Griffin Systems, Inc

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IN THE MATTER OF GRIFFIN SYSTEMS, INC., ET AL.

FINAL ORDER, OPINION, ETC., INREGARD TO ALLEGED VIOLATION OF SEC. 5 OF THE FEDERAL TRADE COMMISSION ACT Docket 9249. Complaint, Oct. 8, 1991--Final Order, April 29, 1994 This final order prohibits the respondents from making misrepresentations about any material terms or conditions of any automobile service contract, from canceling service contracts when they have not disclosed that they have a right to do so before selling the contract, from substantially hindering customers from performing a condition on obtaining a benefit, from denying valid claims, and from refusing to comply promptly with any term or condition of any service contract they sell. In addition, the order requires the respondents to disclose to potential buyers whether the contracts cover the full cost of repairs, whether they include a rental car allowance, and the number and total dollar value of claims that may be submitted.

Appearances For the Commission: Lawrence M. Hodapp.

For the respondents: Philip Z. Vogel, Cleveland, OH. COMPLAINT Pursuant to the provisions of the Federal Trade Commission Act, as amended, 15 U.S.C. 45 et seq., and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that Griffin Systems, Inc. (“Griffin”), a corporation; and Gennaro J. Orrico, Robert W. Boughton and Alfonso S. Giordano, individually and as officers of said corporation (hereinafter collectively referred to as “respondents”), have violated certain provisions of said Act in states where their practices are not “regulated by State law” as the “business of insurance” within the meaning of 15 U.S.C. 1012(b), and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges as follows: PARAGRAPH 1. Respondent Griffin is an Ohio corporation with its office and principal place of business located at 4019 and Complaint 117 F.T.C.

4101 Prospect Avenue, Cleveland, Ohio. Respondent Griffin also does business from offices located at 741 and 745 U.S. Highway 1, North Palm Beach, Florida.

Respondent Gennaro J. Orrico is the current president of Griffin. Respondent Robert W. Boughton was the president of Griffin from the date of Griffin’s incorporation through an undetermined time in 1988 or 1989, when Mr. Orrico became president. Respondent Alfonso S. Giordano is the executive vice president and treasurer of Griffin.

Individual respondents Gennaro J. Orrico and Alfonso S. Giordano have their offices and principal places of business at 741 and 745 U.S. Highway 1, North Palm Beach, Florida. Said individual respondents also do business from the Cleveland office of respondent Griffin. Individual respondent Robert W. Boughton currently resides in Hato Rey, Puerto Rico.

At all times relevant to this complaint, the individual respondents have formulated, directed and controlled the acts and practices of respondent Griffin, including the acts and practices hereinafter set forth. The individual respondents cooperate and act together in carrying out the acts and practices hereinafter set forth. PAR. 2. Respondents for some time in the past have been engaged in the promotion, marketing and sale of vehicle service contracts to new and used vehicle buyers. Respondents also are now and for some time in the past have been engaged in the administration and payment of claims submitted by consumers pursuant to those service contracts.

PAR. 3. At all times relevant to this complaint, respondents have maintained a substantial course of business, including the acts and practices set forth herein, in or affecting commerce, as “commerce” is defined by the Federal Trade Commission Act. PAR. 4. During the course and conduct of their business, respondents have disseminated and caused the dissemination of promotional materials for their service contracts by various means in and affecting commerce, including direct solicitations distributed by the mail and across state lines, for the purpose of inducing and which were likely to induce, directly or indirectly, the purchase of said service contracts. Among these promotional materials are the documents attached as Exhibit A.

PAR. 5. Through the promotional materials discussed in paragraph four, respondents have represented, directly or by GRIFFIN SYSTEMS, INC., ET AL. 517 515 Complaint implication, that respondents’ service contracts fully protect consumers against repair costs and that respondents reimburse purchasers of their service contracts for the full cost of repairing or replacing the enumerated “covered parts” of the consumers’ vehicles. PAR. 6. In truth and in fact, respondents’ service contracts do not fully protect consumers against repair costs, and respondents do not reimburse purchasers of their service contracts for the full cost of repairing or replacing the enumerated “covered parts” of the consumers’ vehicles. Instead, in numerous instances respondents pay for only a portion of said repair or replacement costs. Therefore, the representations set forth in paragraph five were, and are, false and misleading.

PAR. 7. Through the promotional materials discussed in paragraph four, respondents have represented, directly or by implication, that purchasers of respondents’ service contracts are paid a rental car allowance if, due to a mechanical breakdown of a covered part eligible for payment, the consumer’s vehicle has to be kept overnight at a repair facility.

PAR. 8. In truth and in fact, respondents’ service contracts impose significant limitations on the rental car allowance, including, but not limited to, limiting said allowance to the actual working time on the repair of the vehicle, excluding all time in which the repair facility waits for parts or for any other delays beyond the control of the repair facility, and only paying such allowance if the total repair time on the vehicle is eight hours or more. In light of the representations set forth in paragraph seven, the respondents’ failure to disclose these significant limitations on the rental car allowance is misleading and deceptive.

PAR. 9. Through the promotional materials discussed in paragraph four, respondents have represented, directly or by implication, that purchasers of respondents’ service contracts may submit an unlimited number of claims pursuant to those contracts. PAR. 10. In truth and in fact, purchasers of respondents' service contracts may not submit an unlimited number of claims pursuant to those contracts. In fact, in numerous instances respondents deny claims and/or unilaterally cancel the service contracts of consumers who file multiple claims. Therefore, the representation set forth in paragraph nine was, and is, false and misleading. Complaint 117 F.T.C.

PAR. 11. During the course and conduct of their business, respondents have entered into valid service contracts with consumers. Among those service contracts is the one attached as Exhibit B. PAR. 12. During the course of administering claims submitted by the purchasers of respondents’ service contracts, respondents have engaged in a pattern or practice of breaching their promise to reimburse claims under the terms of these contracts by: 1. Unilaterally canceling consumers’ contracts, even though the terms and conditions of these contracts do not reserve to or create in the respondents a right to engage in such unilateral cancellation; and 2. Refusing to pay valid repair claims on the asserted ground that consumers had failed to obtain prior authorization from respondents. In fact, respondents routinely hindered consumers’ ability to obtain prior authorization for repairs by, for example, failing to answer the toll free number that consumers are required to call in order to obtain such authorization.

Respondents’ conduct as set forth above has caused substantial injury to consumers that is not outweighed by any countervailing benefits to consumers or competition and is not reasonably avoidable by consumers. This conduct was, and is, an unfair practice. PAR. 13. The acts and practices of respondents alleged in this complaint have constituted and now constitute deceptive or unfair acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. The acts and practices of respondents, as herein alleged, are continuing and will continue in the absence of the relief herein requested.

GRIFFIN SYSTEMS, INC., ET AL. 519 515 Complaint EXHIBIT A GRIFFIN SYSTEMS, INC.

Local (216) 681-8787 Tos Free Nationa! 1-800-442-2835 Toa Free Ono 1800-82 14204 Yo Free Canscian 1-800-458-2277 Protect your new car from the...

GENERAL MOTORS’ FACTORY EXTENDED WARRANTY FOR YOUR NEW CAR SOUNDS GREAT — BUTITISN’T! i TT LEAVES A COSTLY GAP BETWEEN l ‘yy THE REGULAR 12/12 NEW CAR i» WARRANTY AND THE “FACTORY } () EXTENDED WARRANTY” ° Ke ~— THE ADTOGAP! A txe”

Dear New Genera) Motors Owner:

It Js true that your Genera] Motors Factory Extended Warranty covers the drive train on your car for 60,000 miles. It is also true that those partes are designed to last more than 100,000 miles ~ and usually do! What General Motors hasn't told you is that the Extended Warranty leaves an AutoGap — 8 wide crevice you don't want your car to fall into. In that crevice are your water pump, fuel pump, electrical syst-~., cooling system, brakes, high tech options — and more.

Yes, most of the parte that sooner or later break down are not covered! And that's where the Griffin VPP — Vehicle Protection Plan — steps in. It insures against the AutoGap, gives you added protection against the thousands of dollars of repairs your Genera) Motors vehicle could need after the 12 month/ 12,000 mile warranty expires. Protection your General Motors Extended Warrant7 doesn’t give you.

Check the chart on the reverse of this letter. Then take a minute to read the brochure, You'll see why Griffin VPP is one of the most comprehensive warranty programs on the market today to protect you against the costly AutoGap. With Griffin VPP coverage you'll drive your new General Motors vehicle worry-[ree, safe in the knowledge that you are fully protected against high repair costs. ;

Fu out and mail! the registration form today and be sure you're protected @against having to pay thousands of dollars in repair bills. Binoerely yours, GRIFFIN SYSTEMS, INC.

Onircine Q. Knacks | Christine A. Knowles Business Manager PS. Best of all, with Griffin VPP most claims are handled with one toll-free call for authorization.

Exhibit A Page l ae EXECUTIVE OFFICES * 4101 PROSPECT AVENUE * CLEVELAND, OHIO 64183 © (216) 881-8787 Complaint EXHIBIT A Vehicle Protection AUTOGAP Plan GENERAL MOTORS COMPARISON CHART , Fectory few Cor Extended Reithin Worreaty Werreaty Aidd 1 Year or 6 Years or AatoGap tem Covered 12.000 Miles 90,000 Miles Coverage DRIVE = Engine Yes Yes Yea TRAIN: Transmrasion Yes Yes | Yes Ortterentis! Yes Yes Yeo COOLING! Radiator Yes No Yes Fu Fan and Ciutch Yes No Yes :

SYSTEMS: Engine Fan Motor Yes No Yea :

Fuel Tank Yes i No: Yes 4 Fue! Pump Yes No Yes { Warer Pump Yes No 1 Yes Fuel Lines Yes No Yes FRONT/ Drive Housing/Parts Yes Yes Yes REAR Axe Shafts Yes Yes WHEEL Hud Beanngs Yes Yes DRIVE: Prop Shatts: Yes Yes | Seals & Gaskets ! Yes Yes Universal Joints Yes Yes STEERING: Gear Housing & Pans Yes No | Power Steering Pump Yes No } Main Shah Yes No t Intermediate Shah Yes No t Couplings ves No H Seals anc Gaskets Yes i No ! FRONT MacPherson Struts i Yes No ' SUSPENSION: Control Arms Yes j No :

Shafs and Bushings Yes No j Ball Jo-nts Yes ' No Steenng Knuckles Yes { No | Bearngs and Seals Yes No Stabitizer Shah Yes ' No | Supdiuer Linkage Yes No i HEATING Heater Core Yes i No AND Compressor ves ! No AIR Clutch & Pulley Yes H NO COND.: Condense: . Yes i No t { Evaporator 2 Yes No: t Accumulator Yes No t s Temp Control; Yes ! No ! Yea Gasxets & Seals . Yes i No ‘ Yeo BRAKES: Master Cytinder Yes | No Yes Asaist Boorters Yes i No Yes Wheel Cytingers: Yes H NO Yes Combination Valve Yes } No Yes Mydrauic Lines Yes | No Yeo Owc Calpers Yoo | No Yes Seats & Gaston Yes i No Yoo ELECTRICAL: Suarter Motor Yes | No Yes Stare: Solenod You No Yes Generator Yes No Yes ARemuhor Yes | No Yeo ‘Vonage Reguistor Yes { No ves Yes ' No Yea Winng Hamess on Covered Parts Yes | No Yes Windsrueig Wiper Motors Yes No Yes Electronic Pans ves No Yea Healer Blower Motor ver nN No J _Ye_ HIGH Powe Window Motors ws [No | Wes H TECHNOLOGY = Power Seat Motor Yes | No Yes ! FEATURES: Door Lock Motors Yes wo | Yes i Cruse Control | Yes | No | Yes } Sun Root Motor Yes No} Yeo AUWITIONAL = Rents! Car Atowmnce Yes ' No Yes BENEFITS: Towing Atlowance | Yes No Yes Transter Yes Yes veo OEDUCTIBLE: 1 Wo $100 each $25 each ‘ clas claim Wot, Ths charts for companson purposes only and & AOI meant To be a oefinnive ksunG of Benefits whuch are thovoughty explamed 8: your sence agreement Exhibit A:

Page 2 pesmm LI7F.T.C.

