are under no obligation to return or pay for this kit. We were aware of this when we sent it to you, but frankly, as one of our older dealers, I did not think that you would duck behind that technicality. (CX 709) In 1971, the first dunning letter for all-occasion cards (CX 259) was similar to CX 248 (used i in 1970) in advising the customer that he was “obligated in no way” except to pay for the kit if he decided to use 'or sell the boxes. It contained the same contradictory statement that the customer was “not obligated to return these boxes” and might “consider them a gift.”

' A follow-up letter used i in 197 1 with respect to all-occasion samples (CX 726) stated that the cards might be returned at Sunshine’s expense if the customer decided against using them but that payment was expected if the cards were not returned. In the absence of any word frora the customer, Sunshine “assumed” that the samples had been used and that therefore payment was due. This was virtually identical to CX 251, used in 1970.

If these collection letters on the Sunshine letterhead failed to get results, the accounts were “transferred” to Guardian Collection Agency, Inc., as Sunshine’s office manager phrased it (Ward 1517). This simply meant that Sunshine employees dispatched to the allegedly delinquent dealer a collection letter on the Guardian letterhead.? Such letters represented that Sunshine, as “claimant creditor,” had referred the dealer’s account to Guardian because of nonpayment for sample greeting cards. The letter stated that sample assortments had been sent to the dealer on approval and that since he had not returned them, it was assumed that he was using them and intended to pay for them. ® At the time of hearing, there had been no collection action taken against dealers who did not remit in response to CX 725 (Ward 1515). ®Unless the context indicates to the contrary. references to Guardian should be understood to include Trans-American Collection Agency, Inc., which was the name of Guardian until October 1970.

856 FEDERAL TRADE..COMMISSION -DECISIONS Initial. Decision 81 ETC, After referring to the number of Sunshine communications that had not been acknowledged, the letter stated that it had become Guardian’s “task to insist upon payment.” The letter concluded by expressing the hope that “this friendly reminder will be enough” to result in. the settlement of the account with Guardian’s “client.” (CXs 232, 239 and 255, used in 1967; CXs.242 and 257, used in 1969) The picture created by the foregoing documentary exhibits was is given life and color-by the testimony of 15 Sunshine dealers—most of them youthful—supplemented in some cases by. the testimony: of their. parents. In addition, the testimony of eight other dealers was stipulated by counsel (Tr. 2205-19)...

This testimony shows that ten individuals who submitted the old coupon received not only the initial card shipment requested, but also from two to seven additional shipments that they said they had not requested. Most of these individuals also continued to receive’ card shipments despite their having notified Sunshine that they did not want to receive additional samples. (Artman, 371-72, 387, 394-98; Dusablon 427-32; Turner 447-51, 462-68; C. Darsigny 523-35, B41; E. Darsigny 553-56; S. Donahue 885-92; M. Lefebvre 925-32 ;. S. Lefebvre 935, 944-46 ; L.. Lips 952-553 8. Lips 964; D. Feighery 973-76; T. Feighery 988-90; Pettison 1153-56; Ventry 2218) Testimony illustrative of continuing shipments ?° to 13 dealers who signed new coupons after December 1968 included the following: N. McLaughlin 473-78; R. McLaughlin 495-96; Brown 509-21; ‘Magnano 560-71; 579-82; Pelton 591-95; Butterfield 639-42 ; L. Spitzer 818-28; J. ‘Spitzer 825-29; Swenerton 2205-06 ; Milewski 9207; Christie 2209 ; Udall 2211; Schrillo 2213; Blanchard 9015; Stack 9017, Several of these 13 dealers who had specifically notified ‘Sunshine to discontinue shipping samples continued to receive them. None of the signers of the new coupons who testified specifically articulated the manner in which they interpreted the language purporting to request other seasonal samples as they became available. Nevertheless, the record demonstrates that these individuals thought they were ordering a single shipment and did not understand that they were commiting themselves to receive successive shipments and to return or to pay for them. (N. McLaughlin 474, 489-92; Brown 509-11, 518; Magnano 560, 566, 574~76, 583-86; Pelton 590-91, 598— 601; Butterfield 640-45) 19 Shipments to persons who had previously signed coupons constitute the bulk of Sunshine’s sample kit distribution. In 1970, for example, samples of all-occasion cards were mailed to approximately 10,000 persons, 80 to 85 percent of whom were so-called continuing dealers. The 1970 Christmas sample kit went to more than 20,000 persons, and it may be inferred that the continuing dealers constituted a similarly high percentage of this total. (Ward 1427-30) SUNSHINE ART STUDIOS, INC., ET AL. 857. ;

836 Initial Decision The dealer witnesses not only told about the repeated shipments they had received after submitting to Sunshine either the old coupon or the new coupon, but they also recounted the dunning communications they had received from Sunshine and from Guardian. Although some of the dealers neither returned the cards nor paid for them, others—uncertain of their rights and obligations—remitted payment or returned the cards (Mrs. F. Donahue 911, 918-19; L. Lips 952-55; S. Lips 963-70; E. Darsigny 554).

The. number of instances in which cards were sent despite requests to Sunshine to discontinue such shipments is sufficient to negate the testimony that Sunshine’s policy was to terminate shipments on request (Ward 1421) and also to refute respondents’ argument (RRB 3) that any exceptions to such policy were due to clerical error. The fact that the sworn testimony regarding “stop orders” was not supported by documentation does not require that it be disregarded. It was not . contradicted by respondents.

Persons who signed the old coupon, intending to order only the particular seasonal greeting cards that were the subject of the coupon and of the accompanying advertisement, did not intend thereby to— nor did they—authorize Sunshine to send. successive shipments of cards i in the future. In fact, the old coupon did not in any way put. them on notice that they might be authorizing future shipments. Sunshine’s representatives virtually conceded this (Ward 1423-27, 1559-62, 1572-75 ; Robbins 1948-53), as do respondents’ proposed findings and briefs, with their emphasis on the new coupon. The language of the new coupon that purports to authorize future shipments of other seasonal samples as they become available, does not require a different finding and constitutes no defense to the charges in the complaint. Again, the persons signing such coupons intended to order only the particular seasonal greeting cards that were the subject of the coupon and of the accompanying advertisement. They did not intend thereby to—nor did they—authorize Sunshine to send successive shipments of cards in the future. The language of the new coupon might alert the ultra-careful reader to the fact that he might be authorizing successive shipments, but there is sufficient ambiguity to warrant a finding that the new coupon has the capacity and tendency to mislead and deceive the public as to the obligations a person . might assume by signing the coupon. As stated in the amended complaint (Paragraph Four (2)), a “prospective customer not only indicated that he is requesting present merchandise, the nature of which -is generally known to him, but he is also unknowingly or unwittingly 858 FEDERAL ‘TRADE COMMISSION DECISIONS Initial Decision . 81 FTC.

requesting the forwarding of merchandise, the nature of which j is’ unknown to him, at later dates.”

This finding is particularly applicable in view of the fact that much of Sunshine’s advertising containing such coupons is addressed to children and youths.

Whether shipments subsequent to the first shipment were made: pursuant to the old coupon or to the new coupon, the statements and representations contained in the invoices (Special. Price Bills) accompanying such subsequent shipments and in the reminders and dunning communications dispatched by ‘Sunshine, including the Guardian letters, in which Sunshine requested (or demanded) payment for or return of such shipments, represented, contrary to fact, that:

1. Some contract, ‘agreement, or understanding existed between Sunshine and the recipient of the greeting cards. 2. The recipient of the greeting cards was under an obligation to. pay: for the cards or to return them to Sunshine. 3. Money was ‘due and owing for the unordered greeting cards. Neither of the coupons described. in the foregoing findings constituted a contract, agreement, or understanding whereby the signers authorized Sunshine to. send more than one shipment of greeting cards. Such additional shipments constituted unordered merchandise, and the recipients were not under any obligation to pay for them nor to return them, unless they decided to purchase the cards or to use them—and not even then the applicable law permitted them to use unordered merchandise without payment therefor.” Because of the ambiguous and consequently deceptive nature of the new coupon, its literal language purporting to authorize successive shipments may be disregarded, and shipments by Sunshine pursuant thereto constituted unordered merchandise. Therefore, the statements and representations of Sunshine, as described herein, were false, misleading, and deceptive. On the basis of the foregoing findings and the record as a whole, the conclusory finding is that respondent Sunshine’ s use of. a coupon purporting to authorize future shipments of greeting cards, its practice of sending greeting cards to persons who had not requested them, and its representations in connection with efforts to collect therefor, have had the capacity and tendency to mislead and confuse many Testimony that beginning in 1971 Sunshine sent an advance mailing asking dealers whether samples should be shipped (Ward 1424) was not documented nor otherwise corroborated. (Compare RPF 5, par. n, with CRB 4.) : 12 See infra, pp. 35-37 [pp. 866-68 herein]. The fact that some of the witnesses had used the cards does not absolve Sunshine from its deceptive representations as to others who had not.

‘SUNSHINE ART STUDIOS, INC., ET AL. ‘859 836 ‘Initial ‘Decision persons and to create doubts in their minds as to their legal rights and obligations in respect to such merchandise, and have caused many persons to pay for the merchandise because of the confusion and doubt: so generated. These practices have had the capacity and tendency to harass, inconvenience, intimidate, and coerce persons into purchasing and paying for unordered merchandise sent by Sunshine. B. Collection Practices Recipients of cards from Sunshine or from Junior Sales Club who fail to pay or to return the cards as a result of the dunning communications from each of these respondents have then been sent letters on the letterhead of Guardian Collection Agency, Inc.® Through the use of the name Guardian Collection Agency, Inc., and the text of the letters, respondents have represented that allegedly delinquent accounts have been assigned to an independent, bona fide collection agency and that if payment was not received or if the cards were not returned, Guardian would refer the customer’s account to an attorney for the institution of legal action or such other legal steps as might be necessary to collect the account.

The use of the Guardian letters as a means of collecting delinquent accounts is the only charge against JSC specifically. CX 325 and CX 278 are typical of the Guardian letters utilized by JSC. The first of two Guardian letters used by JSC (CX 3825) begins with the words “TAKE NOTICE THAT” and continues with a statement that Junior Sales Club “has placed your long overdue account with us for IMMEDIATE SETTLEMENT.” It sets forth the details of the transaction, refers to the repeated efforts of JSC to obtain payment or return of the cards, and then states: Our client assumes, therefore, that you have used the cards for your own purposes and has filed an overdue charge with us in the amount of.* * * Next, the letter offers an “additional opportunity to the debtor to pay the amount due” and specifies that the letter is the “final notice to this effect.” It then warns that if payment is not received within a specified number of days, “action may be started by our attorney without further notice.”

The second Guardian letter (CX 278) bears the words “FINAL NOTICE!” The first two paragraphs read as follows: You have failed to settle your LONG OVERDUE ACCOUNT with our client, the Junior Sales Club of America, Springfield, Massachusetts, although we previously wrote you a detailed letter concerning this: important obligation. 18 See footnote 9, supra, p..19 [p. 855 herein]. . 14 CX 325 and CX 278 are on the letterhead of Trans-American Collection Agency, Ine. - Although the name has now been changed to Guardian, the text of the letters is substantially similar.

860 FEDERAL TRADE» COMMISSION “DECISIONS Initial Decision 81 FTE.

Before. taking any legal action. ‘our. client has, authorized. us :to, extend this final opportunity. for you to make immediate settlement. by. sending a@ money order or check in the amount of * * * which will clear your account in full, The letter then reviews the-account and the prior efforts to obtain payment or return of the cards, and it urges immediate settlement of the account to “avoid action by our attorney.” Do Preceded by a series of five communications on the JSC letterhead, Guardian letters are dispatched if the JSC letters fail to produce the desired result. The Guardian letters are sent to about 30 percent of JSC members each year. The dispatch of the letter exemplified by CX 325 reduces the delinquency rate to about. 26 percent, and the letter exemplified by CX 278 brings it down to about 22 percent, Neither JSC nor Guardian takes any further action against the remaining delinquent accounts, which are then written off. The text of the Guardian letter used by Sunshine (as exemplified by CXs 232, 239, 242, 255, and 257) has already been summarized (supra, p. 19 [p. 855 herein]) and need not be repeated here. ‘The elapsed time between Sunshine’s shipment of cards to a dealer and the dispatch of the Guardian collection. letter, when necessary, is usually between 9 and 12 months. As in the case of JSC, if the Guardian device produces no results, there are no- further efforts to collect. Thus, contrary to the representations of respondents, the accounts of persons who receive form letters and notices on the Guardian letterhead have not been assigned to an independent, bona fide collection agency. Although Guardian is a separate corporation duly licensed as a collection agency, it is a wholly-owned subsidiary of Sunshine; it has no employees of its own; and, except for incidental collection efforts on behalf of SLC (and also Windsor, another Robbins family affiliate), its sole function is to disseminate collection letters on behalf of Sunshine and JSC. In essence, it is simply a name used by these respondents for the purpose of attempting to collect allegedly delinquent accounts, and the Guardian letters are processed entirely by Sunshine and JSC employees.

- Until 1969, when the letterhead was modified, Sunshine and JSC heightened the deceptive representation that Guardian was an independent, bona fide collection agency by representing on the Guardian Jetterhead that Guardian was engaged in collections, tracing, credit reports, repossessions, personal calls, and garnishment of wages. Guardian has. never engaged in such activities except for collection efforts on behalf of Sunshine, JSC, and other Robbins family affiliates. Contrary to representations that if allegedly delinquent accounts were not properly. settled, they would be referred to an attorney for ‘SUNSHINE ‘ART STUDIOS, ING., ET AL. - 861: 836: - Initial “Decision institution of legal action, no such steps have ever been taken, nor is such action contemplated. Asa matter of fact, neither Sunshine, JSC, nor Guardian makes any further efforts to collect from persons who fail to settle after receiving the so-called final notice on the Guardian ‘letterhead.

’ Therefore, the statements and representations made by respondents Sunshine, Ji SC, and Guardian, as described in the foregoing findings, were false, misleading, and deceptive.

In defense of the use of the Guardian letters, Sunshine and J SC explained that, as a practical matter, independent collection agencies refused to handle accounts of the minimal monetary value involved in the Sunshine and JSC transactions.

Another defensive fact adduced was that Guardian modified its letterhead ‘in 1969 to eliminate the overt misrepresentation that it was engaged in a variety of activities associated with bona fide, independent collection agencies. (Compare CX 278 with CX267 and CX 268:) (Besides the exhibits cited, other record references inglude Ward 1399; 1436, 1488-92, 1517-28, 1533-40, 1562-63 ; Pray 1713-31, 1765-67, 1875— 78; Robbins 1930-81, 1992-97, 2118-20; Luce 1591-1605 ; CXs 272-79; King 664-82; Ficcardi 696,.707-11; N. Wilson 724-31; Silva 753-57 ; Scott 783-84; O’Brien 792-95, 806-09; F. Donahue 913-14; S. Le- Febvre 937 ; Pettison 1159-62.) C. Refunds for Nondelivery of Merchandise as Ordered The facts respecting the failure of SLC to deliver name-imprinted Christmas cards to thousands of its sales representatives in 1969 are not in dispute. In summary, the evidence shows that in 1969 SLC received such an unexpected number of orders for the name-imprinted cards that it was impossible for SLC to imprint all the orders in time: for pre-Christmas delivery. Between 15,000 and 30,000 orders for name-imprinted cards were filled by the delivery of cards without any names imprinted.*¢ The imprinting problem in 1969 was a one-time occurrence. It had never happened before, and it has not happened since. The record indicates that SLC and Sunshine took all reasonable steps to fill the deluge of orders, which exceeded advance estimates by 20 percent. The 143 Other than possibly three instances relating to bad checks, Guardian has never referred ary Sunshine dealer accounts to attorneys for collection or for the institution of lawsuits. Before 1967, some 30 accounts had been annually referred by Sunshine to an outside collection agency, but these accounts did not involve dealers’ sample kits. (Ward 1533—36) 16 The record is conflicting as to the number of orders delivered without names imprinted. Ryland HE. Robbins estimated that the total was about 15,000 (Tr. 2015-16) ; whereas, the general manager of SLC estimated that it was about 30,000—10 percent of a total of 300,000 orders (Pray 1623-24, 1632-33, 1887-88). These were orders submitted by sales representatives, each involving multiple boxes for a number of customers. 862 FEDERAL TRADE COMMISSION ‘DECISIONS Initial “Decision 81 FTC.

complaint does not question the reason for the nondelivery of the nameimprinted cards but: charges SLC with deceptively failing to advise its sales representatives in advance that their orders would not be filled and failing to offer them a refund. ; ;

The cards without names imprinted were delivered to SLC sales representatives for delivery to their customers, who had submitted prepaid orders for imprinted cards. The record supports the charge (Complaint, Paragraph Twelve) that SLC did not advise these sales representatives in advance that their orders for name-imprinted cards would not be filled,?’ nor did it specifically offer a refund or any price adjustment. Instead, each such order was accompanied by an explanatory letter for each box of cards. The letter expressed regret that the cards did not have names imprinted and explained that this situation resulted from the fact that-the orders received had far exceeded the anticipated: demand and that there was also a “drastic shortage of skilled labor.” The letter suggested. that customers “give these cards that extra personal touch” by signing the cards themselves. ‘The letter then stated: So :

However, we want to emphasize that. we are sincere in our willingness. to stand’ behind our guarantee to: give you complete satisfaction. (CX 333) This was intended as a reference to the term “Satisfaction Guaranteed” prominently displayed on the inside front cover of the sample album (RX 30) that sales representatives were supposed to show to their customers.

Many of the sales representatives, as well as many of their customers, did accept the cards without names imprinted. However, a substantial number of sales representatives, and also some of their customers, complained to SLC, to publications in which SLC advertising had appeared, to Better Business Bureaus, and to law enforcement agencies. To every such complaint that it received, directly or indirectly, SLC responded by offering a cash refund of $1 for each box of cards or a full cash refund (including return postage) if the unwanted cards were returned.

