Montgomery Ward & Co., Inc

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IN THEMATT'-R OF MONTGOMERY WARD & COMPANY, ING FINAL ORDER, OPINION , ETC. , IN REGARD TO ALLEGED VIOLATION OF SEe. 5 OF THE FEDERAL TRADE COMMISSION ACT AND THE MAGNUSON-MOSS WARRANTY ACT Docket 9117. Complaint, Sept. 14, 978-Decision, April 9, 1.9751 This order requires, among other things, a Chicago, Ilinois operator of retail stores and catalog houses to make the text of written warranties readily available to prospective buyers prior to sale, and to prominently display 5 S advising consumers of such availability. Further, for a period of three years respon dents are required to conduct semiannual audits to ensure continuing compliance with the provisions of the order. Appearances For the Commission: Renita k Sakin, Carlton Lowe and Kenneth B Drost- For the respondent: Bonnie B Wan, Spencer H Heine and T. E Grace, in-house counsel.

COMPLAINT Pursuant to the provisions of the Magnuson-Moss Warranty Act and Rule 702, 16 CFR 702 promulgated thereunder, and the Federal Trade Commission Act, and by virtue of the authority vested in it by said Acts, the Federal Trade Commission having reason to believe that Montgomery Ward & Co_ , Inc_ , a corporation, hereinafter sometimes referred to as respondent, has violated the provisions of said Acts and Rule 702 promulgated under the Magnuson-Moss Warranty 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 charge in that respect as follows: PARAGRAPH L The definitions of terms contained in Section 101 of the Magnuson-Moss Warranty Act Pub- Law No- 93-637, 15 US_ 2301 (Supp- 1975) and in Rule 702, 16 CFR 702_ 1 promulgated thereunder shah apply to the terms used in this complaint- PAR- 2- Respondent Montgomcry Ward & Co_, Inc- is a corporation organized, existing and doing business under and by virtue of the laws of the State of Ilinois, with its principal office and -place of business located at One Montgomery Ward Plaza, Ghicago, Ilinois. P AR- 3- Respondent is now and has been in the operation of a chain of retail department stores and catalog houses throughout the j) ;i()4 FEDERAL TRAIJI COMMISSION DECISIONS Complaint F-T_ United States- Its volume of business has been and is substantial In the operation of its retail department stores, respondent is now and has been distributing, advertising, offering for sale and selling among other items, major appliances, including but not limited to refrigerators, stoves, washer-dryers, dishwashers, stereos and televisions which are consumer products. Therefore, respondent is both a supplier and seller of consumer products. P AR- 4- Respondent, in the course and conduct of its aforesaid business, now causes and has caused consumer products to be distributed in commerce.

P AR- 5- The Federal Trade Commission, pursuant to Title I, Section 109 of the Magnuson-Moss Warranty Act, 15 UB-G 2309, has duly promulgated the Rule concerning the Pre-Sale Availability of Written Warranty Terms on December 31 1975 (16jCFR 702 (1977)), effective January 1, 1977- A copy of the Rule is marked and attached as Appendix A ' and is incorporated in this Complaint by reference as if fully set forth verbatim- COUNT I Alleging violations of the Magnuson-Moss Warranty Act and the implementing Rule promulgated under that Act and the Federal Trade Commission Act, as amended, the allegations of Paragraphs One through Five are incorporated by reference in Count I as if fully set forth verbatim- P AR- 6- In the ordinary course and conduct of its aforesaid business, respondent regularly offers and has offered written warranties on 'consumer products. Therefore, respondent is a warrantor of consumer products.

P AR- 7 - In the further course and conduct of its business as warrantor of consumer products actually costing more than $15respondent has failed to provide its retail stores with the warranty materials required by 16 CFR 702_3(b)(1) which are necessary for such stores to comply with the requirements for sellers of consumer products as set forth in 16 CFR 702_3(a)- PAR- 8- Respondent's failure to comply with the provisions of 16 CFR 702 constituted and now constitutes a violation of the Magnuson-Moss Warranty Act and, pursuant to Section 1l0(b) thereof, an unfair or deceptive practice under Section 5(a)(I) of the Federal Trade Commission Act, 15 U_ G 45(a)(I), as amended- . Not reproduced herein for reasonsof economy. MONTGOMERY WARD & CD- INC 3ti5 363 Initial Decision COUNT II Alleging violations of the Magnuson-Moss Warranty Act and the implementing Rule promulgated under that Act and the Federal Trade Commission Act, as amended, the allegations of Paragraphs One through Five are incorporated by reference in Count II as if fully set forth verbatim- P AR- 9- In the ordinary course and conduct of its aforesaid business, respondent regularly sells or offers for sale consumer products for purposes other than resale or use in the ordinary course of the buyer s business, Therefore, respondent is a seller of consumer products- PAR- 10- On or after January 1, 1977, respondent, in the ordinary course of its aforesaid business as a seller of consumer products actually costing more than $15_00 and manufactured on or after January I , 1977 has failed to make the terms of written warranties available to the consumer prior to sale through utilization of one or more of the methods required by 16 CFR 702_3(a)(I): Clearly and conspicuously displaying the text of the written warranty in close conjunction with the product; 2- Maintaining a binder system readily available to the consumer along with conspicuous signs noting the location of binders where the binders themselves are not in plain view; 3- Displaying the warranty package in such a way that the text of the warranty is visible; and 4- Placing a sign with the warranty terms in close proximity to the prod ucl PAR- lL Respondent's failure to comply with the provisions of CFR 702 constituted and now constitutes a violation of the Magnuson-Moss Warranty Act and, pursuant to Section 1l0(b) thereof, an unfair or deceptive practice under Section 5(a)(I) of the Federal Trade Commission Act, 15 UB-C- 45(a)(1) as amended- INITIAL DECISION RY THEOOOR P- VON BRAND ADMINISTRATIVE LAW JUDGE DECEMRER 19, 1979 PRELIMINARY STATEMENT The complaint charges Montgomery Ward & Co- ("Wards ) with Initial Decision 9'nte violating the Magnuson-Moss Warranty - Federal Trade Commission Improvements Act, 15 UB-C- 2301 et seq- (1979), and 16 C_ R 702 (1979) promulgated under that Act- Count I of the complaint alleges that respondent failed to supply its retail stores with the warranty materials needed by its stores to comply with the requirements of 16 R 702_3- Count II charges that Wards failed to make the terms of written warranties available to the consumer prior to sale through utilization of one or more of the methods required by 16 C- 702_3(a)(I) (The Pre-Sale Rule)- Both counts of the complaint allege that the failure to comply with the regulations constituted a violation of the Magnuson-Moss Warranty Act and an unfair or deceptive practice under Section 5 of the Federal Trade Commission Act- (2J No proof was offered in support of the charges in Count I of the complaint- That Count is dismissed- The Pre-Sale rule, which was promulgated on December 31, 1975 became effective a year later on December 31, 1976 (16 GF_ R 700_ (1979))- This matter is now before the undersigned for decision based on the allegations of the complaint, the answer, the evidence of record and the proposed findings of fact, conclusions and briefs filed by the parties- All proposed findings of fact, conclusions and arguments not specifically found or accepted herein are rejected- The undersigned, having considered the entire record and the contentions of the parties, makes the following findings of fact and conclusions, and issues the orders set out herein, FINDINGS OF . FACT RESPONDENT AND ITS BUSINESS Montgomery Ward & Co., Incorporated ("Wards ) is a corporation, incorporated under the laws of the State of Ilinois with its principal office and principal place of business located at One Montgomery Ward Plaza, Chicago, Ilinois (Ans_ 2; RA 1-3)- 2- Wards is now and has been engaged in the operation of a chain of retail department stores and catalog houses throughout the United States (Ans_ 3)- 3- In the course of its business, Wards now causes and has caused consumer products to be distributed in commerce (Ans_ , 11 4)- 4- Wards sells products through approximately 650 retail outlets: 411-427 retail stores in 41 states and 230 limited line catalog-retail stores (RA 4 and 5; RX 326 at p- 1-18; RX 327 at pp- 1-21- 22). 5- Retail stores are full-line department stores carrying an MONTGOMERY WARD & CO-. INC 367 :36, Initial Decisjon assortment of hard and soft goods and certain leased departments which provide various personal services to customers, In addition to providing delivery, installation and repair services, most retail stores operate restaurants and automobile centers (TBA) which install automotive equipment, such as tircs and accessories (RX 326 at p- 1- , RX 327 at p- 1-21)- (3) 6- The limited line catalog-retail stores contain catalogs and maintain in stock for sale at retail several lines of merchandise principally paint, appliances, automotive accessories and tires (PAAT) (RX 326 at p- 1- , RX 327 at pp- 1-22)_ 7- During the year ending December 28, 1977 , Wards employed excess of 103 000 persons (RX 326 at p- 1--20)- In the following year ending December 27, 1978, it employed in excess of 107 700 employees (RX 327 at pp- 1-23)- Temporary sales people are used, for example, at the Christmas season (Kerin 1178-79)- Employees are sometimes transferred from store to store (Ochu 984-85; Pagliaro 1015- 16; Cote 1099- 1100; Sorenson 1130--iJn 8- Wards' retail operations sell merchandise acquired from approximately 6,000 different sources (UX 326 at p- 1-18; RX 327 at 9- Over 90 percent of the products sold by Wards, whether or not covered by a written warranty, are sold under respondent's private labels (RA 16)- 10- On some private label merchandise, costing more than $1.5and manufactured after January 1 , 1977, Wards offers its own written warranties (RA 10)- Wards also sells non-private label consumer products costing more than $15.00 and manufactured after January 1 , 1977, which are warranted by companies other than Wards (Ita 1 CHARACTERISTICS or WARDS' RETAIL STORES lL Wards' retail stores range in size from 1 720 to 220 297 square feet of selling space and from one to four floors of selling areas (CX 45)- 12- In the Bloomington store, Bloomington, Minn- which has two selling floors with 114 000 square feet of sellng space (Pagliaro 1065), the time needed to walk from one end of the sales floor to another does not exceed two minutes (Pagliaro 1042- , 105n 13- The majority of the three and four-level stores are the smallest stores in terms of square footage of selling space (CX (4)45)- , Compbint coun el introduced no evidence concerning Pre-Sale availability in PAATS stores , pp Initia.1 DecisiCin 97- F-TC- However, Wards ' store at 140 S State Street, Chicago, Ill is one Wards' largest stores; it consists offour selling floors totaling 200 624 square feet of selling space (CX 45cc)- Most Wards' full- line retail stores contain several entrances (CX 50-55)- 14- More than 50 percent of Montgomery Ward Automotive Centers are located in separate buildings from the closest Montgomery Ward retail store (RA 31d)- 15- The Customer Accommodation Center (CAC) in eilch store is an area where numerous customer services are handled and where consumers go for information and assistance (RA 34; Banis 322- 337; Hollon 502; Pagliaro 102n Departments and Merchandise in Wards ' Stores 16- Most Wards' full- line retail stores contain 55 departments- These departments fall within four general categories ofmerchandise: "A" Lines - Soft Goods; " B" Lines - Home Furnishings; Lines - Heavy Line Merchandise; "D" Lines - Major Appliances (RX 343)- However, not every Wards' store contains each of these 55 departments- The location of particular departments within a Wards' retail store varies from store to store and there is no general pattern or practice which governs where a particular department is located in a store in relation to another particular department (CX 50- ,); Pagliaro 1027-28).

17- The layout of merchandise within a department varies from store to store (Willamson 947-50; Sorenson, 1135-37; Pinelli Interview 1n The layouts change because of remodeling (Gelder 528, 538-39; Ochu 1002)- 18- In Wards' stores, "major appliances" includes the entire " Lines departments, including sewing machines, vacuum cleaners, televisions, stereos, records, air conditioners, humidifiers, and dehumidifiers, as well as the major kitchen appliances (RX 343; Pagliaro 1033-34; Williamson 97n 19- The "D" Lines - Major Appliances - in Wards' stores are not physically located in one selling area- In multi-level stores, some departments within the "D" Lines are on different floors- In some stores, the four departments which comprise the major kitchen appliances are physically separated (Pagliaro 1033- , 1040-41)- 20- The mix of merchandise .. Wards' stores does not remain constant; rather, the variety of consumer products (including those subject to the Pre-Sale Rule) constantly changes (RX 369a-r; (5JRX 370a- ; RX 37la-rrrr; RX 372a-wwww). Not all merchandise is carried at all times by every retail store (CX 47)- MONTGOMERY WARD & CO- . INC- 369 363 Initial Decision 2L In the TV/Stereo and Major Appliance Departments virtually all products sold are covered by written warranties and cost more than $15_00 (Williamson 962-63; Ochu 1002-03; Cote 1106; Sorenson 1152)- 22- In most departments in the retail stores, only a limited number of products sold are covered by written warranties and cost over $15_00- Several departments sell only one or two such warranted products (CX Ie-I; CX If' 23- The following lines of merchandise sold under Wards' private label carry identical warranties: all black and white television sets are covered by the same warranty (CX 1 ww; RX 2; Cote 1107); all color television sets are covered by the same warranty (CX lxx; RX 1; Cote 1107); all microwave ovens are covered by the same warranty (CX Ih' ; RX 3); and all private label small kitchen appliances from toasters to coffeemakers to popcorn poppers are covered by one, allinclusive warranty (CX Ip'; RX 347-56)- III. WARDS' BINDER AND SIGN PROGRAM 24- After publication of the Pre-Sale Availability Regulations (16 GF- 702), Wards chose as its primary method of compliance binder and sign program which would be implemented by providing each retail outlet with a select number of binders and signs (CX 10; McWaters 219- , 906, 919)- The decision to adopt the binder system was made by a Vice President, ML Marchese, (McWaters 218- 19)- Implementation of the policy was the responsibility of Chet Eckman Vice President-Retail Operating Manager (McWaters 219, 221; Eckman 228-30)- 25- Beginning August 1976, Wards took steps to assure that the binders would contain not only all the Wards' private label warranties but also the warranties covering non-private label merchandise- To accomplish this, Wards conducted surveys of its 6 000 sources to obtain copies of their warranties for use in the binders (RX 331 , 332)- 26- In the late summer and early fall of 1976, at the same time that all Wards' warranties were being revised to comply with the new 701 Regulations, meetings were held with all the merchandise department managers to discuss the revision of W ards own warranties and the continued efforts to obtain source warranties for the binders (CX 12, 19, 20). (6) 27- Prior to the effective date of the regulations, corporate officials corresponded with store managers and store advertising managers concerning the revision of Wards' warranties, emphasiz- Initial Decision 9?-YT_ ing that care had to be taken at the local levels to assure compliance with the company s legal obligations (RX 335)- 28- The warranty binder employed by Wards is a large, 3-ring, looseleaf, heavy plastic binder- It is bright blue with large, white block lettering "WARRANTIES" on the front and spine (CX n The binder is divided into three parts: the white pages contain the index by department, of all the products in the binder; Montgomery Ward warranties for private label products are printed on pink_pages; and warranties for non-private label merchandise are printed on yellow pages- The three binder sections are separated by heavy green dividers which identify the section for Montgomery Ward private label warranties and the section for source warranties (CX 1; RX 369 370 , 371, 372)- The text of all warranties on private label and source merchandise is included in the binder (CX 1; Pagliaro 1022; McWaters, 908)- 29- The size, construction, and content of each warranty sign distributed were uniform for all Wards' stores (CX 43h)- These signs , with orange lettering on whitewere quarter-sheet size, 11" x 14" background (CX 2; Pagliaro 1023; Sorenson 1132, Kerin 1173-74)- The orange and white coloring for the warranty sign was a distinct color combination not used for any other types of signs in Wards' retail stores (Cote 1113; Sorenson 1132-33)- 30- These signs state the following:

MERCHANDISE WARRANTY Information Warranties covering merchandise sold in this store are available for inspection at the Customer Accommodation Center and the Automotive Center. Any salesperson will direct you to these or other convenient Warranty information locations (CX 2).

Implementation of Initial Binder and Sign Program at the Store Level 3L The first step in the actual implementation of the binder and sign program at the retail level was a letter from Me- Eckman to all retail store managers in November 1976 and a (7Jseparate letter to each PAAT manager, also sent in November 1976- These letters stated that the Consumer Product Warranty Act (Magnuson-Moss Warranty Act) requires sellers to make written warranty terms available to consumers before the sale of warranted merchandise (CX 10; RX 333)- 32- For retail stores, Mr- Eckman s instructions were that the warranty binders were to be placed in the Customer Accommodation Center; the Automotive Center: and for stores with multi-levels, the MONTGOMERY WARD & CO-. ING 371 363 Iriitial Decision store manager was to select a central location, by floor, for placement of another warranty binder- ML Eckman also stated that warranty signs were being made and distributed from Chicago- A sign was to be placed in conjunction with each binder and additional signs displayed in prominent areas as follows: A) Appliance Department; B) A main entrance/exit to the store; and C) Near the area of escalators/elevators (CX 10)- 33- Three binders were, in fact, sent to each retail store (CX 43b; RX 340; Eckman 242; Pagliaro 1022, 1030)- The initial distribution of three warranty binders was made on November 16-- , J976 (CX 43b)- Depending upon store size, varying numbers of warranty signs were distributed to each retail store on November 22, 1976 (CX 43h)- 34- Under a separate directive, each PAAT store was sent one warranty binder for display- In P AA T stores, warranty signs were to be displayed with the warranty binder and in the appliance department and the automotive area (RX 333, 340)- Distribution and Placement of Binders 35- In each of Wards' stores, there are approximately thirty-five departments carrying products for which warranty information is included in respondent's binder (CX lc)- Binders were not provided by respondent for each department in its stores which carried warranted goods (RA 20)- 36- Pursuant to the binder part of the program, for each retail store, there was one binder per floor as follows: a- In the Customer Accommodation Center leaving to the store manager s discretion the location within the CAC (CX 10; Eckman 326);

b- In the Automotive Center (TBA), which is more often than not in a detached building (CX 10; Finding 14). (8) c- In a third location, if needed because a multi-level store had a detached TBA The choice of a third location on the remaining floor which did not have a binder as a result of a- and b- above was left to the discretion of each store manager (Pagliaro 1025)- Store managers were given such discretion because no two stores are physically the same in size and layout (Finding 16)- 37- Respondent's instruction dated November 19, 1976 to its store managers regarding the placement of binders and signs did not require that such binders be placed in either the Major Appliance Department or the TV/Stereo Department (CX 10a-b)- Both of these Initial Declsion 1- Fdepartments carry products which come within the scope of the Pre- Sale Rule (Finding 2n 38- In the period September 1 , 1977 to February 1 , 1978, a customer in some Wards' stores, in order to review a warranty binder, was required to go either to the Customer Accommodation Center or the Automotive Center (RA 2n Distribution and Placement of Signs 39- Pursuant to the signing part of the program, store managers were, on November 19, 1976, instructed to display one sign (CX 2) with each binder- Additional warranty signs were to be displayed in prominent areas " as follows:

a- Appliance Department;

b. Main entrance; and c- Escalator/elevator area (CX 10)- 40- The initial shipment of signs was sent to each of Wards' retail stores on November 22, 1976 (CX 42e, 43h). Wards sent no fewer than two and no more than eight signs to each of its retail stores on that date (CX 42e, 43h)- The number of signs sent to each store was based on the size of the store as determined by the store s square footage of sellng space- The number of signs sent per store was as follows: 13,000 square feet 72,000 103,000 8 (9) 124 000 140 000 165 000 (CX 42e, 43h, 430) 41- Wards' policy of requiring one sign with each of the three binders left some stores, on the basis of the initial shipment, with no signs for placement anywhere else in the store and other stores with at most five additional signs for placement at other points in the store. The number of signs from the initial shipment available for display other than with binders is as follows: j).