GRIFFIN SYSTEMS, INC., ET AL.

Complaint EXHIBIT A | | Vehicle - Protection Plan FULL REFUND WITHIN 60 DAYS IF NOT COMPLETELY SATISFIED owned the plan tor more thant 60 days.

cancellalion refunds wit be made under the Ruts of 78's (The Sum of Digits Method) vased on expitation ‘of lime of mileage, whichever 's the esses.

To paricapete mi this program.

empty regsstss for VPP gotecton by completing the enciosed Aptetanak Rageitation and returning it with your chack, crude card sembet, of easy payment pum srvesqement, the postage pre ped, retun-addreased envelope GRIFFIN SYSTEMS. INC 4101 Prospect Ave PO Bor 5190 Cie eran Oo 44101-0190 CLEVELANO AREA (296) 681 8787 Orit, WATS (800) 621-4204 NATIONAL WATS — (800) 442°2886 CANADIAN WATS — (BOO) 458 2217 The coversge discussed in this brochure i for informations purposes only. The Service Agreement deteite ot conditions and terme. Foomis GuPRRLOS a.

What Is the Vehicle Protection Plan? A. A Mechanical Service Contract which pays the cost of repair or rep! nt of Q. ls there s maximum number of ciaima § may fle? A. No. You may use your plan as often covered paris on the major mechanical areas of your venicle.

{See “COVERED COMPONENTS’) The plan also provides allowances tor car rental as well as towing expenses {See “ADDITIONAL BENEFITS) Q. Why do I need A a.

A.

the Vehicle Protection Plan? Pecause most major reper occur after tha manufacturers warranty has expired, owners keep their vemcie fo ‘ager periods of time, you will have protection ‘when you most need It What do | do It my vehicle breaks down? You may choose to nave it repaired al center Your Service Agreement lists the telephone qumbers to use to olitant help and instructions.

as cy. These Is no limit 10 (he may submit Q. What must! do? | a The vehicle must pe operated and manntained in accordance with the manutecturers “Owner's Guide * BACKING BY A MAJOR INSURANCE PROGRAM The Gaitfin Systems Vehicle Protec:

tion Plane futty insured by & Major insurance company: Ths is nota individual mBUrence program.

Complaint EXHIBIT A @ The Vehicle Protection Plan AHEDGE AGAINST ' INFLATION BY | PROTECTING YOU ! FROM RAPIDLY \ RISING AUTOMOBILE | ° REPAIR COSTS.

LESS WORRY AND EXPENSE FROM MOST MAJOR ME CHANICAL REPAIRS! ‘ This important protection means you should never have to dig down Geep to repair ot replace a tong hist of your vehicle’s mecnani Parts.

{Just see the chart at right!) THE VEHICLE PROTECTION PLAN ts added confidence your vehicle will give many more miles of top performance a Common sense solution 10 one of today’s big problems for drivers.

MR. FIXIT recommends The Vehicle Protection Plan Cand any whet ne lies Unido Seales wd Cans Covers parts and labor.

Engine:

Gasoline Engine - Cylinder block, heads, all internal lubricated parts, manifolds, timeng gears, trmeng gear chan ov belt and cover, Wywhee!, harmonic balances, valve covers, otf pan, oil pump, vecuum pump, engine mounts, water and fue} pumps Also covered se tusbocharger housings. antamal parts, valves, seals and gaskets.

Olexet Engine ~ All of the above listed parts, plus diesel fuel injection pump, lines and nowzles.

Transmiasion:

Casa, all intemal tudticated Parts, torque con- Vertes, vacuum modulatos, seals, gaskets and Uansmssion mounts Includes transter case On 4-wheel drive vehicles, all miarnal ports, seus end gaskets.

f Front & Rear Wheel Drive:

Fremt - Final dive housing and all intemal lubricated parts, ante shaNs, constant velocity joints, front hub bearings, seals end geskels Rea aie hub bearings Rear - Axle housing ond ali inteinal kiviceted perts, propetier shafts, “U~ jowts, axle shatis, besings, supports. sasis and gashels AA Cooling and Fuel:

Radiator, tan and clutch, engine tan motors, tual tank end tual lines.

Steering:

Geet housing and oll intomel parts, power steering pump, staging main and mlermediste shafts, couplings, seals and gashets Front Suspension:

MacPherson struts, upper end tower control arms, control atm shafts and bushings. upper and lower ball jonts, stearng knuckle, wheel beaings and seals, stabilizer shaft. stabilizer linkage and bushings.

—=— Heating & Factory Approved = fF Alt Conditioning:

—@ Hester core, clutch end lJ} +e | pulley, Condenser, eveporator, accumuq letor, tempersture control progtammes and seals Brakes:

Master cytindet, assist boosters, wheel “) cylinders, combination valve, hydraulic lunes and fttings, disc calipers, spels ond gaskets Etectsical:

‘Starter motor and solenoid, generator, Fim alternator, voltage regulator, distributor. witing harnesses on covered compoent parts, manually opetated switches ON Covered Component parts, wind:

‘shweid wiper motors, electronic level control compressor, its sensor and better velve Electronic fuel myection sensors, Control module and mectors, lectionic module Electronic spark Conitol detonation senso and controller ry] ty Heater blows motor High Technology Features:

t _ Power window motov, power saat molor, a _____ door lack motors, factory mnstatied rot, tenna mot CRRD Sn Wy 4 overnight af the repae Rental Car Allowance:

ne) A due to the mechanical breakdown Vehicle Protection Plan bursa you for the rental fe maximum of $20 par day There tsa lumret of S days oF S100 per occunrence (whichever 1s greater) Towing Allowance:

‘a Ht dus to the mechanical breakdown of s covered pert elgibie for pay ment, your vehicle has to be towed S to s repaw fecty, the Vehicle Pra:

tection Plen will temmbusse you fot the lowing charge - to e maimum of $35 per ocasrence Free Transter Provision:

vetucle before your plan expwes. you n oe | Ht you should decide to sell your nN. 4 may Uanstar the remamung term of yout plan Io the new ownei st nu chage ANNOUNCING FOR THE FIRST TIME EVER! A one time deductible.

Grittin Systems now has a one time deductible of $25 00.

You pay the deductible only one ime during the bfetime of your Plan GRIFFIN SYSTEMS, INC., ET AL. 523 315 Complaint EXHIBIT A Made @ravadie Oy Orerrin Sts CMS, INL ea be ree oh: ADM.NISTRATOR OUTSIDE Only 800) 442-2886 4101 PROSPECT AVENUE N OHIO (800) 621-4204 P.O BOX $190 CLEVELAND AREA. (216) 881-8787 CLEVELAND, OH 44101-0190 = CANADA (800) 458-2277 o- lee? C veuis OWNER INFORMATION VEHICLE INFORMATION (venty eng comec: 1 necessary) - Year Make Model WOCCO J CRISAFI] 1967 ULUSrOBILE CALAIS wen [~ 5604 FLOWEROALE oo Vehicle identification Number CLEVE - OH 4ajag 1G3NF AGL 7KM30G025 on Orginal DEUVERY DATE” of your vehicle, Daw yow vehicle Please indicate Current | | | | Ix) (wes put arto use by fs frst owes, lexsee or, #2 Demo, frst day of service ) odometer reading DO NOT enter 8 figure in tenths-of-mile box. MONTH DAY YR PLEASE COMPLETE THE REVERSE SIDE OF THIS REGISTRATION TO DETERMINE IF YOUR VEHICLE QUALIFIES FOR THE VEHICLE PROTECTION PLAN. Coverage stars on the “DELIVERY DATE” of the vehicle described above Coverage remains in eect for the number of months or the number of miles (whichever comes first) applicable to the plan YOU SELECT below. SELECT TERM THE COST OF THE PLANS ONE PLAN | MONTHS MILES PLAN COST IS GUARANTEED UNTIL Da Se Su, uud 9314.00 uct e&P 1907 Os 4o Su,vuw S3ee.uu ~ w Oc Cry So,uuu S32u.bu COST MAY CHANGE Oo 60 65,00" $346.60 APTER_DATE De 1Z BUyiivY d6GU.UU SHOWTABOVE Or le Ge,uby SST n —_———a —~ ~ PLEASE INDICATE METHOD OF PAYMENT Dey CHECK. for the full amount of § . Made payable to Griffin Systems. Inc (Please remember: io encicse Check when you retum thus Registration} GicHarce 0 Ovsa COMASTERCARD CUAMERICAN EXPRESS recommmoLLit | tii ttt ttt ttt tt Jexenes DIEASY PAYMENT PLAN A service charge of $30.00 is added to the plan cos! chosen above The sum Is to be paid in 8 instalments. THE FIRST PAYMENT os to be enclosed with this registration United States Acceptance Corporation will issue a payment book for the 7 remaining payments due Should you decide to cance! the plan prior to ita expiration, the $30.00 service charge ts non-refundable.

8 MONTHLY PAYMENTS OF PLAN A PLAN B PLAN C PLAN D PLANE PLAN F $43.00 944,00 $45.00 $47,0u $65.00 $75.00 PLEASE SIGN AND DATE (understand that coverage under the Vehicle Protection Plan! have selected above will begin upon Griffin's approval Of this registration and Gnittin s processing of my payment of the required charge. ! hereby wasrant that the veticle described above is in good working condition, to the best of my knowledge. SIGNATURE X OATE SIGNED Phone Number Area Coae ( | | | }y LL te] | LL | Sign date and mail this origina! using envelope enclosed ot send to above address ORIGINAL Exhibit A Bere he RVR TO BE RETURNED JO GRIFFIN Dace 5 Complaint 117 F.T.C.