Although one witness testified that she complained to SLC but received no reply (Prentice 1035-43; CX 455 A~B), the evidence warrants a finding that SLC satisfactorily adjusted all the complaints it received. However, the gravamen of the charge against SLC is that it failed to offer its sales representatives a refund on or before delivery of the cards. And, contrary to respondents’ contentions, the reference 17 The evidence indicates that the timing problem was such as to make it impracticable to so notify SLC sales representatives and then to. await word of their-decision on acceptance of the cards or election of a refund (Robbins 2020-21, 2029). SUNSHINE. ART. STUDIOS, INC., ET AL. 863, 836 . Initial. Decision to the guarantee of “complete satisfaction” in the explanatory letter (CX 833) did not constitute a refund offer. ; Although some complaining customers cited the guarantee j in seeking refunds (CXs 451, 455 A-B), it is evident that a substantial number of sales representatives, as well as their customers, did not understand that SLC was offering to refund their money (M. Geehan 1019; D. Geehan 1024-25, 1029-32; Cronin 1047-60; P. DiPietro 1115-16; M. DiPietro 1136-48 ; CXs 451, 455 A-B).

Against this background, it is significant that SLC wrote only 4,000 or 5,000 refund checks (Robbins 2015) whereas between 15,000 and 30,000 orders were not properly filled.1® The assumption by respondents that noncomplaining customers “understood the situation and accepted the cards” (Robbins 2027) is simply not tenable. , Once SLC knew that it would be unable to deliver the name-imprinted cards to certain sales representatives, it was under a duty to 5 1 2 5 1 2 651 1347 80 42 96.993736 gives 1 2 5 1 3 746 1348 95 43 97.006447 these5 1 2 5 1 4 858 1347 86 33 96.704300 sales5 1 2 5 1 5 961 1341 284 47 96.792900 representatives5 1 2 5 1 6 1265 1346 59 32 95.898186 ands 1 2 5 1 7 1343 1346 97 32 95.898186 theirs 1 2 5 1 8 1456 1349 185 29 96.899406 customers5 1 2 5 1 9 1656 1346 59 31 97.008217 thes 1 2 5 1 10 1732 1344 120 42 96.580391 options 1 2 5 1 11 1867 1344 40 33 93.237663 of5 1 2 5 1 12 1924 1355 52 21 93.056664 ac-4 1 2 5 2 0 650 1395 1326 48 -1 5 1 2 5 2 1 650 1398 141 45 92.054535 cepting5 1 2 5 2 2 806 1398 60 32 97.015656 thes 1 2 5 2 3 883 1398 100 32 96.381554 cards5 1 2 5 2 4 998 1408 40 21 96.381554 or5 1 2 5 2 5 1054 1397 175 41 96.976257 receiving5 1 2 5 2 6 1244 1408 20 21 96.942734 a5 1 2 5 2 7 1281 1397 68 32 96.336029 full5 1 2 5 2 8 1366 1397 80 32 96.299347 cash5 1 2 5 2 9 1462 1397 137 31 96.882263 refund.5 1 2 5 2 10 1618 1396 44 32 96.428551 In5 1 2 5 2 11 1678 1407 69 30 96.446548 any5 1 2 5 2 12 1758 1398 116 38 96.365967 event,5 1 2 5 2 13 1889 1395 87 33 96.520287 SLC4 1 2 5 3 0 651 1443 1326 47 -1 5 1 2 5 3 1 651 1443 70 38 96.929893 was5 1 2 5 3 2 740 1448 175 42 96.144730 obligated5 1 2 5 3 3 932 1452 37 28 96.246552 to5 1 2 5 3 4 988 1449 100 31 96.883537 makes 1 2 5 3 5 1104 1448 92 32 95.966904 clears 1 2 5 3 6 1215 1447 92 32 96.113419 from5 1 2 5 3 7 1325 1448 60 31 96.057030 thes 1 2 5 3 8 1402 1450 112 29 96.370171 outset5 1 2 5 3 9 1531 1447 58 32 92.795464 thes 1 2 5 3 10 1600 1450 105 29 92.795464 exact5 1 2 5 3 11 1721 1448 124 30 70.485268 nature5 1 2 5 3 12 1861 1445 40 33 96.363716 of5 1 2 5 3 13 1918 1446 59 31 97.013359 thea 1 2 5 4 0 649 1494 1330 48 -1 5 1 2 5 4 1 649 1503 187 39 96.392372 guarantees 1 2 5 4 2 859 1499 39 32 96.614975 of5 1 2 5 4 3 919 1499 70 32 93.265923 full5 1 2 5 4 4 1009 1497 397 42 92.820435 satisfaction—that5 1 2 5 4 5 1359 1490 52 56 95.853752 is,5 1 2 5 4 6 1425 1498 78 32 96.890091 that5 1 2 5 4 7 1523 1500 186 30 96.734474 customers5 1 2 5 4 8 1728 1494 114 44 96.119865 might5 1 2 5 4 9 1861 1499 118 38 96.119865 accept4 1 2 5 5 0 649 1543 1327 47 -1 5 1 2 5 5 1 649 1551 61 31 96.781876 thes 1 2 5 5 2 729 1550 100 32 96.621254 cards5 1 2 5 5 3 847 1549 70 32 96.887627 ands 1 2 5 5 4 936 1548 129 33 96.800743 receives 1 2 5 5 5 1084 1543 22 38 94.645126 a5 1 2 5 5 6 1123 1548 96 42 94.645126 prices 1 2 5 5 7 1237 1548 211 42 96.323219 adjustments 1 2 5 5 8 1465 1545 40 35 96.949844 of5 1 2 5 5 9 1522 1548 40 38 96.321388 $15 1 2 5 5 10 1581 1558 62 31 96.512215 pers 1 2 5 5 11 1659 1548 68 32 96.512215 box5 1 2 5 5 12 1744 1558 40 21 96.843933 or5 1 2 5 5 13 1800 1547 79 32 96.312775 that5 1 2 5 5 14 1894 1546 82 42 96.207573 they4 1 2 5 6 0 650 1593 1326 49 -1 5 1 2 5 6 1 650 1600 114 42 96.542549 might5 1 2 5 6 2 784 1603 120 29 96.538055 returns 1 2 5 6 3 921 1600 60 32 96.964752 thes 1 2 5 6 4 1000 1599 100 33 96.707207 cards5 1 2 5 6 5 1120 1599 70 32 96.302216 ands 1 2 5 6 6 1209 1599 129 32 96.729378 receives 1 2 5 6 7 1357 1610 20 21 96.971733 a5 1 2 5 6 8 1397 1599 69 32 96.934319 full5 1 2 5 6 9 1485 1599 80 32 96.898964 cash5 1 2 5 6 10 1585 1598 136 32 96.499611 refund.5 1 2 5 6 11 1742 1598 39 31 95.183144 If5 1 2 5 6 12 1796 1593 91 38 96.405151 SLC5 1 2 5 6 13 1906 1593 70 36 96.380783 was4 1 2 5 7 0 650 1647 1326 46 -1 5 1 2 5 7 1 650 1651 106 42 96.785873 ready5 1 2 5 7 2 768 1650 70 33 96.481842 ands 1 2 5 7 3 848 1650 136 42 96.714638 willing5 1 2 5 7 4 994 1653 37 29 95.210152 to5 1 2 5 7 5 1042 1650 100 31 96.934425 makes 1 2 5 7 6 1153 1650 145 32 96.392349 refunds5 1 2 5 7 7 1307 1653 38 28 96.815315 to5 1 2 5 7 8 1357 1650 47 31 95.129257 all5 1 2 5 7 9 1416 1649 206 32 96.469101 dissatisfied5 1 2 5 7 10 1633 1648 184 42 96.469101 recipients5 1 2 5 7 11 1827 1647 39 33 97.012810 of5 1 2 5 7 12 1876 1647 100 33 96.925430 cards4 1 2 5 8 0 649 1698 1327 44 -1 5 1 2 5 8 1 649 1702 77 32 96.929138 that5 1 2 5 8 2 745 1701 62 32 95.185776 did5 1 2 5 8 3 824 1705 61 28 95.185776 not5 1 2 5 8 4 903 1704 88 29 96.090843 meets 1 2 5 8 5 1008 1701 195 31 95.704575 customers’5 1 2 5 8 6 1222 1699 258 43 96.749779 specifications,5 1 2 5 8 7 1498 1699 29 32 96.925446 it5 1 2 5 8 8 1544 1699 100 32 96.632286 could5 1 2 5 8 9 1660 1700 88 31 96.675125 have5 1 2 5 8 10 1765 1698 70 32 96.270973 ands 1 2 5 8 11 1852 1698 124 32 96.294945 should4 1 2 5 9 0 648 1750 942 42 -1 5 1 2 5 9 1 648 1753 87 32 95.553429 have5 1 2 5 9 2 744 1752 77 33 95.553429 said5 1 2 5 9 3 830 1763 37 21 96.459579 so5 1 2 5 9 4 878 1751 145 33 93.289803 without5 1 2 5 9 5 1031 1751 239 41 92.105263 equivocation5 1 2 5 9 6 1279 1762 40 20 93.216713 or5 1 2 5 9 7 1329 1750 261 32 91.428368 dissimulation.3 1 2 6 0 0 693 1799 1283 42 -1 4 1 2 6 1 0 693 1799 1283 42 -1 5 1 2 6 1 1 693 1803 149 32 96.805794 Because5 1 2 6 1 2 860 1802 39 31 96.708969 of5 1 2 6 1 3 916 1802 59 31 96.619179 thes 1 2 6 1 4 994 1801 128 32 96.072845 failures 1 2 6 1 5 1139 1801 40 32 96.822639 of5 1 2 6 1 6 1197 1801 86 33 96.682724 SLC5 1 2 6 1 7 1300 1804 37 29 96.068291 to5 1 2 6 1 8 1353 1801 101 32 96.139381 makes 1 2 6 1 9 1470 1801 93 32 96.139381 these5 1 2 6 1 10 1580 1800 138 41 96.047592 options5 1 2 6 1 11 1734 1800 125 31 96.069420 known5 1 2 6 1 12 1876 1803 37 28 96.212395 to5 1 2 6 1 13 1930 1799 46 32 96.212395 its3 1 2 7 0 0 629 1851 1345 399 -1 4 1 2 7 1 0 629 1851 1344 43 -1 5 1 2 7 1 1 629 1854 107 31 80.161453 _sales5 1 2 7 1 2 753 1852 282 42 96.649162 representatives5 1 2 7 1 3 1053 1852 69 32 96.700905 ands 1 2 7 1 4 1138 1851 91 42 96.515205 theirs 1 2 7 1 5 1245 1855 194 37 96.685257 customers,5 1 2 7 1 6 1455 1863 105 30 96.641777 many5 1 2 7 1 7 1577 1851 205 32 96.588448 dissatisfied5 1 2 7 1 8 1797 1851 86 31 93.298660 sales5 1 2 7 1 9 1899 1860 74 30 92.918892 rep-4 1 2 7 2 0 649 1900 1325 45 -1 5 1 2 7 2 1 649 1903 221 33 91.194695 resentatives5 1 2 7 2 2 886 1903 69 32 96.169884 ands 1 2 7 2 3 969 1914 104 31 96.572502 many5 1 2 7 2 4 1088 1902 40 33 96.899078 of5 1 2 7 2 5 1143 1902 92 32 96.610504 theirs 1 2 7 2 6 1250 1906 185 28 96.650200 customers5 1 2 7 2 7 1449 1902 78 32 96.701828 who5 1 2 7 2 8 1541 1913 88 20 96.433304 were5 1 2 7 2 9 1643 1901 207 32 95.993439 dissatisfied5 1 2 7 2 10 1864 1900 110 33 96.752304 failed4 1 2 7 3 0 649 1951 1325 45 -1 5 1 2 7 3 1 649 1959 36 28 96.679825 to5 1 2 7 3 2 697 1953 174 43 96.769508 complains 1 2 7 3 3 883 1957 37 29 96.100601 to5 1 2 7 3 4 933 1953 97 41 95.907043 SLC,5 1 2 7 3 5 1042 1953 147 42 96.053970 directly5 1 2 7 3 6 1201 1965 40 20 96.901878 or5 1 2 7 3 7 1252 1953 194 41 96.054901 indirectly,5 1 2 7 3 8 1459 1953 69 31 96.601242 ands 1 2 7 3 9 1539 1953 80 31 96.601242 thus5 1 2 7 3 10 1630 1963 88 21 96.513107 were5 1 2 7 3 11 1731 1951 122 33 96.467224 denied5 1 2 7 3 12 1865 1951 109 33 96.948936 either4 1 2 7 4 0 649 2001 1324 46 -1 5 1 2 7 4 1 649 2016 21 21 95.229614 a5 1 2 7 4 2 687 2005 93 42 96.312111 prices 1 2 7 4 3 798 2005 211 41 96.598297 adjustments 1 2 7 4 4 1024 2015 40 20 96.724297 or5 1 2 7 4 5 1081 2015 20 21 96.885460 a5 1 2 7 4 6 1118 2004 69 32 96.544273 full5 1 2 7 4 7 1204 2004 80 31 96.840584 cash5 1 2 7 4 8 1301 2004 136 32 96.639709 refund.5 1 2 7 4 9 1456 2004 85 31 96.888817 This5 1 2 7 4 10 1559 2003 129 32 96.579880 failures 1 2 7 4 11 1703 2014 45 21 96.375244 on5 1 2 7 4 12 1763 2003 60 32 96.887901 thes 1 2 7 4 13 1838 2005 81 39 96.295601 parts 1 2 7 4 14 1934 2001 39 33 96.993179 of4 1 2 7 5 0 649 2053 1325 43 -1 5 1 2 7 5 1 649 2056 86 34 95.810143 SLC5 1 2 7 5 2 754 2056 57 32 96.290489 led5 1 2 7 5 3 829 2055 45 33 96.596077 its5 1 2 7 5 4 891 2055 86 32 96.292809 sales5 1 2 7 5 5 994 2054 294 42 96.360786 representatives,5 1 2 7 5 6 1307 2065 36 21 96.627808 as5 1 2 7 5 7 1360 2055 77 31 96.627808 wells 1 2 7 5 8 1456 2064 37 22 95.569023 as5 1 2 7 5 9 1509 2053 92 33 95.569023 theirs 1 2 7 5 10 1616 2057 195 36 96.342560 customers,5 1 2 7 5 11 1827 2053 74 32 97.002930 into5 1 2 7 5 12 1916 2053 58 32 96.298805 thea 1 2 7 6 0 648 2103 1324 44 -1 5 1 2 7 6 1 648 2106 170 33 96.661934 mistaken5 1 2 7 6 2 833 2106 107 32 96.236870 beliefs 1 2 7 6 3 954 2106 78 32 96.722015 that5 1 2 7 6 4 1047 2106 82 41 96.326904 they5 1 2 7 6 5 1145 2105 72 32 96.181015 had5 1 2 7 6 6 1232 2116 45 21 96.002014 no5 1 2 7 6 7 1293 2105 114 32 96.002014 choices 1 2 7 6 8 1423 2105 62 32 96.639755 but5 1 2 7 6 9 1500 2108 37 29 96.794151 to5 1 2 7 6 10 1553 2107 117 38 96.250275 accepts 1 2 7 6 11 1684 2104 59 32 96.968826 thes 1 2 7 6 12 1759 2104 100 32 93.222488 cards5 1 2 7 6 13 1873 2103 99 33 93.222488 with-4 1 2 7 7 0 648 2154 1325 44 -1 5 1 2 7 7 1 648 2161 60 29 96.870605 outs 1 2 7 7 2 731 2168 116 21 95.669197 names5 1 2 7 7 3 863 2156 197 42 79.251900 ‘imprinted5 1 2 7 7 4 1083 2156 69 32 96.399948 ands 1 2 7 7 5 1173 2156 78 32 96.590797 that5 1 2 7 7 6 1272 2156 82 42 96.406189 they5 1 2 7 7 7 1377 2166 87 22 96.753883 were5 1 2 7 7 8 1486 2159 61 29 96.643776 not5 1 2 7 7 9 1567 2154 144 34 96.396454 entitled5 1 2 7 7 10 1731 2158 36 29 96.081985 to5 1 2 7 7 11 1790 2166 68 30 96.081985 any5 1 2 7 7 12 1879 2154 94 41 96.559631 price4 1 2 7 8 0 646 2206 498 44 -1 5 1 2 7 8 1 646 2208 211 42 96.524727 adjustments 1 2 7 8 2 868 2219 39 21 96.626648 or5 1 2 7 8 3 916 2208 81 32 96.179543 cash5 1 2 7 8 4 1006 2206 138 33 96.427437 refund.3 1 2 8 0 0 641 2256 1333 298 -1 4 1 2 8 1 0 688 2256 1286 44 -1 5 1 2 8 1 1 688 2258 246 42 96.369957 Accordingly,5 1 2 8 1 2 952 2258 59 32 96.543060 thes 1 2 8 1 3 1028 2257 176 32 96.762306 examiners 1 2 8 1 4 1221 2256 89 33 96.607521 finds5 1 2 8 1 5 1328 2257 78 32 96.286118 that5 1 2 8 1 6 1423 2257 59 32 96.482262 thes 1 2 8 1 7 1499 2256 111 33 96.198563 notices 1 2 8 1 8 1629 2256 270 42 96.307281 accompanying5 1 2 8 1 9 1915 2256 59 31 96.905838 thea 1 2 8 2 0 647 2307 1325 43 -1 5 1 2 8 2 1 647 2310 99 32 96.617767 cards5 1 2 8 2 2 764 2320 70 21 96.850815 was5 1 2 8 2 3 852 2309 98 41 96.832687 false,5 1 2 8 2 4 968 2307 216 43 96.680214 misleading,5 1 2 8 2 5 1201 2307 70 32 96.555008 ands 1 2 8 2 6 1288 2307 175 43 96.400314 deceptive5 1 2 8 2 7 1479 2307 38 32 96.821823 in5 1 2 8 2 8 1534 2307 156 43 96.490211 creating5 1 2 8 2 9 1705 2307 82 32 96.655861 such5 1 2 8 2 10 1804 2307 168 32 96.490532 mistaken4 1 2 8 3 0 647 2357 1326 45 -1 5 1 2 8 3 1 647 2360 114 33 96.657257 belief.5 1 2 8 3 2 793 2360 152 42 96.582100 (Records 1 2 8 3 3 969 2358 190 33 96.741310 references5 1 2 8 3 4 1183 2358 38 32 96.938881 in5 1 2 8 3 5 1245 2358 158 33 96.339752 additions 1 2 8 3 6 1425 2362 37 28 95.797699 to5 1 2 8 3 7 1485 2358 96 32 96.582291 those5 1 2 8 3 8 1605 2358 90 32 96.220108 cited5 1 2 8 3 9 1718 2357 138 33 96.631050 includes 1 2 8 3 10 1878 2358 95 41 96.834335 Pray4 1 2 8 4 0 648 2407 1323 45 -1 5 1 2 8 4 1 648 2412 155 39 95.198494 1623-33,5 1 2 8 4 2 827 2412 156 40 94.592766 1662-81,5 1 2 8 4 3 1007 2409 198 41 96.580009 1698-1700,5 1 2 8 4 4 1230 2409 155 41 94.447922 1831-87,5 1 2 8 4 5 1409 2411 203 39 96.140678 1886-1904;5 1 2 8 4 6 1639 2408 154 33 96.615616 Robbins5 1 2 8 4 7 1816 2407 155 42 95.950165 2015-87,4 1 2 8 5 0 641 2457 1331 46 -1 5 1 2 8 5 1 641 2464 163 39 88.111359 2048-53;5 1 2 8 5 2 820 2461 110 34 96.468987 Webb5 1 2 8 5 3 948 2460 160 42 94.257629 1063-87;5 1 2 8 5 4 1126 2460 159 34 96.706795 Johnson5 1 2 8 5 5 1300 2457 158 45 87.935059 298-324,5 1 2 8 5 6 1474 2462 136 39 92.720970 335-48,5 1 2 8 5 7 1626 2461 141 40 93.262375 359-61;5 1 2 8 5 8 1787 2460 84 34 0.000000 CXs5 1 2 8 5 9 1888 2462 84 30 77.387573 334-4 1 2 8 6 0 645 2510 1326 44 -1 5 1 2 8 6 1 645 2515 72 39 91.260361 339,5 1 2 8 6 2 728 2515 158 39 82.036423 451-453,5 1 2 8 6 3 895 2515 61 30 92.993454 4555 1 2 8 6 4 968 2511 97 41 56.653675 A-B,5 1 2 8 6 5 1078 2513 75 39 86.272827 460,5 1 2 8 6 6 1165 2523 73 29 86.272827 461;5 1 2 8 6 7 1252 2511 116 32 92.790688 Debra5 1 2 8 6 8 1378 2512 143 30 92.497803 Heroux5 1 2 8 6 9 1533 2512 134 39 67.568054 842-49,5 1 2 8 6 10 1678 2512 124 30 88.974991 852-535 1 2 8 6 11 1813 2523 7 28 88.974991 ;5 1 2 8 6 12 1832 2510 139 32 96.486191 Donald2 1 3 0 0 0 646 2583 1327 73 -1 3 1 3 1 0 0 646 2583 1327 73 -1 4 1 3 1 1 0 678 2583 1295 43 -1 5 1 3 1 1 1 678 2597 18 14 76.227936 185 1 3 1 1 2 706 2597 106 21 96.470451 Neither5 1 3 1 1 3 826 2597 45 20 96.485985 thes 1 3 1 1 4 883 2596 106 21 96.759155 numbers 1 3 1 1 5 1002 2596 27 21 96.535019 of5 1 3 1 1 6 1042 2583 154 43 96.507980 complaints5 1 3 1 1 7 1212 2596 112 21 96.701492 received5 1 3 1 1 8 1339 2602 47 15 96.858955 nor5 1 3 1 1 9 1398 2596 44 21 96.208397 thes 1 3 1 1 10 1456 2597 67 20 96.080276 totals 1 3 1 1 11 1536 2596 107 21 96.080276 amounts 1 3 1 1 12 1655 2596 29 21 96.409363 of5 1 3 1 1 13 1696 2596 106 21 96.736855 refunds5 1 3 1 1 14 1815 2601 53 16 95.923279 was5 1 3 1 1 15 1882 2596 91 21 96.451538 known4 1 3 1 2 0 646 2630 465 26 -1 5 1 3 1 2 1 646 2632 82 24 87.775681 {Pray5 1 3 1 2 2 742 2631 81 25 93.295067 1699;5 1 3 1 2 3 836 2630 120 22 91.523331 Brunsell5 1 3 1 2 4 970 2630 141 26 63.696739 1584-85). , Initial Decision 81 FTC.