MONTGOMERY WARD & CO_ , INC- 373 363 Initial Decision N number of signs available for placement in the store Number of stores other than with the binder (CX 10, 43e, 43h, 430)' 42- In the period September 1 , 1977 to February 1 , 1978 respondent did not automatically supply its retail stores with enough warranty information signs for placement of such a sign in each of its departments where warranted consumer products were sold (RA 51)- 43. Between September 1, 1977 and February 1, 1978, it was not the policy of Montgomery Ward to post signs indicating the location of warranty binders in each retail department of each of its retail stores where warranted consumer products were sold (RA 53)_ ' (10) 44- Prior to February 1, 1978, an additional 1 100 signs identical to CX 2 were distributed to retail stores on a "by request" basis- No records exist identifying those of respondent's four hundred plus retail stores which requested such signs (CX 42e, 43i)_ Presentation of the Binder and Sign Program to Wards Personnel 45- Meetings were held by the store manager during which the binder system was discussed. For example, one store manager held one meeting with department managers and followed up with a second meeting of al1 store personnel (Pagliaro 1024)- In other instances, the store manager held meetings with the department managers and store staff and left it up to the department managers to inform their sales personnel (Willamson 944-45; Ochu 989, 998; , Respondent instructed its retail stores to place warranty signs with each binder as well as in the appliance department, a main entrance/exit and the escalator/elevator, if applicable (CX 10) , In this connection, respondent' s admissions explained that (BJetwcen September 1, 1977 and February I . 1978, Montgomery Ward's retail stores were not directed to pl"ce signs indicating location of warranty binders in each retail department ofrmch of its retail stores where warranted consumer products were sold. However, since individual stures cUllld and, in fact, some did request and/or print their Own additional signs, Respondent is unable to state whether, in a. particular retail store, such signs were placed in each retail department in which warranted consumer products were sold (RA 52) . After notification on February 2. 1978, by the Federal Trade Commission that Wards was not in compliance with tbe Pre-Sale Rule, si ns identical to those in the initial distribution (CX 2) were sent to the retail stor s in the same pre-detennined quantity as the November 22, 1976, distribution; additional unrecorded distributions were made by request between February 14, 1978, and February 2U, J 979 (CX 43i- Initial Decision 97 F. Cote 1100-1101; Sorenson 1132-34)- In at least one instance, the meeting with the department managers was a special meeting called solely to discuss implementation of the binder system (Wiliamson 944-45)- In other instances, it was discussed at a regularly scheduled weekly meeting (Pagliaro 1024; Sorenson 1147)- Department managers related the details of the program to their staffs either at meetings (Wiliamson 950-55; Ochu 989; Sorenson 1133-34), or spoke to their sales personnel individually (Cote 1105-06)- (11) Supplementary Efforts Regarding the Initial Binder and Sign Program 46- Following the initial distribution of warranty binders in November 1976, additional binders (CX 1) were distributed to Wards retaij stores on a "per request" basis- Most of these shipments were not documented (CX 43b, g)- However, in the fourteen months following the initial distribution of signs in November 1976, an additional 1100 signs (CX 2) were distributed to Wards' retail stores on this basis (CX 43i)- 47- While it was not the policy of Wards to require its retail stores to fabricate additional signs, certain stores did fabricate additional signs- Store managers were afforded latitude to implement the program and to tailor the program to the needs of a particular store (CX 43k; Wiliamson 964)- A random survey of Wards' stores selected by complaint counsel, showed some stores fabricated as many as 25, 15 , 12, and 10 additional signs- A total of 36-4 percent of the surveyed stores fabricated some quantity of signs for use in addition to the corporate-mandated signing (the survey specifically excluded signs fabricated as replacements for corporate signs) (CX 431-n)- 48- In 1977, one year after the binder and sign program was initially implemented, Wards' Merchandise Development Manager arranged and conducted a series of meetings in connection with that program (CX 19; RX 336-38)- Three meetings were held in Chicago on April 20, 1977 (RX 337), and were attended by Me- McWaters, Mr- Frank Berman, and by various persons in the merchandise departments, (McWaters 925)- A make-up meeting was held on April '17 1977, for those Chicago department managers who could not attend on April 20th- An additional meeting was held in New York on April 29th for the New York Office (RX 338)- Those attending the meetings were provided with materials regarding continuing compliance with the 702 Regulations and copies of new warranty request forms (RX 338)- At this series of meetings, McWaters explained the 702 MONTGOMERY WARD & CO-. INC 375 363 Initial - Decisio Regulations and other applicable Federal Trade Commission requirements (CX 20e, f, h, j, k, n)- 49- Since its inception in November 1976, Wards' binder system has been updated regularly- In its first year alone, four sets of warranty updates were distributed for inclusion in each binder (RX 369, 370, 371 , 372)- 50- The written instructions regarding the proper display for warranty binders and signs were repeated with each set of-updates (RX 369, 370, 371, 372)- (12) 5L By late 1977 or early 1978, Wards had learned that there were allegations that it was not in compliance with the 702 Regulations (CX 26; Terry 795-97)- Expansion of the Binder And Sign Program 52- During May and June of 1978, the binder and sign program was expanded- Brown and white plastic signs (RX 346) were sent to each retail store to be permanently affixed to cash registers/terminals in the B, C, and D Lines- These signs stated that merchandise warranty texts were available at the CAC and Automotive Service and that access to warranty information could be obtained by asking any salesperson (CX 29; RX 346)- The plastic signs were received and glued to the top of the cash registers (Wiliamson 959-60; Ochu 996; Pagliaro 1053-54; Cote 1112- 13; Sorenson 1139-40p 53- Two silver and black warranty binder stands (RX 380) were sent to each store to be placed on the CAC and TBA counters (CX 28)- IV- WARDS' AUDIT PROCEDURES General Corporate Audit Procedures 54- Wards' corporate audits are "exception" audits- This means that auditors are provided with the instructions to conduct an audit; the procedures are employed and the designated items reviewed; and then a written report is required only on those items on which exceptions or deficiencies are found. If an audit makes no mention of a particular aspect under review, the report is construed as meaning that the auditor found no violation (Terry 790- 55- Wards' Assistant Vice President, Willam Terry, is the general auditor" of the company; he is primarily responsible for all the corporate auditing done within the company- Directly reporting , Although some stores had more than 25 cash registers in the B, C, and D jines, only 25 signs to be affxed to cash registers were initiaHy sent to each store(CX 30). tial Dec sion 9'to Mr- Terry are nine managers, four of whom are Field Audit Managers- Each of the Field Audit Managers is responsible for the field audits within his region- These (13Jregions are the combined Northeast and Southeast, North Central, South Central, and Western- Three out of four of these Field Audit Managers have assistants (Terry 788-89)- 56- Reporting to the Field Audit Managers and their assistants in each region are the field auditors, classified as senior auditors internal auditors, and auditors (Terry 789-90)- Approximately 38field auditors actually conduct the store audits- Wards also employs certain special auditors: administrative auditors, construction auditors, factory auditors, and EDP auditors (Terry 802-04)- 57- Corporate audits of Wards' stores are generally done on a two or three-year cycle (Terry 791)- Those stores which are better than average in terms of sales, profit, operations, inventory recovery and which have an assigned store controller would be on the longer audit cycle (Terry 791- 852)- 58- The Field Audit Manager initiates the audit for any particular store and determines when one shall take place- He considers travel, personnel available, and whether someone in the corporate office may have requested acceleration of an audit in determining when a particular store is to be audited (Terry 799-800)- 59- In addition to the regular corporate audits, there are followup retail store audits and special retail store audits- A follow-up audit may be performed six to nine months after a regular audit which revealed conditions which were generally bad in a store- A special audit is called when specific information requires it such as when an individual' s integrity is at stake (Terry 80n 60- The corporate auditors who audit Wards' retail stores utilize a manual The manual contains about 15 different sections including cash, sales records, credit service, accounts payable, merchandising, ek (Terry 804-05)- Each section describes the detailed audit program- 61- The audit manual does not list every possible item which may be audited- The auditing staffreviews new procedures and policies to determine if a particular item should be made part of the audit program- If so, an audit letter is issued to the Field Audit Managers who in turn issue an "auditor letter" (Terry 797-98)- The instructions for audit procedures consist of the audit manuals plus the auditors letters - Periodically-every three or four years-the manual is revised to incorporate the procedures contained in the auditor letters" (Terry 798-99)- 62- There is a procedure to ensure that the directives in the 36:3 Initial Decision manual and the auditor letters arc followed- Field Audit (14) Managers review every audit sub;"itted and contact auditors, iftl1ey believe a particular procedure is not being covered- On larger audits, they visit auditors in the field, review their work before it is submitted, and attend the closing meetings with management At times, they supervise auditors in the conduct of the audit If a Field Audit Manager observed that no notation was made for a particular procedure over a period of time, he would review the auditors records to ensure compliance with proper procedures (Terry 807-09)- 63- When a store is to undergo a corporate audit, the auditor shows up at the store- The store manager has no prior knowledge of the audit Only a store controller, who is responsible for working with the auditor, may get advance notice of the audit, but the store controller is forbidden to notify the store manager (Terry 885; Pagliaro 1059)- An audit may last anywhere from five to seven weeks- Among store personncl, only the store controller wil accompany the auditor during parts of the audit (Pagliaro 1059)- The auditor in the course of an audit performs many functions including counting cash, examining bank deposits, checking fitting rooms, and checking for binders and signs- The auditors physically go to the areas they are checking (Terry 882-83)- 64- Upon the conclusion of a store audit, there is an audit review meeting Present is a representative from the regional audit department, the district manager, the corporate held auditor, and the store management staff (Kerin 1218-19)- Within a couple of weeks of the audit, the store manager must submit a written response to the audit explaining what was done or is to be done to correct each reported deficiency- This written response is sent to the Regional Vice-President, the District Manager, Me- Terry, the Regional Controller, and the Regional Field Audit Manager, among others (RX 341; Pagliaro 1060-61; Kerin 1236)- 65- A good corporate audit is important to store management and deficiencies are a serious matter which ultimately affect a store manager s evaluation (Pagliaro 1061; Kerin 1218- , 1232a-33)- Specific Warranty Binder and Sign Program Auditing 66- In November of 1976, after receiving copies of Me- Eckman correspondence implementing the Wards' binder and sign program Mr- Terry determined to add compliance with that program to the audit procedures- He issued a bulletin (CX 11) to the four Field Audit Managers, attaching the correspondence detailing the binder system (CX 10, 88, 89)- The bulletin (15)directed that effective with audits commencing January 1, 1977, for retail and PAAT stores, auditors :"\5- ';4 O.

378 FEDERAL TRADE COMMISSION m;CISIONS Initial Decis-ion 97 F_TCmust determine that warranty binders were displayed and signs posted as required by corporate instructions (CX 11; Terry 792 94)- 67 - After the audit procedure with respect to the binder and sign program was implemented on January 1 , 1977, Wards' corporate auditors throughout the country reviewed stores for proper placement and display of warranty binders and signs- No exceptions on this point were shown for 93 percent of the retail stores audits (RX 325)- CX 57 78 are audit reports noting deficiencies in compliance with Wards' binder and sign program.

68- When deficiencies were found, corrective action was taken to bring the deficient stores into compliance with the binder and sign program (RX 341 42; Kerin 1234 36)- The audit procedure reinforced the store managers' awareness of the requirements of the binder and sign program (Kerin 1232a 1234)- 69- After learning in late 1977 or 1978 of allegations that Wards was not complying with the Pre-Sale Rule, William Terry, Vice President Auditing, determined that the warranty binder and sign program should be added to the specific checklist which auditors must complete- From this checklist a statistical report is generated which permits the corporate offces to evaluate the overall level of compliance with this program by Regional and by Corporate totals (Terry 795 97, 81O , 832 , 836, 847)_ Retail Store Controllers 70- More than 200 retail stores have store controllers; namely, those stores with sales volume in excess of $10 milion and certain stores with sales volumes between $6 10 milion (Terry 852). Store controllers' responsibilities include accounting, invoicing records, inventory recovery, and store audits (Terry 848). (16) 7L Store controllers are physically located in retail stores and they perform certain functions for the store managers, but their main reporting relationship is to the Regional Controller and Regional Retail Controller (Terry 850; Pagliaro 1018)- 72- Store controllers perform two complete store audits per year one in the fall and one in the spring- They basically perform one audit section per week over a period of 13 to 15 weeks, stop the audit procedures for a period of time, and then conduct another 13 to 15 week cycle- Each 13 to 15 week cycle constitutes a full store audit . When an item is added to such 11 checkliHt, the field auditors must specifically report that they reviewed the item and state that they found or did not find compliance (Terry 811-13). The effect of this checklistis to turn a particular audit item from a purely "exception" nature to a required check-off on a list, This checklist is not the oome II a positive action comment" which requires for a particular subject that a written comment actually be included in every audit report (Terry 822- , 842) 363 Initial Decision (Terry 848-49; Pagliaro 1018-19)- The only !'exception to two complet" audit cycles per year by store controllers is when the store controller s audit cycle is interrupted by a corporate audit The store controller s cycle stops during a corporate audit and does not begin cycle (Terry 862)-again until the start of the next scheduled THE FTC SURVEY OF RESPONDENT S STORES 7:1 In the latter part of 1977, a number of the Commission Regional Offices conducted surveys of respondent' s stores to determine compliance with the Pre-Sale Rule (Findings 74-92)- The survey s primary focus was on the Major Appliance Department and the TV/Stereo Department in each store, because these s staff felt it waswere big ticket items and the Commission important for consumers to be able to examine the warranty in the case of those products (Hollon 482)- The Individual Stores 74- Serramonte Shopping Center California is a two story The Serramonte store, located within a mall, building consisting of one sellng Door and one f100r of administrative offices (Austin 274-75)- There are approximately 10 consumer entrances to the store (Austin 302-03)- The store was surveyed in November 1977 by consumer protection specialist, Fred C- Austin (Austin 269-70)- No warranty signs were posted nor binders displayed in the Major Appliance Department of the Serramonte store (Austin 275- , 277, 309)- The Major Appliance Department contained 20-50 (17)appliances (Austin 291); no warranty information was visible on the exterior of any appliance (Austin 276-77, 306)- An examination of the interior of six appliances revealed written warranty information in one refrigerator and one freezer (Austin 291 , 293, 305-06)- In addition, the other four models contained sealed informational packets (Austin 294)- No warranty information was visible on the exterior of the packet Warranty information may have been contained in the interior of the sealed packets, but they were not opened for examination (Austin 310-13)- At the time of the survey, there were no signs at the cash registers information. Signs containing directing consumers to warranty information on the availability of written warranties were placed at cash registers at a later date (Austin, 284, 303-04)itiar cision 97FTC- An examination of the administrative floor, which incl uded the CAC, revealed no signs and no binders (Austin 285- 75- State Street. Chicago. Illinois The State Street store in Chicago is a free-standing store (Hollon 503)- On November 15, 1977, this store was surveyed by Commission investigator Jennifer Hollon (Hollon 502)- There were no signs advising of the availability of warranty information at the entrance or en route to the Major Appliance and TV/Stereo Departments (Hollon 503, 505, 508)- The Major Appliance Department had no signs, no binders, and no warranty information on the exterior of the products (Hollon 503- 04)- When saleswoman Ms- Kellerman was asked for a copy of the warranty on a stove she produced a copy from a desk in the department (Hollon 504-05, 60n MR Kellerman did not mention the availability of warranty binders (Hollon 507, 607)- The TV/Stereo Department was devoid of warranty information on the products or in the form of signs or binders (Hollon 505)- An inquiry as to the warranty covering a stereo produced an oral summation of the terms. When the same salesman was asked for a copy of the warranty he responded that "you get it when you buy the stereo" (Hollon 506)- The CAC was not surveyed- (18) 76- Evergreen Park, Illinois The Montgomery Ward store in Evergreen Park is a four story mall store (Pinelli 18; Hollon 509), with seven consumer entrances and a detached Automobile Center (Pinelli 19, 30)- On November 18 1977, Jennifer Hollon surveyed the store as part of an FTC project to determine the presale availabilty of warranty information (Hollon 479- , 508)- Orlando P- Pinelli, whose unsworn interview was made part of the record by order issued September 25, 1979, is manager of the Major Appliance Department at Evergreen Park (Pinelli 2)- Mr- Pinelli has been appliance manager at Evergreen Park since October 1977 (Pinelli 2)- There was no warranty information at the entrance to the store used by the FTC investigator (Hollon 509, 514)- In the Major Appliance Department, which contains 3600 square feet of selling space, there was a sign placed in a four foot sign holder (Pinell 3- , 57)- It was the practice in the Evergreen Park Major Appliance Department to remove all papers, including warranties, from display items; the warranty information was then placed in lVU1VH..UlVt';K.Y WAKU & CU. , INC.

363 Initial Dccision folders in a file cabinet next the department manager s desk (Pinelli 36-3n Warranty information was not available in, around or on the products (Hollon 512-13)- In the summer of 1978, after the FTC survey, opaque seals were affixed to the front of microwave ovens and gold plastic signs were placed on top of these units (Pinelli 40-43)- Ms- Hollon spoke with saleswoman, Ruth Adams, about the warranty for a microwave oven, The saleswoman quoted the terms of the warranty but did not produce a written copy or refer to a binder (Hollon 513)- Sales personnel, in Major Appliances, were instructed as to the existence of binders (Pinelli 38-39)- They were instructed to inform customers of warranties, but normally they would not show a copy of the written warranty unless the customer requested a copy (Pinell i 44- , 50)- There were no binders in the Major Appliance Department located an the lower level at Evergreen Park (Pinelli 18- , 54; Hollon 512- 13)- The nearest binder was in the CAC located three floors above major appliances (Pinelli 54-57)_' (J9J No warranty information of any kind was available in the TV IStereo Department located on the third floor of the store (Hollon 509-10)- There were no decals on products, no binders and no signs on the products or on the walls (Hollon 509-10)- When asked for a copy of a television warranty, saleswoman, Pat Steegman, gave a brief summary of the warranty terms and service (20Jcontract A further request to see a copy of the warranty produced the response You get a copy of the warranty when you get the TV" (Hollon 510- In No copy of the warranty was produced for inspection; no mention was made of the existence of a warranty binder (Hollon 511)- , In rl'pondl'nt' s rebuttal to complaint counsel's Proposed l"indings of Fact, the following .,I.atement is made CPF 1\0. 12,1 is especially misleading and irrp.levant. There was no testimony of the need to go to the CAC in order to see a warranty binder in the Evergreen Park, Ill. store. Th'l'refore, distances to the CAC On the 3ni floor are irrelevant as there is no evidence that a prospective buyer wuuld have to leave the basement floor to ohtain a warranty binder.

This tatement is surprising in view of th" testimony of respondent' s employee, Orlando 1'. Pinelli. Mr. Pinl'lli tified unequivocally that the nl'nest bindl'r to the Major Appliance Department was located in the CAC 011 the third noor (Pinelli ;:;4). The Major Appliance Department is 011 the lower level (Pinelli lS- 19). Q Okay What is the nearest binder to your department in the Evergreen Park Store? A The warranty binder Q The warranty binder, rignt A In the CAC Department (Pinelli ,54) Mr. Pinelli's testimony is dear concerning the location of the two departments: theCAC is On thl' third floor and the Major Appliance Department is on the lower level Okay. Can you tell me where the Customl'r Accommodation Center is located? A. Third floor. (Pinl'!)i 20) Q And which levl'l would your department be considered on? l,ower ll'vel. (Pinelli 18- 19) Presumably, respondrnt aSSl'rt that thi evidence is irrelevant becau e of the practice of keeping warranty information in a folder in t.he department. Maintaining warranty texts in a file drawer, however, does not comply with any of the fOlJralternative methods of warranty disclosure req uired by the Rule. 382 EDERAL TRADE COMMISSION DECISIONS Initial Decision 97 F_ A binder was available in the Customer Accommodation Center located on the third floor (Pinelli 20, 28-30)- The binder was attached to a metal platform (Pinell 61-62)- There was a sign with the binder to indicate that warranty information was available (Pinelli 32)- Ford City, Illinois The Ford City store is located in a mall and was- surveyed on November 18 , 1977 by Jennifer Hollon (Hollon 54n No warranty information or signs advising of the availability of warranty information were posted at the store entrance used by the FTC investigator or in the main aisles (Hollon 541- , 547)- There were no signs or binders in the Major Appliance Department (Hollon 545)- An examination of the department including in , and around all appliances produced no warranty information (Hollon 543-44)- The interiors of appliances were examined by a visual inspection of the interior including the interior of any drawer and the contents of any packets filled with papers (Hollon 544)- A conversation with salesman, Gordon Gregory, about the warranty on a refrigerator produced a packet of materials from a desk in the department Me- Gregory explained that the packet, which included a warranty, came with the refrigerator when purchased (Hollon 546)- Mr- Gregory made no mention of the availability of warranty binders (Hollon 547)- No warranty information was found in the TV IStereo Department There were no binders and no signs (Hollon 542)- When Ms- Hollon asked salesman Me- Jachimczak to see a copy of the warranty for a television, he gave her the terms orally- He did not give her a written copy of the warranty nor did he mention a warranty binder (Hollon 542-43)- 78- Yorktown Shopping Center, Lombard, Illinois The Montgomery Ward store in Lombard, Ilinois is located in a shopping mall (Hollon 485)- The store was surveyed on November 11 1977 by FTC investigator Jennifer Hollon (Hollon 485)- At the time the survey was conducted Don A- Cote was manager of the TV IStereo Department and Raymond Shallcross was (21Jemployed as a salesman in major appliances (Cote 1099- 1100; Shallcross 190- 91)- There were no signs to advise consumers of the availability of warranty information at the entrance to the store nor in the aisles en route to the Major Appliance Department nor those en route to the TV IStereo Department (Hollon 485, 487, 493, 495- , 616- 17)- , , MONTGOMERY WARD & CO-. ING 363 Initial Decision The Major Appliance Departmenfhad no binder- There was a signadvising the consumer to go to the CAC for warranty information (Hollon 488; Shallcross 896); however, the sign was partially obscured by the microwave display and was not visible from all places in the Major Appliance Department (Hollon 488)- There were decals on the inside or outside, or a loose leaflet on the inside of most refrigerators giving the warranty terms and one 8 x 11 sign on a microwave oven (Hollon 487)_" No other warranty information was found in conjunction with the products (Hollon 487-88)- Ms- Hollon was present when complaint counsel, Benita Sakin asked salesman, Raymond Shallcross, to see a copy of the warranty for a refrigerator- Salesman Shallcross referred Ms- Sakin to the back of the price tag- After inspecting the price tag, Ms- Sakin pointed out that the information was not warranty information but concerned the service contract Me- Shallcross said "you get it (the warranty) on a green slip when you purchase the product" (Hollon 492; Shallcross 893, 899)- The TV/Stereo Department contains approximately 3800-4000 square feet of selling space (Cote 1117)- The only warranty information in the department was a sign on one television and a decal on another television (Hollon 494-95)- There were no signs and no binders (Hollon 494-95)_' (22) There were no signs or binders visible in the Customer Accommodation Department When Ms- Hollon asked to see a copy of the warranty for a refrigerator, she was shown a binder which contained service contracts- The saleswoman behind the counter in the CAC was unable to produce a warranty binder (Hollon 489-90, 600)- North Riverside Plaza, North Riverside, Illinois The Montgomery Ward store in North Riverside, llinois is a two story store located in a shopping mall (Banis 318; Hollon 496)- On separate occasions, the store was surveyed by Commission investigators Dianne Banis and Jennifer Hollon- Ms- Banis examined only the departments themselves, she did not look for signs, binders or other warranty information in the entrances or aisles of the store (Banis 324- In the Major Appliance Department, on the second floor, there . Ms Hogan did not read the warranties: she skimmed thetext She did not know whether the warranty sign for microwaves applied to all microwaves Or just the microwave on which the sign sat (Hollon 593- ')97). Nor, did she know if the warranty with the refrigerator applied to more than just the one unit (Hollon 592-!J3). Montgomery Ward uses ol1cwarranty for aJl of its products ofa particolargenrc- f or example a!l color televisions are covtored by one warranty (See Finding 2:J).