EXHIBIT A |— COVERAGE ELIGIBILITY If the answer to any of the following four (4) questions is “YES” the vehicle described on the reverse of this form 1s not eligible for registration under the Vehicle Protection Plan.

- YES NO 1. If you have not had a trailer tow package installed by the factory, or your dealer — will you be pulling a traver weighing more than 2500 pounds?............-..0. oO 0 2. If your vehicle is a truck. is its gross vehicle weight rating (GVWR) more than 10,000 pounds?........... 0... 00... D a) 3. Will your vehicle be used as a police car, ambulance. or other emergency vehicle?............... D 0 4. Will your vehicle be used for daily rental, livery ortax:?.... O QO If your vehicle does not have a Manufacturers Warranty enforceable in the US or Canada. it 1s not eligible for coverage I! — FOR STATISTICAL PURPOSES Your answer to the questions listed below will enable us to complete our records on your vehicle O First owner? A. Are you the vehicles O Second owner? Third owner? D Purchaseo? B. Was your venicle a T Leased? C. Was your vehicle a Dealer Demonstrator? Yes No OD D. Does your vehicle have:

OD Standard Transmission D Factory or Dealer Installed Air Conditioning O Automatic Transmission 0 Electric Power Seats D Diese! Engine D Electric Power Windows O Turbo Charged Engine O Electric Power Door Locks D Four Wheel! Drive O Electric Power Antenna D Cruise Control O Electric Power Sun Roof Upon our receipt and approval! of this Registration. we will prepare and mail to you a Service Agreement which details the Conditions and Terms of the Plan you selected THANK YOU FOR YOUR PATRONAGE! The Vehicle Protection Plan Exhibit A Page 6 GRIFFIN SYSTEMS, INC., ET AL.

Complaint EXHIBIT A \ { \ I 0616 xO Od 7686-101 bP OHO ONWITATIO YANMO JTOIH3IA M3N ‘NOILNILLVY Lp Le =z z * ) Real b [7 ° e e a OM ott TOL0 « a a onaneeet — Exhibit A Page 7 = a Onaga Berns tai Complaint 117 F.T.C.

EXHIBIT B .

42 1 5 0 0 0 925 1085 11 98 -1 3 1 5 1 0 0 925 1085 11 98 -1 4 1 5 1 1 0 925 1085 11 98 -1 5 1 5 1 1 1 925 1085 11 98 95.000000 2 1 6 0 0 0 1634 1218 65 144 -1 3 1 6 1 0 0 1634 1218 65 144 -1 4 1 6 1 1 0 1643 1218 56 26 -1 5 1 6 1 1 1 1643 1218 56 26 0.000000 >.4 1 6 1 2 0 1643 1245 46 22 -1 5 1 6 1 2 1 1643 1245 46 22 35.392899 ee4 1 6 1 3 0 1634 1311 52 24 -1 5 1 6 1 3 1 1634 1319 2 3 10.239182 ;5 1 6 1 3 2 1659 1311 27 24 34.710251 ®4 1 6 1 4 0 1651 1338 35 24 -1 5 1 6 1 4 1 1651 1338 35 24 41.550255 a2 1 7 0 0 0 612 1510 905 59 -1 3 1 7 1 0 0 612 1510 905 59 -1 4 1 7 1 1 0 612 1510 905 59 -1 5 1 7 1 1 1 612 1510 905 59 95.000000 2 1 8 0 0 0 1001 1806 571 46 -1 3 1 8 1 0 0 1001 1806 571 46 -1 4 1 8 1 1 0 1001 1806 571 46 -1 5 1 8 1 1 1 1001 1806 571 46 95.000000 2 1 9 0 0 0 617 1792 955 61 -1 3 1 9 1 0 0 617 1792 955 61 -1 4 1 9 1 1 0 617 1792 955 61 -1 5 1 9 1 1 1 617 1792 955 61 95.000000 2 1 10 0 0 0 1001 1809 397 38 -1 3 1 10 1 0 0 1001 1809 397 38 -1 4 1 10 1 1 0 1001 1809 397 38 -1 5 1 10 1 1 1 1001 1809 397 38 95.000000 2 1 11 0 0 0 610 705 1394 1628 -1 3 1 11 1 0 0 610 705 1394 1628 -1 4 1 11 1 1 0 610 705 1394 1628 -1 5 1 11 1 1 1 610 705 1394 1628 95.000000 GRIFFIN SYSTEMS, INC., ET AL. 527 515 Complaint EXHIBIT B Your protection against costly mechanical breakdown.

1. Service Agreement Please read this agreement carefully to become familiar with all its contents.

This Service Agreement (agreement) is between the purchase~ (you) named in the Scheduie and Griffin Systems, Inc. (we,us). This agreement is transferabie. This agreement begins on the effective date shown in the Schedule and remains in effect for the term or mileage also shown im the Schedule (whichever occurs first). Statements contained im your Agreement Registration are inccrporated herein by reference.

GVPAXXOIN!285 1 Complaint 117 F.T.C.

EXHIBIT B |.Schedule AGREEMENT NUMBER PURCHASER NAME AND ADDRESS PLAN COST VEHICLE INFORMATION Year i Make Model | Vehicle Identification Number 1 Class i | Effective date of Term Issue date of: Odometer reading at! Agreement expires this Agreement it) (months) this Agreement, Fegistration date (2) : when odometer reads : | ' i | H H 1. The “Effective date of this Agreement” 1s the original “Delivery Date” of your vehicle as indicated by you on the Agreement Registration 2. The “Odometer reading at registration date” 1s the number of miles registered by your odometer as indicated by you on the Agreement Registration Il. What is Covered A. Mechanical Breakdown We agree to pay for the reasonable cost of repair or replacement of parts/ units within the components covered by this agreement. Such repair or replacement must have arisen from the failure of defective parts/units. which failure may occur during the norma! use of your vehicle. GVPAKK TW" 28: 2 GRIFFIN SYSTEMS, INC., ET AL.

Complaint EXHIBIT B Il. What is Covered (cont’d) GYPAXKOWN'2BS In no event wiil our liability exceed the actual cash value of your vehicle prior to the time of the mechanical breakdown. This actual cash value will be determined by the published wholesale value of the vehicle. Replacement may be made with like kind and quality and depreciation or betterment applied.

.Coverec Compone-is Only the components/units/parts listed below are covered. 1. Engine Gasoline Engine Cylinder block, heads. all internal lubricated parts, manifolds. timing gears. timing gear chain or belt and cover. flywheel, harmonic balancer. valve covers, oil pan, oil pump. vacuum pump, engine mounts, water and fuel pumps; turbocharger housings and internal parts, valves. seals and gaskets Diesel Engine All of the above listed parts, plus diese! fuel injection pump. lines and nozzles . Transmission Case, all internal lubricated parts, torque converter, vacuum modulator. seals, gaskets and transmission mounts. Includes transfer case on four wheel drive vehicles, all interna! parts. seals and gaskets. . Front Wheel Drive Final drive housing and all internal parts. axle shafts. constant velocity Joints, front hub bearings, rear axle hub bearings. seals and gaskets 4. Rear Wheel Drive Axle housing and all internal lubricated parts, propeller shafts, “U" joints. axle shafts, bearings, supports, seals and gaskets. Complaint 117 F.T.C.

EXHIBIT B n . Cooling and Fuel Radiator, fan and clutch, engine fan motor. fuel tank and fuel lines. 6. Steering Gear housing and all internal! parts, power steering pump, steering main and intermediate shafts, couplings. seals and gaskets. ~“ . Front Suspension MacPherson struts, upper and lower control arms, control arm shafts and bushings, upper and lower ball joints. steering knuckle, wheel bearings and seals, stabilizer shaft, stabilizer linkage and bushings ] 8. Heating and Factory Approved Air Conditioning Heater core, compressor, clutch and pulley, condenser. evaporator. accumulator. temperature contro! programmer and seals. 9. Brakes Master cylinder, assist boosters. wheel cylinders. combination vaive. hymmens draulic lines and fittings. disc calipers, seals and gaskets. 10. Electrical Starter motor and/or solenoid. generator, alternator, voltage regulator, distributor, wiring harness for covered component parts, manually operated switches for covered component parts. windshield wiper motors, electronic level control compressor, its sensor and limiter valve Electroni¢ fuel injection sensors, control module and injectors. electronic module. Electronic spark control detonation sensor and controller. Heater blower motor.

@MMBR 11. High Tech Features | ocr Power window motor, power seat motor. door lock motors, factory inbe __ Stalled cruise control, power antenna motor and sun roof motor. i.

C.

Ac) ) 7, , S mm CVPR NZ BE GRIFFIN SYSTEMS, INC., ET AL. 531 Complaint EXHIBIT B What is Covered (Cont'd) - Additional Benefits Rental Reimbursement In the event of a mechanical breakdown caused by parts or units within the components covered by this agreement. we agree to pay for the cost of substitute transportation. The payment will be for the rental fee. to a maximum of $20.00 per day, fora maximum of 5 days or $100.00 per occurrence. in computing the rental amount due you, we will consider only the actual working time on the repair of your vehicle. as follows: One day's transportation expense will be due for each 8 hours of flat rate time. provided that your vehicle must be retained overnight for the repair of covered parts eligible for payment.

This provision excludes:

1. Down time waiting for parts or any other delays beyond the control of the repair facility.

2. Down time for routine maintenance repairs. The deductible amount of $25.00 does not apply to this provision. . Towing Reimbursement in the event that your vehicle becomes disabled due to the mechanical breakdown of a covered part, or unit eligible for payment. we will pay for the cost of towing your vehicle to a repair facility We will pay for the actual towing charge to a maximum of $35.00 per occurrence. The deductible amount of $25.00 does not apply to this provision.

. Free Transfer Provision If you should decide to sell your vehicle before your plan expires. you may transfer the remaining term of your plan to the new owner at no charge. A “Transfer Request” is in- Cluded at the back of this Agreement.

Complaint 117 F.T.C.

EXHIBIT B . What is Not Covered \f your vehicle becomes disabled due to any of the circumstances listed below, we will not pay for the cost of repair or replacement of any part/unit. towing charges and/or rental charges. Exclusions a bh ww in tol) . Any part/unit not listed in part |l-"B. Covered Components” of this agreement. Any part/unit which is damaged. in any way. due to your vehicle having been used to pulla trailer weighing more than 2500 pounds, unless manufacturers authorized ‘Trailer Tow Package” is installed.

Any part/unit covered by a warranty issued by the vehicle's manufacturer. Any part/unit damaged by fire, water, freezing, riot, windstorm, hail, lightning. earthquake, theft. nuclear contamination, collision, upset, malicious mischief or vandalism. _ Any part/unit damaged because of your negligence, misuse or failure to have your vehicle maintained as suggested in your Manufacturer's Owner Manual. Any part/unit damaged because of alterations made to your vehicle, when said alterations were not recommended by the manufacturer of your vehicle. Any part/unit of your vehicle's odometer if it has been altered so that actual mileage of your vehicle is not shown.