Heroux 856-61; McGinnis 871-74, 877; W. Milford 996-97, 1002-08 ; D. Milford 1006-09. ) D. Use of the Word “Free” - In its. published advertising since 1966 and j in its sales literature, including albums displaying sample cards, SLC has represented that. the imprinting of names on Christmas cards was free. SLC’s advertisements have emphasized the legend “Name: Imprinted Free,” This representation has also been featured.on the cover of the sample album. (CXs 141, 150, 151,153, 155,729 A-B; RX 30) The inside front cover of the sample album (RX 80) —which was for the information of the ultimate customer—stated that “Cards are the same price, with or without name imprinted.” And sales literature advised the juvenile sales person to explain to customers that the price per box included the printed name (CX 729 B).. oo Just as these facts are beyond dispute, so-is it undisputed that: 1. For each Christmas season since .1966, SLC has solicited ‘sales and sold its Christmas cards at one fixed. price per box,? although prices may have changed from year to year: 2. SLC has never established a different.price for Christmas cards ordered. without names imprinted, nor has it established. a .separate price for the service of imprinting names on the cards. 3. For more than 10 years, all Christmas cards, whether impr inted with names or not, have been sold for the same price as that advertised for the name- imprinted cards in the advertising and sales literature of SLC. In other words, there was no extra charge or additional cost for the name-imprinting.”

4. There have been “many orders for cards without the names.”. (Pray 1636-38, 1652-58, 1769-71, 1893-33, 1880-83, 1886-87; Robbins 2031) Complaint counsel made no real effort to prove that the “free” offer deceived either the sales representatives or their customers, and they have cited no testimony to support this aspect of the charge. Instead, they have relied on a per se theory (CPF 34; CB 32-34). However, there was some testimony bearing on the question of public understanding of the representation that names were imprinted free on the Christmas cards sold by SLC:

The offer of free name-imprinting “enticed” the mother of one SLC sales representative (D. Geehan 1021). Another mother bought the cards from her son “primarily because the printing was free.” De- % The number of cards in a box varied.

20 An additional charge was made for more than two lines, but this limitation is not in issue.

‘SUNSHINE ART STUDIOS, INC., ET AL. 865 836 Initial Decision scribing herself as “being of a lazy nature” she said that it was the “free imprinting” that “sold” her (M. DiPietro 1136). One SLC sales representative understood that the imprinting of names was “free,” and he so advised his customers (P. DiPietro 1121, 1126). Two of his customers understood that the imprinting was included in the price, but one of them did not know that nonimprinted cards were being offered at the same price (Prentice 1035; Cronin 1045-46, 1053-54, 1057). Other witnesses did not specifically address themselves to the question. , This proves that the word “free” still has sales appeal, despite growing consumer skepticism about such advertising claims. It demonstrates too that customers understood that “free” imprinting meant : what SLC said it. meant—that the cards were the same price with or without names imprinted (RX 30) or that the price per box included the printed name (CX 729B). ;

Complaint counsel are in error when they contend (CPF 31, CB 29) that SLC “has never established a separate regular price for Christmas cards ordered without name imprints.” And’ they confess such error when, in the same paragraph of CPF 31, they state: All Christmas cards, whether name imprinted or not, are sold for the price advertised for the name imprinted cards. * * * : Thus, SLC has established a separate regular price for Christmas cards ordered without name imprints, but it is no different from the price for Christmas cards ordered with name imprints. The nameimprinting is “free” to the customer.

The representations of SLC as to “free” imprinting were not false, misleading, or deceptive.

JIT. Summary and Analysis Most of the issues posed in this proceeding have been essentially resolved by the foregoing findings of fact, but this summary and analysis will serve to indicate the legal principles upon which the examiner has relied and thus will satisfy the requirement (Rule 3.51(b)) that this initial decision shall contain a statement of the “reasons or basis” for the findings and conclusions. A. Unordered Merchandise and Dunning Communications One of the principal legal issues is whether respondent Sunshine has engaged in the practice of shipping unordered merchandise and subsequently misleading and confusing the recipients as to their rights and obligations with respect to such merchandise. The answer to this question turns on the further question whether coupons or similar 866. FEDERAL TRADES 1 1 1 1 4 1361 412 207 59 96.097015 COMMISSIONS 1 1 1 1 5 1592 419 207 43 90.204681 “DECISIONS4 1 1 1 2 0 1235 496 837 40 -1 5 1 1 1 2 1 1235 499 4 4 0.000000 '5 1 1 1 2 2 1278 496 103 40 71.330833 ‘Initials 1 1 1 2 3 1393 497 145 39 93.733322 Decisions 1 1 1 2 4 1919 506 42 42 94.071510 815 1 1 1 2 5 1972 500 100 30 57.031612 FEC.2 1 2 0 0 0 743 562 1350 1893 -1 3 1 2 1 0 0 745 562 1327 168 -1 4 1 2 1 1 0 745 562 1327 71 -1 5 1 2 1 1 1 745 575 102 53 96.876076 orders 1 2 1 1 2 860 562 111 71 96.865616 forms5 1 2 1 1 3 982 570 82 53 94.192238 that5 1 2 1 1 4 1073 566 72 58 96.649780 had5 1 2 1 1 5 1157 569 85 62 93.452950 been5 1 2 1 1 6 1255 578 120 48 96.678963 signed5 1 2 1 1 7 1387 583 46 46 96.851044 by5 1 2 1 1 8 1447 582 61 32 96.957718 thes 1 2 1 1 9 1519 567 183 56 10.310989 recipients5 1 2 1 1 10 1713 572 91 40 96.193756 took5 1 2 1 1 11 1808 573 62 48 96.957146 thes 1 2 1 1 12 1880 569 192 51 96.465080 shipments4 1 2 1 2 0 747 629 1324 51 -1 5 1 2 1 2 1 747 641 61 30 96.220932 outs 1 2 1 2 2 829 638 39 32 96.220932 of5 1 2 1 2 3 887 638 60 32 97.011200 thes 1 2 1 2 4 967 641 160 39 96.238197 category5 1 2 1 2 5 1148 629 49 39 95.842407 of5 1 2 1 2 6 1209 635 198 33 95.776360 unordered5 1 2 1 2 7 1421 630 237 41 96.602852 merchandise5 1 2 1 2 8 1678 627 69 35 96.834679 ands 1 2 1 2 9 1767 631 88 31 94.169167 thus:5 1 2 1 2 10 1870 626 201 36 96.586945 authorized4 1 2 1 3 0 747 680 1188 53 -1 5 1 2 1 3 1 747 677 172 45 96.833252 Sunshine5 1 2 1 3 2 933 691 38 29 96.333160 to5 1 2 1 3 3 987 688 77 32 96.333160 seeks 1 2 1 3 4 1080 681 164 49 96.443802 payments 1 2 1 3 5 1260 679 58 39 96.898636 for5 1 2 1 3 6 1333 696 40 21 96.562119 or5 1 2 1 3 7 1388 683 119 33 96.687241 returns 1 2 1 3 8 1523 683 40 33 96.939117 of5 1 2 1 3 9 1577 682 49 51 96.904488 its5 1 2 1 3 10 1637 677 194 48 96.691925 greetings5 1 2 1 3 11 1827 680 108 44 96.682053 cards:3 1 2 2 0 0 745 730 1327 507 -1 4 1 2 2 1 0 762 730 1310 49 -1 5 1 2 2 1 1 762 764 2 3 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2310 59 33 96.356628 thes 1 2 4 14 5 1195 2309 115 32 96.701065 initials 1 2 4 14 6 1321 2308 184 42 95.279053 shipment.3 1 2 5 0 0 751 2354 1323 101 -1 4 1 2 5 1 0 790 2354 1284 50 -1 5 1 2 5 1 1 790 2363 74 32 96.525925 Thes 1 2 5 1 2 880 2373 58 22 96.835869 uses 1 2 5 1 3 952 2362 46 42 97.014832 by5 1 2 5 1 4 1015 2361 171 34 96.777100 Sunshine5 1 2 5 1 5 1201 2360 40 32 96.999565 of5 1 2 5 1 6 1255 2360 59 32 96.727737 thes 1 2 5 1 7 1326 2370 74 22 96.679062 news 1 2 5 1 8 1416 2368 134 31 96.576843 coupons 1 2 5 1 9 1564 2357 92 33 96.782967 since5 1 2 5 1 10 1670 2355 185 34 96.752472 December5 1 2 5 1 11 1870 2357 82 30 96.934319 19685 1 2 5 1 12 1967 2354 107 32 96.841202 raises4 1 2 5 2 0 751 2404 1323 51 -1 5 1 2 5 2 1 751 2425 21 21 96.903198 a5 1 2 5 2 2 794 2414 137 32 96.531555 furthers 1 2 5 2 3 953 2413 165 42 96.700150 question,5 1 2 5 2 4 1139 2412 63 33 96.824066 but5 1 2 5 2 5 1220 2411 89 32 96.824066 with5 1 2 5 2 6 1329 2411 59 32 96.568268 thes 1 2 5 2 7 1409 2420 93 22 96.215012 same5 1 2 5 2 8 1522 2407 203 34 96.507126 conclusion.5 1 2 5 2 9 1747 2407 76 32 96.679993 Thes 1 2 5 2 10 1843 2406 170 43 96.694649 languages 1 2 5 2 11 2033 2404 41 33 96.932648 of2 1 3 0 0 0 748 2485 1341 238 -1 3 1 3 1 0 0 749 2485 1328 72 -1 4 1 3 1 1 0 779 2485 1298 37 -1 5 1 3 1 1 1 779 2498 83 20 66.875412 21The5 1 3 1 1 2 883 2497 97 25 95.895576 samples 1 3 1 1 3 1000 2497 76 21 95.588020 boxes5 1 3 1 1 4 1098 2496 113 21 96.891594 referred5 1 3 1 1 5 1233 2496 26 21 95.393578 to5 1 3 1 1 6 1281 2500 65 16 96.117271 were5 1 3 1 1 7 1367 2496 46 20 96.924019 not5 1 3 1 1 8 1435 2494 92 26 96.792084 simply5 1 3 1 1 9 1548 2494 41 21 96.878517 for5 1 3 1 1 10 1609 2492 101 26 96.221695 displays 1 3 1 1 11 1731 2497 28 16 96.356071 or5 1 3 1 1 12 1780 2491 145 25 95.722191 inspections 1 3 1 1 13 1946 2491 45 21 96.519501 but5 1 3 1 1 14 2009 2485 68 27 93.458778 were4 1 3 1 2 0 749 2531 276 26 -1 5 1 3 1 2 1 749 2532 121 25 96.461029 designed5 1 3 1 2 2 883 2533 26 20 96.420471 to5 1 3 1 2 3 923 2532 30 21 96.150894 be5 1 3 1 2 4 963 2531 62 21 96.108269 sold.3 1 3 2 0 0 748 2558 1341 165 -1 4 1 3 2 1 0 781 2558 1293 33 -1 5 1 3 2 1 1 781 2566 19 13 20.866837 225 1 3 2 1 2 811 2566 52 25 20.866837 See,5 1 3 2 1 3 881 2571 15 20 92.703773 p5 1 3 2 1 4 922 2564 31 21 93.250191 215 1 3 2 1 5 976 2565 35 25 90.978622 [p.5 1 3 2 1 6 1030 2564 46 22 96.492554 8585 1 3 2 1 7 1094 2563 113 26 83.124374 herein],5 1 3 2 1 8 1225 2568 85 19 83.938293 supra.5 1 3 2 1 9 1328 2563 132 24 96.277840 However,5 1 3 2 1 10 1479 2561 168 26 96.509949 respondents5 1 3 2 1 11 1666 2560 97 21 96.091362 retreat5 1 3 2 1 12 1781 2560 27 20 96.091362 to5 1 3 2 1 13 1827 2564 16 15 96.880371 a5 1 3 2 1 14 1861 2558 75 21 96.559601 claims 1 3 2 1 15 1955 2558 59 23 96.318810 that5 1 3 2 1 16 2031 2559 43 21 96.533409 old4 1 3 2 2 0 749 2592 1340 31 -1 5 1 3 2 2 1 749 2604 98 19 96.833199 coupons 1 3 2 2 2 868 2599 99 21 96.458145 dealers5 1 3 2 2 3 988 2598 55 21 96.853783 who5 1 3 2 2 4 1066 2599 54 20 94.126732 sold5 1 3 2 2 5 1142 2602 69 16 94.126732 some5 1 3 2 2 6 1232 2597 75 20 96.100166 cards5 1 3 2 2 7 1328 2597 51 20 96.128014 ands 1 3 2 2 8 1400 2596 55 20 95.765465 who5 1 3 2 2 9 1477 2601 45 16 95.765465 ares 1 3 2 2 10 1543 2594 54 22 96.185661 still5 1 3 2 2 11 1617 2599 32 15 93.295227 on5 1 3 2 2 12 1672 2592 151 22 92.213707 Sunshine’s5 1 3 2 2 13 1843 2593 46 21 96.276802 lists 1 3 2 2 14 1909 2593 28 21 96.276802 of5 1 3 2 2 15 1957 2593 132 24 91.898033 samples,5 1 3 2 2 16 2080 2588 11 39 60.274769 -4 1 3 2 3 0 748 2626 1329 30 -1 5 1 3 2 3 1 748 2633 117 20 96.046074 assumed5 1 3 2 3 2 886 2632 162 21 95.891258 contractual5 1 3 2 3 3 1068 2632 155 24 96.166641 obligations5 1 3 2 3 4 1243 2630 31 25 96.668983 by5 1 3 2 3 5 1294 2630 87 21 96.172958 virtues 1 3 2 3 6 1399 2630 28 20 96.755020 of5 1 3 2 3 7 1447 2635 15 15 96.434532 a5 1 3 2 3 8 1483 2634 89 16 96.299049 courses 1 3 2 3 9 1591 2629 27 20 96.288399 of5 1 3 2 3 10 1638 2628 102 24 96.288399 dealings 1 3 2 3 11 1759 2627 70 21 96.659134 after5 1 3 2 3 12 1849 2626 103 26 96.659134 signing5 1 3 2 3 13 1971 2627 43 20 96.801079 thes 1 3 2 3 14 2033 2626 44 21 96.769814 old4 1 3 2 4 0 748 2659 1329 33 -1 5 1 3 2 4 1 748 2671 104 19 95.200745 coupon.5 1 3 2 4 2 875 2665 54 27 96.170219 Yet,5 1 3 2 4 3 952 2666 198 24 96.007362 inconsistently5 1 3 2 4 4 1175 2665 62 24 96.007362 (ands 1 3 2 4 5 1258 2665 46 21 96.666382 not5 1 3 2 4 6 1324 2663 144 26 96.432663 altogether5 1 3 2 4 7 1488 2662 173 25 95.947899 accurately),5 1 3 2 4 8 1681 2660 60 26 96.545082 they5 1 3 2 4 9 1762 2661 54 20 93.667542 also5 1 3 2 4 10 1837 2659 77 22 96.505844 insists 1 3 2 4 11 1934 2660 59 21 93.095215 that5 1 3 2 4 12 2014 2659 63 22 91.425529 Sun-4 1 3 2 5 0 751 2695 1193 28 -1 5 1 3 2 5 1 751 2701 72 21 96.726501 shine5 1 3 2 5 2 841 2701 58 21 96.620262 tells5 1 3 2 5 3 917 2701 63 21 96.428841 such5 1 3 2 5 4 997 2701 98 20 96.294823 dealers5 1 3 2 5 5 1113 2701 59 19 96.908470 that5 1 3 2 5 6 1189 2699 61 24 96.303505 they5 1 3 2 5 7 1267 2704 43 15 96.913422 ares 1 3 2 5 8 1327 2698 80 21 96.887215 under5 1 3 2 5 9 1424 2703 32 15 96.591141 no5 1 3 2 5 10 1473 2696 140 26 95.957489 obligations 1 3 2 5 11 1635 2695 55 25 96.367226 (RB5 1 3 2 5 12 1708 2695 96 24 92.883217 11-12;5 1 3 2 5 13 1823 2695 65 20 96.186897 RRB5 1 3 2 5 14 1906 2695 38 24 94.435516 1). SUNSHINE: ART. STUDIOS,.. INC., ET. “AL. 867 836 Initial: Decision the new coupon does not constitute the “expressed request or consent” of the signer for Sunshine to send him additional shipments of cards following the initial shipment specifically requested. From both’ a practical and a legal standpoint, the shipments subsequent to the initial shipment constitute “unordered merchandise.” Sunshine contends that the language of the new coupon emphasized the continuing dealer relationship, made the signer aware that more than one season was.involved,.and discouraged individuals who might have responded to the old coupon out of curiosity. This rationalization however, has no evidentiary support beyond the self-serving testimony of Sunshine’s officials, and the contention that coupon signers were made aware that more than one season was involved is contradicted by dealer testimony. Although careful reading of the coupon text may put a careful reader on notice that not only i is he ordering merchandise specifically described in the accompanying advertising and in the text of the coupon, but that he may also be ordering future shipments of other unknown merchandise, this record demonstrates that, as alleged by the complaint, any such allegedly additional commitment was made “anknowingly or unwittingly” (supra, pp. 20-22 [p. 856-58 herein]). This conclusion is particularly applicable in the numerous instances involving children and youths. Respondents’ suggestion (RPF 3, par. g) that Sunshine was “not generally soliciting children” is based on self-contradictory testimony and is otherwise refuted by the record (supra, pp. 6, 14 [pp. 845, 851 herein]). The new coupon did not constitute the “expressed consent” of the signer for more than one shipment of sample card assortments. Accordingly, it was false, misleading, and deceptive for Sunshine to represent to signers of the new coupon that they must pay for the cards or return them.