. Mr. Cote did testi(y that both a binder and a sign were in his department. However, at tria! it wa. noted that Mr. Cot!! had stated in his deposition that he " never paid attention to (the) binder" (Cote 1120) Neither the binder nor the sign was permanentJyaffixed (Cote 1119) Initial Decision !J7 FTCwere no signs advising of tne location of warranty information around the products or on the walls informing the consumer of the availability of warranty information (Banis 320-21; Hollon 497-98)- Most of the microwave ovens had a sign with the warranty terms- In about one quarter of the refrigerators which were opened for examination, there were loose leaflets containing warranty terms (Hollon 497, 499)- There was no warranty information of any kind for washers, dryers, freezers, and dishwashers (Hollon 497)- Both Ms- Banis and Ms- Hollon requested warranty information from a salesperson in Major Appliances. In Ms. Banis s case, the salesperson pointed out the guarantee stickers on the appliance; however, these stickers were not the full warranty- Further inquiry about a binder of warranties prompted the salesperson to speculate that such a binder might be found in the CAC (Banis 320- , 328-29)- When Ms- Hollon inquired about the warranty on a specific refrigerator, salesperson Wally Riggins pulled a leaflet with warranty terms on it out of the bottom drawer of the refrigerator and told her a capsulized version of the warranty terms (Hollon 498)- The salesman made no mention of the availability of a warranty binder (Hollon 499)- Neither surveyor found any warranty information in the TV/Stereo Department There were no signs and no binders (Banis 318- , 3:J7; Hollon 500)- Ms- Hollon did ask a salesperson for a copy of the warranty for a stereo- The salesperson told her she could go to the CAC and examine a copy of the warranty there (Hollon 500, 604)- (23) The CAC was located near the Major Appliance Department (Banis 322)- There were no signs and no binder visible (Banis 322-23, 337; Hollon 502)- In both instances, there were lines of customers so that the surveyors had to wait to talk with store personnel behind the counter- When Ms- Banis requested the binder only the supervisor knew of its existence in the CAC; it was kept behind the counter (Banis 322-23)- During Ms- Hollon s survey, a request for the binder proved futile; the person behind the counter could not locate the binder and suggested that they check with the Stereo Department and that they should retain written warranties after purchase (Hollon 501-02).

No warranty information was spotted at the store s entrance (Hollon 502)- 80- Laurel, Maryland The Laurel, Maryland store is a free-standing, large, one-story 363 Initial Decision building (Abrams 42n It was surveyed by Irvin Eugene Abrams on December 20, 1977 (Abrams 4(4)- There were no binders and no signs advising the consumer of the availability of warranty information in the main ajsle of the store or at the entrance used by Me- Abrams (Abrams 121- , 428-29)- In the Major Appliance Department, twenty to twenty-five products were checked for warranty information; no information was found. There were no binders in the department, not even on the desk in the department, and no signs (Abrams 422-23)- Me- Abrams asked a salesperson if a warranty carne with a particular refrigerator; the salesman indicated that the refrigerator was covered by a warranty and quoted some of the terms (Abrams 428-24)- When asked for a copy of the written warranty for inspection, the salesman directed Me- Abrams to the CAC (Abrams 424-25)- In the TV/Stereo Department, the surveyor checkcd hang tags the exterior and interior of products, and the general vicinity of the dcpartment for warranty information (Abrams 426)- No warranty information was available in the department-there were no signs and no binders (Abrams 426)- An inquiry as to whether a particular stereo was covered by a warranty produced the response from the saleswoman that the written warranty for that stereo and other products could be seen in the CAC (Abrams 426-27)- The Customer Accommodation Center, located on the other side of the store from the Major Appliance Department, contained a warranty binder (Abrams 425)- The binder was clearly visible at (24) a distance of three to four feet from the CAC counter (Abrams 425)- There were no signs in the CAC (Abrams 425)- Capital Plaza, Prince George County, Maryland On December 20, 1977, Irvin Eugene Abrams surveyed the Montgomery Ward store at Capital Plaza (Abrams 404)- The Capital Plaza store consists of two floors only one of which is a sales floor (Abrams 408)- With the exception of a 9 x 12 inch sign at the elevator which directed customers to the CAC for warranty information, no warranty information was posted on the walls of the store or in the main aisles (Abrams 408- , 417-18)- The area surrounding the elevator is a sales area (Abrams 41 No warranty information was found in the Major Appliance Department Approximately 20-25 of the 50-60 products on -display were individually checked for warranty information (Abrams 409- 10)- There were no signs, no binders, and no warranties with the products either affixed to the product or in a packet attached to the 386 FEDB;RAL TRADE COMMISSION DECISIONS Initial D.ecisi€ln n 97 F_ product (Abrams 410-11)- ML Abrams inquired of a salesperson whether there was a warranty for a certain dishwasher- The salesperson produced a written warranty for another dishwasher indicating that the warranty terms were similar for all dishwashers (Abrams 412, 447)- The salesperson stated that the warranty for that particular dishwasher could be obtained in the CAC and, upon further inquiry, indicated that warranties for all products in the department could be found in the CAC (Abrams 412- , 447-48)- The TV/Stereo Department contained no warranty- information- There were no signs and no binders (Abrams 415)- A salesperson did produce a written warranty for a color television from the back of the department but declined to go get one for a black and white set if ML Abrams was not interested in purchasing (Abrams 416, 448-50)- This investigation took place in a busy season-five days before Christmas (Abrams 450)- In the Customer Accommodation Center the binder was visibly on the counter- There were no signs (Abrams 419)- 82- Wheaton Shopping Center, Wheaton, Maryland is The Wheaton, Maryland store, located in the Wheaton Plaza, one of two major department stores in the shopping center (Abrams 429)- The store has two sales floors comprising 112,000 square feet of selling space; the basement is a warehouse and district offce (Abrams 430; Kerin 1188)- (25) On December 20, 1977, Irvin Eugene Abrams surveyed the Wheaton, Maryland store as part of a Federal Trade Commission investigation (Abrams 404)- Richard Kerin, store manager of the Wheaton Plaza store, testified as to the implementation of Montgomery Ward's binder policy in the Wheaton store- In his position as store manager, ML Kerin made periodic observations ofthe presence of signs and binders in the Wheaton store (Kerin 1183). There was a sign located at the main entrance to the Wheaton store (RX 342B; Kerin 1192).

Warranty information was not displayed in conjunction with the products in the Major Appliance Department (Abrams 431)- However, an 11" x 14" sign was in the department placed above a counter to which a warranty binder was chained (RX 342B; Kerin 1182-84)- The sign was two sided facing b-Jth east and west and- was visible from over half of the department (Kerin 1205, 1207-08)- The sign and binder were located in the most prominent position in the department (Kerin 1232A). Mr. Abrams spoke with a Montgomery Ward salesman in the Major Appliance Department. When Mr- Abrams asked whether a written warranty came with a particular refrigera- 363 Initial Decision tor, the salesman indicated that the. written warranty could be foundin the CAC on the second floor (Abrams 432). The salesman did not refe.r Mr- Abrams to the binder located in Major Appliances (Abrams 440)- No signs or binders were present in the TV (Stereo Department nor was there any warranty information available in conjunction with the product in the form of hang tags or literature with the televisions and stereos (Abrams 434- , 439)- The Customer Accommodation Center, located on the second floor, was not part of a sales area (Abrams 432, 435)- A sign in the ;CAC indicated that warranty information was available (Abrams 436)- ML Abrams asked to see the binder; the saleswoman, hired for the Christmas season in the gift-wrap section of the CAC, was unable to produce the binder (Abrams 486- , 464; Kerin 1178)- Mr- Abrams consulted store manager, Richard Kerin, about the presence of a warranty binder in the CAC- ML Kerin went to the 11 x 14 orange and white sign at the junction of the gift-wrap and repair counters- A saleswoman behind the repair counter produced a binder from under the counter (Kerin 1173-76)- The binder was chained to the counter (Abrams 465; Kerin 1176)- (26) 83- Northtown Shopping Center, Blaine, Minnesota Jennifer Hollon surveyed Montgomery Ward' s mall store in the Northtown Shopping Center on December 15, 1977 (Hollon 569)- No warranty information was present at the store s entrance or in the aisles and areas directly adjacent to the aisles which form the route between the entrance and the TV (Stereo and Major Appliance Departments (Hollon 569- , 573)- In the Major Appliance Department, the only warranty information seen after looking through the department and in, around and on the products was inside a few refrigerators- There were no signs advising of the availability of warranty information and no binders (Hollon 571-72)- Ms. Hollon asked salesman Don Diepholz for a copy of the warranty for an oven- Mr. Diepholz gave an oral summary of the warranty terms and the extended service contract- A second request for a copy of the warranty brought the response that a copy of the warranty came with the product when it was purchased (Hollon 572)- The TV (Stereo Department was examined for the availabilty of warranty information- After examining in, around and on the products the only warranty information available consisted of two loose leaflets on televisions- There were no signs indicating the (Hollon 570)- availability of warranty information and no binders ;38k FEDERAL TRADE COMMISSION DECISIONS Initial Decision 97 YT_ The CAC was not surveyed- 84- South town Shopping Center, Bloomington, Minnesota The Southtown Shopping Center store is one of Montgomery Ward' s largest stores (Pagliaro 1043)- The Southtown store has 114 000 square feet of selling space located on two floors (Pagliaro 1028, 1065)- On December 15, 1977 , the Southtown store was surveyed by Jennifer Hollon (Hollon 573)- At the time of the survey, John Pagliaro was store manager and Bruce Ochu was department manager for the TV/Stereo Department (Ochu 985; Pagliaro 1015)- There was no warranty information at the entrance used by the FTC investigator (Hollon 573, .176)- Signs were present at three of the seven consumer entrances to the store (Pagliaro 1031 , 1067)- In the Major Appliance Department, the only warranty information readily available was a loose copy of the warranty inside three or four refrigerators (Hollon 575). There were no signs or binders in the department (Hollon 575-76)- There was a sign and a binder chained to a head-on located in sewing machines; however, an aisle separated sewing machines from the (27Jother appliances (Pagliaro 1030, 1034-35)- The binder in sewing machines was the nearest binder for information on washers, dryers, ranges and other major appliances- The sign and binder in sewing machines did not face the other appliances across the aisle (Pagliaro 1072- , 1075)- A consumer could enter the Major Appliance Department, purchase an appliance, and leave the department without seeing a warranty sign (Pagliaro 1076)- There was a warranty sign at the top of the down escalator (Pagliaro 1031, 1049)- It was mounted on top of the glass that goes around the escalator in a position about six inches from the right hand rail (Pagliaro 1049-50)- The sign was present until January 1977 when it was removed as a safety hazard (Pagliaro 1051 , 1090)- The TV/Stereo Department is on the second floor about twelve (12) feet across the aisle from the CAC and approximately ten to twelve (10- 12) feet from the escalator (Ochu 988, Pagliaro 1040)- The department is rectangular and contains 1 500 square feet of selling space (Ochu 989)- There are two pillars in the department (Ochu 991)- On the day of the survey, there were no warranty signs and no binders in the department The only warranty information available consisted of a few loose sheets with warranty terms scattered around a few of the televisions and stereos (Hollon 574)- A warranty binder and sign were in the CAG The binder was chained to the counter (Ochu 1000-01; Pagliaro 1030)- MONTGOMERY WARD & CO , ING :;S9 063 Initial Dccision In addition to the binders in the CAC and sewing machine areas. there was a binder chained to the top of a counter in the TBA (Pagliaro 1030)- The binder was chained to the only counter in the department; it is the counter where orders are written (Pagliaro 1039)- The TBA is part of the main store building in thc South town Shopping Center store (Pagliaro 1029) and is located near the hardware department (Pagliaro 1038)- 85. Apache Plaza, Minneapolis, Minnesota The Apache Plaza store, a mall store with one sales floor, was surveyed by Jennifer Hollon on Dcccmber 15, 1977 (Hollon 573 , G77; Sorenson 1135)- Dorothy Sorenson was manager of the Apache Plaza Major Appliance Department for the three year period from March 1976 - July 1979 (Sorenson 113n The survey was conducted while Ms- Sorcnson managed the appliance department There was no warranty information at the store entrance, nor was there any warranty information visible en route between thc (28J entrance, the TV/Stereo Department and the Major Appliance Department (Hollon 577- , 580)- The Major Appliance Department consists of approximately 800 to 000 square feet of selling space (Sorenson 1136)- The department is arranged with four rows of merchandise (Sorenson 1136). There are two posts in the department one near the main aisle and the other towards the wall in the rear of the department (Sorenson 1136-37)- On the post in the rear of the department was an orange and white warranty sign placed at eye level (CX 2; Sorenson 1132- , 1138)- The sign, in a metal frame, was affixed to the post with glue in January or February of 1977 (Sorenson 1138, 1140)- Ms- Sorenson noted the presence of the sign from the time it was affixed until her transfer to the store in Robbinsdale in July 1979 (Sorenson 1138)- The sign was visible from one-half of the department; there was no place in the department where 100 percent visibility could have been achieved (Sorenson 1139, 1158-59)- There was no binder in the Major Appliance Department (Hollon 579; Sorenson 1159)- Consequently, salesmen were instructed direct customers to the CAC for warranty information which could not be obtained with tbe product in the department (Sorenson 1134)- It was a half minute walk to the CAC from the Major Appliance Department (Sorenson 1135-36)- Ms- Sorenson had no personal recollection as to whether or not a binder was present in the CAC (Sorenson 1162)- The Major Appliance Department in the Apache Plaza store had a unique system of displaying the written warranty with the product Initial Decision 97 YT_ (Sorenson 1152)- The warranty was opened up for viewing, placed a plastic envelope, and chained to the product- Plastic packets were displayed with all merchandise (Sorenson 1140-44)- In the case of refrigerators, ovens, washers, dryers, and freezers the packet was on the inside of the machine; in the case of air conditioners it was chained to the outside. For microwave ovens, the warranty was in a frame placed on top of the microwave oven (Sorenson 1141-43)- Consumers always look into the usable area of an appliance (Sorenson 1144-45)- Where the appliance was in use as a demonstrator the warranty was displayed on the outside- Ms- Hollon spoke with salesman Ken Houchins; she asked him if she could see a copy of the warranty for a combination conventional and microwave oven. Mr. Houchins gave a summary of the warranty terms and of the extended service contract but he could not show her a copy of the warranty. He said, "Y ou get the warranty, all the other papers, whenever you buy the product" (Hollon 580)- Mr- Houchins did not mention warranty binders (Hollon 580)- In the TV/Stereo Department, Ms- Hollon found no warranty information other than one loose leaflet partially covered by a (29) stereo and one loose leaflet partially covered by a television- There were no binders, no signs, and no conversations with sales personnel (Hollon 577 -78)- 86- St- Paul, Minnesota The St Paul, Minnesota store is a multi-level mall store (CX 65B; Hollon 582)- The store was surveyed on December 16, 1977 by Commission investigator, Jennifer Hollon (Hollon 582)- St Paul was also the subject of a field audit report ""ted September 13, 1978 (CX 65A-B)- At the time of the survey and of the field report, Paul A- Williamson was manager of the St. Paul Major Appliance Department (Wiliamson 943)- There was no warranty information at the entrance used by the FTC investigator nor at the up or down escalator (Hollon 582, 584 586)- The Major Appliance Department consists of 750 square feet of selling space on the first floor of the store (Wiliamson 968, 977)- There is a beam in the center of the department; on one side of the beam is the cash register and on the other side is the salesperson desk (Wiliamson 948)- At the time of the survey, an 11 x 14 warranty sign (white with black letters) was displayed at eye level on the center beam facing the front of the department (Wiliamson 949, 964)- The sign was stapled to the wood of a bulletin board which was permanently affixed to the beam; the sign was visible from MONTGOMERY WARD & CO- , INC- 381 363 Initial Decision almost the total area of the department (Willamson 949 , 983)- In addition to the 11 x 14 sign advising customers where warranty information was available, approximately five microwave ovens had signs in picture frames sitting on top of the ovens (Williamson 958)- There were no binders (Hollon 583)- The nearest warranty binder the Fall of 1977 was located in the CAC on the second 1100r (Wiliamson During her survey of the Major Appliance Department, Ms- Hollon 967-68)asked salesman Rick Carlson if she could see a copy of the warranty for a conventional oven. Mr. Carlson orally summed up the terms of the warranty and service contract When Ms- Hollon repeated her request Me- Carlson responded that she would get the warranty when she purchased the product (Hollon 583)- A survey of the TV/Stereo Department produced no warranty information- There were no signs and no binders (Hollon 584-585)- The CAC was located on the second l100r (Williamson 967-68)- It was not surveyed- (30) 87- Belmont Store, Kansas City, Missouri The Belmont store was surveyed on December 7, 1977- This free standing store was in disarray on the day of the survey; a sign stated the store was in the process of closing down its operations (Honon 548, 608)- An examination of the entranceway and the areas immediately adjacent en route to the Major Appliance and TV/Stereo Departments showed that no warranty information was displayed (Hollon 548, 550)- In the Major Appliance Department, Ms- Hollon examined the area on, around, and in the appliances. An examination of the interior of a product included an examination of any drawers and the contents of any packets containing papers (Hollon 544 55n almost every microwave oven, there was a sign with the warranty terms. The signs on the microwave ovens seemed to be identical (Hollon 551 61n In approximately three refrigerators, there were looseleaf copies of warranties. No other warranty information was available in the department either with the products, on the walls, or in any other area; there were no signs and no binders (Hollon 551- 52)- In the TV/Stereo Department, there was one sign on one Initial Decision a7 F-TCtelevision giving warranty terms and one sign on one stereo giving warranty terms (Hollon 549)_" No other information was available in thc departmen L There were no binders (Hollon 549)- 88- Metro Center North, Kansas City, Missouri The Metro Center North store, surveyed by Jennifer Hollon on December 7, 1977, is located in a mall (Hollon 553)- No signs advising the consumer of the availability of warranty information were present at the entrance or in the aisles which formed the route between the entrance, the Major Appliance Department and the TV/Stereo Department (Hollon 5, 556- (31) In the Major Appliance Departm2nt, most of the refrigerators and freezers had loose copies of the warranties jnside, a couple of washers and dryers had a loose copy of the warranty lying on top of the appliance, and almost all of the microwave ovens had identical signs on top setting out the warranty terms (Hollon 554, 611-15)- No other warranty information was available in the department; there were no signs and no binders (Hollon 555)- But, Ms- Hollon does not recall if the signs and loose lcaflets applied to just the one unit with which they were displayed or to more than one item (Hollon 613- 14)- In the TV/Stereo Department, there were no signs and no binders; however, there was warranty information displayed in direct conjunction with the products. On one television, there was a sign with the warranty terms; there was no indication on the sign as to which televisions were covered by the warranty, On one stereo, there was a loose copy ofthe warranty (Hollon 556-57)- Thc CAC was not surveycd- 89. GreenulOod 1Vall Toledo, Ohio On December 2J , J977, thc Grecnwood Mall store was surveyed by Commission investigator Carole Danielson (Danielson 6:J2)- The Greenwood Mall store has one floor (Danielson 6:33, 662)- In the Major Appliance Department, located approximately halfway thro' lgh the store (Danielson 634), there were no signs indicating where warranty information might be obtained nor wen;: there any binders visible (Danielson 685- , 640)- A visual inspection of the exterior and interior of most appliances displayed did not reveal any warranty information nor did an examination of the walls and ceiling reveal any signs (Danielson 681-35)- However, written I Mo. j.jCJllrm d(J not recall if any hr"",j, "Uwr than MCJntgumery Ward' s OWn label w"re present in the TV /S,ereo Department She d(les not n cCJ1l if the signs giving warranty terms were IimiL,"d tu one unit or if they !.!Jrlic(: :L'))()'- tbm one(Hnllon ;"j!) lj(lK, (ill) MUNTl.ium .hY WJ\KIJ &. (;). L.. 363 Initial Dccision warranties, either loose or visible -in plastic. packets were. present the vegetable trays of an refrigerators (Danielson 635-36)- A salesperson was able to produce a written warranty for a range from inside the broiler pan (Danielson 638-40)- The salesperson made no mention of the availability of warranty binders (Danielson 676, 682)- No signs or binders were visible in the Customer Accommodation Center (Danielson 636- , 665)- (32) 90- Southwyck Mall Toledo, Ohio The two story mall store located in Southwyck Mall was surveyed 64n Ms-by Carole Danielson on December 21 , 1977 (Danielson 6:32 Danielson surveyed only the departments for warranty information. She did not survey the entrances and aisles (Danielson 650- , 661)- A three to five minute visual search of the Major Appliance Department and its vicinity, as well as an examination of the exterior of all appliances displayed and the interior of half of each type of appliance displayed, produced no warranty information (Danielson 644-45). No written warranty information was contained in the vegetable trays of the refrigerators (Daniclson 677)- An examination of the sales desk in the department was also fruitless (Danielson 645)- When approached by salesman Joe Sostack, Ms- Danielson asked what type of warranty a particular range carried. The salesman gave an oral summary of the warranty terms. Ms, Danielson then asked to see a copy of the warranty or a warranty binder (Danielson 646, 654)- The salesman found a copy of the warranty after looking in five or six ranges (Danielson 646, 654-55)- He did not produce the warranty from the interior of the same range she had inquired about (Danielson 647)- The warranty was headed "gas and electric ranges in large letters; it was not limited to a specific range but applied to gas and electric ranges generally (Danielson 657, 660)- The salesman made no mention of a warranty binder (Danielson 682)- Ms- Danielson browsed through the TV/Stereo Department and found no signs displayed in connection with the products or generally in the department (Danielson 641-42)- The televisions and stereos were examined on the exterior for hang tags, decals, signs notices, and written copies of the warranties which might be lying on or near the products- About one-third to one-half ('k' ) of the products which had doors or parts that were to be opened were examined on the interior (Danielson 642)- A sales desk in the department was checked for warranty information- A number of binders on the sales desk were also checked; they contained product specifications. There were no warranty binders in the department :j4G-S:j.1 0-82- 21;