Any part/unit.mechanically defective, for which the vehicle's manufacturer has publicly announced responsibility to recall the vehicle for correction of the defective Part/unit. Any part/unit which is damaged atter the repossession of your vehicle. Any part/unit if your vehicle is used for commercial livery, delivery purposes, racing or competitive speed.

* Any loss of your time caused by delays in the repair or maintenance of your vehicle. . Any loss of any kind that occurs to your vehicle while your vehicle is out of your care and custoday or rented to others.

Any loss, expenses or charges resulting from the length of time necessary to repair your vehicle, such as hotel accommodations, meals, telephone charges, loss of goods of any kind. loss of salaries, loss of life or loss due to accident or bodily injury. . Any fluids. lubricants. shop supplies and taxes. GVPRLI ON 28! 6 GRIFFIN SYSTEMS, INC., ET AL. 533 515 Complaint EXHIBIT B IV. Maintenance Procedure Your Vehicle Protection Plan requires you to maintain your vehicle according to the minimum required maintenance intervals as specified in your owners manual which came with your vehicle at the time of delivery Maintenance need not be performed by a dealership or service facility. If you elect to perform your own maintenance retain the receipts for parts and fluid you buy for maintenance. We have provided a Maintenance Register for you to record the required maintenance of your vehicle. Maintenance Register Date Mileage Services Performed Services Performed by eojyn a ayn a ot os See Os 12 | Gee 7 Complaint EXHIBIT B Maintenance Register Date Mileage Services Performed Services Performed by | @oueueUleW GRIFFIN SYSTEMS, INC., ET AL.

Complaint EXHIBIT B Maintenance Register Date Mileage T t Services Performed Services Performed by a4 Complaint EXHIBIT B Maintenance Register H17 F.T.C.

Date Mileage Services Performed Services Performed by GRIFFIN SYSTEMS, INC., ET AL. 537 Complaint EXHIBIT B V. Claims 1.To Report a Claim In the event of a mechanical breakdown of your ven:cle. please call one of the following numberis) for instructions 1-800-228-9096 Great Plains insurance Company, inc 4019 Prospeci Ave PO Box 6298 Cleveland, Onw 44101 Whenever possible return your motor ven'cle 10 the dealership where you DOUgNt it or tne most Conver: lent repar facuity of your choice atywnere w tin tne continenta! United States and Canade Requestinat the Service Manage’ cat tne approprate number usted above Our Claims Manager w:"' autnonze ine repar by pro7e 2 Deduct Wren your first ciaim occurs. we wi) deduct $25 O0 from tne amount due you This $25 0015 a o7€-! me deguct be amount Any Claims you Supm:.! atier tne first one wil’ Nave No deductible amount w Cond.tions a. Once a loss occurs. you must protect the vehicle from further damage. b.No claim will be paid unless the amount to be paid has been previously authorized by telephone or in writing.

c. We reserve the right to examine, adjust. inspect or investigate any claims. d.Claims must be submitted within sixty (60) days of the date of loss. Seema Complaint 117 F.T.C.