Thus, successive shipments pursuant to either type of coupon now constitute “unordered merchandise” within the meaning 39 U.S.C., Sec. 3009.2° The recipient is entitled to treat the cards as a gift, with “the right to retain, use, discard, or dispose of [them] in any manner he sees fit without any obligation whatsoever to the sender.” Under this statute, respondents are required to apprise the recipient of unordered merchandise “that he may treat the merchandise as a gift to him,” and that he has the rights enumerated in the previous sentence, In addition, respondents are forbidden to mail to any recipient of such merchandise a bill for such merchandise or any dunning communications.

This new statute, which is incorporated by reference in the Federal Trade Commission Act, makes academic the argument of respondents’ 23 Approved August 12, 1970, effective July 1, 1971 (CCH Trade Reg. Rep. | 26,700). 868 » | FEDERAL, TRADE ‘COMMISSION DECISIONS Findings’ 81 FTC.

counsel (RB 9-12; RRB 1-4) that contractual obligations may arise from a course of dealing. No legal obligation attaches to the recipient of merchandise unless it has been sent to him:pursuant to his “expressed request or consent.” so a Moreover, even before the effective date of the unordered merchandise statute, a similar argument respecting obligations arising from — a course of dealing had been rejected in Joseph. L. Portwood, Dkt. 8681 (Final Order January 19, 1968), aff'd, 418 F. 2d 419, 422-23: (10th Cir. 1969 [73 F.T.C. 68]).

_ The examiner’s reliance on the new Federal statute governing unordered merchandise. (approved August 12, 1970, effective J uly 1 1971) should not be interpreted as ew post facto application of this law to the practices of respondent Sunshine. Essentially, the statute codified the case law developed by the Commission *4 and enunciated in a 1968 policy statement (“Rights and Duties of Consumers Receiving Shipments of Unordered Merchandise and Obligations of Business men Shipping such Merchandise,” FTC Release, June 25, 1968, CCH Trade Reg. Rep. 7559.75 at pp. 12,1381-12,182) , except that the statute lays down a more onerous standard. The Commission’s 1968 policy specified that the recipient of unordered merchandise was re- . quired to pay for it if he used it, whereas the statute relieves the recipient of any obligation whatsoever. _ Moreover, although the statute, by its terms, applies only to mail shipments, nevertheless, as a Congressional expression of -public policy, its restrictions may properly be imposed on any interstate shipments. In any event, it is altogether appropriate to fashion an order for the future on the basis of these new statutory requirements. The examiner concludes not only that Sunshine’s new coupon fails to constitute the “expressed request” of the signer, but that the use of such a coupon is itself a deceptive act and practice and should be prohibited.

These conclusions find support in White Industries, Inc., Dkt. C- 1861 (February 16, 1971 [78 F.T.C. 317]), in which the Commission outlawed the use of a similar coupon, even though its reference to subsequent shipments was plainer than Sunshine’s new coupen, The White coupon contained a request for the shipment of specific merchandise and coupled this with a request that “next season” White’s “new offerings” be sent “for advance preview with never any 24 Joseph L. Portwood v. FTO, 418 F. 2d 419 (1969), modifying and aff’g, FTC Dkt. 8681 (Final Order, January 19, 1968; Modified Order, March 27, 1970 [77 F.T.C. 8871); 8S. & 8. Pharmaceutical Co., Inc. v. FTC, 408 F. 2d 487 (5th Cir. 1969), ef’g FTC Dkt. 8696 (Final Order, October 9, 1967 [72 F.T.C. 765]) ; House of Plate, Inc., 47 F.T.C. 1411 (1951) ; see CCH Trade Reg. Rep. 17143, which comprises the “long line of Commission precedents” referred to at CB 9 (see RRB 2). ‘SUNSHINE ART STUDIOS; INC., ET AL. . 869: 836 Initial. Decision obligation to buy,” and, in some instances, with a. further request that the signer be kept on the list for White’s “see-before-you-buy” service. , Not only did the Commission determine in effect that shipments pursuant to such coupons constituted unordered merchandise, but. it banned the use of forms purporting to authorize future shipments. * * * unless such authorization is set forth in a completely separate and distinct paragraph (or, at respondents’ option, a completely separate and distinct document) which separate paragraph (or separate document) contains no words, statement, or information not necessary to such authorization and which does not clearly and conspicuously state the following: a. that the document is an authorization for respondents to send merchandise at a future date; and b. the period of time for which the authorization will be operative shall not exceed one year, or one offering whichever is less; and ce. the description of the merchandise contemplated by the authorization form. ;

The. White order was entered by consent of the respondents, and — the case was not litigated. Although consent-settled cases do not have the precedential weight of litigated cases, they do constitute. an authoritative determination by the Commission as to the illegality of the practices covered by the order. (Compare RRB 2-8.) Thus, White supports the examiner’s conclusions (1) that, as alleged in the amended complaint (Paragraphs Five (3) and Six (3)), Sunshine’s new coupon. does not constitute an order for more than one shipment of cards because the recipient “was unknowingly or unwittingly duped” into signing and submitting it, and (2) that any shipment subsequent to the first was the “same as unsolicited or unordered merchandise” because the signature on the purported request for subsequent shipments was “obtained by deception.”

Moreover, White provides precedential authority for an order prohibiting the continued use of such a coupon. In their brief, complaint: counsel urge an order similar to Paragraphs 1-8 of the order entered in White (CB 14-22), but no such provision is contained either in the tentative form of order attached to the complaint or in the revised form of order proposed by complaint counsel (CPF 51-53). To remedy this deficiency, the examiner has included as Paragraph 4 of the order a qualified prohibition against the continued use of the new coupon or the use of any similar coupon or order form. This. provision is modeled after the White order, and, by requiring certain disclosures, is designed to cure the deceptive nature of the Sunshine coupon as found herein. But, unlike the Whzte order, it does not. 870: FEDERAL TRADE :COMMISSION ‘DECISIONS Initial: Decision 81 F.T.C.

deal with the format of the coupon because, in the examiner’s opinion, that was not an.issue’in this proceeding, as it was in’ White.2®. . Respondents’ reliance on technical principles of contract law, as enacted and interpreted in the.State of Massachusetts (RB 9-11), is misplaced. Irrespective of such state laws, the Commission, in administering a remedial statute such as.the-Federal Trade Commission Act, may look to the realities of a transaction. It is well established that to obtain by deception a signature to a contract of whose terms, nature, and effect the signer is ignorant is an unfair practice violative of that Act. The deception need not be of sucha nature as to constitute. “fraud” sufficient to vitiate a purported contract. (Independent Directory Corp., 44 F.T.C. 18, 80 (1950), af’d 188 F.2d 468 (2nd Cir. 1951) ; Dorfman-v. FTC, 144 F.2d 737, 739 (8th Cir. 1944), af’g The order actually proposed by complaint counsel (CPF 51-53) leaves uncertain the status of merchandise that may be shipped pursuant; to the request In the new coupon for “other seasonal samples as they become [or are] available.” Although complaint counsel urge that all shipments of cards subsequent.-to. the ‘initial shipment. aréequivalent to unordered merchandise—and. the examiner so finds-and concludes—the order they propose does-not deal. with the question whether such coupon. language constitutes “the expressed request or consent” of the coupon signer. In other words, Paragraphs 1 and 2 of the order would be subject to interpretation in the course of compliance proceedings as to whether a signer of the new coupon had given his expressed consent to the shipment of additional merchandise. Even though the findings and conclusions herein (if upheld) would be controlling, an order that is silent on the issue would not square with the Supreme Court’s admonition that Commission: orders should be “sufficiently clear and precise to avoid raising serious questions as to their meaning and application.” FTC v. Henry Broch & Co., 368 U.S. 360, 368 (1962). co ‘Conceivably, the order might simply prohibit any representation that the signers of such a coupon are obligated to pay for or return merchandise shipped to them pursuant thereto. But it seems preferable to meet the issué head-on and to prohibit the continued use of such a coupon unless it is modified so as to eliminate its deceptive nature and to make clear its import and effect.

, It may. be a nice question whether the amended complaint herein questioned the format of Sunshine’s new coupon, but there are sufficient distinctions between the White complaint and the instant complaint (see CB 14-16) to satisfy the examiner that the format fs not a proper issue. Regardless of the pleading, however, the evidentiary record herein is silent on the subject.

- SUNSHINE. ART .STUDIOS, INC., .ET. AL, 871 886°. Initial, Decision ;

The proposed, findings: and briefs of respondents. suggest. that, regardless. of Sunshine’s previous practices, its present practices % are in accord with the law (RPF 1,5; RB 9-12, 17; RRB 1-4). But in ‘1971, Sunshine was still insisting in ‘ts invoices that recipients had to pay if they kept the cards and also representing that: although the recipient might consider the cards a “gift,” Sunshine expected payment if they were not returned | (supra, pp. 15, 18-19 [pp. 852, 854-55]; see CRB 1-5). This. was not in compliance with the applicable law. B. Collection Practices The law respecting the collection practices engagedi in by respondents Sunshine, JSC, and Guardian (supra, pp. 23-27 [pp. 859-61 herein]) is so clear and so well established that it requires no elaborate citation’ of authority to support the order being entered on this subject: The fact that bona fide, independent collection agencies will not handle respondents’ small claims does not justify the establishment of a “dummy” corporation whereby respondents adopt a.disguise designed to lead allegedly delinquent debtors to believe that the account has been transferred’ to an entity other than one of. the respondents, ‘Wm. H. Wise Co.; Inc. v. FTO, 246 F. 2d 702 (Dic. Cir. 1957) s:cert. denied, 355 U.S. 856; International Art Co. v. FTO, 109:F. 2d 3938; 896— 97 (7th Cir. 1940), cert. denied, 310 U.S. 682; Wilson Chemical Co., Inc., 64 F.T.C. 168, 186 (1964). (The cases are collected i in CCH Trade Reg. Rep. J 7825.) Similarly, the Commission has consistently held with Court approval that it is unfair and deceptive to represent falsely that accounts have been or will be turned over to an attorney for collection, ‘particularly when the claim for the money allegedly owed is not well-founded, Dorfman v. FTO, 144 F. 2d 737 (8th Cir. 1944) ; Wilson Chemical Co., Inc., 64 F.T.C. 168, 180-86 (1964) ; see: CCH Trade Reg. Rep. { 7898.

Guardian j is a corporation without substance, a a “legal fiction” that was established for the purpose of coercing and intimidating allegedly delinquent debtors—many of them children and youths—into paying — for respondents’ cards or returning them. This device was particularly reprehensible when it was used to seek payment for or return of unordered merchandise.

C. Refunds forn ondelivery 0 f Goods as Ordered . The facts regarding SLO’s delivery of nonimprinted « cards to persons who had ordered name-imprinted cards (supra, pp. 27-29 [pp. 861-63]) compel a conclusion, almost without reference to legal authority, that this constituted an unfair and deceptive act. The vice 872 - FEDERAL TRADE COMMISSION~ DECISIONS Initial Decision 81 FTC.

lay i in SLC’s failure to disclose clearly that its sales representatives and their customers had the option of rejecting the nonimprinted cards and receiving a refund or accepting them and receiving a price adjustment, thereby leading them into the mistaken belief that they had to accept them and were not entitled to a cash refund. : Such a conclusion would be appropriate even if all the parties involved were.adults, but it is particularly applicable when SLOC’s sales agents ranged in age from 10 to 15 years. However high-sounding it may be, a promise to stand behind a guarantee of satisfaction is not necessarily translated as a promise of refund. Respondent SLC has given no reason for failing to make explicitly clear the availability of refunds or price adjustments. It is a reasonable inference that the vague reference to SLC’s guarantee of “satisfaction” was designed to minimize the number of applicants for such relief. It certainly had that result.

In addition to general principles. of fair dealing, two other tenets of trade regulation law come into play here: _ First, it is an unfair practice to deliver, without: authorization, merchandise, different from that ordered, even if the substitute goods are equivalent in quality, FTC v. Algoma Lumber Co., 291 USS. 67, 78 (19384) ; CCH Trade Reg. Rep. § 7147. Second, although a guarantee of satisfaction is, in law, a commitment to refund the full purchase price at the option of the purchaser, the Commission’s “Guides Against Deceptive Advertising of Guarantees” (April 26, 1960), CCH Trade Reg. Rep. {| 7895, require that the advertiser of a guarantee must disclose (1) its nature and extent, (2) the manner in which the guarantor will perform, and (8) the obligations of a person claiming under the guarantee.?¢ In the 1969 fiasco, SLC was out of step on both counts, even though the circumstance that led to the instant complaint distinguishes this case from many cases in which sellers have engaged in the practice of delivering substitute merchandise. The initial good faith of SLC in this isolated occurrence is not questioned. It is understandable why SLC undertook to. deliver nonimprinted cards. when an unexpected deluge of orders overwhelmed the name-imprinting facilities (even though extra facilities had been called into service) and prevented delivery of the name-imprinted cards in time for Christmas use. And, even though strict and literal adherence to controlling law would have required SLC to obtain from its customers advance approval of the 2@The Guides represent a codification of a long line of cases establishing the principles set forth; see CCH Trade Reg. Rep. { 7705. ‘SUNSHINE ART STUDIOS, INC., ET AL. 8738 836 Initial Decision shipment of the nonimprinted cards, its noncompliance with this requirement might have been excused in view of the timing realities involved.