Initial Decision 97 F_TC- (Danielson 642-43)- In the course of demonstrating a stereo console, the saleswoman was asked about the type of warranty which covered the console- She summarized the warranty terms orally- When Ms- Danielson asked to see a written copy of the warranty or a warranty binder, the saleswoman responded that Ms. Danielson could not see the written warranty- She stated that the terms of the warranty were written on the salescheck and that a written copy of the warranty was included in the delivery box (Danielson 64- , 676)- The saleswoman did not direct Ms- Danielson to a place where written warranty information was available even after she was specifically asked about a warranty binder (Danielson 642- , 676)- (33) Crossroads Shopping Center, Oklahoma City, Oklahoma On December 8, 1977, Jennifer Hollon surveyed the Montgomery Ward store at the Crossroads Shopping Center (Hollon 558, 562)- The Crossroads store is a mall store (Hollon 562)- There were no signs advising of the availability of warranty information at the store s entrance nor were there signs in the aisles en route to the TV/Stereo Department or the Major Appliance Department (Hollon 562, 566, 569)- In the Major Appliance Department, almost all of the microwave ovens had a sign on top; a few refrigerators had a copy of the warranty inside- There were no other signs in the department concerning warranty terms or the availability of written warranties; there were no binders (Hollon 567)- A conversation with salesman Glen Ashley resulted in a verbal summary of the warranty and the extended service contract for a refrigerator. When the salesman was then asked for a copy of the warranty, he produced a copy from his files (Hollon 568)- ML Ashley did not mention the availability warranty binders (Hollon 568)- Some loose leaflets located between the products were the only warranty information available in the TV/Stereo Department (Hollon 564). There were no signs advising of the availability warranty information and no binders, nor was there a leaflet for each item displayed (Hollon 564-65)- When Ms- Hollon asked to see a copy of the warranty for a television, salesman Mike Keaton verbally summarized the warranty terms- Ms- Hollon repeated her request for a copy of the warranty to inspect- Mr- Keaton did not show her a copy nor did he direct her to the loose leaf warranties on the shelf rather, he stated, "You wil get the copy of the warranty when you buy the product" (Hollon 565-66)- (g) IV1Ul'lluUlVlLl\.1 nl'. I\V IX \_AJ. 363 Initial Decision 92- Penn Square Shopping Center. Oklahoma City, Oklahom""u Jennifer Hollon surveyed the Penn Square store, a mall store, on December 8, 1977 (Hollon 558)- An examination of the entrance and aisles linking the Major Appliance Department, TV/Stereo Department, and the entrance revealed no signs indicating the availability of warranty information (Hollon 558, 560, 062)- (34J Some warranty information was found with the appliances in the Major Appliance Department- A loose copy of the warranty was found in most refrigerators and a sign stating the warraniy terms was on almost every microwave oven. A loose leaflet was found in one washer (Hollon 559)- No other warranty information was found in the department either in conjunction with the products or in the form of signs or binders (Hollon 559)- Saleswoman Maryann Phillips gave an oral summation of the warranty terms when she was asked for a copy of the warranty for a refrigerator- Ms- Hollon was not shown a copy of the refrigerator warranty- When she repeated her inquiry, she was told by Ms- Philips that she would get a copy when she purchased the refrigerator (Hollon 599-600)- Ms- Phillips did not say anything about the availability of a warranty binder (Hollon 060).

Other than a few copies of warranties, some of which were in packets, scattered among the television and stereos, there was no warranty information in the TV/Stereo Department- There were no signs and no binders (Hollon 560- The CAC was not surveyed- Summary of Survey Results 93. There were no warranty binders in the Major Appliance Department of the Montgomery Ward store located at: (a) Serramonte Shopping Center, California (Austin 276-77) (b) State Street, Chicago, l1inois (Hollon 503-04) (c) Evergreen Park, l1inois (Hollon 512- 13) (d) Ford City, l1inois (Hollon 545) (e) North Riverside Plaza, North Riverside, l1inois (Banis 320- 21; Hollon 497 -98) (I) Yorktown Shopping Center, Lombard, l1inois (Hollon 488; Shallcross 896) Laurel, Maryland (Abrams 422-23) (h) Capital Plaza, Prince George s County, Maryland (Abrams 410-11) (j)(g) 396 FEDERAL TKADE COMMISSION DECISIONS Initial Decision - FTC (i) Northtown Shopping Center, Blaine, Minnesota (Hollon 571- 72) (35J (j) South town Shopping Plaza, Bloomington, Minnesota (Hollon 575-76)"

(k) Apachc Plaza, Minneapolis, Minnesota (Hollon 579; Sorenson 1159) (I) SL Paul, Minnesota (Hollon 583; Williamson 967-68) (m) Belmont Store, Kansas City, Missouri (Hollon 55f-52) (n) Metro Center North, Kansas City, Missouri (Hollon 555) (0) Greenwood Mall, Toledo, Ohio (Danielson 635- , 640) (p) Southwyck Mall, Toledo, Ohio (Danielson 644-15) (q) Crossroads Shopping Center, Oklahoma City, Oklahoma (Hollon 567) (r) Penn Square Shopping Center, Oklahoma City, Oklahoma (Hollon 559) 94- There were no warranty signs in the Major Appliance Department of the Montgomery Ward store located at: (a) Serramonte Shopping Center, California (Austin 276-77) (b) State Street, Chicago, Ilinois (Hollon 503-04) (c) Ford City, llinois (Hollon 545) (d) North Riverside Plaza, North Riverside, (36JIlinois (Banis 320-21; Hollon 497-98)"

(e) Laurel, Maryland (Abrams 422-23) (I) Capital Plaza, Prince George s County, Maryland (Abrams 410- 11) Northtown Shopping Center, Blaine, Minnesota (Hollon 571- 72) (h) South town Shopping Center, Bloomington, Minnesota (Hollon 575-76)"

(i) Belmont Store, Kansas City, Missouri (Hollon 551-52)" Metro Center North, Kansas City, Missouri (Hollon 554- 615)'"

(k) Greenwood Mall, Toledo, Ohio (Danielson 635- , 640)" (I) Southwyck Mall, Toledo, Ohio (Danielson 644-45) " There was a bi"der and a 5ig-n locat",d in sewing machines; however, they were separated from the other appliances by an aisle and were notvisibl", i"romthearca inwhicht he other appliances were located " Most microwaves had a sig" with warranty terms About ol1' quarter of the rclrigenitors examiner: had loose leaflets " See Finding I:J, note 11 " On almost every microwave, there was a sign " Most. of the rcfrigerOltor"and freezers had Joose copies of the warranties inside, a couple of washcrs and drYf'rs had a loose copy of the warranty lying on top of the appliance, and almost all microwaves had signs " Written wilrr;;nties,either loose Of visible in packets were in the vegetable trays of a!! refrigerators .

lVlV1"1\JVln' ...nnu.. , h' 303 Initial Decision (m) Crossroads Shopping Center, Oklahoma City, Oklahoma (Hollon 567)"

(n) Penn Square Shopping Center, Oklahoma City, (37JOkJahoma (Hollon 559)"

95- There were no warranty binders in the TV IStereo Department ofthe Montgomery Ward store located at: (a) State Street, Chicago, Ilinois (Hollon 505) (b) Evergreen Park, Ilinois (Hollon 509- 10) (c) Ford City, Ilinois (Hollon 542) (d) North Riverside Plaza, North Riverside, Ilinois (Banis 318- 19, 337; Hollon 500) (e) Yorktown Shopping Center, Lombard, Ilinois (Hollon 494-95) (I) Southtown Shopping Center, Bloomington, Minnesota (BoHon 574) (g) Apache Plaza, Minneapolis, Minnesota (Hollon 577-78) (h) St Paul, Minnesota (Hollon 584-85) (i) Laurel, Maryland (Abrams 426) G) Capital Plaza, Prince George s County, Maryland (Abrams 415) (k) Northtown Shopping Center, Blaine, Minnesota (Hollon 570) (1) Belmont Store, Kansas City, Missouri (Hollon 549) (m) Metro Center North, Kansas City, Missouri (Hollon 556-57) (n) Southwyck Mall, Toledo, Ohio (Danielson 642-43) (0) Crossroads Shopping Center, Oklahoma City, (38JOklahoma (Hollon 564-65) (p) Penn Square Shopping Center, Oklahoma City, Oklahoma (Hollon 560-61) (q) Wheaton Shopping Center, Wheaton, Maryland (Abrams 434- 35, 439) 96- There were no warranty signs in the TV IStereo Department of the Montgomery Ward store located at:

(a) State Street, Chicago, Ilinois (Hollon 505) (b) Evergreen Park, Ilinois (Hollon B09- 1O) (c) Ford City, Ilinois (Hollon 542) (d) North Riverside Plaza, North Riverside, Ilinois (Banis 318- 19, 337; Hollon 500) (e) Yorktown Shopping Center, Lombard, Ilinois (Hollon 494-95) (I) Laurel, Maryland (Abrams 426) " Almost rillmicrowl!ve had a sign on top: a few refrigerators had a copy of the warranty inside " A loose copy of the warranty was found in most refrigerators and a sign with warranty terms on almost every microwave ;:!J8 n;DERAL TRADE COMMISSION DECISIONS Initial Decision 97 -FeTC (g) Capital Plaza, Prince George s County, Maryland (Abrams 415) (h) Wheaton Shopping Center, Wheaton, Maryland (Abrams 434-35, 439) (i) Northtown Shopping Center, Blaine, Minnesota (Hollon 570) (j) Southtown Shopping Center, Bloomington, Minnesota (Hollon 574) (k) Apache Plaza, Minneapolis, Minnesota,(Holion 577-,78) (I) St Paul, Minnesota (Hollon 584-85) (m) Belmont Store, Kansas City, Missouri (Hollon 549)" (39) (n) Metro Center North, Kansas City, Missouri (Hollon 556-57)" (0) Southwyck Mall, Toledo, Ohio (Danielson 641-42) (p) Crossroads Shopping Center, Oklahoma City, Oklahoma (Hollon 1164-65) (q) Penn Square Shopping Center, Oklahoma City, Oklahoma (Hollon 560-61) 97- There were no warranty binders located in the CAC of the Montgomery Ward store located at:

(a) Serramonte Shopping Center, California (Austin 285-87) (b) North Riverside Plaza, North Riverside, Ilinois (Banis 322- 23, 337; Hollon 502) (c) Yorktown Shopping Center, Lombard, Ilinois (Hollon 489- 600) (d) Greenwood Mall, Toledo, Ohio (Danielson 636- , 665) 98- There were no warranty signs in the CAC at: (a) Serramonte Shopping Center, California (Austin 285-87) (b) North Riverside Plaza, North Riverside, Ilinois (Banis 322- 23, 337; Hollon 502) (c) Yorktown Shopping Center, Lombard, Ilinois (Hollon 489- 600) (d) Laurel, Maryland (Abrams 425) (e) Capital Plaza, Prince George s County, (40)Maryland (Abrams 419) (I) Greenwood Mall, Toledo, Ohio (Danielson 636- , 665) 99- The Pre-Sale Rule requires that either a binder or a sign be displayed in a manner reasonably calculated to elicit the prospective buyer s attention- In the following departments, there were neither signs nor binders:

,. There was one sign un a TV and one sign on a stereu. On Wards' producl, a single", warranty covers all of the same type ofpruduct. For example, ther", is one warranty for all Wards' culor tel",visions 363 Initial Decision Serramonte Shopping Center, California Major Appliance (Austin276 77) State Street, Chicago, Ilinois Major Appliance (Hollon 503-04) TV/Stereo (Hollon 505) Evergreen Park, Ilinois TV/Stereo (Hollon 509-10) Ford City, Ilinois Major Appliance (Hollon 545) TV/Stereo (Hollon 542) North Riverside Plaza, North Riverside, Ilinois Major Appliance (Banis 320-21; Hollon 497-98) TV/Stereo (Banis 318-319, 337; Hollon 500) Yorktown Shopping Center, Lombard, Ilinois TV/Stereo (Hollon 494-95) Laurel, Maryland Major Appliance (Abrams 422-23) TV/Stereo (Abrams 426) Capital Plaza, Prince George s County, Maryland Major Appliance (Abrams 410- 11) TV/Stereo (Abrams 415) Northtown Shopping Center, Blaine, Minnesota Major Appliance (Hollon 571-72) TV/Stereo (Hollon 570) Southtown Shopping Plaza, Bloomington, Minnesota (41) Major Appliance (Hollon 575-76)20 TV/Stereo (Hollon 574) Apache Plaza, Minneapolis, Minnesota TV/Stereo (Hollon 577-78) St. Paul, Minnesota TV/Stereo (Hollon 584-85) m- Belmont Store, Kansas City, Missouri Major Appliance (Hollon 551-52) TV/Stereo (Hollon 549) " See Finding 93, note 11.

Initial Decision 97 F_ Metro Center North, Kansas City, Missouri Major Appliance (Hollon 554- , 615) TV/Stereo (Hollon 556-57) Greenwood Mall, Toledo, Ohio Major Appliance (Danielson 635-37, 640) Southwyck Mall, Toledo, Ohio Major Appliance (Danielson 644-45) TV/Stereo (Danielson (;41-43) Crossroads Shopping Center, Oklahoma City, Oklahoma Major Appliance (Hollon 5(;7) TV/Stereo (Hollon 564-65) Penn Square Shopping Center, Oklahoma City, Oklahoma Major Appliance (Hollon 559) TV/Stereo (Hollon 560-61) Wards ' Audits Concerning Pre- Sale Availability 100- Respondent's field audit reports (CX 57A-78B) show the following stores were not in compliance with respondent' s binder and sign policy:

Baton Rouge, Louisiana 9/21/77 No binder - CAC (42) Lake Charles, Louisiana 10/12/77 No binder - CAC St- Petersburg, Florida 11/30/77 No sign - Major Appliance main entrance escalator/elevator Ann Arbor, Michigan 3/16/78 No sign. en trance CAC Mt Vernon, Ilinois 2/17178 No binder - CAC No sign - anywhere in store Greensboro, North Carolina 8/5/77 No sign - Major Appliance main entrance escalator .,._ MU1Yll.JV1Y!.IUi :J63 Initial Decision Monroe, Louisiana 11/4/71 No binder - CAC Penn Square, Oklahoma City, Oklahoma 12/12/77 Binder not properly displayed CAC St- Paul, Minnesota 9/13/78 No binder - first & third levels No sign - Dept 38 Piqua, Ohio 5/3/77 Bind rs not properly displayed Wheaton, Maryland 6/6/77 No binder - first floor No sign - Auto service MajorAppliariG main entrance escalator/elevator Binder not properly display d CAC Torrance, California 10/19/78 No binder on one of four floors No sign main entrance escalator/elevator Corte Madera, California 10/20/78 No sign - main entrance Grants Pass Oregon 7/6/78 (43) No sign - Auto service main entrance Costa Mesa, California 6/27/78 No sign - Auto service Binders not properly displayed in CAC and Auto service Signs obscured CAC and Major Appliance Six of seven employees were either unaware of binders or did not know their location Portervile, California 617/78 No sign - main entrance Auto service CAC Initial Decision YTC Norwalk, Caliornia 6/6/78 No sign - Major Appliance main entrance Auto service Appliance salesman was not aware binder existed. Fremont, California 4/28/78 No sign - TV/Stereo Binders not properly displayed: binder in CAC ieft behind counter, but there was a sign indicating its availability- Escondido, California 3/29/78 No sign - Major Appliance main entrance Two appliance salesmen were not aware of the eXlStence of warranty binders- Stockton, California 11/29/77 No binders were displayed No signs at any location.

Of the six applicable department managers none knew where the binder was being stored and five did not know of its existence.

Anderson, Indiana 7/20/77 Binders not properly displayed No signs Riverside, California 12/15/77 Binder not displayed CAC manager not aware of its existence (44) Respondent' s own field audit reports corroborate the results of the Commission s survey insofar as both indicate that al1 Wards' stores were not in compliance with Wards' announced binder policy- Responses by Certain Salesmen in Response To Requests For Copies of Warranty During FTC Survey 10 L In the following stores, sales personnel did not furnish a copy of a written warranty when an FTC investigator asked to see warranties for particular products- Nor did they inform the individuals making such requests of the availability of warranty binders- In a number of instances, in response to such requests for written warranties, Wards' sales personnel gave oral summaries of the MONTGOMERY WARD & CO-, INC 403 363 Initial Decision warranty and/or stated the written warranty would be made available upon purchase- State Street, Chicago, Ilinois TV/Stereo (Hollon 506) Evergreen Park, Ilinois Major Appliance (Hollon 513) TV/Stereo (Hollon 510-11) Ford City, Ilinois TV/Stereo (Hollon 542-43) Yorktown Shopping Center, Lombard, Ilinois Major Appliance (Hollon 492-93; Shallcross 893, 899) Northtown Shopping Center, Blaine, Minnesota Major Appliance (Hollon 572-73) Apache Plaza, Minneapolis, Minnesota Major Appliance (Hollon 580) St Paul, Minnesota Major Appliance (Hollon 583-84) Southwyck Mall, Toledo, Ohio TV/Stereo (Danielson 643- , 676) Crossroads Shopping Center, Oklahoma City, Oklahoma TV/Stereo (Hollon 565-66) Penn Square Shopping Center, Oklahoma City, Oklahoma Major Appliance (Hollon 560) (45) Violations Found 102- The failure to place a warranty binder on the lower level of Wards' Evergreen Park Store, where that outlet's Major Appliance Department is located, caused prospective customers in that department to go to the third floor (three floors above) to consult a on every floor warranty binder (Finding 76)- The absence of a binder constitutes the failure to place binders in a location with ready access as required by the Pre-Sale Rule, 103- The failure in the period September 1, 1977 to February 1 1978 to have a warranty binder in the CAC's of some stores in accordance with respondent's policy (Finding 97) and the representation on respondent's warranty signs, CX 2 (Finding 30) deprived prospective customers of ready access to warranty binders in contravention ofthe Pre-Sale Rule, Initial Decision 97 F_ 104- In the absence of binders and/or warranty signs displayed in the Major Appliance or TV/Stereo Departments of certain stores prospective customers in those departments were unlikely to get notice of the availability of warranty information in those stores- The failure to display either warranty binders or signs in those departments accordingly constituted a failure to display signs or binders in a manner reasonably calculated to elicit the prospective buyer s attention in contravention of Section 702_3(a)(l)(A) and (B) of the Pre-Sale Rule (Finding 99)- 105- Some of respondent' s sales personnel were either unable or unwilling to furnish copies of warranties upon request failing at the same time to advise prospective buyers of the existence or location of warranty binders (Finding 1On- In those instances where sales personnel did not make a copy of a warranty available on request and failed to advise consumers of the availability of warranty binders their actions conflicted with the instructions for access on Wards' warranty signs- The notice of availability of and the instructions for obtaining access to binders were particularly frustrated, when some sales personnel stated that the warranty would be made available on purchase of the product- The failure by Wards sales personnel to direct consumers to warranty information rendered the instructions on respondent's warranty signs for obtaining access (46Jto binders inaccurate-" This violated the requirements of Section 702_3(a)(I)(B) of the Pre-Sale Rule concerning instructions for gaining access to warranty binders.