EXHIBIT B VI. Cancellation and Refunds A. Cancellation This Service Agreement may be cancelled by you al any time during its term by completing the Can-4 1 4 2 3 0 777 871 1047 23 -1 5 1 4 2 3 1 777 873 88 18 51.519211 cellation5 1 4 2 3 2 873 872 96 21 84.546585 Request”5 1 4 2 3 3 979 873 88 17 52.097481 included5 1 4 2 3 4 1076 876 24 13 96.888390 on5 1 4 2 3 5 1109 874 32 16 95.754669 thes 1 4 2 3 6 1150 875 77 15 96.252655 reverses 1 4 2 3 7 1237 873 40 17 96.305328 sides 1 4 2 3 8 1288 872 19 18 96.315155 of5 1 4 2 3 9 1316 872 36 18 96.751877 this5 1 4 2 3 10 1361 875 51 19 85.219086 pages 1 4 2 3 11 1426 872 55 20 85.219086 Upon5 1 4 2 3 12 1491 873 116 18 89.314285 completion5 1 4 2 3 13 1616 872 20 17 96.952904 of5 1 4 2 3 14 1643 873 33 16 96.888351 thes 1 4 2 3 15 1684 871 140 19 89.942352 “Cancellation4 1 4 2 4 0 775 898 588 22 -1 5 1 4 2 4 1 775 898 102 21 68.152199 Request”.5 1 4 2 4 2 887 900 67 19 96.668037 please5 1 4 2 4 3 965 899 41 17 89.339645 mails 1 4 2 4 4 1015 899 36 16 96.579597 this5 1 4 2 4 5 1060 900 58 16 89.718117 entire5 1 4 2 4 6 1128 899 113 21 96.144745 agreements 1 4 2 4 7 1252 898 49 17 96.255394 backs 1 4 2 4 8 1312 900 19 15 96.648697 to5 1 4 2 4 9 1341 901 22 14 95.691200 us2 1 5 0 0 0 1155 971 298 124 -1 3 1 5 1 0 0 1155 971 298 124 -1 4 1 5 1 1 0 1175 971 259 19 -1 5 1 5 1 1 1 1175 971 88 19 96.019859 GRIFFIN5 1 5 1 1 2 1273 971 109 19 86.174034 SYSTEMS.5 1 5 1 1 3 1391 971 43 19 94.324921 INC.4 1 5 1 2 0 1227 998 154 18 -1 5 1 5 1 2 1 1227 998 154 18 48.432297 Admmistrators4 1 5 1 3 0 1186 1023 235 21 -1 5 1 5 1 3 1 1186 1024 43 17 96.252892 41015 1 5 1 3 2 1240 1023 94 21 96.252892 Prospects 1 5 1 3 3 1343 1023 78 18 96.584282 Avenue4 1 5 1 4 0 1231 1049 146 19 -1 5 1 5 1 4 1 1231 1049 34 19 64.758873 PO.5 1 5 1 4 2 1279 1049 39 19 64.758873 Box5 1 5 1 4 3 1330 1049 47 19 93.653412 51904 1 5 1 5 0 1155 1074 298 21 -1 5 1 5 1 5 1 1155 1076 110 19 73.822479 Cleveland.5 1 5 1 5 2 1273 1075 51 19 91.344810 Ohio5 1 5 1 5 3 1333 1074 120 19 96.332260 44101-01902 1 6 0 0 0 736 1140 1083 108 -1 3 1 6 1 0 0 736 1140 1083 108 -1 4 1 6 1 1 0 736 1140 135 20 -1 5 1 6 1 1 1 736 1141 23 19 90.156609 B.5 1 6 1 1 2 770 1140 101 20 77.559311 Refunds4 1 6 1 2 0 772 1178 286 22 -1 5 1 6 1 2 1 772 1181 16 16 91.940887 1.5 1 6 1 2 2 796 1179 70 18 95.406555 Within5 1 6 1 2 3 876 1179 34 18 96.321373 thes 1 6 1 2 4 921 1179 42 18 95.956345 firsts 1 6 1 2 5 973 1178 25 19 95.956345 605 1 6 1 2 6 1008 1178 50 22 96.735138 days4 1 6 1 3 0 796 1201 1023 25 -1 5 1 6 1 3 1 796 1205 67 17 85.049568 Within5 1 6 1 3 2 871 1205 26 18 82.923676 605 1 6 1 3 3 904 1206 47 20 96.931671 days5 1 6 1 3 4 960 1205 18 18 96.309776 of5 1 6 1 3 5 987 1206 21 16 93.426048 its5 1 6 1 3 6 1015 1205 54 17 93.426048 issues 1 6 1 3 7 1076 1203 53 19 94.630882 Date.5 1 6 1 3 8 1136 1208 29 14 96.482536 we5 1 6 1 3 9 1173 1205 32 16 85.947243 will5 1 6 1 3 10 1212 1204 66 18 83.565445 refunds 1 6 1 3 11 1285 1203 54 18 70.059280 100°5 1 6 1 3 12 1346 1203 19 18 96.589455 of5 1 6 1 3 13 1372 1204 33 17 96.589455 thes 1 6 1 3 14 1413 1204 79 17 96.784691 amounts 1 6 1 3 15 1501 1203 43 20 96.031212 paid5 1 6 1 3 16 1556 1201 82 20 96.233276 PLEASE5 1 6 1 3 17 1647 1201 61 20 96.821793 NOTES 1 6 1 3 18 1717 1203 38 18 93.797447 that5 1 6 1 3 19 1765 1202 10 17 95.682434 if5 1 6 1 3 20 1782 1206 37 18 96.859848 you4 1 6 1 4 0 797 1228 623 20 -1 5 1 6 1 4 1 797 1234 61 14 88.244865 cnose5 1 6 1 4 2 868 1235 33 13 96.319778 ours 1 6 1 4 3 910 1230 82 18 96.865730 Finances 1 6 1 4 4 1002 1229 50 19 95.838417 Plan,5 1 6 1 4 5 1061 1231 31 16 96.812492 thes 1 6 1 4 6 1102 1228 40 20 95.713448 $305 1 6 1 4 7 1149 1229 26 19 94.385025 005 1 6 1 4 8 1183 1233 15 15 89.552383 is5 1 6 1 4 9 1206 1228 214 20 96.029488 NON-REFUNDABLE2 1 7 0 0 0 794 1302 1024 48 -1 3 1 7 1 0 0 794 1302 1024 48 -1 4 1 7 1 1 0 794 1302 248 21 -1 5 1 7 1 1 1 794 1303 56 18 94.833961 After5 1 7 1 1 2 860 1303 33 18 96.575920 thes 1 7 1 1 3 904 1302 42 18 96.637352 firsts 1 7 1 1 4 956 1302 26 19 96.478600 605 1 7 1 1 5 991 1303 51 20 96.185944 days4 1 7 1 2 0 795 1325 1023 25 -1 5 1 7 1 2 1 795 1329 49 17 84.767792 After5 1 7 1 2 2 852 1330 31 16 84.767792 thes 1 7 1 2 3 891 1328 37 18 95.431648 firsts 1 7 1 2 4 935 1328 26 19 74.345802 605 1 7 1 2 5 967 1331 48 19 96.284996 days5 1 7 1 2 6 1022 1328 18 18 94.235535 of5 1 7 1 2 7 1048 1331 21 15 54.905571 1s5 1 7 1 2 8 1075 1329 53 17 0.000000 1issue5 1 7 1 2 9 1135 1328 53 18 72.291916 Date.5 1 7 1 2 10 1195 1332 28 13 96.757233 we5 1 7 1 2 11 1231 1328 32 16 24.187698 will5 1 7 1 2 12 1270 1327 66 18 87.936073 refunds 1 7 1 2 13 1342 1329 31 16 96.513939 thes 1 7 1 2 14 1381 1328 61 17 96.823433 lesser5 1 7 1 2 15 1449 1326 19 18 96.311684 of5 1 7 1 2 16 1474 1328 38 17 96.011742 two5 1 7 1 2 17 1518 1330 54 14 96.011742 sums5 1 7 1 2 18 1579 1327 62 17 95.103287 based5 1 7 1 2 19 1649 1330 51 17 95.744934 upon5 1 7 1 2 20 1706 1328 33 16 95.744934 thes 1 7 1 2 21 1745 1325 45 19 93.167549 Rules 1 7 1 2 22 1799 1326 19 18 96.910881 of2 1 8 0 0 0 795 1353 1022 48 -1 3 1 8 1 0 0 795 1353 1022 48 -1 4 1 8 1 1 0 796 1353 1021 23 -1 5 1 8 1 1 1 796 1354 56 19 55.746632 781ns5 1 8 1 1 2 862 1356 112 16 74.487198 calculations 1 8 1 1 3 985 1354 17 19 92.763161 of5 1 8 1 1 4 1011 1356 81 18 76.557816 elapsea5 1 8 1 1 5 1102 1357 43 15 93.808769 times 1 8 1 1 6 1156 1355 37 17 94.702370 ands 1 8 1 1 7 1203 1356 80 20 94.497307 mileage5 1 8 1 1 8 1297 1354 12 16 65.192947 If5 1 8 1 1 9 1318 1358 37 17 95.788193 you5 1 8 1 1 10 1363 1354 50 17 96.860207 have5 1 8 1 1 11 1423 1357 23 14 93.040291 an5 1 8 1 1 12 1456 1354 95 17 36.095654 uniimied5 1 8 1 1 13 1561 1354 80 20 96.159264 mileage5 1 8 1 1 14 1651 1354 48 19 73.756454 plan.5 1 8 1 1 15 1708 1353 109 18 94.531898 calculated4 1 8 1 2 0 795 1379 680 22 -1 5 1 8 1 2 1 795 1382 76 16 2.570175 retunds5 1 8 1 2 2 882 1381 31 15 96.741692 will5 1 8 1 2 3 922 1383 25 15 92.337120 De5 1 8 1 2 4 957 1381 62 17 68.971138 Dased5 1 8 1 2 5 1029 1384 23 14 65.207779 On5 1 8 1 2 6 1062 1383 81 18 88.650864 eiapsed5 1 8 1 2 7 1153 1383 44 15 88.533813 times 1 8 1 2 8 1208 1384 19 14 95.040916 or5 1 8 1 2 9 1237 1384 10 14 93.275459 a5 1 8 1 2 10 1258 1380 45 18 90.621597 tota!5 1 8 1 2 11 1313 1379 18 18 95.716858 of5 1 8 1 2 12 1341 1379 72 19 96.153931 60.0005 1 8 1 2 13 1422 1381 53 15 79.648262 mies2 1 9 0 0 0 769 1304 16 17 -1 3 1 9 1 0 0 769 1304 16 17 -1 4 1 9 1 1 0 769 1304 16 17 -1 5 1 9 1 1 1 769 1304 16 17 36.295639 bd2 1 10 0 0 0 730 1696 65 16 -1 3 1 10 1 0 0 730 1696 65 16 -1 4 1 10 1 1 0 730 1696 65 16 -1 5 1 10 1 1 1 730 1696 65 16 95.000000 GRIFFIN SYSTEMS, INC., ET AL. 539 Complaint EXHIBIT B Cancellation Request To cancel this Agreement. please complete the following information 1 Agreement number (as it appears on page 2 “SCHEDULE”) IMPORTANT - DO NOT enter a figure in tenths-of-mile box 2 Current Odometer reading on the vehicle 3 Reason for cancellation 4, Do you wish to apply the refund (if any) towards the cost of a new Agreement for your new vehicle? YES = NOW lf “yes” please indicate YEAR MAKE MODEL of your new vehicle Upon our receipt of this information. we will promptly mail you an Agreement Registration and details of the transaction If no”.5 1 14 1 3 7 1000 1156 31 17 96.546211 thes 1 14 1 3 8 1042 1157 31 16 96.872849 thes 1 14 1 3 9 1084 1154 65 19 96.330315 refunds 1 14 1 3 10 1159 1156 79 17 96.330315 amounts 1 14 1 3 11 1246 1155 20 18 63.583969 (if5 1 14 1 3 12 1276 1157 43 19 96.747246 any)5 1 14 1 3 13 1329 1155 32 16 95.704697 will5 1 14 1 3 14 1370 1155 24 18 96.308762 be5 1 14 1 3 15 1405 1157 43 16 96.579346 sents 1 14 1 3 16 1458 1155 20 17 96.061363 to5 1 14 1 3 17 1486 1157 38 19 96.968903 you2 1 15 0 0 0 1516 1258 326 11 -1 3 1 15 1 0 0 1516 1258 326 11 -1 4 1 15 1 1 0 1516 1258 326 11 -1 5 1 15 1 1 1 1516 1258 326 11 95.000000 2 1 16 0 0 0 801 1258 566 15 -1 3 1 16 1 0 0 801 1258 566 15 -1 4 1 16 1 1 0 801 1258 566 15 -1 5 1 16 1 1 1 801 1258 566 15 95.000000 2 1 17 0 0 0 1320 1372 455 14 -1 3 1 17 1 0 0 1320 1372 455 14 -1 4 1 17 1 1 0 1320 1372 455 14 -1 5 1 17 1 1 1 1320 1372 455 14 95.000000 2 1 18 0 0 0 703 1374 456 13 -1 3 1 18 1 0 0 703 1374 456 13 -1 4 1 18 1 1 0 703 1374 456 13 -1 5 1 18 1 1 1 703 1374 456 13 95.000000 2 1 19 0 0 0 613 1247 1168 283 -1 3 1 19 1 0 0 613 1247 1168 283 -1 4 1 19 1 1 0 615 1247 892 25 -1 5 1 19 1 1 1 615 1250 11 18 96.474297 55 1 19 1 1 2 639 1250 46 18 96.506889 Yours 1 19 1 1 3 694 1253 96 19 96.875145 signatures 1 19 1 1 4 1378 1247 48 19 96.902412 Dates 1 19 1 1 5 1435 1247 72 23 96.294395 Signed4 1 19 1 2 0 613 1331 1168 30 -1 5 1 19 1 2 1 613 1334 82 22 96.434914 Please5 1 19 1 2 2 706 1336 52 20 90.040138 mails 1 19 1 2 3 768 1336 40 20 90.918800 this5 1 19 1 2 4 818 1334 140 27 95.211212 Agreements 1 19 1 2 5 970 1337 29 19 96.346527 to:5 1 19 1 2 6 1229 1333 16 21 70.414291 If5 1 19 1 2 7 1252 1338 46 22 96.268723 you5 1 19 1 2 8 1309 1334 58 21 96.717766 have5 1 19 1 2 9 1379 1338 44 22 96.539154 any5 1 19 1 2 10 1432 1333 126 26 85.999611 questions,5 1 19 1 2 11 1570 1333 82 26 94.555923 please5 1 19 1 2 12 1665 1331 41 22 91.364944 calls 1 19 1 2 13 1716 1337 26 16 93.700920 us5 1 19 1 2 14 1754 1334 27 19 94.746872 at:4 1 19 1 3 0 748 1409 969 44 -1 5 1 19 1 3 1 748 1409 73 44 42.956730 ores 1 19 1 3 2 865 1409 91 43 33.791763 oe5 1 19 1 3 3 966 1409 36 19 52.940830 INC5 1 19 1 3 4 1367 1418 104 18 96.539932 Cleveland5 1 19 1 3 5 1481 1421 45 15 96.539932 areas 1 19 1 3 6 1575 1411 142 33 92.483063 216-881-87874 1 19 1 4 0 749 1436 968 44 -1 5 1 19 1 4 1 749 1461 42 18 91.200073 41015 1 19 1 4 2 803 1461 94 19 74.088058 Prospects 1 19 1 4 3 907 1461 76 17 96.706154 Avenues 1 19 1 4 4 1366 1448 17 15 70.077515 In5 1 19 1 4 5 1393 1446 55 18 74.780846 Ohio:5 1 19 1 4 6 1553 1436 164 36 89.359138 1-800-821-42044 1 19 1 5 0 748 1473 973 31 -1 5 1 19 1 5 1 748 1485 34 19 95.922356 PO5 1 19 1 5 2 796 1485 39 18 96.399834 Box5 1 19 1 5 3 847 1486 48 17 96.399834 51905 1 19 1 5 4 1366 1475 86 17 94.971695 National5 1 19 1 5 5 1460 1473 62 19 76.808228 WATS5 1 19 1 5 6 1553 1473 168 18 6.324165 1-800-442-28864 1 19 1 6 0 748 1500 973 30 -1 5 1 19 1 6 1 748 1511 110 19 93.094269 Cleveland.5 1 19 1 6 2 868 1511 49 17 65.056854 Onio5 1 19 1 6 3 927 1510 119 18 89.865547 44101-01905 1 19 1 6 4 1366 1502 100 19 94.992294 Canadian5 1 19 1 6 5 1474 1502 62 18 90.847275 WATS:5 1 19 1 6 6 1553 1500 168 19 93.788429 1-800-458-22772 1 20 0 0 0 1772 1376 6 187 -1 3 1 20 1 0 0 1772 1376 6 187 -1 4 1 20 1 1 0 1772 1376 6 187 -1 5 1 20 1 1 1 1772 1376 6 187 95.000000 2 1 21 0 0 0 1318 1379 6 187 -1 3 1 21 1 0 0 1318 1379 6 187 -1 4 1 21 1 1 0 1318 1379 6 187 -1 5 1 21 1 1 1 1318 1379 6 187 95.000000 2 1 22 0 0 0 1155 1379 6 185 -1 3 1 22 1 0 0 1155 1379 6 185 -1 4 1 22 1 1 0 1155 1379 6 185 -1 5 1 22 1 1 1 1155 1379 6 185 95.000000 2 1 23 0 0 0 1319 1556 456 14 -1 3 1 23 1 0 0 1319 1556 456 14 -1 4 1 23 1 1 0 1319 1556 456 14 -1 5 1 23 1 1 1 1319 1556 456 14 95.000000 2 1 24 0 0 0 701 1380 4 186 -1 3 1 24 1 0 0 701 1380 4 186 -1 4 1 24 1 1 0 701 1380 4 186 -1 5 1 24 1 1 1 701 1380 4 186 95.000000 2 1 25 0 0 0 701 1559 456 11 -1 3 1 25 1 0 0 701 1559 456 11 -1 4 1 25 1 1 0 701 1559 456 11 -1 5 1 25 1 1 1 701 1559 456 11 95.000000 2 1 26 0 0 0 607 1644 632 29 -1 3 1 26 1 0 0 607 1644 632 29 -1 4 1 26 1 1 0 607 1644 632 29 -1 5 1 26 1 1 1 607 1644 85 29 20.928764 FELONIES5 1 26 1 1 2 1219 1645 20 18 96.791794 13 Complaint Li7 F.T.C.