But the crux of this proceeding is the deceptive manner in which SLC undertook, with considerable success, to belatedly foist upon its juvenile -sales representatives and their customers Christmas cards that did not conform to the orders that it had accepted. Instead of. forthrightly stating what it professes to be its policy—money back or a price adjustment if the customer was not satisfied—SLC urged customers to accept the cards and to give them a “personal touch” by signing them themselves (a delicate rationalization for SLC’s slipup). And then it attempted to conceal its liability by expressing “sincere * * * willingness to stand behind” its “guarantee * * * [of] complete satisfaction.” 2? Many sales representatives and many of their customers obviously did not realize that SLC would refund the full purchase price if the cards were rejected or would refund $1 per box if the cards were retained. They were misled by SLC’s equivocal and ambiguous reference to its guarantee of satisfaction—its failure to reveal its own, obligations and the rights of its customers. An order should issue to prevent any repetition. However, in Paragraph 10 of the order, the examiner has modified complaint counsel’s proposed order (CPF 52, par. 9) by deleting the requirement that in instances in which respondents may be unable to deliver merchandise as ordered (e.g., name-imprinted cards), they must advise the customer of his options in advance and obtain permis- _ sion in writing to ship substitute merchandise. Such an order might be appropriate in a case where a respondent made a practice of shipping substitute merchandise without authorization. Here, however, there is evidence of only one such occurrence, apparently caused by unusual circumstances. The procedure proposed by complaint counsel would have been impracticable in connection with the 1969 printing problem. By the time such notice had been given and an effort made to get responses from all customers, Christmas would have come and gone (supra, p. 28, footnote 17 [p. 862 herein]). In the opinion of the examiner, the. public interest will be protected . by a requirement that customers be clearly advised of their rights to reject, the substitute merchandise and to receive a full refund, or to accept it and to receive an appropriate price adjustment. Paragraph 11 of complaint counsel’s proposed order (CPF 53) has also been deleted as unwarranted. Although the record indicates some 37The emptiness of this slogan was pointed up by the testimony of a. disappointed customer that even a full refund did not afford “complete satisfaction” (Cronin 1057-58). 494-841—73—_56 874. FEDERAL TRADE COMMISSION -DECISIONS Initial Decision 81 F. T.6, cases of delay in-the receipt of refunds, the evidence does not show any calculated. policy by SLC to drag. its, feet in making refunds. On the contrary, it appears that such delays as there were may be attributed to the unprecedented volume of refund requests in 1969-70. : -Nor has the examiner adopted the first “FURTHER ORDERED” paragraph following Paragraph 11 of complaint counsel’s proposed order (CPF 58), which would. require SLC to offer refunds to all persons to whom ‘it wrongfully. shipped. nonimprinted eards in 1969 _ both. the sales: representatives and their.customers. The primary basis for the rejection of this proposal is that it is unrealistic and y would amount to an.empty gesture. a, The. uncontradicted - testimony of SLC ‘representatives was to the effect that there were no records available to show the identity of either the sales representatives or the ultimate customers. who received nonimprinted, cards in response to orders for name-imprinted cards (Pray 1663-66; Robbins 2027-29; Brunsell 1586). Refunds or price adjustments have been made to all those who complained directly or — indirectly to. SLO, and it does not appear that, as.a practical matter, the relief sought by the paragraph i in question can be enforced. Accordingly, this proposed provision of the order is regretfully rejected., , D. Use of the Word “Free”

The charge that SLC deceptively represents that it imprints names on its Christmas cards “free”. opens another chapter in the history of the Commission’s policy toward the use of the word “free” (see CCH Trade Reg. Rep. { 7695, {| 7699).

Without undertaking to review the shifting tides that have engulfed this promotional device from time to time, the examiner simply holds that this record does not warrant a finding or conclusion that SLC’s use of the term is false, misleading, or deceptive. ‘The facts may be briefly stated :

‘For many years, SLC has’ featured i in advertisements and promotional literature the sale of Christmas cards at a uniform price per box,* with names imprinted “free.” It has sold the same cards without names imprinted at the same price. There has never been a price differential or a stated charge for the name-imprinting. Uncontradicted testimony was to the effect that there-have been many sales of cards without names imprinted. (See supra, pp. 80-82 [pp. 864-65 herein] ; compare CPF 31, 34; CB 29.) ‘On the basis of these facts, SLC appears to be in compliance’ not only with rules promulgated by the Commission in 1953 (CCH Trade Reg. Rep. 1 7 695), but also with the latest statement of Commission Thes 1 6 1 1 2 890 2722 69 25 96.318680 prices 1 6 1 1 3 976 2722 48 21 96.318680 has5 1 6 1 1 4 1040 2697 114 49 96.596519 changed5 1 6 1 1 5 1170 2699 67 42 95.807259 from5 1 6 1 1 6 1254 2725 62 20 96.862762 years 1 6 1 1 7 1330 2702 27 38 96.996231 to5 1 6 1 1 8 1371 2725 75 33 77.390778 year,5 1 6 1 1 9 1459 2696 51 44 96.751411 ands 1 6 1 1 10 1528 2718 43 22 96.808411 thes 1 6 1 1 11 1587 2695 75 48 96.235558 boxes5 1 6 1 1 12 1678 2696 106 41 95.970695 contains 1 6 1 1 13 1800 2688 109 57 96.556572 varying5 1 6 1 1 14 1925 2709 117 34 96.021698 numbers5 1 6 1 1 15 2049 2692 38 42 84.516022 ‘of4 1 6 1 2 0 760 2754 1296 28 -1 5 1 6 1 2 1 760 2757 80 25 93.641975 cards,5 1 6 1 2 2 853 2756 142 25 96.366554 depending5 1 6 1 2 3 1006 2761 31 15 96.366554 on5 1 6 1 2 4 1048 2755 68 25 96.663139 styles 1 6 1 2 5 1125 2755 51 21 96.082077 ands 1 6 1 2 6 1187 2754 96 25 96.082077 design.5 1 6 1 2 7 2054 2762 2 2 43.698936 . , SUNSHINE. ART: .STUDIOS,, NC., -ET AB. 875 836 : Initial Decision policy —“Guide Concerning Use of the Word:Free and Similar Representations”. (“Guide”), promulgated November 16, 1971, effective December 16, 1971. Although SLC’s practices must be judged in the light of the law applicable prior to the complaint; any order that might be entered herein would look to the future, as does the new Guide. Since the examiner has concluded that under either standard, SLC is not in violation, considerations of space and: time commend “assessment of SLC’s practices in the light of the current Guide, which does not appear to differ materially from the 1953 standard. SLOC’s use of the word “free” appears to be in accord, with Section (b) of the Guide in that the offer of free imprinting “is based upon a regular price for the merchandise * * * which must be purchased by consumers in order to avail themselves of that which is represented. to be ‘Free’.” In-line with Section (b), the purchaser is paying no more than the regular price for the Christmas cards, and he is paying nothing for the imprinting. There has been no showing that SLC has directly and immediately recovered, in whole or in part, the cost of the free service’“by marking ‘up the price of the article which must be purchased, by the substitution of inferior merchandise, or otherwise. a There is no question that the terms, conditions, and obligations for the receipt of the “free” service are “set forth clearly and conspicuously at the outset of the offer so as to leave no reasonable probability that the terms of the offer might be misunderstood” (Guide (c) ). It is clear that the imprinting may not be purchased separately, that the Christmas cards may be purchased at a stated price, and that names will be imprinted thereon without additional charge. The repetition of the offer of “free” imprinting year after year is the only basis on which the representations might. be challenged under the Guide. This i is suggested: by Guide (h) which reads in part as follows:

So that a “Free” offer will be special and meaningful, a single size of a product or a single kind of service should not be advertised with a “Free” offer in a trade area for more than 6 months in any 12-month period. Guide (h) specifies other timing and frequency restrictions, as well as a restriction on the volume of sales involved in the “free” offer. Since the sale of Christmas cards is on a seasonal basis from year to year, and since different Christmas cards are sold each year,?* there is 2 Complaint counsel’s theory respecting the word “free” -is based in part on the concept that Christmas cards are fungible (Tr. 1895). But just as the Supreme Court (in Ballard v. United States, 329 U.S. 187, 193-94 (1946) ), held, happily, that the sexes are not fungible (before the days of the women’s lib” and the “gay lib’ movement), so this examiner has determined that this record does not warrant a finding that Christmas cards are fungible. 876 FEDERAL ‘TRADE* COMMISSION: DECISIONS Initial Decision 81 ET.C.

serious doubt that the timing restrictions specified: by Guide (h). are properly-applicable to the practices of SLC. In any event, the requisite facts. were:not developed in:this.record.

Similarly, this record affords no basis for a determination, as.urged ‘by.complaint:counsel, that the offer of free imprinting has been so long continued that it does not now constitute a free service.and has become part of a. package deal, with provision for the cost. of imprinting included in the: price of the cards (CPF 34; CB 32). This case is distinguishable from such cases as Kalwajtys v. FTC, 237 F. 2d 654 (7th Cir. 1956), and Basic Books v. FTC, 276 F. 2d 718 (7th Cir. 1960), which involved: flagrant misrepresentations that included clear .deception: as to the usual prices of the items in.a combination offer, as well as the usual price of the combination.

Complaint counsel rely principally on the case of FTC v. Mi ary Carter Paint Co., 882: U.S. 46 (1965), but this reliance is misplaced. In the Mary Garter case, a paint company. advertised’ and sold. every second can. of paint, “free,” whether by. the gallon or: by the quart. The Commission decided, and.the Supreme Court agreed; that; the offer was illusory: because: there never had been: a, usual or customary price for a single can of paint. In effect, it was held that the price represented as the price. of! a, single can was in fact the price for.a; combination of two cans.

Although the instant case affords a superficial analogy with the _ Mary Carter case the two may be readily distinguished by quoting from the Mary Carter opinion:

* * * Mary Carter had no history of selling single cans of paint; it was marketing twins, and in allocating what is in fact the price of two cans to one can,. yet calling one “free,” Mary Carter misrepresented. (382 U.S. at 48) In the instant case, SLC had a history of selling nonimprinted cards. It. was not “marketing twins.” It was coupling a service with its cards. The cards were sold separately at a stated price, and the imprinting was added on order without any increase in price. The fact that SLC never established a separate regular price for the service of imprinting would. seem to be testimony to-the fact that such imprinting was. free. The refund of $1 when SLC was unable to deliver name-imprinted cards to all its customers in 1969 (supra, p. 28 [p. 862 herein}) suggests the same: conclusion.

The lack of substance in the challenge to SLC’s representation of free: imprinting is pointed up by the fact that the proposed order (CPF 53,. par. 10) would literally have no effect on what SLC is now doing. The: order would prohibit.respondents from:

SUNSHINE ART STUDIOS, INC., ET AL: 877.

836 Initial Decision Representing * * * that Christmas cards will be imprinted free unless the price charged for imprinted cards is respondent’s regular, bona fide retail selling price for such cards without imprinting.

An added catch-all provision prohibiting misrepresentation “that any product or service is free” would leave up in the air just what respondents must do or refrain from doing.

Similarly, the modified order entered by the Commission in the Mary Carter case, 70 F.T.C. 528 (1966), if made applicable to SLC, would require no change in its representations or operations. The order is quoted below, with the word “service” added in brackets to take account of the factual distinctions between the two cases. The order prohibits any representation :

That any article of merchandise [service] is being given free or as a gift, or without cost or charge, in connection with the purchase of other merchandise, unless the stated price of the merchandise required to be purchased in order to obtain said article [service] is the same or less than the customary and usual price at which such merchandise has been sold separately for a substantial period of time in the recent and regular courge of business in the trade area in which the representation is made.

Accordingly, the charge against SLC involving its representation of free imprinting is being dismissed.

E. Coverage of the Order To the extent that an order is warranted against any one of the corporate respondents, the question arises whether such order should be directed against all of the corporate respondents, as well as the individual respondent Ryland E. Robbins. The examiner has concluded (1) that the corporate respondents constitute one economic entity, so that an order warranted against one corporate respondent should be directed against all and (2) that the order should run against Ryland E. Robbins individually, as well as in his official capacity, because of his involvement in the activities of each corporate respondent, whether viewed separately or as part of a single economic entity.° These conclusions are predicated on the determination that all the corporate respondents have been proved to constitute a single interprise, with the family stockholders so dominating and controlling the acts of all that they are merely alter egos of one another and of the 30 Respondents have raised as a threshold issue the question whether the complaint is “defective” because of its failure to deal with the named respondents as separate legal entities and its failure to identify which of the alleged respondents is responsible for which of the alleged acts (RB 1, 3-8). The examiner here disposes of the ultimate issue . raised by this contention. But against the possibility that respondents thereby intend to allege that they were not given due notice of the charges or an opportunity to defend against them, the examiner now rules that, through prehearing procedures, as well as in the course of trial, respondents were on notice as to these matters and had an opportunity to defend.

878 FEDERAL TRADE. ‘COMMISSION * DECISIONS Initial Decision 81 FTC, family stockholders. Thus, the violations shown to have been employed - individually by one corporate respondent may be deemed those of the enterprise.

Despite some degree of corporate separateness, the corporations that constitute elements of the Robbins family of corporations have not dealt with one another as independent commercial entities. They have interchanged business functions as the circumstances warranted in a manner wholly inconsistent with any purported corporate ‘separation between the affiliated corporations and between each such corporation and its family stockholders.

The Robbins family—particularly, father and son—has so dominated and controlled the acts of the corporate respondents that their corporate identities may be ignored. Thus, for purposes of fashioning an order, each corporate respondent, together with Ryland E. Robbins. as an officer, director, and one of the controlling stockholders, may be held vicariously responsible for the practices of each. The general rule, of course, is that ordinarily the law does not disregard corporate entities. Nevertheless, where corporations are so controlled by the same stockholders as to constitute mere agencies or instrumentalities in a single enterprise, the Commission and the courts are not blinded or deceived by mere forms of law and, regardless of legal fictions, will deal with the substance of the transactions involved as if the corporate entities did not exist and as the justice of the case may require.

These principles have been distilled primarily from the decisions of the Commission and the Court in Crowell-Collier Publishing Co., Dkt. 7751 (Final Order February 4, 1969 [75 F.T.C. 241]), aff'd sub nom. P. F’. Colker & Son Corp. v. FTC, 427 F.2d 261 (6th Cir. 1970), cert. denied, 400 U.S. 926. That case dealt with a parent-subsidiary relationship, but the principles there enunciated are fully applicable to the fact pattern found in the instant case. To conclude that the order in this case should be directed against all the respondents is not necessarily inconsistent with the general principles of corporate law, as established and interpreted in the State of Massachusetts, upon which respondents rely (RB 6-7). The validity of these principles as abstract propositions of law need not be questioned in determining that they are overriden by other legal principles that are equally valid.

It is established that where the public interest is involved, as it is in the enforcement of Section 5 of the Federal Trade Commission Act, strict adherence to common law principles is not required in the determination of whether affiliated corporations under common “ SUNSHINE’ ART “STUDIOS, INGC., ET AL. 879 836 Initial Decision ownership and control should be treated as a single enterprise. Each may be held for the acts of its affiliate if strict adherence to the fiction of corporate separateness would circumvent the policy of the statute. The picture here is essentially similar to that described in Delaware Watch Co., Inc. v. FTC, 332 F.2d 745, 746 (2d Cir. 1964)—a “case in which the same individuals were transacting an integrated business through a maze of interrelated companies.” In such a case, “the pattern and framework of the whole enterprise must be taken into . consideration” (citing Art National Mfrs. Dist. Co. v. FTC, 298 F.2d 476, 477 (2d Cir. 1962)). Otherwise, said the Court, respondents might be “provided with a clear mechanism for avoiding the terms of the order.” » - There is a basis for concluding that there has been such complete control of the corporate respondents by their common owners as to render each a mere tool of the owners, with the result that their sepa- ' rate corporate identities constitute a mere fiction that may properly be disregarded to carry out the remedial purposes of the Federal Trade Commission Act. (Cf. National Lead Co. v. FTC, 227 F2d 825, 829 (7th Cir. 1955), rev’d on other grounds, 352 U.S. 419 (1957) ; see American News Co., 58 F.T.C. 10, 22-23 (1961), modified on other grounds, 300 F.2d 104 (2d Cir. 1962); compare H. J. Heinz Co., 52 F.T.C. 1607, 1642-44 (1956) (see dissent at 1647), rev’d .on other grounds sub nom Stockely Van Camp v. FTC, 246 F.2d 458 (7th Cir. 1957) ; Ohmlae Paint & Refining Co., Inc., 60 F.T.C. 419, 427-28 (1962).) On the basis of the facts found as to the role of Ryland E. Robbins in the management of each of the corporate respondents, and on the authority of FTC v. Standard Education Society, 302 U.S. 112, 120 (1937), and a long line of Commission and court cases in accord therewith, the examiner has no doubt as to the propriety of naming Ryland E. Robbins in the order both as a corporate officer and in his individual capacity.

Here, as in Standard Education, the record discloses “closely held corporations owned, dominated and managed” by individuals who “acted with practically the same freedom as though no corporation had existed.” Here, as there, it is necessary to include the individual respondent for the order to be fully effective and to ensure against its evasion, CONCLUSIONS 1. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents. 880 - FEDERAL TRADE -COMMISSION : DECISIONS Initial ‘Decision 81 FTC.

9. The complaint herein states a-cause of action, and this :proceeding is in the public interest.

3. The record supports all the allegations of the complaint with the exception of the charges in Paragraph Twelve that the représenta- | ‘tions of respondent Sales Leadership Club, Inc., regarding the “free” imprinting of Christmas cards were false, misleading, and deceptive. 4. The use by respondents of the statements, representations, and practices herein found to be false, misleading, and deceptive has had and now has the capacity and tendency to mislead members of the purchasing public into the erroneous and mistaken belief that such representations were and are true and, by. reason of such erroneous and mistaken belief, into the purchase of substantial quantities of respondents’ products. Such statements, representations, and practices have had the further capacity and tendency to confuse and mislead many persons as to their rights and obligations with respect to respondents’ merchandise and to unfairly harass and inconvenience them.

5. The acts and practices of respondents, as s herein found, were and ‘are all to the prejudice and injury of the public and of respondents’ competitors, and constituted and now constitute unfair methods of competition i in commerce and unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

6. The record establishes the allegations of Paragraph One of the complaint to the effect that respondents “cooperate and act together in carrying out respondents’ business.” As a matter of fact and of law, they constitute a single economic enterprise. In these circumstances, it is necessary that the order as to practices engaged in by one corporate respondent be made applicable to all the respondents. 7. The record establishes that respondent Ryland E. Robbins, as a corporate officer, as an individual, and jointly with his father, Willard S. Robbins (president of the corporate respondents but not himself a respondent herein, formulates, directs, and controls the acts and practices of the corporate respondents and that his personal participation in the acts challenged by the complaint has been sufficient to hold him individually liable. Moreover, the history of the corporate respondents and the role that he has played therein, together with his participation in other related corporations—some engaged in the same line of business—compel the conclusion that it is necessary that he be named in the order both as a corporate officer and as an individual, so as to make the order fully effective and to prevent its evasion.