VI. DISCUSSION Section 102(b)(I)(A) of the Magnuson-Moss Warranty Act, 15 UB-G 2302(b)(I)(A), directs the Commission to prescribe rules requiring that written warranties be made available prior to sale. The Pre-Sale Rule, 16 GF_ R 702_ , is the Commission s response to that directive- This is a case of first impression concerning construction of the regulations defining the retail seller s duty under the Pre-Sale Rule- The primary focus of this proceeding is on that part of the regulation defining the seller s duties if he elects to use the binder method of making warranty texts available prior to sale- The purpose of 16 C- R 702 is to enable the consumer to examine the written warranty prior to consummating the sale- Before the Rule, warranties were often enclosed in a sealed package and not Any sales person will direct you to these or other convenient warnmty information locations" (CX 2) MONTGOMERY WARD & CO-. ING 405 363 Initial. Decision available to consumers until after the sale thereby making it impossible for consumers to consider warranty information in their purchasing decisions (40 Fed- Reg- 60182 (1975))- The Rule offers the retailer four methods of making warranties available to consumers- The seller of a consumer product with a written warranty shall:

(1) make available for the prospective buyer s :-eview, prior to sale, the text of such written warranty by the use of one or more of the following means: (i) clearly and conspicuously displaying the text of the written warranty in close conjunction to each warranted product; and/or (ii) maintaining a binder or series of binders which contain(s) copies of the warranties for the products sold in each (47)department in which any consumer product with a written warranty is offered for sale. Such bindcr(s) shall be maintained in each such department, or in a location which provides the prospective buyer with ready access to such binder(s), and shall be prominently entitled "Warranties" or other similar title which clearly identifies the bindcr(s) The seller shall either: (A) display such bindcr(s) in a manner reasonably calculated to elicit the prospective buyer s attention; or (B) make the binders available to prospective buyers on request, and place signs rcasonably calculated to elicit the prospective buyer s attention in prominent locations in the store or department advising such prospective buyers of the availability ofthe binders, including instructions for obtaining access; and/or (iii) displaying the package of any consumer product on which the text of the written warranty is disclosed, in a manner such that the warranty is clearly visible to prospective buyers at the point of sale; and/or (iv) placing in close proximity to the warranted consumer product a notice which discloses the text of the written warranty, in a manner which clearly identifies to prospective buyers the product to which the notice applies; The Rule is phrased in the disjunctive, and the seller must comply with one of the four listed methods for each warranted product costing over $15- The seller may use more than one method of compliance within his retail operation, but must utilize at least one of the prescribed methods for each product (40 Fed- Reg- 60183 (1975))- Wards chose the second method, the binder and sign method, as its primary means of compliance with the Rule- Although there is evidence that Wards also used other disclosure methods, this case has been tried essentially on the issue of compliance with the binder method- (48J The Binder Option Under the Rule s binder option, the retailer must meet two Initial Decision 91- YTG requirements, first the binders must be placed in each department where warranted goods are sold or in a location within the store providing ready access, second a binder or a number of binders must be placed so that they are reasonably calculated to elicit the prospective buyer s attention- As an alternative to displaying binders in a manner reasonably calculated to elicit the prospective buyer s attention, the retailer may make the binders available to buyers on request and place signs reasonably calculated to elicit the prospective buyer s attention which advise him of the availability of the binders including instructions for obtaining access- The Position Of The Parties On Interpretation Of The Rule The primary issues presented are the meaning of the term " location which provides the prospective buyer with ready access and the phrase "reasonably calculated to elicit the prospective buyer s attention_ " The construction of the Rule advanced respectively by the Commission staff and Wards cannot be reconciled- Complaint counsel interpret the binder option of the Rule to require large retailers to place binders in each department or in a number of locations providing "ready access . Small retailers or small stores of a chain retailer, according to complaint counsel, may have one binder in a single location providing ready access to the entire store (CB 46)- In complaint counsel's view, taking into consideration the size and configuration of Wards' stores, respondent cannot comply with the rule by maintaining a single binder at one or two locations in a large multi-floor retail store (CRB 5)- Wards' failure to place binders at locations "not near the point of sale, " according to complaint counsel, deters consumer use and thus contravenes the ready access requirement of the Rule (CB 50)- Expressly disavowing the contention that, on its face, the Rule requires respondent to maintain a binder in every department of every store (CRB 5, 52), complaint counsel nevertheless maintain that "(dJue to the size of its (Wards) stores, the ready access requirement itself would generally demand a binder in each department" (CRB 52)- (49) To comply with the second requirement of the Rule, complaint counsel state that: "respondent must place signs indicating the location of warranty binders so that they are clearly visible to prospective buyers who are examining applicable consumer products within the store, because placement of such signs at any other location would not be 'reasonably calculated to elicit the prospective buyer s attention!'" (CRB 3)- , . .

MONTGOMERY WARD & CD- INC- 107 363 Initial Decision Respondent rejects the contention that the Rule s requirements differ for large and small stores asserting that there is no language in the Rule placing different obligations on a retailer depending on size of the store (RRB 18).

Respondent contends that the Pre-Sale Rule is clear and specific on its face and that Wards has complied with its precise language (RRB 13)- Wards in fact asserts that its binder policy exceeds the literal requirements of the Rule (RB n Respondent states that the Commission, in enacting the Rule considered assertions that binders should be placed at the point of sale and intentionally refrained from imposing such a requirement (RRB 15). Wards contends that the rule permits the use of warranty binders outside the immediate sellng area (RRB 14-16)- According to respondent, the Pre-Sale Rule is not a "while examining rule - It maintains the Rule requires no more than that the warranty information must be imparted to the consumer prior to consummation of the sale (RRB 2n Background And Purpose Of The Rule The mere fact that an administrative rule requires interpretation does not constitute an amendment of the rule- Therefore, the construction of a rule consistent with its text and purpose in the course of an adjudicative proceeding does not constitute an "amendment" of the rule contrary to due process. As the Southern District of New York held on the basis of analogous arguments: As is not unheard of, the determination of the charge wil or may require construction and application of the rule. As is also familiar, the rule may in the process become clearer, mote precise, more specifically defined-as has been true, say of endless statutes, the Constitution, and other administrative rules in many settings. To predict the rule will inevitably be "amended" is at this point an empty form of words, There is thus no foundation for the conclusion that the agency (50Jcannot adjudicate the case before it but must, as the A&P steadily repeats hold an amendatory rulemaking proceeding.

It is, moreover, an unattractive novelty to insist that the agency may not consider in an adjudication the precise and detailed meaning of its own regulation. Great Atlantic Pacific Tea Co. v. F.TC, 1974-1 Trade Cases 75, 080 at 96 815, 96 816 (S_D-N_Y- 1974)- Respondent insists that the language of the Rule is unambiguous and urges usage of the plain meaning rule of statutory construction. Under that approach, interpretation of the Rule should be limited to the text of the regulation (RB 9-10). Following the plain meaning 408 FEDERAL TRADE COMMISSION D ;CISIONS Initial Decision 97 FTC approach, Wards relies on the dictionary meaning of the words ready access, asserting this term is synonymous with an ability to obtain or make use of without delay (RB 20)- It insists no further construction is appropriate- Complaint counsel claims that the plain meaning rule does not apply (CRB 6)- To a considerable degree, the decision herein turns on the construction of two phrases "ready access" and "reasonably calculated to elicit the prospective buyer s attention_" Both are- undefined in the regulation and subject to various meanings. Under the circumstances, the plain meaning rule must give way to the need for interpretation of these phrases- Unless the statute s words expressly forbid it, the plain meaning doctrine has always been subservient to a truly discernible legislative purpose whether ascertained from the context of the statute or by recourse to legislative history- Wilderness Society v- Morton, 479 2d 842, 855 (D_ C- Cir- 1973), cert denied, 411 U-8 917 (1973); District of Columbia v- Orleans, 406 F_2d 957- 59 (D_C- Cil 1968)- The courts have repeatedly recognized that:

(WJords are inexact tools at best, and for that reason there is wisely no rule of law forbidding resort to explanatory legislative history no matter "how clear the words may appear on 'superficial examination Harrison v- Northern Trust Co_, 317 U- S- 476, 479 (1943); Train Colorado Pub Inl Research Group, 426 U-8 1, 9- 10 (1976); US American Trading Association 310 UB- 534, 543-544 (1940)- (51) Words undefined in a statute must not be construed in the abstract by resorting solely to the dictionary- Rather, the words of a statute should be construed to further rather than frustrate the legislative intent or purpose- Bartok v- Boosey Hawkes, Inc" 523 F_2d 941, 947 (2nd Cir- 1975)_" The starting point for determining legislative purpose and from the purpose the intended meaning of the terms of the statute is an appreciation of the mischief which the legislation is to alleviate- ICC v. T Transport Co" 368 U-8 81, 107 (1961) Mr- Justice Frankfurter (dissenting opinion); see also Liberation News Service v- Eastland, 426 F_2d 1379, 1383 (2nd Ck 1970) (referring Justice Frankfurter s comment in T Transport)- In this case, analysis of the purpose or intent behind the Rule should start with the Commission s Statement of Basis and Purpose (40 Fed- Reg- 60168 et seq- (1975))- The purpose of the Rule is to make (lJt j one of the surest indtoxe of a mature Hnd dcvclopcdjurisprudcncc not to make a fortress out of the dictionary; but to remember that statutes always have some purpo " or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their meaning, Bor/uk v. Rorm!'y llawkes. Inc, 52:\ F. 2d at 917 citing L. HandCabell Markham, 14!! F.2d 737, 739 (2nd Cir, afrd, 326U. 101(HJ45) ...., MU1YlljV1Vl.l.II Hru .L"' ' U"--. 363 Initial Decision warranty information available p:Fior .to sale- so .that the consumer can base his decision to buy on the warranty as well as factors such as the cost and qualities of the product (Address by Congressman Eckhardt cited in 40 Fed- Reg- at 60182)- The mischief at which the Pre-Sale Rule is aimed was the fact that: Warranty information is currently either unavailable or difficult to procure at the point of sale. . (40 Fed. Reg, at 60182). At a minimum, it is the purpose of the rule that written warranties and the information where warranties can be secured be made available prior to saJe- It is also clearly the intent of the rule that the consumer be apprised of the availability of warranty information independent of oral inquiry from sales personnel (52) Ready Access The large retailer as well as the small retailer comes within the ambit of the rule; consequently, the binder option of the rule was drafted to provide a flexible method of compliance to be geared to the size and configuration of the individual store- The Statement of Basis and Purpose compares large retail operations, many of which contain multiple departments, with small retail operations- While there was testimony in the rulemaking proceeding indicating that a binder per department would be a reasonable means of compliance for large multi-department stores, there is no mandate under the final rule that large multi-department stores have a binder in each department (40 Fed- Reg. 60183- (1975))- The final Rule was designed to heed the retailers' cry for greater flexibility (40 Fed- Reg- at 60183)- Originally, the Rule required that a binder be placed in each department" That language of the binder option was modified on the basis ofthe following rationale:

This sub-paragraph requires that the binders be maintained either in the department where the warranted product is sold, or in a location which provides the prospective buyer with ready access to the binders. Gambles, in its written submission, noted that "(w)while the provision that binders be kept on a departmental basis is reasonable in the case of large retail outlets where it would he a burden on the customer to require that he or she go to one specific location in the store to find the binders, there are many small retail outlets which may have merchandise laid out by department, yet are small enough so that one complete set at a single location in the store would suffce.

!MJaintaill a binder or scrics of binders in each department in which !lily consumer product with a written warranty is offered for sale, containing copies of the warranties for the products sold in such department (40 Fed. Reg. at 601H3) "

345-551 0-82--- Initial Decision 97 YT_ Thus, in such instances, it would be permissible to place the binders in a location other than in the departments in which the products are being sold (40 Fed. Reg. at 60184)- (53) It is clear, from examination of the Rule and the purpose behind it, that factors such as number of departments, size and configuration of the store, were important factors considered by the drafters of the rule in formulating the ready access concept As the Commission noted, placing binders in a single location would be permissible in the case of those retailers where the retailer is "small enough so that one complete set at a single location in the store would suffice_ However, taking into consideration the purpose of the Rule and the regulation as a whole, a single location wil not suffce "where it would be a burden on the customer to require that he or she go to one specific location in the store" (40 Fed- Reg- at 60184)- In this proceeding, there has been little factual evidence developed concerning the behavior of the consumer in department stores. Although, the record contains considerable information about the dimensions of Wards' stores, there is a dearth of evidence as to what distance in space and/or time a consumer may reasonably be expected to travel to consult warranty binders- Nevertheless, based upon an examination of the Statement of Basis and Purpose, the language of the Rule, and the record (including Ward's own decision to place a binder on every floor)" it appears that in large multidepartment retail operations a minimum of a binder on every sales floor is necessary to constitute ready access. In any event, the Pre-Sale Rule does not require that binders be placed in a sales area when the option for a location providing ready access is exercised- The Statement of Basis and Purpose demonstrates that the Commission considered the contention that warranty binders should be located in the sales or display area so that warranty information would be available at (54Jthe time that products were examined. " However, the revision of the Rule, which permits the placing of binders in a location providing ready access as an alternative to locating binders in each sellng department testifies to the fact that the Commission did not accept the contention that warranty binders must be at the point of sale. The Commission itself stated in commenting on the Rule: "Thus, in such " The Statement of Basis Ilnd Purpose includes Gambles written 6submission on this point (40 Fed. Reg, 60184 (1975)).

" Only one consumer witness, Mr. Gelder, testified. .. Other than the binders placed in the CAC and TEA, Wards' policy was to include two other binders for multi..level stores. '"In those stores, the store manager ffl/ selelt a. central location, by flour . " for placement of the other two binders (CX loa).

Consumers will not be rapidly convinced (if at all) that they should run back and forth between display area and location of warranty binder'" (Knauer Transcript cited at 40 Fed. Reg. at 6018:: n. 194). , 363 Initial Decision instances, it would be permissible to place the binders in a location other than in the departments in which the products are being sold (40 Fed- Reg- at 60184)- Since the Regulation cannot be construed as requiring that warranty binders be available at the point of sale, the ready access alternative cannot be equated with placement of binders in a sales area.

The conclusion on this point derives added force from the fact that the Commission in its final formulation of the binder option in the Pre-Sale Rule considered the "logistics and expense of setting up and maintaining a binder system" and the fact that such expense would be reflected in terms of higher prices (40 Fed- Reg- at 60183, note 193)- The binder option is distinguishable from the other disclosure methods sanctioned by the Rule which do require that the warranty texts be available at the point of sale-" The non-binder options under the Pre-Sale Rule in effect require disclosure so that the customer can examine the warranty text while examining the product- The contrast between the binder method and the other disclosure methods specified by the Rule is significant The Commission could have required that binders be displayed in "close proximity" to the product or "at the point of sale_ " It chose not to follow that course- Evidently, the disclosure standard was formulated differently for the binder option because of the "logistics and expense" inherent in that (55Jmethod- Considering the Regulation as a whole and the legislative background ready access" cannot be construed as synonymous with " at the point of sale" or "in a sales area. Accordingly, the test in determining whether a location provides ready access to a binder depends on whether it would be an undue burden to require the consumer to go to that location_" There is little information in this record concerning consumer behavior in retail stores from which a determination can be made as to the point where the burden of going to a particular location to consult a warranty binder becomes undue. Mere reluctance by consumers to consult collateral material away from the point of sale is not equivalent to an undue burden- When the Commission formulated the Rule it had YO Under 702.3(a)(1)(i), the warranty text must be displayedin close (',,,junction/0 each warranted product: under 702.3(a)(1)(iii), the tp.xt of the warranty is to be displayed on the ptlckage so that it is clearly visible to prospective buyersat the point of sale:702.3(a)(l)(iv), permits a notice disclosingtexttheof the written warranty in close proximity 10 the warranted product in a maoner which clearly identifies to prospective buyer:; product to which the notice applies (emphasis added) .. See, views of Gamble Adopted at 40 Fed. Req. at 60184 " There is evidence that inone ofWard,s' largest stores it takes approximately two minutes to traverse a sales f100r (pagliaro lO 3) On this record, absent additiomd evidence on consumer behavior, no finding can be made one way or the other whether such a two minute walk cunstitutes all undue burden. Initial pecis.ion 97 FTCbefore it evidence of the consumer s reluctance to consult collateral materials away from the point of sale_" The text of the binder option unlike the other disclosure methods specified by the Rule, does not take such reluctance into account- Therefore, the test of ready access, namely undue burden of going to a particular location, is not equivalent to mere reluctance by the consumer to consult binders away from the point of sale- It is clear, however, that requiring consumers to go from one floor to another to examine suqh materials would constitute an excessive burden-" (56) The Rule clearly gives retailers the choice between placing binders in each department or in a location which provides ready access (emphasis added)- It may be necessary in certain stores, depending upon the characteristics of the individual outlets, that binders be placed in a number of locations providing ready access to ensure the standard has been met- As a matter of law, the regulation does not require that, for any class of stores, binders must be placed in each department selling warranted goods- Having given retailers the choice between the two alternatives, the Commission must make a factual showing in the case of the particular retailer that ready access can only be met by placing binders in each department if it wishes to impose that burden- This record does not contain sufficient factual data to support such a determination_ Reasonably Calculated To Elicit The Prospective Buyer Attention The additional requirement that signs and/or binders be placed in a manner reasonably calculated to elicit the prospective buyer attention is also subject to interpretation- One must examine the term "reasonably calculated to elicit the prospective buyer s attention" in light of its context within the rule_" The binder option is the second of four options the retailer must choose from- The other options require the retailer to:

" 40 Fed. Reg. "t601 3n, 194.

" Consider, for example, the Major Appliance Department in Wards' Evergreen Park, Hlinois store. Evergreen Park i a four story store with four sales levels,e., a lower level, a fir, second and third floor. The Major Appliance Department is located on the lower level and the nearest warranty binder is located in the CAC on the third floor. In the case of the Evergreen Park Major Appliance Department, the prospective buyer must trave! up three floors to have access to a warranty binder (Pinelli 54; Finding 76). See also, the Major Appliance Department in Wards' St. Paul, Minnesota store. The nearest binder in the FOIl!ln7 ofwas in the CACon the second floor. The Major Appliance Department in the St Paul store was on the first floor (Williamson 967-6S; Finding 86) " The Commission in Geor!:e s Radiu and Television Company, Inc. l'. C. Docket No. 9115 Order Issued Nov. 1979, required in that proceeding that a binder be located in each department of the retail outJet. The order in question was agreed to by respondent on apPt!at The issue of whether large retail outlets must have a hinder in each department sidling warranted goods as opposed to a location which provides ready access was not litigated in that case. Therefore, the decision and order trerJrgein s Radio and Televi.,ionis not controUingon this point. " Discussionpp. 49-51.