EXHIBIT B Transfer Request To transfer this Agreement, please complete the following information 1 Agreement number (as it appears on page 2 “SCHEDULE”) 2 Effective date of the transfer IMPORTANT - DO NOT enter a figure in tenths-of-mile box 3. Odometer reading at date of transfer 4 Vehicle transferred to Name of purchaser Address City State Zip SIGNATURE of Venicle Purchaser Date Signed SIGNATURE of Venicie Seller Date Signeo Please mail this Agreement to: tf you have any questions, please call us at: GRIFFIN SYSTEMS. INC Cleveland area. 216-881-8787 Agmmnistrators in Onio: 1-800-821-4204 PO Bo aa Avenue National WATS: 1-800-442-2886 Canadian WATS: 1-800-458-2277 Cleveland, Ohio 44101-0190 Se TTI INE GRIFFIN SYSTEMS, INC., ET AL. 541 515 Initial Decision INITIAL DECISION BY JAMES P. TIMONY, ADMINISTRATIVE LAW JUDGE JUNE 30, 1993 On this date, I granted the renewed motion for sanctions, the motion for default judgment, and the motion for summary decision filed by counsel supporting the complaint. Those orders shall be the Initial Decision in this case by Rule 3.38(b), Rule 3.12 (c), and by Rule 3.24 (a)(2).

ORDER GRANTING DEFAULT JUDGMENT AGAINST ROBERT W. BOUGHTON By motion filed October 5, 1992, complaint counsel seek default judgment, pursuant to Rule 3.12(c), against individual Robert W. Boughton. For the reasons stated therein, and in the supporting papers, the motion is hereby granted.

ORDER GRANTING COMPLAINT COUNSEL'S RENEWED MOTION FOR SANCTIONS By motions dated August 11, 1992 and January 29, 1993, complaint counsel moved, pursuant to Section 3.38(b) of the Commission's Rules of Practice, for sanctions against respondents Griffin Systems, Inc., Gennaro J. Orrico and Alfonso S. Giordano ("the named respondents") for their failure to comply with outstanding discovery requests of complaint counsel. Based on the reasons set forth in those motions and supporting memorandum, said motion is granted.

It is therefore ordered that the following sanctions are imposed on the named respondents:

(1) Pursuant to Section 3.38(b)(1), for the purpose of this proceeding it shall be inferred that all evidence withheld by the named respondents would have been adverse to them; Initial Decision 117 F.T.C.

(2) Pursuant to Section 3.38(b)(2), for the purpose of this proceeding the following facts are established: (a) In numerous instances the named respondents denied claims and/or unilaterally canceled the service contracts of consumers who filed multiple claims;

(b) The named respondents have, in a substantial number of instances, engaged in a pattern or practice of breaching their promise to reimburse claims under the terms of the contracts by unilaterally canceling consumers’ contracts; and (c) The named respondents have, in a substantial number of instances, engaged in a pattern or practice of refusing to pay valid repair claims on the asserted ground that consumers have failed to obtain prior authorization from the named respondents; (3) Pursuant to Section 3.38(b)(3), the named respondents cannot introduce into evidence or otherwise rely upon, in support of any claim or defense, the requested service contract records; and (4) Pursuant to Section 3.38(b)(4), the named respondents may not be heard to object to the use of secondary evidence to show what the withheld evidence would have shown.

SUMMARY DECISION INTRODUCTION This case involves the sale of vehicle service contracts throughout the United States. Respondents allegedly misrepresent the terms of their Vehicle Protection Plan which promised automobile purchasers protection against high repair costs on over 100 parts of the car. The complaint describes several broken promises to consumers: respondents promise to protect fully consumers against repair costs but pay only a portion of those costs; respondents promise to pay a rental car allowance while their car is being repaired but deceptively limit payments under that promise; respondents promise consumers may submit an unlimited number of claims but many times deny claims and cancel the contracts of consumers who file multiple claims; respondents refuse to pay repair claims for failure to obtain prior authorization and hinder consumers’ ability to obtain prior authorization by failing to answer the telephone. GRIFFIN SYSTEMS, INC., ET AL. 543 515 Initial Decision Complaint counsel filed a motion for summary decision. Respondents opposed. The parties stipulated that there is no genuine issue as to the following material facts: I. STIPULATED MATERIAL FACTS 1. Complaint counsel has submitted exhibits to its trial brief, filed October 5, 1992, including deposition transcript excerpts. Throughout this stipulation of facts, the abbreviation CX refers to Commission Exhibit number, and the abbreviation (Name)5 1 5 1 4 8 1800 1064 112 46 94.636223 Dep. refers to the deposition of the person identified. The following table lists the numbers for these disposition transcript excerpts, as well as a brief description of the deponent.

Orrico CX 1 Gennaro J. Orrico, named respondent. Giordano CX 2 Alfonso S. Giordano, named respondent. Canitia CX 3 Al Canitia, Great Plains and Griffin claims manager, employed from 1987 through 1992. Stoudmire CX 4 Colleen Stoudmire, Griffin claims supervisor, employed from 1987 through 1990.

Molzan CX 5 David Molzan, Griffin claims supervisor, employed for approximately two years from either 1987 or 1988.

Cassidy CX 6 Kathleen Cassidy, Griffin claims supervisor, employed from November 1986 through 1988 or 1989.

Knowles CX 7 Christine Knowles, Griffin office manager, employed from October 1986 through March 1988.

Sender CX 8 Kathy Janko-Sender, Griffin customer service representative, employed prior to 1982 through August 1, 1991.

Biederman CX Judith Biederman, Griffin customer service representative, employed for three or four years ending approximately in 1986.

Initial Decision 17 F.T.C.

A. The Respondents 1. Griffin Systems, Inc.

2. Griffin Systems, Inc. ("Griffin"), incorporated on April 2, 1984, is an Ohio corporation with its office and principal place of business located at 4101 Prospect Avenue, Cleveland, Ohio. Respondents’ Answer to Complaint at paragraph I(a); Commission Exhibit ("CX") 12-1; CX 30; Orrico Dep. at 13. 3. From the time of its incorporation through at least 1988, Griffin engaged in the promotion, marketing and sale of vehicle service contracts, called the Vehicles 1 4 2 3 6 1369 1234 202 35 96.636902 Protections 1 4 2 3 7 1587 1233 104 36 61.442619 Plan or VPP, to new and used vehicle buyers. Respondents' Answer to Complaint at paragraph 2; Respondents’ Answers to Interrogatories, CX 10, at paragraphs 4(a) and (b).

4. From the time of its incorporation through at least November 1991, Griffin also administered and paid claims submitted by consumers pursuant to those service contracts. Respondents’ Answer to Complaint at paragraph 2.

5. The average retail price of Griffin service contracts was $315. CX 10 at paragraph 4(e).

6. Throughout its history, Griffin sold over 96,000 service contracts, with total gross sales of approximately $29 million. CX 10 at paragraph 4(f); Griffin's answer to Commission staff access letter, CX 12, at paragraph 5(b). Consumers asserted more than 43,000 claims during that period of time. CX 10 at paragraph 4(g). Of those claims asserted, Griffin paid between $6.8 million and $10 million on over 32,000 claims, and denied over 8,000 claims. CX 10 at paragraph 4(k); CX 12 at 41, 45.

7. Griffin paid various insurance companies an underwriting fee on each service contract sold. In April 1985, that premium was $190 per plan for unlimited mileage plans, and $130 per plan for all others. In return for this fee, the insurance companies agreed to pay all claims that were submitted pursuant to the service contracts. The remainder was left for Griffin to administer the program, which included claims administration and answering plan holders’ questions. Giordano Dep. at 72-74; CX 39. 8. Great Plains Insurance Company ("Great Plains"), headquartered in Nebraska, was one insurance company that underwrote Griffin service contracts. Orrico Dep. at 94-101. Great Plains also GRIFFIN SYSTEMS, INC., ET AL. 545 515 Initial Decision administered claims on behalf of Griffin. Jd. Griffin began to do business with Great Plains in 1982, id. at 94, and Griffin ultimately purchased Great Plains in December 1986. /d. at 101; CX 11-6. 9. Great Plains began to sell mechanical5 1 3 2 1 8 1454 742 213 34 96.126656 breakdown5 1 3 2 1 9 1681 742 202 35 74.085266 insurance”4 1 3 2 2 0 547 797 1336 49 -1 5 1 3 2 2 1 547 797 164 43 96.182556 (MBI") policies on its own behalf after Griffin acquired the firm. Orrico Dep. at 107-09. An MBI policy differs from a service contract in that the former must be approved by a state department of insurance, and is in fact an insurance policy, while the latter is simply a contract between two parties. Giordano Dep. at 138-42. The solicitation materials for the Great Plains MBI policies were similar to the Griffin solicitation materials. Compare CX 135 with CX 14 at 3-6 and CX 17 at 3-4.

10. Griffin currently has no employees, although the firm still exists in corporate form. Respondents’ Supplemental Answers to Interrogatories, CX 11, at 6.

2. Gennaro J. Orrico 11. Gennaro Jerry Orrico was the sole owner of Griffin at the time of its incorporation in 1984 and from at least 1988 to the present. CX 10 at paragraph 1(d); Orrico Dep. at 11-12. As the owner of Griffin, Orrico also was the ultimate owner of Great Plains. Orrico Dep. at 101-03.

12. From 1982 to the date of Griffin's incorporation, Orrico sold service contracts as a sole proprietorship under the name J.5 1 5 2 2 11 1746 1965 127 36 96.108070 Orrico4 1 5 2 3 0 533 2016 1339 53 -1 5 1 5 2 3 1 533 2016 138 46 96.636284 trading5 1 5 2 3 2 694 2028 37 25 96.988800 as5 1 5 2 3 3 754 2018 135 35 96.665771 Griffin5 1 5 2 3 4 911 2019 193 46 95.929832 Systems. Orrico Dep. at 11-12. Orrico briefly served as president of Griffin from the date of its incorporation through at least the end of 1984, and again from July 15, 1990 through the present. He also served as vice-president from 1986 through July 1990. CX 11 at 2-5; Respondents’ Answer to Complaint at paragraph 1(b); Orrico Dep. at 47-48.

13. Orrico was responsible for the preparation and dissemination of the Griffin solicitation materials. CX 10 at paragraph 6. In addition, Orrico had the responsibility for establishing or promulgating Griffin's methods, procedures and standards for recording, allowing, granting, paying, disallowing, rejecting or resolving claims; for canceling any of its service contracts; and for refunding any money paid by purchasers of its service contracts upon cancellation of the contract. Jd. at paragraph 15. Initial Decision 117 F.T.C.