SUNSHINE ART STUDIOS, INC., ET AL. By 836 Initial Decision ORDER. | Zé is ordered, That respondents Sunshine Art Studios, Inc., Junior Sales Club of America, Inc., Sales Leadership Club, Inc., and Guardian Collection Agency, Inc., corporations,. their successors and assigns, and Ryland KE. Robbins, individually and as an officer of each such corporation, and respondents’ officers, agents, representatives,and employees, directly or through any. corporation, subsidiary, division, or other device, in connection with the advertising, offering for sale, sale, or distribution of greeting cards or any other product, or in. the collection of accounts arising therefrom, in commerce, as “commerce” is defined in the Federal Trade Commission Act, do forthwith cease and desist from: a 1. Sending any merchandise without the expressed request or consent of the recipient unless such merchandise shall have attached to it a clear and conspicuous statement that: the recipient may treat.the merchandise as a gift to him and that he has the right to retain, use, discard, or dispose of it in any manner that he sees fit without any obligation whatsoever to the sender. 2. Sending any communication (including bills, invoices, reminders, letters, notices, or dunning communications) that in any manner seeks to obtain payment for or return of merchandise shipped without the expressed consent or request of the recipient. 3. Sending any merchandise to any person without first obtaining a specific order therefor after respondents have been notified by such person that no further merchandise shipments are to be made.

4. Using any coupon, order form, or other document that not only requests a single shipment of specific merchandise but also purports to authorize the shipment of “other seasonal samples on approval as they become [or are] available” (in those words or in words of similar import) or that otherwise purports to authorize future shipments of merchandise, unless such coupon, order form, or other document (1) clearly and conspicuously discloses that it is an authorization for respondents to send merchandise at a future date and that such authorization will be operative for a stated period of time or for a stated number of offerings, and (2) contains a clear disclosure of the merchandise contemplated by the authorization form.

5. Resorting to any subterfuge or coercion to sell respondents’ merchandise.

Opinion 81 FR.T.C.

6. Representing, directly or by implication, that delinquent accounts will be, or have been, turned over to an independent, bona fide ‘collection agency. bo So 7. Representing, directly or by implication, that Guardian Col- - lection Agency, Inc., is an independent, bona. fide collection . agency; or that any other organization or trade name owned or controlled wholly or partially by respondents is an independent, bona fide collection agency. es 8. Representing, directly or by implication, that. delinquent accounts will be referred to.an attorney if payment is not received. 9. Using any subterfuge or deceptive scheme or device in con- - nection with the collection of delinquent accounts... 2 0. 10. Shipping to any customer greeting: cards, or any other merchandise, that differ in a material respect. from the greeting cards or the other merchandise ordered without informing the customer that he is entitled toa full cash refund if he does not - -wish to accept the substitute merchandise or a partial refund of ‘a stated amount if he is willing to accept merchandise of lesser . quality or valuethan that ordered. » a, It is further ordered, That respondents notify the Commission at least thirty (30) days prior to any proposed. change in any of the corporate respondents, such as dissolution, assignment, or sale resulting in the emergence ofa successor corporation, affiliates, or any other change in the corporate respondents which may affect compliance obligations arising out of this order.

It is further ordered, That corporate respondents distribute a copy of this order to each of their operating divisions or departments. It is further ordered, That.the respondents herein shall, within sixty (60) days after the effective date 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. It is further ordered, That the charges in the complaint (Paragraph Twelve) relating to the use of the word “Free” by respondent Sales Leadership Club, Inc., be, and they hereby are, dismissed. OPINION OF THE COMMISSION By MacIntyre, Commissioner:

This matter is before the Commission upon the cross-appeals of complaint counsel and the respondents from the initial decision of the administrative law judge, which holds respondents to be in violation of law as charged in the complaint in all respects except one and which ‘SUNSHINE. ART STUDIOS,INC., ET AL..— 883 836 Opinion contains an order requiring respondents to cease and desist the practices found to be unlawful.

The complaint, issued December 8, 1970, charges respondents with unfair methods of competition and unfair acts and-practices in violation of Section 5 of the Federal. Trade Commission Act in connection with the sale of greeting cards. The practices charged are, in substance, as follows: the sending of unordered merchandise, misrepresentation in connection with collection practices, the failure to make refunds for the nondelivery of ordered merchandise, and falsely representing as free the service of the printing of names on greeting cards. _ ; Respondents are four corporations, organized under Massachusetts law, and one individual, all located at 45 Warwick Street, Springfield, Massachusetts. The corporations are: Sunshine Art Studios, Ine. (Sunshine), Junior Sales Club of America, Inc. (Junior' Sales); Sales Leadership Club, Inc. (Sales Leadership), and Guardian Collection Agency, Inc. (Guardian) .1 The named individual is Ryland E. Robbins, who is treasurer and director of: the first three corporations and a director of Guardian.

The corporations, except Guardian, are engaged in the business of advertising and selling greeting cards to the public. The cards are shipped from Massachusetts to customers and prospective customers throughout the United States. Guardian is engaged in the collection of accounts for other respondent corporations. Certain of the respondent corporations are also engaged in collecting their own accounts. “Respondent Sunshine sells greeting cards to its affiliates, Junior Sales and Sales Leadership, as well as to wholesalers, organizations, businesses and individuals, including housewives and children. Junior Sales sells all-occasion cards and Christmas cards nationally. It operates as a club, appealing to children from age ten to early teens. It solicits membership for the selling of cards in comic books and such magazines as “Boys Life,” “American Girl,” and it also solicits by ‘direct mail. Respondent Sales Leadership enrolls childen to sell Christmas cards to win prizes or earn money. Its advertising appears in such magazines as “American Girl,” “Boys Life,” and in comic books. This corporation also solicits by direct mail. The administrative law judge found and concluded that the record supported all of the allegations of the complaint with the exception of a charge in Paragraph Twelve that representations in Sales Leadership’s advertisements of the “free” imprinting of Christmas cards are false, misleading and deceptive. He dismissed the complaint as to the charge on free imprinting. He further held that the corporate tName changed to Guardian Collection Agency, Inc. See administrative law. judge's Order Amending Complaint, dated February 12, 1971. . 884 FEDERAL ‘TRADE COMMISSION’ DECISIONS Opinion 81 F.1.C.

respondents constitute one economic entity and that an order warranted against one of the corporate respondents should be directed against all; also, that the order should run against Ryland E. Robbins both as a corporate officer and as an individual because of his individual responsibility for the acts and practices of the corporate respondents and to make the order fully effective. As indicated above, respondents and complaint counsel have both filed: appeals and in considering these appeals we conclude that the initial decision is appropriate to dispose of the charges in the complaint and all of the issues raised on the appeals except for two items, which we will discuss in detail below.

Use of the word “free”

The complaint charges that the phrase. a ACH CARD WITH NAME IMPRINTED. FREE? ” and similar phrases contained in advertising disseminated. by. ‘Sales Leadership represents that the imprinting was free whereas it was not free because the price of the, greeting card includes a provision for the imprinting cost and that therefore this representation is false, misleading and deceptive. (“Imprinting” i is the term used in this case to refer to the printing of a customer’s name on greeting cards.) The administrative law judge dismissed the complaint as to this charge because he found from the evidence that respondent Sales Leadership had “many orders” for greeting cards without. names and he reasoned that because the price “for the cards with imprinting was the same as that for cards without, the imprinting was in fact free. Complaint counsel have appealed this part of the initial decision.

We hold that the administrative law judge erred in his dismissal of such charge. We disagree with his finding that respondent Sales Leadership had many orders for cards without names imprinted. He relies for his finding on the testimony of Wilder T. Pray, general manager of Sales Leadership, and respondent Ryland E. Robbins, both of whom testified to the effect that many orders were received for nonimprinted cards. It is reasonably clear from the whole record, however, that these witnesses were referring to shipments of nonimprinted cards at Christmas-time 1969, when respondent Sales Leadership, for lack of adequate facilities, was unable to fill all of the imprinted card. orders and for about 10 percent of the orders received, which orders were for imprinted cards, supplied nonimprinted cards. Witness Pray, after stating that he had seen orders for nonimprinted cards, testified : Q. Would the 10 percent that you referred to shipped out without names on them be orders in which those people asked that their names, in fact, be put on them? A. Yes. (Tr. 1888) SUNSHINE ART. STUDIOS,.-ING., ET. AL:. “885 — 836 Opinion The record otherwise supports a conclusion, that Sales Leadership received few, if any, orders for cards without names. Its promotional program is geared. entirely to selling imprinted Christmas cards. Its advertising throughout. stresses the fact that the cards are imprinted or “personalized” (CX 151). On the other hand, there is no effort made to sell cards without imprinting. Thus, it is a reasonable conclusion that Sales Leadership sold few if any cards which it did not promote. Based on the whole record, therefore, that is, the testimony of witnesses Pray and Robbins, which we conclude refers to shipments made in a special situation rather than regular orders, and the inference to be drawn from the advertising theme stressing the sale of cards with name imprinted, it is found that Sales Leadership received few, if any, orders for nonimprinted cards.

Thus, the situation falls within the rule spelled out in the case of Federal Trade Commission v. Mary Carter Paint Co., et al., 382 U.S: 46 (1965). In that case Mary Carter had no history of selling single cans of paint. It marketed twins and allocated what was in fact the price of two cans to one can and called the other “free.” The Court upheld the Commission’s finding that this was a misrepresentation: Likewise, in this case there is a combination offer of imprinting and cards, and since there have been no sales or no significant sales and thus no regular price established for cards without imprinted names the imprinting cannot be said to be “free.” Moreover, here Sales Leadership made the combination offer of the greeting cards with the imprinting continuously and for an indefinite term. In this circumstance, even if some sales were made without imprinting that fact would not justify representing the imprinting as free because it is not free in any meaningful sense. The real offer is that of the combination. Those taking less are not getting full value. Thus, there is no significance in comparing the price of the imprinted with that of the nonimprinted cards. If the price for a ham and egg special on a restaurant menu is a set figure even though a customer does not take the ham, it can hardly be concluded from this that the ham is free to someone else. The cost is included in the price for the combination.

In this instance the cost of the imprinting is reflected in the price of the greeting cards in the same way that all other costs are reflected therein. The quoted price is the regular price of the whole package, including the cost of the imprinting. The customer pays for the imprinting cost because it is included in the total price.” The imprint- 2 The fact that an additional charge was made for an extra line (in 1969, for instance, a third line was available for an extra charge of 25 cents per box—RX 30) indicates that the imprinting is a specific item: of cost. 886 FEDERAL “TRADE COMMISSION “DECISIONS ~ Opinion 81 F.T.C.

ing is thus not free. This situation may be distinguished from those in which free offers are continued only for a limited period. See the Commission’s “Guide Concerning The Use Of The Word ‘Free’ And Similar Representations” promulgated November 16, 1971.° In summary, Sales Leadership has represented a service as free when it is not giving away this service but is charging for it by in- ' cluding the cost in the regular price. Thus it is found that respondent Sales Leadership’s use of the word “free” in connection with the imprinting on its greeting cards is false, misleading and deceptive. Complaint counsel’s appeal on this issue is granted and an appr opriate order prohibiting such misrepresentation will be entered. | Scope of the order Complaint counsel urge that the Commission issue in this matter a. stronger order than that proposed by the administrative law judge in Paragraph 4 of his initial decision concerning the sending: of unordered. merchandise. ‘They request that. this provision be fashioned along the lines of the order used in. White Industries, Inc., Docket ‘ C-1861 (consent order issued February 16, 1971 [78 F.T.C. 317 ]).- The administrative law judge’s provision.in Paragraph 4 is essentially a requirement for clear disclosure of the terms of the commitment ‘in connection with the use of coupons authorizing future shipments, whereas the White Industries order goes further and requires not only that the authorization be ina separate document or a separate paragraph without extraneous material but also, among other things, that it be limited in period of time to not exceeding one year or to one offering.

The administrative law judge, discussing the remedy (pages 38 and 39, initial decision [pp. 869-71 herein]), concludes that a strong prohibition is needed to correct the practice of sending unordered merchandise but he determined to include only a qualified prohibition because he believed that the “format” of the coupon was not in issue or at least not a proper issue and that the evidentiary record in the case is silent on the subject.

8 Guide (h) —“Frequency. of offers.

“So that a ‘Free’ offer will be special and meaningful, a single size of a product or a single kind of service should not be advertised with a ‘Free’ offer in a trade area for more than 6 months in any 12-month period. At least 30 days should elapse before another such offer is promoted in the same trade area. No more than 3 such offers should be made in the same area in any 12-month period. In such period, the. offeror’s sale in that area of the product in the size promoted with a ‘Free’ offer should not exceed 50% of the total volume of his sales of the product, in the same size, in the area.” SUNSHINE ART STUDIOS, INC., ET AL. 887 836 Opinion A typical current authorization coupon used by respondent Sunshine reads in part as follows: - . I would like to earn extra money. Please send free catalog, sales tips, everyday sample boxes and other seasonal samples, on approval, as they are available. Name .

Address .

City __. State; Zip.

(CX 9.) Coupons with this or similar wording are contained in respondent Sunshine’s magazine advertisements (e.g., CXs 9, 18, 15). The coupon is designed to be cut out of the advertisement and sent to respondent Sunshine as an order for greeting cards.

Witnesses, mostly youths, testified that after sending in the coupons they received continuing shipments after the initial shipment. Some testified that they received shipments even after notifying respondent Sunshine to discontinue the order. The administrative law judge found that a number of witnesses thought they were ordering a single shipment and did not understand they were committing themselves to receiving successive shipments (page 20, initial decision [p. 856 herein]). At one point in the initial decision the administrative law judge states in part: “Although careful reading of the coupon text may put a careful reader on notice that not only is he ordering merchandise specifically described in the accompanying advertising and in the text of the coupon, but that he may also be ordering future shipments of other unknown merchandise, this record demonstrates that, as alleged by the complaint, any such allegedly additional commitment was made ‘unknowingly or unwittingly’ (supra, pp. 20-22 [pp. 856-58 herein]). This conclusion is particularly applicable in the numerous instances involving children and youths.” (Initial decision, page 85. [p. 867 herein]). He held in effect that successive shipments after the initial shipment in such circumstances was unordered merchandise. It is clear, therefore, that the practice of sending unordered merchandise in this instance was the direct result of the format or general make-up of the coupon employed by respondent Sunshine. Thus, the format is-in issue since it is an integral part of the abuse of sending unordered merchandise, which subject was central to the pleadings and to the trial in this case. We accordingly disagree with the administrative law judge to the extent he ruled otherwise. Respondent Sunshine’s advertisements appearing in such magazines as “Boys Life” and “American Girl” are plainly directed to youth, and the record shows that many of Sunshine’s customers are children. The administrative law judge refers to testimony from young witnesses that they did not understand they were committing themselves to 888 FEDERAL TRADE. COMMISSION: . DECISIONS . . Final Order 81 FEC.

future shipments, particularly unlimited future shipments (pages 20, 35, initial decision [pp. 856, 867 herein]). In the circumstances we do not believe Paragraph 4 of the administrative law judge’s order is adequate to correct the abuse of sending unordered merchandise. Such order basically would require only specific disclosures but it is not likely this will adequately protect Sunshine’s youthful customers. In this age group there are, we believe, a substantial number of children who even with the disclosures required by the administrative law judge’s order could not be expected to understand that they would be committing themselves to continubdus shipments for an indefinite period. Accord-ingly,-an order with more restrictive provisions is warranted and we will modify Paragraph 4 in.the order in the initial decision so as to include the elements of the prohibitions contained in:the Whzte order, supra, %.€., a. requirement that the authorization for continuous ‘shipments be separated from other material, and a limit as to time period and::number of shipments. a Complaint counsel’s appeal: will be granted and the appeal of respondents will be denied. The initial decision is modified t6 conform: with the views expressed in this: opinion and as ‘so modified will -be adopted:as the decision’ of the Commission. An appropriate order will be entered to accompany this. opinion.

Fina ORDER This matter having been heard upon the cross-appeals of complaint counsel and respondents from the administrative law judge’s initial decision and upon briefs and oral argument in support thereof and in opposition thereto; and The Commission having rendered its decision determining that complaint counsel’s appeal should be granted and respondents’ appeal denied and that the initial decision as modified to conform with the views expressed in the Commission’s opinion should be adopted as that of the Commission :

It is ordered, That the appeal of complaint counsel be, and it hereby is, granted and the appeal of respondents be, and it hereby is, denied. It is further ordered, That the following order be, and it hereby is, substituted for the order contained in the initial decision: ORDER It is ordered, That respondents Sunshine Art Studios, Inc., Junior Sales Club of America, Inc., Sales Leadership Club, Inc., and Guardian Collection Agency, Inc., corporations, their successors and assigns, and Ryland E. Robbins, individually and as an officer of each such corpor- SUNSHINE. ART STUDIOS, INC., ET AL. 889 836 . Final Order ation, and respondents’ officers, agents, representatives, and employees, directly or through any corporation, subsidiary, division, or other device, in connection with the advertising, offering for sale, sale, or distribution of greeting cards or any other product, or in the collection of accounts arising therefrom, in commerce, as “commerce” is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Sending any merchandise without the expressed request or - consent of the recipient unless such merchandise shall. have attached to it a clear and conspicuous statement that the recipient may treat the merchandise as a gift to him and that he has the right to retain, use, discard, or dispose of it in any manner that he sees fit without any obligation whatsoever to the sender. 2. Sending any communication (including bills, invoices, reminders, letters, notices, or dunning communications) that in any manner seeks to obtain payment for or return of merchandise shipped without the expressed consent or request of the recipient. 3. Sending any merchandise to any person without first obtaining a specific ordér therefor after respondents have been notified by such person that no further merchandise shipments are to be made.

4. Using any coupon or order form by which purchasers purport to authorize or authorize (either of which is referred to herein as “authorization”) respondents to send merchandise at a future date unless the authorization is set forth in a completely separate and distinct paragraph in such document, which separate paragraph contains only words or information necessary to the authorization and which clearly and conspicuously states the following:

(1) that the document is an authorization to send merchandise at a future date; and (2) that such authorization shall apply only to one offering other than an initial shipment, if any, which offering is to be shipped within one year; and (3) a description of the merchandise covered by the authorization.

5. Resorting to any subterfuge or coercion to sell respondents’ merchandise.

6. Representing, directly or by implication, that delinquent accounts will be, or have been, turned over to an independent, bona fide collection agency.

7. Representing, directly or by implication, that Guardian Collection Agency, Inc., is an independent, bona fide collection 494-841 —73-——57 Final..Order _ 81 FTC.

agency; or that any other organization or trade name owned or controlled wholly or partially by respondents i is an. independent, bona fide collection agency.