MONTGOMERY WARD & CD- INC 413 :163 Initial Decision 1. clearly and conspicuously display the text of the written warranty in close conjunction to each warranted product; and/or 3. display the package of any consumer product on which the text of the written warranty is f57Jdisclosed, in a manner such that the warranty is clearly visible to prospective buyers at the point of sale; and/or 4. place in close proximity to the warranted consumer product a notice which discloses the text of the written warranty, in a. manner which clearly identifies to prospective buyers the product to which the notice applies. 16 CTR 702_3(1) (emphasis added)- The mischief at which the Rule was directed viz_, unavailability of warranty information prior to sale,35 can be cured by requiring that warranty information or instructions to secure such information be displayed at the point of sale or in close proximity thereto- In each of the nonbinder options, the warranty text is to be displayed at the point of sale- The binder option differs from the other methods specified by the Rule in not requiring, although permitting, the display of warranty information at the point of sale- The binder option, at a minimum, requires notice of the availability of the information be displayed so that the customer is likely to see it prior to his purchase- Reasonably calculated to elicit the prospective buyer s attention must be read, in context with the three nonbinder options, to require that notice of the availabilty of warranty information in the form of binders or signs be in suffcient proximity to the point of sale so that buyers are likely to see such notice before making their purchases- A close reading of the binder option shows that the requirement that signs and/or binders be displayed in a manner reasonably calculated to elicit the prospective buyer s attention is intertwined with the ready access provision- If the consumer is unaware that the information exists there can be no access, ready or otherwise. Section 702_3(a)(I)(B) is a notice requirement and thus, inherently stricter than the ready access provision- Although the sign need not necessarily be in a display area in order to provide the requisite notice, it must be in suffcient proximity to the point of sale so that it is likely to be seen before the purchase is made- In short, to comply with the purpose of the Rule by using the binder option, (58Jthere must at least be a sign and/or binder sufficiently close to the point of sale so that, as a practical matter, the consumer is likely to receive notice of the availability of warranty information prior to sale- " 40 Fed. Reg. at60J82 Initial Decision 97 r' T-G VII. VIOLATION The record shows instances in which Wards has violated 16 CTR 702_3(a)(I)(ii) by failing to maintain warranty binders in a location providing prospective buyers with ready access to such binders- In addition, respondent has violated Section 702-3(a)(I)(ii)(B) by failing to display, in prominent locations reasonably calculated to elicit the prospective buyer s attention, signs advising of the availability of the binders, including instructions for obtaining access. Binders were not present in the CAC's of some of Respondent' s Stores in the Period September 1, 1977 to February 1 1978- Respondent selected the binder option of the Pre-Sale Rule as its primary means of compliance. In conjunction with that decision, it selected the CAC as one of three locations which would provide a prospective buyer with ready access to warranty information (Findings 24, 32)- The FTC survey, in the latter part of 1977, found that respondents failed to have warranty binders available in the CAC (59Jof some stores- The survey results show four (4) instances in which the binder was not available in the CAC (Finding 9n The results of the FTC survey on this point are confirmed by respondent' s admission that it did not have a binder present at some Customer Accommodation Centers during the period September 1, 1977 to February 1, 1978 (RA 22) and by certain ofrespondent' s field audit reports (CX 57 (B), 58(b), 68(b), 78(b))- To the extent that binders were not present in the CACs of some stores, respondent has failed to provide prospective buyers with ready access to written warranty information in accordance with its own policy- Furthermore, failing to maintain a binder at a location to which the consumer has been directed as a place where he can consult warranty information constitutes the failure to maintain information in a location which provides the consumer with ready access in violation of Section 702_3(a)(l) (ii)- '" In finding a violatiun,consideration has been given to respondent's utiliztltion of methods other than the binder method to disclose written warnmty information. It may be that in certllin instances, respondent has used anuther method spccifi\Jd by the rule. (See for example Finding 85 on the Apache Plaza store). Ms. Sorenson method of displaying the warranty in a plastic packet attached to the major appliance may comply with )(; C.F. 702.8(1)(i). Rut, compare the Major Appli!mce Department in the Evergreen Park store (Finding 74), Department manager, Orlando p, Pinelli, kept the warranties in Ii fie drawer in thl! dep..rtment; the warranties were not displayed).

The record shows little uniformity !IS to non-binder methods in use in the Major Appliance and TV/Stereo Departments in Wards' stores. Under the circumstances, evidence of this nature does not rebut a finding of violation based on respondent s failure to comply with the binder option in a number of Major Appliance and TV/Stereo Departments lV1U1YlIJVlY1 n.I n.tu\.u 01 VV" lH\. 363 Initial Decision As part of its corporate policy-for compliance with 16 GF_ 702_3(a)(l)(ii), respondent required that signs advising customers of the availability of warranty information be displayed in prominent locations within the store- The text of such signs states: MERCHANDISE WARRANTY INFORMATION Warranties covering merchandise sold in this store are available for inspection at the Customer Accommodation Center and the Automotive Center. Any salesperson will direct you to these or other convenient warrant.y information locations. (CX 2) Wards has chosen the CAC as a location providing the prospective buyer with ready access and has chosen to display signs representing that warranty information is available at the CAG The failure in some stores to have binders located at the CAC in accordance with the instructions for obtaining access violates the ready access requirement of the Rule- Without adequate instructions for obtaining them, there can be no access to the binders (Discussion p- 5n The representation on respondent's warranty signs that binders were present at the CAC were instructions for obtaining access pursuant to Section" 702_3(a)(l)(ii)(B)- When the binders were not present at the CAC, as represented on the sign, the instructions were inaccurate and thus, violated this part of the Pre-Sale Rule- (60) The representations made by Montgomery-Ward' s salesmen about the availability of warranty information- Wards, through its signs, represented to the prospective buyer that any salesperson will direct you to these and other convenjent warranty information locations" (CX 2)- With that statement respondent directed the consumer to look to sales personnel for instructions for obtaining access" to warranty information. 16 R 702_3(1)(ii)(B)- The FTC surveys show that some salespersons were not aware of the binder system and that some salespersons did not provide prospective buyers with instructions for obtaining access to written warranty information when such information was requested (Finding 101; Danielson 642-43, 676; Hollon 492, 506, 510- 542-43, 560, 565-66, 572, 580; Shallcross 893, 899)- The Commission survey is corroborated on this point by certain of Wards ' audit reports (CX 7l(b), 73(b), 75(b), 76(b), 78(b))- To the extent that sales personnel were unable to or did not inform prospective buyers of the availability of warranty binders after they were represented to be a source for such information, Wards violated :!? 4Hi EDERAL TRADE COMMISSION DECISIONS Initial Dccision 91- F_TCthe provision of Section 702_:3 which requires the seHer to pl"ovide the consumer with instructions for obtaining access- By failing to provide prospective buyers with instruction for obtaining access Wards also violated the provision of the rule which requires that the binders be placed "in a location which provides the prospective buyer with ready access_" Ready access depends upon the consumer being adequately and accurately informed of the existence and location of the warranty information pursuant to Section 702_3(a)(I)(ii)(B)- The survey of Respondent's stores shows that they failed to display signs and binders- The Commission surveyed approximately twenty (20) of respondent' s retail stores- The survey disclosed that respondent failed to display signs advising consumers of the availability of written warranty information in the Major Appliance Department of fifteen (15) of the stores surveyed (Finding 94)- Nor, were there signs in the TV/Stereo Department of sixteen (16) of the stores surveyed (Finding 96)- The FTC investigators were not alone in noting the absence of warranty signs- The survey findings are corroborated by the results of respondent's own field audit reports which found signs were not present in certain stores in the appliance department and other locations required by respondent's instructions (CX 59B, 61B 62B, 67B, 74B, 75B, 76B, 77B)- In a large multi-department store where there is neither a warranty binder nor a sign displayed in a department in which (61) warranted goods are sold, there is no notice in sufficient proximity to the point of sale so as to be reasonably calculated to elicit the prospective buyer s attention prior to sale. Therefore, Wards' failure to display either warranty binders or signs at or near the point of sale violated the requirement that binders or signs be placed in a manner reasonably calculated to elicit the prospective buyer s attention prior to sale (See Discussion pp- 56- 58)- Binders were not present on every sales floor in some of Wards' stores- A number of Wards' stores are multi-level retail operatlons- The Commission s survey showed that in at least two of those stores, St " The order herf'in requires Ward to place signs advising of the availabilty of warranty information on all cash registers- WhHe a cash register may serve several! department in a Montgomery Ward store, for an practical plJrpOSf'S , th" consumer wil receive notice prior to leaving the vicinity of the department. Certainly with a sign on the ca h register U'f' customer will receive notice of the availability uf warranty information prior to consummating the sale as required by the Rule MONTGOMERY WARD & CO_, INC 417 363 Initial Decision Paul, Minnesota and Evergreen Park, IHinois, there was not a binder on every floor (Findings 76, 86)- The Rule requires that binders be placed in each department or in a location which provides the consumer with ready access. In order to comply with the ready access requirement of the Rule, the seller must, at a minimum, maintain a warranty binder on every sales floor (Discussion p- 55)- Wards failed to provide the consumer with a warranty binder on every sales floor in each of its retail stores. The absence of such binders on every floor violates the ready access requirement of 16 C_F-R 702_ 3(a)(I)(ii) (1975)- Credibility of Commission witnesses- With respect to the stores surveyed by the FTC, a number of conflicts in the testimony pertaining to compliance with the Pre-Sale Rule have been resolved in respondent's favor- This does not mean that all the testimony of the surveyors has been discredited nor should it be disregarded, as respondent (62Jcontends- The witnesses were observed while on the stand; on the basis of that evaluation there is no justification for disregarding their testimony- Furthermore, much of the survey evidence is unrebutted and respondent' own audits corroborate the findings of the survey that some Wards stores were not complying with the Pre-Sale Rule- The Audit Reports- Respondent' s audit reports showing no exception concerning compliance with Wards' binder program in the majority of the stores audited have been considered- Essentially, they are irrelevant to the issue of violation. A showing that there was compliance in some of Wards' stores would not defeat a showing of violation in other outlets- Basic Books Inc- v- F T. C, 276 F_2d 718, 721 (7th Cil 1960)- In any event, the audit reports showing no exception are entitled to little weight on the substantive question of violation- No auditor conducting such surveys testified concerning the methodology used in auditing an individual store s compliance with respondent' s presale policy_ VIII. REMEDY Complaint counsel' s proposed order would prohibit violation of the " R spondent was advised at the time these documents were introduced, that they were received with reservations as to the weight which should be given them, since ..there is no evidence on the basis of which findings can be made as to how thoroughly or how well, or if at all, a particular auditor looked into the pre-sale availability situation in a particular store" (Tr. 935). Respondent was given the opportunity to call two Or three auditors to provide a substantive foundation for this evidence (Tr. 936) No such testimony, however, Wae adduced Initial" Decision cJ7 F_ Pre-Sale Rule and in addition impose certain affrmative obligations- If the binder option is employed, the proposed order would require Wards to employ one of three methods of disclosure- The three alternatives may be summarized as follows: Maintain not less than one permanently affxed binder in each 500 square feet of selling space displayed so that they are reasonably calculated to elicit a prospective (63Jbuyer s attention while examining the products offered for sale and which are accessible without the assistance of sales personnel 2- Maintain a single permanently affixed binder in each department and not less than one warranty sign in each 500 square feet of sellng space so that at least one such sign is reasonably calculated to elicit a prospective buyer s attention while examining products in the department 3- Maintain a single, permanently affixed binder at each cash register servicing departments where the binder option is utilized and maintain no less than one warranty sign in each 500 square feet of sellng space served by such cash register and placed so that at least one such sign is, reasonably calculated to elicit the customer attention while examining products offered for sale in such department.

A ban on violation of the Pre-Sale Rule is supported by the record and wil issue (See Findings 93- 10n The affrmative obligations proposed in connection with the binder program will not be adopted- Neither the wording of the regulation nor the legislative background supports a construction that the binders must be placed in a sales area when the ready access option is exercised (Discussion pp- 52-56)- The proposed order s options requiring that a sign and/or a binder be placed every 500 square feet would be unduly burdensome and of doubtful effcacy- As a practical matter every area 22_3 ft. by 22.3 ft. would require such a sign." The record in this case contains little evidence concerning consumer behavior in retail stores which would necessitate or even justify such a plethora of binders- Furthermore no finding can be made on the basis of the record that the expense of such an undertaking would be balanced by the benefit to the consumer in requiring it. Such expenses, moreover, would (64) inevitably be passed on to the consumer in the form of higher prices- The record justifies measures to ensure that notice of the " The square root of 500is 22.

'0 Complaint counsel at the beginning of the tria! replie to II question on how many binders per square feet were necessary for ready access stating " t believe it can be judged in terms of square feet" (1(. 26R). 363 Initial Decision availability of warranty information b displayed .in a manner designed to reasonably elicit the consumer s attention prior to purchase- This can only be done effectively if such notice is in suffici nt proximity to the point of sale so that it is likely to be seen before purchase- Respondent wil be required to place on each cash register at which goods within the scope of the Rule are sold a sign advising "prospective buyers of the availability of the binders including instructions for obtaining access." Since it is generally at the cash register that sales are consummated, such a provision will reasonably ensure that consumers purchasing warranted goods are likely to become aware of the existence of warranty information and how to secure it prior to sale ofthe product- Complaint counsel state that "informing consumers of a right to view a written warranty after approaching the cash register to make payment on an item is of little value because the purchasing decision has already been made" (CB 53)- This argument is rejected- Both the Statute and the Rule clearly indicate that the information must be made available " prior to sale" that is before the sale is consummated- Signs on the cash register wil achieve that objective- Neither the text of the Regulation or that of the Statement of Basis and Purpose support a construction that binders or signs displayed pursuant to 702-3(a)(1)(A) or (B) must be seen while the consumer examines the product- The Commission could easily have required that warranty signs or binders be displayed in "close proximity to" or in "close conjunction to" the warranted product or "at the point of sale" had it been the intention to ensure that signs or binders be visible while the customer examines the product. Such a requirement was not imposed- The failure to use these or similar terms compels the inference that the phrase "reasonably calculated to elicit the prospective buyer s attention" must be construed as meaning no more than that warranty signs are likely to be seen before the purchase is made_" Signs permanently affxed to cash registers meet that standard- (65J It is true that in mid 1978 respondent began placing signs advising consumers of the availability of warranty information on cash registers in its B, C, and D lines- This procedure, however, was implemented after Wards learned of allegations by the Commission staff that it was not in compliance with the Pre-Sale Rule- Remedial measures taken after the inception of an investigation do not as a general rule vitiate the need for an order where the r-ecord " In any event, even jf the point in time at which a purchasing decision is made (as opposed to when the sale is consummated) were relevant, there is little or no information on this subject in the record. No conclusions ru to the behavior of conSlJmers in gl'neraJ can be drawn from the behavior ofthf' one consumer witness who testified in this case Initial Decision 97 YTdemonstrates a law violation- Coro Inc_ , et 01- v- FT.c, 338 F_2d 149 153 (1st Cir- 1964), cerl- denied 380 UB- 954 (1965)- The need for an order requiring cash register signs is underscored by the fact that on a number of occasions oral requests to Wards sales personnel for access to warranty texts proved unavailing (Finding IOn This is precisely the mischief at which the Regulation is aimed- Warranty signs properJy displayed are designed to inform the consumer of the availability of warranty information independent of verbal inquiries of sales personnel There is no need for provisions specifying in detail requirements with respect to the text or appearance of respondent's warranty signs. Those issues were not litigated in this proceeding. Moreover the precise wording and appearance of such signs is best left to the compliance procedures following finality of the order issued herein- While orders should be clear as to what is required they should not be so detailed that they become needlessly cumbersome- American Home Products Corporation d/b/a Whitehall Laboratories, 63 F_ 2227 2228- 19 (1963)_ " (66) The record demonstrates a violation of the ready access provision of the Rule (Findings 30, 76, 97)- At a minimum, there must be one warranty binder on every sales floor. A provision in the order spelling out where binders must be placed on a sales floor once that minimum requirement has been met is however not warranted here. The record does not permit a detailed and concrete formulation on this point which could he incorporated in an order- The prerequisite to such a determination would be more detailed evidence of consumer behavior in the store situation than is available here. The provision in the proposed order requiring the preparation of a list of all products for which the binder system is inapplicable wil not be adopted- As a practical matter, the showing of violation on the litigated record has been confined to respondent' s compliance with the Pre-Sale Rule s binder option- There is no justification for imposing affirmative obligations, unconnected with the binder method, whose burden and expense cannot be assessed on the basis of this record- In the event, that respondent's compliance with the Rule falls short in implementing disclosure methods other than the binder method, the provision requiring it to cease and desist from violating the Rule would cover such violations- " As the Commi sion stated inAmerican Home. These are details of compliance, which respondent will have ample opportunity to resolve after the Commission s order becomes effective. For the ordp.r "is only the hcginni!1g of a 'marritlgc' under which the Commi:,sion is obliged to affonJ the respond nt definitive advice 38 to whether proposed conduct would meet the requiremenl nfthe order. Foremost Dairies. Inc. C. Ducket No. 7475 (decided May 23, 1963), p, 7 (62 F'f. C. 1344, 13(3) See S ction 3.26 of the Commission s Rules ofPr..dice ..nd Proc dure Vanity Fair Paper MiIL , Inc. v. Frc. :Jl F.2d 480 488(Zd Cir. 1962)!7 S.&O. 5S:J, 592). MONTGOMERY WARD & CO_ , INC- 421 363 Initial Dccision The proposed order would also require -respondent to distribute-a copy of the order "to all operating divisions of the said corporation - - to all present and future corporate and regional personnel, and and all audit personnelall store managers, department managers, and secure from each person a signed statement acknowledging receipt of said Ordel" The meaning and scope of the phrase "all present and future corporate and regional personnel" is unclear. The provision will not be adopted in the form proposed- Respondent wil be required to distribute a copy of the order to all of respondent' corporate officers, all regional vice presidents, store managers and department managers- The provision as modified should ensure that compliance receives the necessary attention at the management level (67) Complaint counsel propose that respondent be required to institute a program of instruction at all levels of the company concerning compliance with the Act The purpose of the Pre-Sale Rule is to ensure that access to warranty information and/or notice of such information be available independent of inquiry to sales personnel Nevertheless, a provision requiring that respondent's sales personnel be given written instructions concerning their obligations under the Pre-Sale Rule wil be adopted- Such a requirement is justified in this case because respondent' s warranty signs instruct the consumer to look to Wards' sales personnel for instructions for access to binders- In addition, the responses of certain salesmen to requests for warranty information have frustrated the purpose of the warranty signs (Finding IOn The Commission s survey evidence embraced approximately twenty of respondent's retail stores- It establishes that in 14 appliance departments and 16 TV IStereo Departments in those stores there were neither warranty binders nor signs displayed (Finding 99)- Significantly, respondents binder and sign policy as initially implemented did not provide for furnishing each retail outlet with sufficient signs or binders so that either a sign or binder could be displayed in every department sellng warranted goods (Findings 35 42)- The pattern of violation is sufficient to support the imposition of an order- Goodyear Tire Rubber Co- v- F T. C, 331 F_2d 394, 401 (7th v- FT.c, 290 F_ 2d 803, Cir- 1964), affd, 381 U$ 357 (1965); Hoving 806 (2nd Cil 196n Complaint counsel request imposition of a requirement that Wards' audit reports contain an express written statement concerning the compliance of each department with all provisions of the ordel Considering the nature of the violation and respondent' previous attempts to implement the Rule, there is no need for such Initiaf cision 91 FTC an intrusion on Wards' internal management procedures. To the extent that the Commission nceds reports of compliance, these can be required as a normal part of the compliance procedures- CONCI.USIONS L The Federal Trade Commission has jurisdiction over the subject matter of this proceeding and over respondent Montgomery Ward & Co-, Incorporated- 2- This proceeding is in the public interest 3- The aforesaid acts and practices of the respondent, as herein found, constitute violations of the Magnuson-Moss Warranty Act and the Pre-Sale Rule duly promulgated thereunder- Accordingly, pursuant to Section 1l0(b) of the Act, they (68jconstitute violations of Section 5 of the Federal Trade Commission Act ORDER It is ordered, That the definitions ofterms contained in Section 101 of the Magnuson-Moss Warranty Act, 15 U$C 2301 (1976), and in Rule 702 (16 CF_ R 702_ 1 (1979)) promulgated thereunder shall apply to the terms in this order- It is further ordered, That Respondent Montgomery Ward & Co_ Incorporated, a corporation, its successors and assigns, and its officers, representatives, agents and employees, directly or indirectly through any corporation, subsidiary, division or any other device in connection with its business as a seller of consumer products distributed in commerce as "seller" and "consumer product" are defined in Rule 702 (16 C_ R 702_ 1) of the Magnuson-Moss Warranty Act (15 U$C- 2301) do forthwith cease and desist from: Failing, in the course of its business as a seller of consumer products, to make the terms of written warranties on consumer products actually costing more than $15. and manufactured on or after January 1 1977, available to the consumer prior to sale through utilization of one or more means specified in 16 C.F, R. 702,3(a)(1). It is further ordered, That if respondent uses a binder system to comply with the seller s duties under 16 C_YR 702_3(a)(1), then respondent shall permanently affix to each cash register servicing a department where consumer products within the scope of Section 702.3(a)(1) are sold, signs, reasonably calculated to elicit the prospec- _.

.lu..

363 Initial Decision pectivebuyers of the availabiltytivebuyers attention, to advise pro of warranty binders including instructions for obtaining- access to such binders- It is further ordered, That respondent shall: 1. Distribute a copy of this Order to all offcers of the corporation, all regional vice presidents, store managers, and department managers in its retail stores and secure a signed statement acknowledging receipt of this order from each such person- 2- Instruct, in writing, all present and future salespersons, store managers and other (69)representatives engaged in the direc1 sale of consumer products to consumers on behalf of respondent as to their specific obligations and duties under the Magnuson-Moss Warranty G 2301 etseq- Act the Pre-Sale Rule 16 CTR 702-3(a)(1) and, 15 UBthis order, and secure a signeq statement acknowledging receipt of such written instructions from each such person. 3- Maintain, for a period of three (3) years from the effective date of this Order, complete business records to be furnished upon request to any duly authorized representative of the Federal Trade Commission, relative to the manner and form of Respondent' s continuing compliance with the terms and provisions of this Order- 4. 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 ofthe order.