14. Orrico developed Griffin's initial marketing strategy. Giordano Dep. at 52. Orrico also regularly signed checks on behalf of the respondents, and sent and received letters and memoranda concerning the day-to-day operations of the firm. See CX 84 - CX 109.

15. In addition to Griffin and Great Plains, Orrico also owned United States Automobile Warranty Association ("USAWA"), a company formed with the intention of selling service contracts in a manner similar to Griffin. Orrico Dep. at 118. The USAWA solicitation materials were virtually identical to the Griffin solicitations. Compare CX 130 with CX 14 at 3-6. USAWA never sold any policies, however. Orrico Dep. at 118. 3. Alfonso S. Giordano 16. Alfonso S. Giordano was a director, vice president and treasurer of Griffin from 1985 through 1987, when he moved to Florida to become the vice president and a director of Great Plains. CX 11 at 2-5; CX 48; Giordano Dep. at 8-9. Giordano remained the vice president and a director of Great Plains from 1987 through early 1991, when he resigned to become the president of Metro General Insurance Agency, an insurance company related to Great Plains. Giordano Dep. at 214-17.

17. Giordano had no ownership interest in Griffin. Throughout the period of time relevant to the complaint, Giordano's compensation was based upon a set salary.

18. During his initial employment with Griffin from May 1985 through sometime in 1987, Giordano worked regularly at the firm's Cleveland office. Giordano Dep. at 7-9. He helped to organize the company and establish the formal, step-by-step administrative procedures for the office. /d. Giordano said his job included office manager functions, as well as everything5 1 5 3 6 7 1475 2412 74 35 96.933426 else5 1 5 3 6 8 1564 2413 70 35 97.013489 that5 1 5 3 6 9 1648 2424 101 25 96.193542 came5 1 5 3 6 10 1764 2415 106 45 93.279427 along5 1 5 3 6 11 1885 2436 28 4 93.166161 --5 1 5 3 6 12 1929 2415 57 35 97.005302 thea 1 5 3 7 0 648 2466 926 49 -1 5 1 5 3 7 1 648 2466 281 36 94.650543 administration5 1 5 3 7 2 944 2468 107 44 93.648399 part. Giordano Dep. at 206-07.

19. Giordano monitored the inventory of solicitation and contract forms used for mailings, and he had the authority to order the printing of those forms and to instruct Griffin personnel which forms to use in certain mailings. Giordano Dep. at 25-27; CX 56. 20. Giordano supervised the employees who worked in the Griffin computer room, including supervision of the receipt by Griffin of the computer tapes from the state departments of motor GRIFFIN SYSTEMS, INC., ET AL. 547 515 Initial Decision vehicles. Giordano Dep. at 31-32. Giordano also directly supervised Christine Knowles, the office manager. Knowles Dep. at 7-8; Giordano Dep. at 206-07. For the first few months after she was hired in October 1986, Giordano supervised Knowles on a day to day basis, getting her familiar with the contracts Griffin sold, helping her understand how the firm handled calls from consumers who received Griffin solicitation materials, and thes 1 3 1 7 6 1290 936 116 35 96.671844 basics5 1 3 1 7 7 1420 936 43 36 97.017807 of5 1 3 1 7 8 1472 936 93 36 96.949509 what5 1 3 1 7 9 1579 947 54 25 96.896103 we5 1 3 1 7 10 1646 936 60 36 96.442886 did5 1 3 1 7 11 1720 947 46 25 96.369736 on5 1 3 1 7 12 1780 947 19 25 96.369736 a5 1 3 1 7 13 1813 937 67 45 96.983154 day4 1 3 1 8 0 545 993 1335 47 -1 5 1 3 1 8 1 545 1001 36 28 96.991989 to5 1 3 1 8 2 594 994 68 44 97.016205 days 1 3 1 8 3 676 993 94 36 96.466156 basis5 1 3 1 8 4 785 994 96 35 96.530266 there5 1 3 1 8 5 895 994 84 35 96.996826 with5 1 3 1 8 6 994 994 57 35 97.007675 thes 1 3 1 8 7 1065 994 99 41 97.005569 calls,5 1 3 1 8 8 1180 994 84 35 97.008171 with5 1 3 1 8 9 1279 994 56 35 96.926132 thes 1 3 1 8 10 1349 994 138 41 96.571838 claims,5 1 3 1 8 11 1502 995 85 34 96.583206 with5 1 3 1 8 12 1602 995 206 45 96.704063 processing5 1 3 1 8 13 1823 995 57 34 96.855659 thea 1 3 1 9 0 544 1052 897 46 -1 5 1 3 1 9 1 544 1058 175 28 96.584579 contracts5 1 3 1 9 2 736 1052 70 35 96.763824 that5 1 3 1 9 3 822 1062 101 24 96.360809 came5 1 3 1 9 4 940 1052 67 35 94.486801 in. Knowles Dep. at 7-8.

21. Giordano routinely advised Griffin personnel of the policies and practices of the firm, insofar5 1 3 2 2 7 1230 1179 38 25 96.509560 as5 1 3 2 2 8 1285 1169 57 35 96.647011 thes 1 3 2 2 9 1359 1169 218 36 96.201805 solicitations 1 3 2 2 10 1594 1170 68 35 96.478523 ands 1 3 2 2 11 1678 1169 199 46 82.025757 mailings. Giordano Dep. at 44-45. See e.g. CX 50; CX 54; CX 55; CX 57-CX 62; CX 64. Moreover, Giordano puts 1 3 2 4 7 1276 1287 34 35 96.258850 in5 1 3 2 4 8 1325 1287 153 45 96.217545 writing detailed instructions for the Griffin clerks to follow when they received a contract application from a consumer who filled out the application incorrectly or incompletely. Giordano Dep. at 96-97; CX 47. 22. Giordano was a signatory to various Griffin bank accounts, including payroll accounts, during the entire period of time he worked for Griffin in Cleveland and after he moved to Florida in 1987. Giordano Dep. at 14-16, 23-25, 157-61, 197-98; CX 76 - CX 82. He thus had the authority to sign paychecks to Orrico and even to himself. CX 76 at 1-2. As of January 1990, over two years after he left Griffin, Giordano still had signing authority for a Griffin checking account that was located in Florida. CX 72 at 9. Giordano stated that Griffin claims checks may have been paid from this account. Giordano Dep. at 197-98.

23. While in Cleveland, Giordano authorized the payment of all routine bills of Griffin. Giordano Dep. at 46-47. 24. Giordano was involved in redesigning both the Griffin solicitation materials and contract packages mailed to consumers. Giordano Dep. at 56-58, 147. He stated that his assistance was mostly limited to format,,5 1 3 5 4 5 1091 2388 126 46 96.752991 designs 1 3 5 4 6 1235 2389 69 35 93.218346 ands 1 3 5 4 7 1322 2389 123 42 92.872993 color,,5 1 3 5 4 8 1465 2390 115 35 96.673439 rather5 1 3 5 4 9 1597 2390 82 35 96.432846 than5 1 3 5 4 10 1696 2391 175 34 91.311661 content. Giordano Dep. at 147. See also Sender Dep. at 13-14. One of his functions when he was hired was to make these materials more4 1 3 5 7 0 537 2563 1334 45 -1 5 1 3 5 7 1 537 2563 211 35 94.486237 attractive. Giordano Dep. at 56-58. In the solicitation materials, changes were made in the wording and content as well as in the format and design. Giordano made some of those content changes. Id. Giordano continued to review new Griffin solicitation materials and contracts after he moved to Florida as part of Great Plains. Giordano Dep. at 163-64.

Initial Decision 117 F.T.C.

25. Giordano was involved in the revision of United States Automobile Warranty Association solicitation materials as well. CX 132.

26. Commission Exhibits 31 and 34 are Giordano's handwritten copies of a solicitation letter and an agreement registration form sent to consumers, while CX 37 is his handwritten copy of the service contract. Giordano Dep. at 59-60, 66-68. Giordano stated that he did not draft these documents. Instead, he merely wrote5 1 3 2 5 9 1763 1019 20 25 96.925713 a5 1 3 2 5 10 1798 1015 97 39 96.467316 great5 1 3 2 5 11 1909 1009 81 35 96.439323 deal4 1 3 2 6 0 649 1061 1339 52 -1 5 1 3 2 6 1 649 1061 43 37 96.993668 of5 1 3 2 6 2 718 1062 130 46 96.792526 things,5 1 3 2 6 3 880 1062 131 47 96.138573 simply5 1 3 2 6 4 1041 1063 155 37 96.723717 because5 1 3 2 6 5 1225 1065 14 35 96.295082 I5 1 3 2 6 6 1269 1065 91 36 96.857338 have5 1 3 2 6 7 1391 1076 20 25 96.676155 a5 1 3 2 6 8 1440 1077 85 35 96.064285 very5 1 3 2 6 9 1555 1067 134 45 96.623322 legible5 1 3 2 6 10 1718 1067 270 46 89.715118 handwriting. Giordano Dep. at 59-62, 64-68.

27. Giordano signed various cover letters to the solicitation materials and other documents distributed by the respondents to consumers. CX 18-CX 20; CX 22.

28. Giordano, Orrico and Boughton, as a group, had the authority to change the costs of Griffin service contracts, and decided what the costs of the plans should be. Giordano Dep. at 37-39. When new costs went into effect, Giordano reviewed applications received under the old prices to determine what plans the firm would accept without asking the consumer for the additional fee. /d.; CX 58 at paragraph II.

29. Giordano interviewed people for various positions at Griffin, including the position of office manager. Giordano Dep. at 11-13, 206-07; Knowles Dep. at 6; CX 52. As part of a group decision with Orrico and Boughton, Giordano had the authority to hire employees and set the salary of anybody5 1 3 5 5 7 1282 1999 82 34 96.622116 who5 1 3 5 5 8 1384 1999 146 34 96.726036 worked5 1 3 5 5 9 1550 1998 57 36 96.870369 for5 1 3 5 5 10 1625 1999 58 35 96.350212 thes 1 3 5 5 11 1702 1999 278 45 93.116676 organization. Giordano Dep. at 10-11; Knowles Dep. at 6; CX 51. The same group would annually evaluate all employees associated5 1 3 5 7 7 1705 2115 104 35 96.810768 with Griffin. Giordano Dep. at 190-91; CX 45-2 at paragraph i. 30. As part of prudent5 1 3 6 1 6 1211 2232 282 45 95.057266 management, Giordano conducted an auditing5 1 3 6 2 2 836 2287 181 36 61.240326 function of claims received in the mail from consumers, to ascertain the number of claims Griffin received each day. Giordano Dep at 47-48; CX 63.