8. Representing, directly .or by implication, that delinquent accounts will be referred to an attorney if payment is not: received. 9. Using any subterfuge or deceptive.scheme or device in connection with the collection of delinquent accounts. : 10. Shipping to any customer greeting cards, or any other merchandise, that differ in a material respect from the greeting cards or the other merchandise ordered without ‘informing the customer that: he is entitled to a full cash refund if he does not wish to accept the substitute merchandise or a partial refund of a stated amount if*he is willing to. accept merchandise of lesser quality or value than that ordered.

11. Representing, directly or by implication, that imprinting or other service in connection with the sale of greeting cards or other | products is given “free” or asa gift or without cost or * charge in connection with:

(1) any: offer which runs for an indefinite term or con- . tinuously for a period in'excess of one year; _ (2) any offer not covered by (1), above, excluding intro- | ductory offers, unless as to such limited offer: (a) a regular bona fide retail price is established for the product without the imprinting or service ; (b) a regular bona fide retail price is established for the imprinting or service, or in the absence of such price a determination is made of the cost to respondents of providing the imprinting or service; and (c) the price of the greeting cards or product is reduced at least as much as the price or cost of the imprinting or service.

It is further ordered, That respondents notify the Commission at least thirty (30) days prior to any proposed change in any of the corporate respondents, such as dissolution, assignment, or sale resulting in the emergence of a successor corporation, affiliates, or any other change in the corporate respondents which may affect compliance obligations arising out of this.order.

It is further ordered, That corporate respondents distribute a copy of this order to each of their operating divisions or departments. It is further ordered, That the respondents herein shall, within sixty (60) days after the effective date of this order, file with the Commis- FHA MOBIL HOME BROKERS, INC., ET AL. 891 836 : ; Complaint, sion a report, in writing, setting forth in detail the manner and form in which they have complied with this order. It is further ordered, That the initial decision,.as modified, ‘be, and 5 1 3 1 3 2 617 728 28 33 95.174950 it5 1 3 1 3 3 655 727 143 45 95.174950 hereby5 1 3 1 3 4 790 740 39 31 96.898865 is,5 1 3 1 3 5 839 730 151 42 96.413643 adopted5 1 3 1 3 6 1000 742 38 21 96.892586 as5 1 3 1 3 7 1045 706 60 57 96.868889 thes 1 3 1 3 8 1114 731 149 33 96.564217 decisions 1 3 1 3 9 1273 732 40 32 95.937401 of5 1 3 1 3 10 1321 731 60 33 95.937401 thes 1 3 1 3 11 1390 731 237 34 96.062157 Commission.2 1 4 0 0 0 1216 826 123 8 -1 3 1 4 1 0 0 1216 826 123 8 -1 4 1 4 1 1 0 1216 826 123 8 -1 5 1 4 1 1 1 1216 826 123 8 95.000000 2 1 5 0 0 0 744 879 1049 139 -1 3 1 5 1 0 0 744 879 1049 139 -1 4 1 5 1 1 0 1094 879 372 37 -1 5 1 5 1 1 1 1094 879 48 36 96.123314 In5 1 5 1 1 2 1162 894 73 21 74.292297 thes 1 5 1 1 3 1253 884 148 31 86.834641 Marrer5 1 5 1 1 4 1421 894 45 22 82.258446 or4 1 5 1 2 0 744 952 1049 66 -1 5 1 5 1 2 1 744 948 107 74 94.475693 FHA5 1 5 1 2 2 881 952 185 65 94.475693 MOBILES 1 5 1 2 3 1086 960 143 49 96.939629 HOMES 1 5 1 2 4 1244 955 246 63 93.296364 BROKERS,5 1 5 1 2 5 1510 976 105 41 61.305889 INC.,5 1 5 1 2 6 1635 977 64 31 95.990677 ET5 1 5 1 2 7 1717 977 76 32 95.240242 AL.2 1 6 0 0 0 613 1053 1324 92 -1 3 1 6 1 0 0 613 1053 1324 92 -1 4 1 6 1 1 0 613 1053 1324 46 -1 5 1 6 1 1 1 613 1060 164 29 95.636337 CONSENTS 1 6 1 1 2 793 1053 115 46 93.182236 ORDER,5 1 6 1 1 3 930 1068 84 31 93.033661 ETC.,5 1 6 1 1 4 1038 1061 44 30 96.366943 IN5 1 6 1 1 5 1103 1055 129 37 95.995407 REGARDS 1 6 1 1 6 1255 1070 43 22 96.735153 TO5 1 6 1 1 7 1319 1070 74 22 95.930489 THES 1 6 1 1 8 1415 1057 151 35 96.524757 ALLEGED5 1 6 1 1 9 1589 1067 185 26 95.640999 VIOLATIONS 1 6 1 1 10 1800 1066 41 27 96.384720 OF5 1 6 1 1 11 1864 1073 73 21 96.565361 THEA 1 6 1 2 0 735 1112 1202 33 -1 5 1 6 1 2 1 735 1117 151 23 96.761780 FEDERAL5 1 6 1 2 2 902 1119 108 21 96.216965 TRADES 1 6 1 2 3 1027 1114 218 28 95.810211 COMMISSIONS 1 6 1 2 4 1264 1121 73 22 95.668602 ANDS 1 6 1 2 5 1355 1121 119 24 95.668602 TRUTH5 1 6 1 2 6 1493 1121 43 22 96.476227 IN5 1 6 1 2 7 1555 1121 155 23 96.707092 LENDING5 1 6 1 2 8 1728 1121 83 23 96.804535 ACTS5 1 6 1 2 9 1935 1112 2 2 13.376480 .2 1 7 0 0 0 752 1182 1040 45 -1 3 1 7 1 0 0 752 1182 1040 45 -1 4 1 7 1 1 0 752 1182 1040 45 -1 5 1 7 1 1 1 752 1182 114 36 96.429329 Dockets 1 7 1 1 2 877 1194 117 30 67.436165 C-2324.5 1 7 1 1 3 1007 1195 171 31 91.459953 Complaint,5 1 7 1 1 4 1189 1196 72 25 95.325623 Nov.5 1 7 1 1 5 1270 1196 43 30 89.920319 30,5 1 7 1 1 6 1323 1196 254 31 86.958778 1972—Decision,5 1 7 1 1 7 1587 1198 71 24 75.160629 Nov.5 1 7 1 1 8 1669 1197 42 30 96.393547 30,5 1 7 1 1 9 1722 1198 70 24 95.632797 19722 1 8 0 0 0 610 1265 1353 169 -1 3 1 8 1 0 0 610 1265 1353 169 -1 4 1 8 1 1 0 610 1265 1353 36 -1 5 1 8 1 1 1 610 1269 126 25 96.831802 Consents 1 8 1 1 2 751 1270 86 24 96.727562 orders 1 8 1 1 3 853 1271 150 29 96.755768 requiring5 1 8 1 1 4 1015 1265 20 30 96.603691 a5 1 8 1 1 5 1051 1271 122 30 96.392014 Hixson;5 1 8 1 1 6 1191 1272 169 29 96.592171 Tennessee,5 1 8 1 1 7 1378 1261 122 44 95.956001 retailers 1 8 1 1 8 1519 1274 52 27 96.442230 ands 1 8 1 1 9 1591 1273 175 26 96.297844 distributors 1 8 1 1 10 1783 1274 32 25 95.864288 of5 1 8 1 1 11 1830 1275 106 24 93.226639 mobiles 1 8 1 1 12 1960 1295 3 5 92.207550 .4 1 8 1 2 0 679 1307 1255 40 -1 5 1 8 1 2 1 679 1312 106 29 96.161171 homes,5 1 8 1 2 2 802 1318 106 23 96.161171 among5 1 8 1 2 3 924 1313 85 24 96.721748 others 1 8 1 2 4 1024 1307 99 35 96.666908 things5 1 8 1 2 5 1140 1314 29 33 95.834579 to5 1 8 1 2 6 1185 1319 86 19 95.834579 ceases 1 8 1 2 7 1288 1314 143 30 96.497139 violating5 1 8 1 2 8 1448 1316 50 23 96.374275 thes 1 8 1 2 9 1515 1315 95 25 96.649490 Truth5 1 8 1 2 10 1627 1316 33 23 96.320625 in5 1 8 1 2 11 1676 1316 133 29 96.006035 Lending5 1 8 1 2 12 1824 1316 56 25 96.704994 Acts 1 8 1 2 13 1894 1316 40 31 96.921494 by4 1 8 1 3 0 678 1353 1256 33 -1 5 1 8 1 3 1 678 1353 107 30 96.492004 failing5 1 8 1 3 2 794 1354 33 24 96.330971 to5 1 8 1 3 3 839 1354 123 26 96.330971 discloses 1 8 1 3 4 972 1355 32 24 96.190620 to5 1 8 1 3 5 1015 1358 174 27 85.476646 consumers,5 1 8 1 3 6 1197 1355 35 31 96.531586 in5 1 8 1 3 7 1243 1354 171 26 96.673340 connections 1 8 1 3 8 1426 1357 73 24 96.662338 with5 1 8 1 3 9 1509 1358 52 23 96.752731 thes 1 8 1 3 10 1573 1358 157 24 93.282883 extensions 1 8 1 3 11 1738 1358 32 24 94.933060 of5 1 8 1 3 12 1781 1364 153 19 96.653961 consumer4 1 8 1 4 0 680 1395 1252 39 -1 5 1 8 1 4 1 680 1395 101 30 23.934616 credit,5 1 8 1 4 2 804 1396 74 24 96.013611 such5 1 8 1 4 3 902 1396 192 25 96.276253 information5 1 8 1 4 4 1118 1403 33 19 96.942802 as5 1 8 1 4 5 1176 1398 137 36 96.469826 required5 1 8 1 4 6 1336 1398 39 30 96.469826 by5 1 8 1 4 7 1399 1398 178 30 92.802773 Regulations 1 8 1 4 8 1600 1400 22 23 92.802773 Z5 1 8 1 4 9 1647 1400 34 24 96.436722 of5 1 8 1 4 10 1705 1401 51 23 96.436722 thes 1 8 1 4 11 1780 1401 65 24 92.879944 said5 1 8 1 4 12 1869 1401 63 25 90.869682 Act.2 1 9 0 0 0 1163 1478 215 33 -1 3 1 9 1 0 0 1163 1478 215 33 -1 4 1 9 1 1 0 1163 1478 215 33 -1 5 1 9 1 1 1 1163 1478 215 40 45.744888 Complaint2 1 10 0 0 0 578 1524 1354 1197 -1 3 1 10 1 0 0 583 1524 1349 132 -1 4 1 10 1 1 0 648 1524 1284 83 -1 5 1 10 1 1 1 648 1560 176 32 96.175217 Pursuant5 1 10 1 1 2 841 1563 37 29 96.703865 to5 1 10 1 1 3 896 1561 60 32 96.169434 thes 1 10 1 1 4 975 1560 194 42 96.258621 provisions5 1 10 1 1 5 1187 1563 40 31 96.609253 of5 1 10 1 1 6 1246 1563 59 31 96.482338 thes 1 10 1 1 7 1324 1563 144 33 96.807884 Truth5 1 10 1 1 8 1459 1575 37 21 96.198013 in5 1 10 1 1 9 1515 1524 161 83 95.613991 Lending5 1 10 1 1 10 1695 1536 76 61 74.322845 Acts 1 10 1 1 11 1784 1566 70 39 96.012611 ands 1 10 1 1 12 1873 1567 60 40 96.851318 thea 1 10 1 2 0 583 1610 1347 46 -1 5 1 10 1 2 1 583 1610 285 43 75.072517 ‘implementing5 1 10 1 2 2 889 1611 195 42 96.460098 regulations 1 10 1 2 3 1103 1606 245 49 82.726654 promulgated5 1 10 1 2 4 1368 1614 218 42 96.280869 thereunder,5 1 10 1 2 5 1609 1616 70 31 96.600487 ands 1 10 1 2 6 1702 1616 59 32 96.419739 thes 1 10 1 2 7 1784 1616 146 34 96.250526 Federal3 1 10 2 0 0 600 1661 1331 449 -1 4 1 10 2 1 0 605 1661 1326 47 -1 5 1 10 2 1 1 605 1662 114 30 96.314575 Trades 1 10 2 1 2 739 1661 228 34 96.273911 Commissions 1 10 2 1 3 986 1662 78 42 96.114273 Act,5 1 10 2 1 4 1084 1663 69 32 96.114273 ands 1 10 2 1 5 1171 1663 47 43 96.931450 by5 1 10 2 1 6 1238 1663 115 33 96.021423 virtues 1 10 2 1 7 1372 1665 40 31 96.204163 of5 1 10 2 1 8 1430 1665 60 32 96.268219 thes 1 10 2 1 9 1510 1665 177 43 96.434509 authority5 1 10 2 1 10 1707 1667 146 31 96.838135 vested5 1 10 2 1 11 1843 1678 38 21 96.762947 in5 1 10 2 1 12 1901 1667 30 32 96.488174 it4 1 10 2 2 0 603 1684 1328 74 -1 5 1 10 2 2 1 603 1712 45 40 95.965294 by5 1 10 2 2 2 661 1711 76 34 95.738770 said5 1 10 2 2 3 750 1712 95 40 95.738770 Acts,5 1 10 2 2 4 859 1712 58 32 96.995506 thes 1 10 2 2 5 931 1684 144 74 96.797600 Federal5 1 10 2 2 6 1089 1714 115 32 96.376266 Trades 1 10 2 2 7 1219 1714 237 42 95.739319 Commission,5 1 10 2 2 8 1470 1716 132 42 95.856697 having5 1 10 2 2 9 1616 1727 120 22 96.625641 reasons 1 10 2 2 10 1749 1720 38 29 96.051765 to5 1 10 2 2 11 1801 1717 130 33 96.051765 believe4 1 10 2 3 0 604 1737 1324 72 -1 5 1 10 2 3 1 604 1762 77 32 95.226784 that5 1 10 2 3 2 692 1763 103 31 95.226784 FHA5 1 10 2 3 3 806 1737 130 57 96.717728 Mobiles 1 10 2 3 4 947 1764 113 32 96.820686 Homes 1 10 2 3 5 1069 1764 160 41 93.267143 Brokers,5 1 10 2 3 6 1240 1766 84 40 90.523041 Inc.,5 1 10 2 3 7 1336 1776 19 21 93.844948 a5 1 10 2 3 8 1368 1766 220 40 96.141037 corporations 1 10 2 3 9 1599 1767 69 32 93.119492 ands 1 10 2 3 10 1678 1768 46 31 90.957291 K.5 1 10 2 3 11 1736 1767 39 33 90.957291 L.5 1 10 2 3 12 1789 1759 139 50 93.135139 Ficken,4 1 10 2 4 0 603 1790 1325 69 -1 5 1 10 2 4 1 603 1813 118 32 93.262894 James5 1 10 2 4 2 733 1814 40 31 92.693329 R.5 1 10 2 4 3 785 1813 198 43 95.817825 Whisnant,5 1 10 2 4 4 995 1815 68 31 95.684746 ands 1 10 2 4 5 1075 1815 118 33 93.221802 James5 1 10 2 4 6 1203 1815 40 34 82.512451 L.5 1 10 2 4 7 1257 1790 155 68 96.924316 Stanley,5 1 10 2 4 8 1425 1816 233 43 96.575890 individually5 1 10 2 4 9 1671 1818 68 31 96.597214 ands 1 10 2 4 10 1753 1829 37 21 96.597214 as5 1 10 2 4 11 1802 1819 126 32 96.517807 officers4 1 10 2 5 0 602 1863 1325 47 -1 5 1 10 2 5 1 602 1863 40 32 96.648033 of5 1 10 2 5 2 658 1863 75 33 96.776566 said5 1 10 2 5 3 748 1864 232 41 96.845604 corporation,5 1 10 2 5 4 995 1864 212 33 96.516434 hereinafter5 1 10 2 5 5 1222 1866 155 33 96.073273 referred5 1 10 2 5 6 1393 1870 37 29 96.073273 to5 1 10 2 5 7 1447 1878 38 21 97.007210 as5 1 10 2 5 8 1501 1869 233 41 96.681099 respondents,5 1 10 2 5 9 1752 1869 87 32 93.031906 have5 1 10 2 5 10 1856 1869 71 33 92.901108 vio-4 1 10 2 6 0 602 1914 1326 48 -1 5 1 10 2 6 1 602 1914 93 32 96.566826 lated5 1 10 2 6 2 713 1915 59 32 96.995743 thes 1 10 2 6 3 790 1914 196 43 96.751099 provisions5 1 10 2 6 4 1003 1916 40 32 96.597008 of5 1 10 2 6 5 1062 1916 74 32 94.884583 said5 1 10 2 6 6 1155 1917 87 32 96.640594 Acts5 1 10 2 6 7 1259 1918 72 32 96.640594 ands 1 10 2 6 8 1350 1917 263 44 95.587379 implementing5 1 10 2 6 9 1632 1919 205 43 96.552025 regulation,5 1 10 2 6 10 1858 1921 70 32 96.942276 anda 1 10 2 7 0 602 1964 1325 66 -1 5 1 10 2 7 1 602 1964 28 32 96.102859 it5 1 10 2 7 2 651 1965 191 43 96.390671 appearing5 1 10 2 7 3 863 1969 37 29 96.390671 to5 1 10 2 7 4 919 1967 61 32 96.551300 thes 1 10 2 7 5 1000 1966 228 34 96.556435 Commissions 1 10 2 7 6 1247 1968 78 32 96.223206 that5 1 10 2 7 7 1345 1980 23 21 96.223206 a5 1 10 2 7 8 1389 1964 208 66 96.716606 proceedings 1 10 2 7 9 1617 1970 47 43 96.610527 by5 1 10 2 7 10 1685 1970 30 32 96.324142 it5 1 10 2 7 11 1735 1969 39 33 95.468727 in5 1 10 2 7 12 1796 1975 131 38 94.991745 respect4 1 10 2 8 0 600 2016 1327 48 -1 5 1 10 2 8 1 600 2016 137 32 96.503334 thereof5 1 10 2 8 2 756 2016 115 33 96.581482 would5 1 10 2 8 3 892 2017 69 33 95.869774 be5 1 10 2 8 4 952 2028 37 21 96.965065 in5 1 10 2 8 5 1010 2018 58 32 97.015762 thes 1 10 2 8 6 1086 2018 119 47 96.458031 public5 1 10 2 8 7 1225 2018 151 42 96.575294 interest,5 1 10 2 8 8 1397 2020 156 42 96.320534 hereby5 1 10 2 8 9 1544 2031 106 22 96.358398 issues5 1 10 2 8 10 1671 2021 52 49 96.997528 its5 1 10 2 8 11 1737 2022 190 42 96.213600 complaint4 1 10 2 9 0 601 2040 820 77 -1 5 1 10 2 9 1 601 2067 131 43 96.713081 stating5 1 10 2 9 2 741 2067 45 33 96.927994 its5 1 10 2 9 3 796 2067 160 43 96.459679 charges5 1 10 2 9 4 947 2079 37 21 96.516907 in5 1 10 2 9 5 994 2068 76 33 96.114250 that5 1 10 2 9 6 1077 2072 134 38 16.811874 respect.5 1 10 2 9 7 1220 2080 39 22 16.811874 as5 1 10 2 9 8 1267 2040 154 77 96.634453 follows:3 1 10 3 0 0 641 2089 1284 80 -1 4 1 10 3 1 0 641 2089 1284 80 -1 5 1 10 3 1 1 641 2089 213 75 0.000000 Paracrapir5 1 10 3 1 2 874 2121 28 29 95.734520 1.5 1 10 3 1 3 925 2119 220 42 94.594688 Respondents 1 10 3 1 4 1165 2120 103 32 95.605011 FHA5 1 10 3 1 5 1288 2121 130 32 95.668579 Mobiles 1 10 3 1 6 1437 2122 115 33 96.580887 Homes 1 10 3 1 7 1570 2099 160 70 96.793449 Brokers,5 1 10 3 1 8 1750 2124 84 40 70.789619 Inc.,5 1 10 3 1 9 1855 2123 30 33 96.445625 is5 1 10 3 1 10 1905 2135 20 21 96.445625 a3 1 10 4 0 0 578 2148 1345 69 -1 4 1 10 4 1 0 578 2148 1345 69 -1 5 1 10 4 1 1 578 2161 242 49 45.988506 corporations 1 10 4 1 2 844 2169 206 43 23.284157 organized,5 1 10 4 1 3 1064 2170 150 43 95.575859 existing5 1 10 4 1 4 1240 2172 70 31 96.218781 ands 1 10 4 1 5 1335 2172 108 43 84.730095 doing5 1 10 4 1 6 1468 2172 153 33 84.730095 business5 1 10 4 1 7 1646 2173 111 33 96.500366 under5 1 10 4 1 8 1783 2148 69 58 96.850609 ands 1 10 4 1 9 1876 2174 47 43 96.881203 by3 1 10 5 0 0 598 2219 1324 98 -1 4 1 10 5 1 0 599 2219 1323 47 -1 5 1 10 5 1 1 599 2219 114 33 96.470619 virtues 1 10 5 1 2 722 2220 39 32 96.996529 of5 1 10 5 1 3 770 2220 59 31 96.574097 thes 1 10 5 1 4 838 2220 85 33 96.574097 laws5 1 10 5 1 5 932 2220 39 33 96.086266 of5 1 10 5 1 6 982 2221 58 32 97.016319 thes 1 10 5 1 7 1050 2220 97 34 96.635162 States 1 10 5 1 8 1157 2222 41 32 96.635162 of5 1 10 5 1 9 1207 2223 197 41 96.439133 Tennessee,5 1 10 5 1 10 1416 2223 85 32 96.722145 with5 1 10 5 1 11 1511 2223 46 33 96.599007 its5 1 10 5 1 12 1567 2223 173 43 96.778725 principals 1 10 5 1 13 1751 2225 93 32 95.905098 offices 1 10 5 1 14 1854 2226 68 31 95.905098 anda 1 10 5 2 0 598 2270 1323 47 -1 5 1 10 5 2 1 598 2271 97 41 96.547600 places 1 10 5 2 2 715 2271 38 32 96.906075 of5 1 10 5 2 3 774 2270 153 34 96.762016 business5 1 10 5 2 4 947 2271 132 33 96.448921 located5 1 10 5 2 5 1101 2276 37 29 96.525757 at5 1 10 5 2 6 1159 2272 81 34 96.525757 57495 1 10 5 2 7 1261 2274 178 43 96.612892 Highways 1 10 5 2 8 1462 2276 72 40 95.311081 153,5 1 10 5 2 9 1556 2274 147 42 96.105499 Hixson,5 1 10 5 2 10 1725 2275 196 33 96.536858 Tennessee.3 1 10 6 0 0 593 2322 1328 247 -1 4 1 10 6 1 0 640 2322 1281 45 -1 5 1 10 6 1 1 640 2322 239 41 93.271652 Respondents5 1 10 6 1 2 902 2322 45 32 90.668755 K.5 1 10 6 1 3 974 2322 39 32 87.227554 L.5 1 10 6 1 4 1040 2322 139 43 91.996498 Ficken,5 1 10 6 1 5 1232 2335 91 21 91.339005 James5 1 10 6 1 6 1349 2325 41 32 91.339005 R.5 1 10 6 1 7 1417 2325 197 42 96.108269 Whisnant,5 1 10 6 1 8 1641 2326 69 32 96.302155 ands 1 10 6 1 9 1737 2327 119 32 93.286469 James5 1 10 6 1 10 1880 2327 41 32 89.031372 L.4 1 10 6 2 0 596 2371 1324 48 -1 5 1 10 6 2 1 596 2371 144 43 96.823242 Stanley5 1 10 6 2 2 757 2384 58 21 96.503265 ares 1 10 6 2 3 832 2373 127 33 96.812538 officers5 1 10 6 2 4 975 2374 39 32 96.419899 of5 1 10 6 2 5 1031 2374 59 32 96.617203 thes 1 10 6 2 6 1105 2379 181 37 96.423607 corporate5 1 10 6 2 7 1301 2376 216 41 96.181267 respondent.5 1 10 6 2 8 1538 2377 98 42 96.357208 They5 1 10 6 2 9 1653 2377 197 41 93.231628 formulate,5 1 10 6 2 10 1870 2377 50 33 92.931068 di-4 1 10 6 3 0 595 2423 1324 47 -1 5 1 10 6 3 1 595 2426 70 29 96.551170 rect5 1 10 6 3 2 682 2423 70 32 96.551170 ands 1 10 6 3 3 768 2424 132 32 95.835022 controls 1 10 6 3 4 916 2424 59 32 97.012093 thes 1 10 6 3 5 991 2425 124 42 96.611732 policy,5 1 10 6 3 6 1129 2428 74 30 96.319290 acts5 1 10 6 3 7 1219 2427 70 32 96.319290 ands 1 10 6 3 8 1304 2427 168 41 96.940140 practices5 1 10 6 3 9 1488 2427 41 33 96.893059 of5 1 10 6 3 10 1544 2428 60 32 96.670937 thes 1 10 6 3 11 1620 2427 232 43 93.251274 corporation,5 1 10 6 3 12 1867 2427 52 33 93.090851 in-4 1 10 6 4 0 593 2473 1327 71 -1 5 1 10 6 4 1 593 2473 142 42 95.857658 cluding5 1 10 6 4 2 742 2474 70 32 96.811432 thes 1 10 6 4 3 813 2478 71 29 96.811432 acts5 1 10 6 4 4 895 2475 68 31 96.805984 ands 1 10 6 4 5 973 2475 166 41 96.851631 practices5 1 10 6 4 6 1149 2476 212 33 96.089645 hereinafter5 1 10 6 4 7 1370 2481 52 29 96.913551 sets 1 10 6 4 8 1433 2478 107 32 96.737534 forth.5 1 10 6 4 9 1553 2478 107 32 95.847725 Theirs 1 10 6 4 10 1671 2474 122 70 95.377457 address5 1 10 6 4 11 1818 2478 13 62 85.180542 15 1 10 6 4 12 1822 2490 28 21 96.955086 is5 1 10 6 4 13 1862 2478 58 33 95.921783 thea 1 10 6 5 0 593 2524 754 45 -1 5 1 10 6 5 1 593 2533 90 23 96.622345 same5 1 10 6 5 2 694 2535 36 21 95.781067 as5 1 10 6 5 3 740 2524 76 32 96.079269 that5 1 10 6 5 4 824 2526 42 32 96.079269 of5 1 10 6 5 5 875 2526 59 31 97.019218 thes 1 10 6 5 6 944 2530 177 37 96.495712 corporate5 1 10 6 5 7 1131 2527 216 42 96.152138 respondent.3 1 10 7 0 0 589 2574 1330 147 -1 4 1 10 7 1 0 634 2574 1285 49 -1 5 1 10 7 1 1 634 2574 83 33 92.536270 Par.5 1 10 7 1 2 731 2577 30 31 92.303932 2.5 1 10 7 1 3 776 2576 237 41 96.239166 Respondents5 1 10 7 1 4 1029 2587 57 21 96.477440 ares 1 10 7 1 5 1099 2588 86 30 96.808716 now,5 1 10 7 1 6 1201 2578 68 32 96.555115 ands 1 10 7 1 7 1285 2578 57 32 96.873390 for5 1 10 7 1 8 1357 2590 91 21 95.959297 some5 1 10 7 1 9 1461 2579 83 32 95.959297 times 1 10 7 1 10 1559 2580 66 31 93.589561 lasts 1 10 7 1 11 1640 2583 78 40 93.589561 past5 1 10 7 1 12 1733 2580 87 32 95.066093 have5 1 10 7 1 13 1834 2580 85 32 96.993416 been4 1 10 7 2 0 591 2626 1325 45 -1 5 1 10 7 2 1 591 2626 154 41 96.574951 engaged5 1 10 7 2 2 758 2626 38 32 96.133194 in5 1 10 7 2 3 808 2626 59 33 96.133194 thes 1 10 7 2 4 881 2627 222 42 96.322792 advertising,5 1 10 7 2 5 1117 2629 148 42 96.866165 offerings 1 10 7 2 6 1280 2629 56 32 96.984367 for5 1 10 7 2 7 1349 2630 69 32 96.578896 sales 1 10 7 2 8 1433 2631 69 31 96.269463 ands 1 10 7 2 9 1517 2631 100 31 96.612381 retails 1 10 7 2 10 1631 2631 70 31 96.794586 sales 1 10 7 2 11 1717 2631 69 32 93.160339 ands 1 10 7 2 12 1801 2632 115 32 89.779694 distri-4 1 10 7 3 0 589 2675 676 46 -1 5 1 10 7 3 1 589 2675 121 34 96.767509 bution5 1 10 7 3 2 721 2677 39 33 96.549683 of5 1 10 7 3 3 769 2677 125 33 96.882843 mobiles 1 10 7 3 4 904 2678 115 41 96.773560 homes5 1 10 7 3 5 1028 2682 35 29 96.808662 to5 1 10 7 3 6 1073 2680 58 31 96.808662 thes 1 10 7 3 7 1141 2680 124 41 95.577362 public. 892. . .FEDERAL. TRADE. COMMISSION DECISIONS Complaint 81 FTC.