5- Within sixty (60) days after service upon it of this order, file with the Commission a report in writing, setting forth in detail the manner and form in which it has complied with this order- It is further ordered, That Count I of the complaint be, and it hereby is, dismissed, ) Opinion 97 F- Appendix OF ABBREVIATIONS CB - Complaint Counsel's Brief CPF - Complaint Counsel's Proposed Findings CRR - Complaint Counsel's H.epJy Brief CX - Complaint Counsel' s Exhibit RA - Respondent's Admissions RB - Respondent's Brief RPF - Respondent's Proposed Findings RRB - Respondent' s Reply Brief RX - Respondent's Exhibit OPINION OF THE COMMISSION By PITOFSKY Commissioner:

This is the first fully litigated case to reach the Commission involving the Pre-Sale Availability Rule (16 GF_R 702.3), promul- 2301gated under the Magnuson-Moss Warranty Act (15 UB-G seq_ Respondent Montgomery Ward & Co- ("Ward") was charged by a complaint issued on September 14, 1978 with failing to make consumer product warranties available to prospective purchasers of its products according to the terms of the rule- The Administrative Law Judge ("ALJ") found that Ward had violated the rule, and entered an order in accordance with his findings- Ward appeals from the finding of a violation, and complaint counsel appeal from the ALJ' s failure to enter a more comprehensive order- For the reasons set out in this opinion, we affrm the finding of a violation, but modify the ALJ' s order- Although we are entering an order against Ward, the Commission is aware that questions have been raised about the benefits to consumers provided by the Pre-Sale Availability Rule in its present form- In response to a petition for repeal or modilcation of the Pre- Sale rule, the Commission recently undertook to reexamine the effects of the rule and to gather more information about consumers and retailers' experiences under the rule. * When this information is (2Jreceived, the Commission wil examine the practicality of alterna- . Letter of March :J,191:1 to Endicott Peabody, Esq. , c(JUnsd for the N"ational Mass Retailing Institute 363 Opinion tive approaches to pre-sale availability of warranty information, and will consider whether to commence a proceeding to amend the Pre-Sale rule- We have kept these concerns in mind in deciding this case, and our order has been drafted accordingly- Although our review of the Pre- Sale rule may ultimately lead us to modify its terms, we believe it would be improper to make a decision about modification unti we have completed a full examination of its costs and benefits- Further we cannot ignore the record before us in this case- The rule is stil in place, and we believe that respondent's violations should be corrected- We emphasize, however, that the order we are imposing-applies prospectively only- Respondent is thus not penalized .for its past violations, but merely directed to comply with the rule, as defined by this opinion, in the future- The requirements of the rule have been substantially relaxed compared to standards sought by complaint counsel and imposed by the Administrative Law Judge. Moreover the order wil be subject to modification should the obligations of retailers under the Pre-Sale rule be revised at a later date- Respondent' s Warranty Availability Program Ward operates . a chain of retail department stores and catalog outlets- Its approximately 650 retail stores carry both hard and soft goods. Most products are sold under Ward' s private label (LDY 2, 4 Montgomery Ward stores vary in size and number of floors, A store can be anywhere from 1 720 to 220,297 square feet and can have from one to four sellng floors- The layout of each store (with regard to location of the merchandise) varies from store to store- Most retail stores have 55 departments sellng four categories of merchandise: soft goods, furnishings, heavy line merchandise, (3Jand major appliallces- In most of thesedepartnients, only a small number of products are covered by written warranties- Two departments however, the TV (Stereo department and the Major Appliance , The fvllowing abbreviations are used herein. F - Initial Decision Finding of Fact LO InitiaJDecision Tr. Transcript of Te limony ex - Complaint Counsel's Exhibit RX Resporident.s Exhibit CAB - COmplaint Counsel' AppeaJ Drief C. Ans. B - Complaint Courisel'sAnswering Brief RAESBP- Respondent'Statement ofs-BasisApPealandBrierPurpoe 345-554 0-82--'28 Opinion 97 department, sell almost exclusively products that are covered by warranties- (LD_ F- 11, 16, 17 , 21 , 22_ In order to implement its obligations to make warranty information available to its customers, Ward instituted a system of binders and signs in accordance with one of the options of the Pre-Sale Availability Rule-' Under the program, Ward chose not to provide a binder or sign for every department that carried warranted goods; instead, Ward supplied its stores with binders and signs to be placed in specified areas within each store- Binders were to be available at the Customer Accomodation Center (CAC),' in the Automotive Center (usually a detached building), and in a central location (at the discretion of the store manager) on each floor of a multievel store- (CX 10_) The signs advertising the availability of the bindcrs were to be placed in "prominent areas, including the appliance department the main entrance and the escalator/elevator area. One sign was also to be placed near each binder- (LD-F- 35, 39_ In 1977 investigators from several of the Commission s Regional Offices conducted a survey of 19 Ward stores in order to check respondent' s compliance with the Pre-Sale Availability Rule- (LDT 73_) The results of the survey led to the issuance of the complaint and became the focus of this litigation- It The Pre-Sale Availability Rule The Magnuson-Moss Act provides that the "Commission shall prescribe rules requiring that the terms of any written warranty on a consumer product be made available to thc consumer - - prior to the sale of the product - . - - " 15 UB- C- 2303(b)(I)(A)- Pursuant the provision, the Commission promulgated the Pre-Sale Availability Rule- The rule, which went into effect on December 3J , 1976, sets out four alternative methods by which retailers may make warranties available to consumers- The seller may display (4)the text of the warranty "in close conjunction to each warranted product" (16 CF_ R 702_3(a)(I)(i); make binders containing copies of warranties available to consumers (16 GF-R 702_3(a)(I)(ii)); display the text of the warranty on the package of the product (16 GF. 702_3(a)(I)(iii)); or place a notice with the text of the warranty " , The binds5 wiltain copies of warrantie1'offered on the fJroduct sold, and the igns dirett (:st.omers to the location of the binder , Approximately :1,j dt'pllrlment eJj products for which WarrCll1ties are l\vailable if) the binders. (I, l", :-1;;. , The CAC is the list(Jmer service deparlment inward' stores. Customer&" freqaent. lhe CAC for informatiur1 and ns istan e OD. r' \Ii.

... , MONTGOMEliY \'1\1\1. 0.

363 Opihion close proximity to the warranted consumer product" (16 GF_ 702_3(a)(1)(iv)-'Th", second alternative, the bihder method; was chosen byrespondenL (5J The binder option is the most complicated alternative offered by the rule- It reqjlires that a retailer maintain a binder or series of binders containing copies of all warranties offered on products soh The binders must be kept in each department in which wa-rranted products are sold, or "in a location which provides the prospective buyer with ready access to such binder(s)-" (16 C- R 702_3(a)(I)(ii) (emphasis added))In addition, the r",tailer must inform consumers of the availabilty of the binders, by either of two methods- The binders themselves may be displayed, or signs advertising the existence of the binders may be posted, in a manner "reasonably calculated to elicit the prospective buyer s attention- Id Thus, the issue presented by this case is whether Ward provided prospective purchasers with "ready access" to warranty binders, and displayed the binders or signs in a manner "reasonably calculated to elicit the prospective buyer s attention_ At the outset, we acknowledge that the rule s requirements, if read literally, could be subject to more than one interpretation- Ward certainly did not set out to exploit consumers, nor did it completely ignore its obligations under the rule- Nevertheless, we find that ; Thefl1l1 textofth,. relevant portioris of the rue is as fo!Jows. !j'702;, Pre'salefllluilabiliy ofioi.itten warranty terms The . fol!owingrequirements apply tu consumer produds actually costing the consumer mure than ,\15.00: (11) Dulies of Iheseller.Except as provided inparngrapbs (c)-(d) of this s ction; the seHer ofa consumer product with a written warranty shall.

(1) make available for thcprospedive buyer s review, prior tosa!e, the text OfSllCh writttH1warrantyhy the useofoneormoi-eOfthcfo!lowingmt!ans (i) . clearly and corispiCuouslydispJaying the. text of the written warnllty in close conjun.ctionto eachwarranted product; rmd/ur (ii) maintaining a binder or series of binders which contain(s) copies of the warranties for the product." sold in each department in which any consumer product with a written warranty is offered furale. Such binder(s) shan b,. maintained in each such department, or in a Jucatiun which provides the prm;pective buyer with ready access to such binder(s).aI1d shall be. prominently entitled . Warranties" or other similar.title which dearly identifies the binder(s). Suth hinder(s) shall be indexed according to product of warrantor and shal!bemaiotained up to date when new warranted products or models or new warranties for existing products arc introduced into thj store or department by substituting supcrsedingwarranties and by adding new warnmties as appropriate. TheseHershaJ1 either.

(A) display sucn hinder(s)ina manner rea onably calculated to elicit the prospective buyer s attention; or (E) makt! the binders available to ptospectivebuyers on request, and place signs reasonably calculated to elicit the prospective buyer s attention in prominent locations in the store or d partment advising uch prospective buyers of the availability of the binders, including iristructions for obtaining access; 1iTidior (iii) displaying the package of any consumer product o!1which tne text of the written warranty is disclosed, in 1i manner such that the warranty is deady visible to prospective buyers atthe point ofsllle; and/or (iv) placing in close proximity to the warranted consumer prodl1ct a notice which discloses the text of the written1 warranty. iI1 a manner which clearly identifies to prospective buyers the product to which the notice applies.

), , 428 n;DERAL TRADE COMMISSION DECISIONS ()pinion - 97 FTCunder a fair reading of the rule and its history, Ward's procedures fell short of adequate compliance- The following discussion contains our conclusions as to the proper interpretation, as applied to a large retail outlet such as Ward, of the binder option of the Pre-Sale Availability Rule- Because the rule is phrased in broad, general terms, we intend by this opinion to give more content to those terms, and to give further guidance to Ward and to (6)those retailers whose operations are similar to Ward' s- To demonstrate that respondentaid us in our interpretation, and to should have been aware that its program was not in compliance with s " legislative history-" We wil,the rule, we have analyzed the rule therefore, first discuss Ward' s contention that we may not use the rule s Statement of Basis and Purpose as an interpretive aid. Respondent argues that because the language of the Pre-Sale rule is clear and unambiguous, we may not examine extrinsic evidence to of statutory interpret its terms, under the "plain meaning rule" construction- Ward asserts that the key terminology of the rule, the terms "ready access" and "reasonably calculated to elicit the prospective buyer s attention, are sufficiently clear that the Commission need not, and indeed may not, resort to an examination of the rule s Statement of Basis and Purpose, nor the context of the provision within the rule as a whole, in order to interpret the obligations imposed by the binder option- (RAB 3 L)' Ward goes to great lengths to demonstrate that the words of the rule are unambiguous, citing a large number of wholly irrelevant cases- (HAB 9, n- 6_) In spite of these efforts, Ward succeeds in uncovering six different judicially recognized meanings for the phrase "ready access ' It seems to us, therefore, that the term is not so clear as to preclude the use of the rule s Statement of Basis and Purpose (7)to determine the appropriate application of the rule to respondent' Moreover, as the Supreme Court has said (WJhen aid , 40F'ed.Reg. (jOJR (197:J).

" We agree with respom)('nt that the plain meaning doctrine is applicable to the interpretation of OIgency regulations to the same extent "S it is to statutory construction.See. e.g., New York Slale Comm 'n On Cablf! T,,/ellision v. FCC 571 t' 2d 9:,(2d Cir. cat. denied,439 U,S.989 (S.820(1978).Y. 1974) involved "ready access" to state, f"or !'example Bache & Co. Inc. v. Roland. 375 F.Supp courts: Lincoln Amerir:rw Corp. Vie/Dry Life 1m;. Co. 37,' F. Sup!,. IJ2 (D. Kan. 1974) referred to "ready access" to corporate records; and McKieLighler Co. v. Cily of Boston.335 F Supp. 663 (D. Mas, 1971) wnc rned "ready accOoss" to boat moorings. Bache and Lincoln American both deuned ready access in terms of a Jack of lugal impedimm1t to certain actions. Non of the cases cited is relevant to a determinatioo about convenience to consonl€rs.

, This by no means suggest., of course, that the rule s language i so ambiguous as to prevent retailers from applying its provisions to their operations. We ar.. only saying that its meaning i,, not so clear on its face that the Statement of Belsis and Purpose would not assist in determining its applicability to respondent' ,, stores ,.. . ), MONTGOMERY WARD & CO_, INC 363 Opinion to construction of the meaning of words; as used in the statute, is available, there certainly can be no 'rule of law' which forbids its use however clear the words may appear on 'superficial examination Train v- Colorado Publiclnterest Research Group, Inc" 426 UB. 1, 10 (1976) (quoting United States v- American Trucking Association, 310 U.8 534, 543-44 (1940)).'"

Words and phrases less ambiguous than "readyaccess" or reasonably caleulated to elicit attention" have been held to require an examination of the legislative history of a statute to determine their meaning in a particular context- For example, the words "employee 1l"pollution ,12 and "sizeandweightH13 have been found not to have a plain meaning- Words and phrases similar to "ready access" have also been considered ambiguous enough to require further serutiny of legislative intent. " In this ease it would be foolish to seek only a literal meaning of the phrase when we are fortunate enough to have the Statement of Basis .and Purpose of the rule as an interpretive aid, and where the binder option is one of four related methods provided by the rule for giving access to warranty information- (8) Mere incantation of the plain meaning rule, without placing the language to be construed in its proper framework, cannot substitute for meaningful analysis. For we must remember Judge Learned Hand's stricture that "(t)here is no surer way. to misread any document than to read itJiteral1y.. . (New York State Commission on L'able Television v. FCG .571 F.2d95, 98 (2d Cir. cert denied, 439 U.s. 820(1978) (citations omitted), Ward asserts that under the Pre-Sale rule binders containing warranty information need only be accessible or attainable" (RAB 7) in one location in a store (RAB 8), and that ready aeeess is to be eonstrued as allowing consumers toohtain warranty information with only a "reasonable delay or effort" (RAB 8-9)- Ward' s practice is in line with this interpretation; in many of its stores it made only one warranty binder available-,usualiy in the CAG" Complaint counsel, on the other hand, argue that the binders must be placed in See generally Murphy, Old Maxims Never Die; The Plain Meaning Rule andStalulory Interpretation in the 'Modem '' Federal Courts, 75 Columbia L.Rev. 1299 (1975). 'UnitedStatf!s v. Amwir.anTruekingAss :no US. 534, 545 (1940); MarTiott In-FliteSeru. v. weal fiOI;, Air 7'rmfJrIDiu. 557 Io'2d295 298(2d Cir, 1977) Train. ColorodoPu.blic Interrsl Research Group. Inc. 426 U.S: 1 (1976) Maurer v. lfa.miiton. 309 U.8. 598 617 (1940). " In Curl';ll v. Ho.mpton 438 f':Supp. 505 , (D. Ala;. 1977),reu d in part unuthergrounds. 598 2d1175(9th Cir. 1979), the words "arefllrriished" weniinterpreted to meim have acc€Ssto" See also. L'apeFoxCorp. v. United States, 456 F. Bupp. 784, 805 (D: Ala. . 1978 ("'immediately See discussion of placement (jfwarnmty binders infra, .

Opinion 97 F_ reason1ably close proximity toall warranted products, ina many locations as necessary to achieve such proximity (C Ans- B. 14). As for the signs, according to Ward the rule s language reasonably calculated to . elicit - - . atterition" is applicable only to a sign physical attributes, not to its placement in the store. (RAB 10) Complaint counsel counter that the display of signs as well as their physical attributes is governed by the rule (C Ans- B. 14_ After an examination of the Statement of Basis and Purpose and an analysis of the binder option in the context of the other options of the rule, we find that Ward' s interpretation of its obligations under the rule cannot stand- Binders As with other rules, the Statement of Basis and Purpose provides an analysis of the factors considered by the Commission inpromulgating a rule, and is thus a useful aid in understanding the rule- Here, the Statement of Basis and Purpose reveals both the purpose of the warranty statute and of the Pre-Sale Availability Rule- The Commission was required by Congress to promulgate a rule that would permit the consumer to use product warranties "as a tool for making product comparisons . (SBP 60182)_" As originally proposed by the Commission, the Pre-Sale rule would have (9Jrequired a warranty binder to be placed in every department in which warranted products were sold- In response to comments on the rule, however, the Commission changed the wording of the rule in order to provide more flexibility for the retailer. (SBP 60183) At the same time, the Commission recognized that a binder in an inconvenient location might discourage the use of the information- (See SBP 60183 n- 194.

It is evident from the Statement of Basis and Purpose that the requirement that binders be located in every department was altered at the request of those retailers whose stores were small enough that binders in every "department" would be unnecessary- The Commission explained, quoting one of the written submissions in the rulemakingrecord, that:

(WJhile the provision that the binders be kept on a departmental basis is reasonable in the case of large retail outlets where it would be a burden on the customer to require that he or she go to one specific location in the store to find the binders, there are . many small retail outlets which may have merchandise laid out by department yet are small enough so that one complete set at a single location in the store would suffce_ " rSBP 60184_ . The page numbers of the Statement of Basis and Purpose used herein are the corresponding pages of Volume 40 of the Federal Register.

MONTGOMERY WARD &CO-, ING 431 363 Opinibn The Commission went on to say that " in such instances, it wotildc permissible to place the binders in a location other than in the departments in which the products are being sold)' (Jd. (emphasis added))- Thus, the rule s flexibilty was not intended to permit large retailers such as Ward to avoid the requirement that warranty information be provided in reasonable proximity to the areas where the warranted products were !3old_ Of course, the rule applies uniformly to all retailers, large and small, and Ward is entitled to take advantage of the cl",use. that permits binders to be placed either in a departrnent orin a location that provides ready access- If a large retailer such as Ward does avail itself of the alternative, however, the locations it chooses for the binders must not deprive the consumer of ready access to warranty information- (10) The meaning of the binder option of the Pre-Sale rule becomes clearer when the other options are examined- These provisions are much more restrictive than the interpretation of the binder option that Ward advances. One method, for example, requires that warranty information actually .be displayed on the package of the product- (16 GF.R 702_3(a)(1)(ii)- The other two options require display of the text of the warranty "in close conj\lnction to each warranted product" (16 GF-R 702_3(a)(1)(i)) and placement of a notice with the text of the warranty "in close proximity to the warranted consumer product" and "in a manner which clearly identifies - - - the product to which the notice applies" (16 C_F-R 702_3(a)(I)(iv)). In light ofthe obvious intent of these other provisions to provide warranty information at or hear the point of sale of warranted products, it would be incongruous to read the binder option, as Ward would have us read it, to require only one binder to be placed in a large multilevel retail establishrnent. Respondent argues that it is irnpermissible for the Commission to make a judgfellt about ready. access in the absence of specific evidence in the record as to how consumers behave when making purchasing decisions in retail stores. Commission I'expertise" on consumer behavior, Ward asserts, is limited to judging consumer perceptions of advertising, and may not be brought to bear in other situations- (RAB 49-5L) Although we reject the argument that our expertise isso limited, " Respondent's i"eliani: on the fact that the rule is phrased in terms of " Jocation(RAB 8) isriisplaced. Such a narTOwreading of the rule woulddenynlJ consumers ready access to warranty information by ' permitting retailers to choose 11 single location iii a large store without regard to the number ofselJngflooI"; the size of the floors or other similar considerations- This is obviol.slynot what the Commissionintended when the rule was promulgated.

"See Brite Manufacturing Co. v, FT, 347 F. 2d 477 478 (D.C. Clr. 1965);8, 8. Co., 73 F. C. 1058. 1087 (1967); Montgomery Word & Co" 70 F. C. 52, 71':72 (1966), o.ffd, 379 F,2d 666 (7th Cir: 1967), g, .opinion 97 YTCwe need not "ddressthat issue here- The Commission has . "already made a jlldgmentabout consumer behavior in the course of promulgating the Pre-Sale Availability Rule, and has determin that the convenience of the consumer is an important aspect of warranty av"ilability.

In the Statement ofBasis"nd Purpose the Commission recognized the b\lrden on consumers that would be created if warranty binders were kept in only one location in large retailoutlets_ (SBP 60184. This judgment was based on the gre"t quantities of informati()n about many aspects of retailing with which the Commission was furnished during therulemaking proceeding-including information about consumer purchasing behavior. (See, e_ SBP 60183 n- 194_ (11) As discussed "bove, the Statement of Basis and Purpose reveals that the concept of ready access represents a compromise, based on the rulemaking record, between the retailer s convenience and the consumer s convenience. As originally proposed, the Pre-Sale rule called for a binder in each department as the only method of compliance_" The binder requirement was modified and the other options were added to the rule, in response to "the retailers' cry for greater flexibility_ " (SBP 60183.) In place of the requirement that a binder be maintained in each department, based on its knowledge of consumer behavior, the Commission introduced the concept of ready access into the rule.