Par. 3. In the ordinary course of their business as aforesaid, respondents regularly extend consumer credit, as “consumer credit” is defined in Regulation Z, the implementing regulation of the Truth in Lending Act, duly promulgated by the Board of Governors of the Federal Reserve System.

Par. 4. Subsequent to July 1, 1969, in the ordinary course of their business as aforesaid, and in connection with their credit sales, as “credit sale” is defined i in Regulation Z, respondents have caused and are causing their customers to enter into contracts for the sale of respondents’ goods and services. On these contracts, hereinafter referred to as “the contract,” respondents provide certain consumer credit cost information. Respondents do not provide these customers with any other consumer credit cost disclosures. By and through use of the contract, respondents: 1. Fail to exclude from the “amount financed” and to include in the “finance charge” the cost of the credit investigation required by the respondents in connection with the credit sale, as required by Section 226.4(a) (4) of Regulation Z.

2. Fail to disclose the “annual percentage rate” accurately to the nearest quarter of one percent, in accordance with Section 226.5 of Regulation Z, as required by Section 226. 8(b) (2) of Regulation Z. 3. Include the charge for credit life insurance in the “amount financed” and fail, in certain instances, to secure a separately signed and dated credit life insurance authorization, as required by Section 226.4(a) (5) of Regulation Z.

Par. 5. In the ordinary course of their business as aforesaid, respondents cause to be published advertisements of their goods and services, as “advertisement” is defined in Regulation Z. These advertisements aid, promote, or assist directly or indirectly extensions of consumer -eredit in connection with the sale of these goods and services. By and ‘through the use of the advertisements, respondents : 1. State the rate of finance charge without describing that rate as -an “annual percentage rate,” in violation of Section 226.10(d) (1) -of Regulation Z.

2. State the amount of the downpayment required and the amount -of monthly installment payments which can be arranged in connection with a consumer credit transaction, without also stating all of the ‘following items, in terminology prescribed under Section 226.8 of -Regulation Z, as required by Section 226.10(d) (2) thereof: (i) The cash price;

(ii) The amount of the downpayment required or that no downpayment is required, as applicable;

FHA ‘MOBIL ‘HOME BROKERS, INC., EF AL. 8938 891. . Decision and Order (11) The number, amount, and due dates or period of payments ‘scheduled to repay the indebtedness if the credit is extended. (iv) The amount of the finance charge expressed as. an “annual , percentage rate; and (v) The: deferred payment price:

Par. 6. Pursuant to Section 103(q) of the Truth i in Lending Act, respondents’ aforesaid failures te comply with the provisions of Regulation Z constitute violations of that Act and pursuant to Section | 108 thereof, respondents have thereby violated, the Federal Trade Commission Act. ON Decision AND Onven - The Federal Trade Commission having initiated an investigation of certain acts and practices of the respondents named in the caption ‘hereof, and the respondents: having been furnished thereafter with a copy of a draft of complaint which the Atlanta Regional Office proposed: to present to the Commission for its consideration and which, if issued by the Commission, would charge respondents with violation of the Truth in Lending Act and the implementing regulation promul-_ -gated thereunder, and the Federal Trade Commission Act; and The respondents and counsel for the Commission having thereafter executed an agreement containing a consent order, an admission by the respondents of all the jurisdictional facts set forth{ in the aforesaid draft of complaint, a statement that the signing of said agreement: is for settlement 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 Commission’s 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 Acts, 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 pro- . cedure prescribed in Section 2.34(b) of the rules, the Commission hereby issues its complaint, makes the following jurisdictional findings, and enters the following order:

1, Respondent FHA Mobile Home Brokers, Inc., is a corporation organized, existing, and doing business under and by virtue of the laws of the State of Tennessee, with its office and principal place of business located at 5749 Highway 153, Hixson, Tennessee. Respondents K. L. Ficken, James R. Whisnant and James L. Stanley are individuals and are corporate officers of FHA Mobile Home is in the public interest.

894 — . FEDERAL TRADE COMMISSION . DECISIONS. Decision and. Order 81 F.T.C.

Brokers, Inc.. They direct, formulate, and control the acts and practices of the respondent corporation including the acts and practices under investigation. .

2. The Federal Trade Commission ‘has jurisdiction of the subject matter of this proceeding and. of the respondents, and the proceeding ORDER. - It is ordered, That respondents. FHA. Mobile Home Brokers, Inc, a: corporation, its successors and assigns, and its officers, and. K. L. Ficken, James R. Whisnant and James L. Stanley, individually and as Officers of said corporation and respondents’ agents, representatives and employees, directly or through any corporate, subsidiary, division ‘or other device in: connection with any extension of consumer credit or advertisement. to aid, promote or assist directly or indirectly any ex- -tension of consumer credit, as “consumer credit” and “advertisement” are defined in Regulation Z (12 C:F.R. § 226) of the Truth in Lending Act: (Pub. L. 90-321, 15. U.S. C. 1601 et #4. dy do forthwith cease and desist from: :

A. Failing to exclude from the “amount financed” and t toi include in the “finance charge” the cost of the. credit investigation required by the respondents in connection with the credit sale, as required by Section 226.4(a) (4) of Regulation Z. 2. Failing to disclose the “annual percentage rate” accurately to the nearest quarter of one percent, in accordance with Section 226.5 of Regulation Z, as required by Section 226.8(b) (2) of Regulation Z, 3. Failing, in any credit transaction in which the charge for credit life insurance is included in the “amount financed,” to secure a signed and dated credit life insurance authorization, as required by Section 226.4(a) (5) of Regulation Z.

4. Stating, in any advertisement, the rate of any finance charge unless respondents state the rate of that charge expressed as an “annual percentage rate,” as required by Section 226.10(d) (1) of Regulation Z.

5. Stating, in any advertisement, the amount of the downpayment required and the amount of monthly installment payments which can be arranged in connection with a consumer credit transaction, without also stating all of the following items, in terminology prescribed under Section 226.8 of Regulation Z, as required by Section 226.10(d) (2) thereof:

(i) The cash price;

“COLMAN & RIDDELL, INC.; ET AL. - 895 sol Complaint (ii) The amount of the downpayment required or that no downpayment is required, as applicable;

(iii) The number, amount, and due dates or period of pay ‘ments scheduled to repay the indebtedness if the’ credit ‘is . extended.

(iv) The amount of the finance charge expressed as an _ annual percentage rate; and (v) The deferred payment price.

6. Failing, in any consumer credit transaction or advertisement, - to make all disclosures, determined in accordance with Sections 226.4 and 226.5 of Regulation Z, in the manner, form and’ amount : required by Sections 226.6, 226. 8 and 226.10 of Regulation Z. It is further ordered, That respondents deliver a copy of this order to cease and desist to all present and future personnel of respondents. engaged i in the consummation of any extension of consumer credit or in any aspect of preparation, creation, or placing of advertising, and that respondents secure a signed. statement acknowledging receipt of : said order from each'such person. © It is further ordered, That respondents notify the Commission’ at least thirty (30) days prior to any proposed change in the corporate respondent, ‘such. as dissolution; assignment or sale, resulting in: the emergence of a successor corporation; the creation or dissolution of subsidiaries; or any other change in the corporation which may affect compliance obligations arising out of the order. It is further 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 this order.