A determination as to whether ready access has been provided is a practical, commonsense judgment about reasonable convenience to consumers, based on knowledge gained from the rulemaking proceeding, and common experience.'" The only question we need resolve here is whether consumers had ready access to warranty information in Ward's stores. This is a judgment that Congress intended us to make when it enacted the Magnuson-Moss Warranty Act, and it is one that we can make on the basis of the record in this case.

Of course, what is ready access in one store wil not necessarily be ready access in another- The layout of a particular store may provide more ease of access to certain areas than to others- There may be areas within each store which ar frequented more often than others by consumers- Some stores may have most warranted products ,. TheoriginaJproposal required the retaiJerto. maintain a binder or a series of binders in each department in which aoy constJmer product with a written warranty is offered for sale, containing copies of the warranties for the products sold in such department !SBP60183.

. No special expertise is needed to determine that consumers will not travel aJ!over a store to find warranty information. "hi reaching their decisionsrieither court nor administnitive bodies should ignore the realities of life and disregard common knowledge . , Continental Can C-v. United States,272 F.2d 312, 315 (2d Gir. 1959). g, , g_, MONTGOMERY WARD & CO-, INC ;J63 Opinion grouped in one location; others, like Ward, may have those products-spread throughout the store. It is therefore diffcult to generalize about appropriate locations for warranty binders. We do have information in the record before us, however, about the nature and layout of Ward's retail establishments- (LDT 1- 23; see, e_ CX 50- 55), and the Commission can determine which locations are readily accessible to consumers- (12) Accordingly, we have determined that consumers are unlikely to travel to other floors of a multi-level establishment in order to obtain access to warranty information. All other information necessary for the purchasing decision, (e. price, sizes and colors available instruction booklets) is available where the merchandise is displayed, and the place where the goods are purchased (the cash register) is in the same area. Therefore, a minimum of one binder per sellng floor is necessary for most large retail establishments like Ward to provide consumers with sufficient access to warranty information.

Signs The requirement that signs be posted to advertise the availability of the binders is an integral part of the binder option of the Pre-Sale rule- No signs need be posted if the binders themselves are displayed in such a manner as to "elicit the prospective buyer s attention_ " (16 GF.R. 702_3(a)(1)(iii)(AD If the retailer chooses not to display the binders, however, the customer must be informed of the availability of warranty information through other means- As the Commission stated at the time of promulgation a prominent notice or series of notices must alert the prospective buyer s attention to the existence of the binders and the means for obtaining access to them - (SBP 60184_) It is reasonable to infer from this statement that the phrase reasonably calculated to elicit the prospective buyer s attention was intended to refer not only to the physical attributes of the signs, as contended by respondents, but to their ability to inform consumers of the availability of warranty information- As with the placement of the binders, the placement of the signs so as to elicit consumers' attention wil vary with the particular retail establishment" Unless the signs alert prospective purchasers to the existence of the binders, however, the rule has served no purpose- If " w note that Ward' own PQlicy, as opposed to what it actually did, was to provide one warr:'nty binder on each selling floor of its stores (I.D.F. 36;CX 10, " Although we hold that the language of the rule refers batn to physical attributes and lactltian of the signs we will discuss only the placement of the signs in this opinion The requirements of the! rlJle as to physical attributes were not litigated bclow. (ID. 65. 434 FEDERAL TRADE COMMISSION' DECISIONS 9pinio'r.. ;)7the only signs advertising the availability of warranty information are at a distance from the location in which the products are sold the consumer is unlikely to remember when comparing (13Jproducts that the information is available- Thus, in order for effective notice to be given of the availability and location of the information, the signs must be placed in or near the areas in which warranted products are sold, and must be unobstructed so as to be capable of being read at some distance- Ward' s Violations of the Rule For the purpose of assessing Ward's liabiliy under the Pre-Sale Availability Rule, we have judged violations against a minimum standard of compliance, based on therR'cord of this proceeding- We have determined that stores that were found to have fewer than one binder per sellng floor and stores that had no signs in or near those departments where a substantial number of warranted products are sold, are in violation of the Pre-Sale rule. Binders The record demonstrates that many large retail stores had more sellng floors than binders-thus there were some floors in those stores with no binders available- The record shows suffcient instances where warranty information was not readily available to prospective purchasers to subject Ward to liability for violations of the Pre-Sale Availabilty Rule_ The documentary evidence introduced by complaint counsel provides a basis for our finding of liabilty, This evidence consists of a chart of the number of binders and their locations in each store, compiled by complaint counsel from (14Jinformation supplied by Ward (CX 46); blueprints of six Montgomery Ward stores, submitted by Ward (CX 50-55); and Ward' s internal audit reports (CX 57-59)_ " Many of Ward's stores also had no warnwty binder in the CAC, the area respondent's witnesses testified that customers were likely to seek out when in search of warranty information (Pagliaro Yr. 1027), and the area in which stores were instmctg,j to place binders. (CX 10. " I/lliddition tothe documenlary evidence in the record, complaint COllnEd caJJed several! witne.'e to testify about the availability of warranty information. These witnesses had conducted ii surveyur respondent's stores looking for warranty information, and had testified as to its u.navailability. (J.D.!". 73.-92.) hiparlicular, at Jem;t !line of. J2 stores visited by surveyor Jf'nnifer Hollon had no warranty binder in or around either the Major Appliance department or the TV IStereo department. (Hollon, Tr. 497 500, 50::1, 505, 542; 544, 555, 557 , 559, 56J, 564 567, 570, 572 .sR3- ) Since virtually all the products thesedepartment sell are covered by written warranties (I.D,f.'. 21), in contrOist to moot other departments which sel! only a few warrant..d products (f.D.F. 22), the failure to provide warranty information in dose prlJcimity to these departments made it unlikely that consumers would have pre"sale warranty information when it WQ\jld be most likely to be influential. In response to respondent's argument that the survey eviden.ce is not reliable (RAB 23-32), we note that the (Continued) MONTGOMERY WARD & CO-, INC 435 363 !li The most conclusive documentary evidence in the record regarding the location of the binders in Ward's stores is CX 46, a chart prepared by complaint counsel The chart was compiled from information submitted by respondent, and its admissibility and accuracy were stipulated, with certain exceptions not relevant to the issue of the location of binders_" The chart indicates that 53 Montgomery Ward stores had at least one selling floor without a warranty binder- This figure shows substantial noncompliance with the rule at the time the chart was drawn up- The evidence of CX 46 is corroborated in part by the blueprints of six stores that were introduced into evidence- (We assume that these blueprints are representative examples of the floor plans of Ward' stores; respondent has made no attempt to convince us otherwise. They show that in the North Riverside and Penn Square stores, for example, there was no binder on the first floor- (CX 50 and 52_) In addition, we note that the blueprints demonstrate the distances consumers must travel to find the warranty binders- (15) In several cases, the blueprints show that a customer at one end a selling floor must cover a distance at least the size of a football field in order to obtain access to warranty information. Ward' s audit reports are documents prepared by internal auditors according to a program established by the company- (LD_F- 56, 60_) In November 1976, compliance with Ward's warranty availability program was added to the list of matters to be audited- (LD-F- 66) The audit reports record any deficiencies found by the auditor the failure to place a binder or a sign in the location required by Ward' s policy- (LD.F- 54) The reports in the record corroborate some of the other evidence and confirm that at least on some occasions violations of the Pre-Sale Availability Rule occurred. Respondent argues that it was inappropriate for the ALJ to rely on the audit reports as evidence of violations of the rule, because "the audit procedures assure that such deficiencies are corrected immediately - (RAB 33_) We need not resolve the issue of whether it is proper for us to rely on the audit reports, however, since we need not use them as independent evidence- Consequently, we merely note that the reports confirm some of the other evidence in the record- AW found the survey evidence to be credible (ID 61, (2), and we are not persuaded that his finding should be disturood. See Universal Camera Corp. v. NLRB. 340 U,S. 474 , 496 (1951). Indeed, much of the testimony was corroborated by the documentary evidence introduced in this case. Compa.re Hollon, 'fr. 497 , 500 with ex 50; HoHon, 'fr. 555 , 5.17 with ex "!irn '" 'fr.174- H;0 " E.g.. ex 54 (312 feet); ex 55 (::Hio f g., gq Opinion Signs The survey lakenby compl"intcounse)'s investigatqrs turned up ample evidence that reslmndent' s stores did not have a ufficient number of signs "reasqnably calculat(!d tq elicit the prospective buyer s atteIltioni'" According to the surveyors; there were no warranty signs in the CAC in six ofthe stores surveyed- (J-D-F. 98) Since the CAC is the place chosen by Ward for making binders available, and since (as we noted earlier) it cqnsidersthe CAC the place that customers are most likely tq fqt such information (Pagliaro, Tr- 1027), it would seem that posting a sign in the CAC would be crucial to maintenance of an effective warranty informatiqn prqgram-" (16) The survey also demonstrated that many stores had no signs advising customers of the availabilty of warranty information in the two departments where consumers were most likely to wish to make use of such information: the TV/Stereo department and the Major Appliance department- Seventeen of the stores surveyed had no sign in the TV/Stereo department (1.D.F 96) and 14 had no sign in the Major Appliance department (1.D.F 94rMoreover, in many of the stores, no signs alerting consumers to the existence of the warranty binders were visible at the entrance used by the surveyors or in the aisles on the way tq the TV/Stereo and Majqr Appliance. departments. (See, e. Hollqn, Tr_ 485, 497, 503, 548, 562, 570, 584) We note that Ward's policy was to have signs posted in the Majqr Appliance Department. (J-D-F- 39; CX 10.

Although respondent' s failure to have a sign in each qne of these locations at any given moment in time would not necessarily violate the Pre-Sale Availability Rule, the aggregate evidence shows that in many stores signs were not clearly visible. The very fact that in so many stores the surveyors did not notice signs in most of the lqcations they visited is indicative qf the manner in which Ward complied with the requirements of the rule. Thqse individuals entered the stores looking for warranty signs; if they spotted none, how were ordinary consumers to do so? The ALJ also found that the failure of some qfWard' s salespeople when asked, tq direct consumers to the location of warranty information and tq inform them of the availability of the binders viqlated the Pre-Sale rule- (1.D_F- 105) Commission investigators testified that several salespeople infqrmed them, when they asked " The documentary evidence in the TCCQrd is inconclu. ive as to the presence or absence of5igns in appropriate placesinresporident' sstores, ,. If the binder is not displayed, and if no sign is posted, a custom!:r couid conclude that warranty information is. not in factavailable. See SHP 60184 n. 208 (comimmt of Montgomery Ward). g, MONTGOMERY WARD & CO-, INC 363 Opinion about warranty information, that the warranty would be available after purchase of the product (I.DY 101; see, e_ Hollon 506, 510- 11; Danielson 643- , 676_) We disagree with the ALJ that this lapse on the part of the sales force is a separate violation of the rule, but it does show a failure by respondent to educate its salespeople as to their responsibility to make warranty information available- In sum, the record demonstrates numerous violations of the Pre- Sale rule under any reasonable interpretation of that rule- The survey done by the Commission investigators shows an absence of warranty availability in the areas of the store where consumers are most likely to benefit from warranty information- The documentary evidence reveals that (17Jover 50 stores did not have at least one binder placed on every floor- We therefore find that the binder requirement of the rule was violated in those stores where there were selling floors without any binders. We also find that the lack of signs, in the aggregate, amounts to a violation of the requirement that binders or signs be placed so as to elicit the attention of consumers.

Respondent contends for several reasons that the Commission may not hold it liable for violations of the Pre-Sale rule First, Ward contends that application of any interpretation of the rule in this case would be in effect an amendment to the rule, which must be done in accordance with the notice and comment procedures of the Administrative Procedure Act, 5 U_ C- 553- Second, Ward asserts that application of the ALJ's interpretation of the rule (and presumably the Commission s interpretation) would violate its due process rights, because Ward has had inadequate notice of its obligations, and because the rule would thus be rendered so vague as to be unconstitutional Finally, respondent argues that "as a matter of public policy" the Commission should not have issued the complaint that initiated the adjudicative proceeding- In response to respondent's first contention, we agree that the Commission may not, in an adjudicative proceeding, create a general obligation that was not contemplated when the rule was promulgated- See NLRB v- Wyman- Gordon Co-, 394 UB. 759 (1969). That is quite a different matter, however, from interpreting the general terms of a rule in an adjudicative proceeding- Of necessity, any rule that is to cover such widely divergent entities as large retailers like Ward and small, one-room stores must be drafted in general terms- FEDERAL 1'TRADE. COMMISSION DECISIONS OpiniQ11 97 F_ Application .of thePre'Sale rule to a specific situation, therefore, must bedon iilan adjudication.

An administrative agency generally has a choice whether to proceed byrulemaking.or by adjutiication. "(T)heagency must retairi power to deal with the . problems. ona case-t.o-casepasis if the adrnini trative process is to be effective_ SEC v- Chenery Corp-. 332 US. 194, 202 03(1947)- Agencies also have a choice, when clarifying the meaning. .of rules, between amending them and int!;fpreting them in an adjudication_ See 1 KC. Davis AdministrativeLaw Treati Section 5_01 at 292 (1958)- " Moreover, a finding of liabilty in a Commissi.on proceeding subjects the respondent to no fines penalties, (18)but merely results in an order to cease and desist from past practices- Such a proceeding is particularly appr.opriate for an adjudicative .interpretation of a general legislative rule- NLRB Bell A,ero p(1ce Co_, 417 VB- 267, 295 (1974)- Respondent' s sec.ond contenti.on is equally with.out merit- On the one hand, Ward argues that the Pre-Sale rule is so clear on its face that the Commissi.on may not use its Statement of Basis and Purpose to aid in its interpretation; on the other hand, Ward asserts that when the rule is interpreted t.o make its practices a violation, it is so vague as to violate its due process rights. Aswe notedabove some vagueness is inherent ina rule of genera.l applicability like the Pre-Sale rule- Such a rule is not overly vague if it has a "areas.onable degree .of certainty_ Boyce Motor Line United State 342 VB- 337, 340 (1952)- Indeed, one purpose .of an adjudicative proceeding to enforce a rule is to .interpret the rule, and it is proper for the g.overnment to give content to a general rule through its application to a particular party in an adjudication- Water v- Petcr on. 495 K2d 91, 99 (D_G Cir. 1973)- Resp.ondent' s public policy argument must also be rejected- A congressional determination has been made that consumers wil be well served by the availability of warranty information prior to sale. See 15 US-C- 2302(b)(1)(A). This proceeding was brought to ensure that this congressi.oral policy was carried out. More.over, under Section 5 of the FTC Act, 15 V- C. 45, it is within the Commission discreti.on to. determine whether a proceeding is in the public interest, and that public interest determination was made when the C.ommissionissued the complaint in this adjudication- " A third alternative lS to issue an interpretathm of an existing rule, either by interpretative rule or ina po!icyst.tement. Again, the choice is within the discretion of the agency. See 1 K. C. Davis Administratiue ww 1reatiseSection 01 at289. (1958).

...... ..

363 Opinion IV- Relief Having found numerous violations of the Pre-Sale Availability Rule, we haveeritered an ()rder designed to ensure, to the extent possible, future compliance with the rule. See FTC v. Ruberoid Co_, 343 DB- 470, 473 (1959), In the future Ward must make sure that warranty binders are readily accessible and that signs are posted to inform its customers of the existence and location of the binders. In formulating our order . we have taken into account the record evidence about the size and layout of Ward's stores and have employed our own expertise on consumer behavior (see Part II C supra)- In addition, we have considered the costs to retailers establishing and maintaining a series of warranty binders- Binders The attached order requires Ward to maintain at least one warranty binder per sellng floor in its retail establishments- (This would include a binder in its automotive (19jdepartments in stores where the department is contained in a separate building (see LD. 14))- The order provision is based on our judgment that, given the size of many of Ward's stores, customers are unlikely to consult the binders if they must go to a different floor (see Part II C supra). evidenced by Ward' s own policy to maintain a warranty binder on each sellng floor, the order should not prove overly burdensome for Ward to implement.

Complaint counsel in their appeal brief urge th Commission to require respondent to maintain one binder in each department or sales area of each selling floor. (CAB 1l 12. ) It is at least possible that in some stores more than One binder per floor may be necessary to provide ready access, but we are unwiling, on this record, to impose such a burden on respondent. Although we have determined that consumers have not been . provided with ready access to warranty information if that information is not on the same sellng floor as the department in which the warranted product is sold, are not persuaded that more than one binder per floor is necessary to provide ready access. Thus, we are unable to conclude that the costs of requiring more than one binder per sellng floor are outweighed by the benefits to consumers.

Signs In order to ensure that signs informing consumers of the availability of warranty information are placed in the areas where decisions - Fina.! Order gT to purchase warranted products are made, the attached order requires respondent to place one sign in each department in which warranted products are sold. In our judgment, consumers are unlikely to consider asking for a warranty binder unless they are informed of its existence while they are making their purchasing decision- For this reason, the ALJ' s determination that signs should be placed on cash registers is erroneous- Generally, by the time that a customer approaches the cash register, the purchasing decision has already been made-" The order also provides, in the interest of flexibility, that where two adjacent departments share a wall, one sign wil suffce for both departments- Finally, the order contains provisions designed to ensure respondent' s compliance with the ordel These include a requirement that respondent conduct semi-annual audits of its stores to make sure that the warranty signs and binders (20)are maintained in the manner required by the order- Ward wil be required to be substantially more vigilant in inspecting its stores and requiring warranty information to be made available than it has been in the past In conclusion, we would like to make clear that the provisions of the order are tailored for Montgomery Ward, based on the evidence in the record of the proceeding- The system of compliance other retailers must follow depends on the particular organization of each store- This opinion should, however, put retailers on notice that it is insufficient to maintain one warranty binder in a large multilevel store, whether it is placed in a customer service area or elsewhere. An appropriate order is attached.

FINAL ORDER This matter has been heard by the Commission upon the appeal counsel for respondent and the appeal of counsel supporting the complaint, and upon briefs and oral argument in support of and in opposition to the appeals- The Commission, for the reasons stated in the accompanying opinion, has granted the appeals in part, and denied the appeals in part Therefore It is ordered, That the initial decision of the administrative law judge, pages 1-46, be adopted as the Findings of Fact and Conclusions of Law of the Commission, except as is inconsistent with the attached opinion- " If respondent chooses todisp!ay the bindersthemselves rather than thcsigns,a. permitted by the rule (16 R. 702.3(a)(l)(iii)(A)), binders must be placed in each department. If only one binder per floor is displayed and no signs lire posted, that binder could not be said to be placed in a manner "reasonably calculated tG elicit a prospective buyer s attention "

MONTGOMF;RY WARD & CO- , INC 441 363 Final Order Other Findings of Fact and Conclusions of Law of the Commissiojy are contained in the accompanying opinion. It is further ordered, That the following Order to Cease and Desist be entered:

ORDER It is ordered, That the definitions of terms contained in Section 101 of the Magnuson-Moss Warranty Act, 15 U- C 2301 (1976), and in Rule 702, 16 C- R 702_ , promulgated thereunder, shall apply to the terms in this order- (2J It is further ordered That respondent Montgomery Ward & Co_ Inc., a corporation, its successors and assigns, and its officers, agents, representatives and employees, directly or through any corporation subsidiary, division or other device in connection with its business as a seller and warrantor of consumer products distributed in com merce, do forthwith cease and desist from failing, in its course of business as a seller of consumer products, to make the terms of written warranties on consumer products actually costing more than $15_00 and manufactured on or after January 1, 1977, available to the consumer prior to sale through utilization of one or more means specified in 16 CF-R 702_3(a)(I)- II, It is further ordered, That for those retail establishments in which respondent chooses to use a binder system to comply with the seller duties under 16 C- R 702_3(a), respondent shall: Maintain a permanently affixed binder system on each sellng floor of each retail establishment; and 2, Label and display such binders, or place permanently affxed signs, in a prominent location in each department of each retail establishment where warranted products are sold, in a manner reasonably calculated to elicit the prospective buyer s attention- If two adjacent departments share a wall, one sign may be placed on that wall 345-554 0-82-- Fi nal Order 97 F_ It is further ordered, That:

Respondent shall, for a period of three (3) years from the effective date of this order, maintain business records which show the form and manner of respondent' s continuing compliance with the terms and provisions of this Order; conduct semi-minual audits and maintain records of these audits concerning each store continuing compliance; grant any duly authorized representative of the Federal Trade Commission access to all such business records; and furnish to the Federal Trade Commission copies of such records which are requested by any of its duly authorized representatives- (3) 2- Respondent shall 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 respondent which may affect compliance obligations arising out of this Order- 3- Respondent shall within sixty (60) days after the effective date of this Order, fie with the Commission a report, in writing, setting forth in detail the manner and form in which it has complied with this Order and shall submit yearly reports detailng the manner and form of its compliance on the anniversary of the effective date of this Order for a period of three (3) years- ), ..U~' "UJ ""'''H'' u,,-. 443 Complaint