31. Ona regular basis while he worked for Griffin in Cleveland, Giordano would receive a list of claims5 1 3 7 2 8 1489 2530 34 28 95.943390 to5 1 3 7 2 9 1543 2524 45 34 96.465614 be5 1 3 7 2 10 1607 2524 83 45 96.634300 paid5 1 3 7 2 11 1710 2524 139 45 90.805664 today,”5 1 3 7 2 12 1871 2524 107 45 96.396194 along4 1 3 7 3 0 638 2579 1340 48 -1 5 1 3 7 3 1 638 2579 84 35 96.945137 with5 1 3 7 3 2 737 2579 57 35 96.423836 thes 1 3 7 3 3 809 2580 126 34 96.414993 claims5 1 3 7 3 4 950 2580 141 35 96.479660 checks.5 1 3 7 3 5 1120 2581 55 34 96.934631 He5 1 3 7 3 6 1190 2581 139 45 96.634521 usually5 1 3 7 3 7 1345 2581 122 35 93.265259 would5 1 3 7 3 8 1482 2582 229 45 91.526001 countersign5 1 3 7 3 9 1727 2582 103 35 96.230804 those5 1 3 7 3 10 1846 2581 132 36 96.989655 checks4 1 3 7 4 0 638 2638 1340 46 -1 5 1 3 7 4 1 638 2638 82 34 96.823059 with5 1 3 7 4 2 733 2638 198 45 96.498299 Boughton.5 1 3 7 4 3 958 2638 179 36 96.592400 Giordano5 1 3 7 4 4 1150 2639 89 45 96.774323 Dep.5 1 3 7 4 5 1255 2646 32 28 96.627396 at5 1 3 7 4 6 1300 2639 121 36 96.718704 48-49.5 1 3 7 4 7 1447 2641 200 40 96.639435 Moreover,5 1 3 7 4 8 1662 2641 102 34 96.207344 when5 1 3 7 4 9 1777 2641 45 34 96.536415 he5 1 3 7 4 10 1836 2641 142 34 96.732750 worked4 1 3 7 5 0 637 2696 1340 42 -1 5 1 3 7 5 1 637 2696 56 35 96.260956 for5 1 3 7 5 2 705 2696 131 35 96.746170 Griffin5 1 3 7 5 3 851 2697 66 34 96.781830 ands 1 3 7 5 4 931 2696 106 36 96.757965 Great5 1 3 7 5 5 1050 2697 128 41 96.502914 Plains,5 1 3 7 5 6 1192 2698 182 35 96.502914 Giordano5 1 3 7 5 7 1387 2698 120 36 96.400047 would5 1 3 7 5 8 1521 2699 103 35 96.400047 makes 1 3 7 5 9 1638 2699 57 35 96.630501 thes 1 3 7 5 10 1708 2698 269 36 96.460258 determination4 1 3 7 6 0 637 2755 1340 37 -1 5 1 3 7 6 1 637 2755 42 35 96.968636 of5 1 3 7 6 2 689 2755 156 34 96.119530 whether5 1 3 7 6 3 857 2755 100 35 96.927597 those5 1 3 7 6 4 970 2755 100 36 96.873878 firms5 1 3 7 6 5 1085 2755 69 36 96.491714 had5 1 3 7 6 6 1169 2755 181 36 96.631760 sufficient5 1 3 7 6 7 1364 2757 84 34 96.818481 cash5 1 3 7 6 8 1463 2763 36 29 96.936134 to5 1 3 7 6 9 1513 2757 133 35 96.711227 releases 1 3 7 6 10 1660 2757 46 35 95.778008 all5 1 3 7 6 11 1720 2757 43 35 96.939247 of5 1 3 7 6 12 1773 2758 57 34 97.015755 thes 1 3 7 6 13 1845 2757 132 35 95.899971 Griffin4 1 3 7 7 0 637 2813 1340 47 -1 5 1 3 7 7 1 637 2813 126 35 96.325310 claims5 1 3 7 7 2 784 2813 73 35 96.705902 that5 1 3 7 7 3 877 2824 94 24 96.506638 were5 1 3 7 7 4 991 2815 195 44 96.062531 processed5 1 3 7 7 5 1207 2821 35 28 96.062531 to5 1 3 7 7 6 1263 2815 45 35 96.825951 be5 1 3 7 7 7 1329 2815 83 45 95.894386 paid5 1 3 7 7 8 1433 2826 47 24 95.894386 on5 1 3 7 7 9 1501 2826 69 34 96.078621 any5 1 3 7 7 10 1591 2816 190 44 96.109085 particulars 1 3 7 7 11 1801 2816 80 44 95.670410 day.5 1 3 7 7 12 1922 2816 55 34 95.670410 He4 1 3 7 8 0 637 2871 1344 48 -1 5 1 3 7 8 1 637 2872 121 35 96.356377 would5 1 3 7 8 2 781 2872 82 35 96.846420 then5 1 3 7 8 3 886 2871 133 36 96.171303 informs 1 3 7 8 4 1042 2872 58 36 96.613594 thes 1 3 7 8 5 1123 2872 136 36 94.098053 Griffin5 1 3 7 8 6 1282 2873 127 35 96.638184 claims5 1 3 7 8 7 1433 2884 171 35 96.779594 managers 1 3 7 8 8 1625 2874 43 35 96.857803 of5 1 3 7 8 9 1687 2874 58 35 96.753647 thes 1 3 7 8 10 1768 2879 148 30 96.753647 amounts 1 3 7 8 11 1938 2873 43 36 96.942146 of GRIFFIN SYSTEMS, INC., ET AL. 549 515 Initial Decision claims that could be paid. Giordano Dep. at 115-16; 154-57; Canitia Dep. at 85-87.

32. Giordano created by hand detailed cost analyses of the Griffin contracts, CX 38 - CX 39, analyses of the number of plans sold for each make and model of automobile, CX 40 at 1-2, and analyses of the costs of claims from each make and model of auto. Id. at 3. See Giordano Dep. at 68-74, 98-101; Orrico Dep. at 39-40. At the request of either Boughton or Orrico, Giordano also created a detailed flow chart showing assumptions that could be made if various companies were formed. Giordano may have told these individuals how some of these relationships could be established. CX 46; Giordano Dep. at 101-05.

33. At the end of the negotiation process by Griffin to purchase Great Plains, Giordano audited Great Plains’ books to determine if Great Plains' reserves, liabilities and assets were5 1 3 3 3 8 1672 1395 94 35 95.444054 what5 1 3 3 3 9 1800 1395 82 45 95.444054 they4 1 3 3 4 0 542 1451 1344 46 -1 5 1 3 3 4 1 542 1452 189 43 96.281693 purported5 1 3 3 4 2 745 1457 35 28 96.526855 to5 1 3 3 4 3 794 1452 75 34 95.553047 be. Giordano Dep. at 137-38. He signed the minute of the directors meeting in which Griffin authorized the purchase of Great Plains, CX 53, and he was5 1 3 3 6 8 1324 1569 148 45 96.513977 directly5 1 3 3 6 9 1503 1569 171 35 96.532646 involved5 1 3 3 6 10 1705 1569 34 35 96.165588 in5 1 3 3 6 11 1770 1569 110 45 96.305389 going4 1 3 3 7 0 541 1623 1340 46 -1 5 1 3 3 7 1 541 1623 202 46 96.100517 physically5 1 3 3 7 2 766 1631 35 28 96.100517 to5 1 3 3 7 3 823 1625 151 41 96.142868 Omaha,5 1 3 3 7 4 997 1626 186 35 96.708557 Nebraska5 1 3 3 7 5 1206 1632 35 29 96.708557 to5 1 3 3 7 6 1263 1626 111 36 96.890343 effects 1 3 3 7 7 1396 1627 58 34 96.643005 thes 1 3 3 7 8 1477 1627 215 35 96.612190 transactions 1 3 3 7 9 1715 1627 84 35 96.612190 with5 1 3 3 7 10 1822 1628 59 34 96.832077 thea 1 3 3 8 0 540 1682 1340 49 -1 5 1 3 3 8 1 540 1682 228 44 96.792091 Departments 1 3 3 8 2 781 1682 43 35 96.716209 of5 1 3 3 8 3 833 1683 186 35 96.661545 Insurance5 1 3 3 8 4 1033 1683 43 36 96.661545 of5 1 3 3 8 5 1086 1684 57 35 96.820816 thes 1 3 3 8 6 1158 1683 95 36 96.774147 States 1 3 3 8 7 1267 1683 42 36 96.378082 of5 1 3 3 8 8 1319 1684 211 35 96.059929 Nebraska. Giordano Dep. at 227-30.

34. After Giordano began working for Great Plains, Universal Security Insurance Company, an independent Florida firm, approached Great Plains to administer an MBI program on its behalf, since Great Plains was familiar with these plans. Giordano Dep. at 209-14. Giordano specifically assisted Universal Security in creating their solicitation brochures, Jd. at 213, which were similar to those used by both Great Plains and Griffin in both form and content. Compare CX 133 with CX 135 and CX 14 at 3-6. Griffin sent out solicitation brochures on their behalf, but less than 200 service contracts were sold by that company. Orrico Dep. at 119-20. 35. From 1988 through at least May 1992, Giordano also was vice president and a director of American Southeastern Warranty Association ("ASWA"), a Florida company that, like Griffin, sold automobile service contracts through the mail. CX 11 at 2-5. See also CX 136; CX 137. Giordano had no ownership interest in ASWA. In July 1984, Colleen Orrico, wife of Gennaro Orrico, purchased a 50 percent ownership interest in ASWA. Great Plains purchased the other 50 percent interest in 1988, after Griffin acquired Initial Decision 117 F.T.C.

it. CX 11 at 6; Orrico Dep. at 112-118. ASWA limited its sales to Florida residents. CX 11 at 6.

B. The Respondents' Method of Sales 36. At all times relevant to the complaint in this matter, the respondents have maintained a substantial course of business in or affecting commerce, as commerce is defined by the Federal Trade Commission Act. Respondents' Answer to Complaint at paragraph 3.

37. The respondents sent promotional materials and direct solicitations for their service contracts to consumers through the mail. Respondents’ Answer to Complaint at paragraph 4; Orrico Dep. at 15. 38. The solicitation materials which the respondents mailed to consumers typically consisted of a cover letter, a descriptive brochure, and an Agreements 1 5 3 3 5 1287 1484 260 45 88.684776 Registration form. Commission Exhibit 14, which is a copy of Exhibit A to the complaint, is a representative sample of one of the respondents’ solicitation packages. Orrico Dep. at 36-38; Giordano Dep. at 142. The cover letter to the solicitation materials varied from time to time and often was tailored to reflect the manufacturer of the vehicle owned by the consumer. See CX 14; CX 15; CX 17-CX 19.

39. In order to prepare their solicitation mailing lists, the respondents obtained from state divisions of motor vehicles, typically by purchasing computer tapes, the names and addresses of consumers who recently purchased new automobiles, as well as the make and model of the automobile they purchased. Orrico Dep. at 15-16; Giordano Dep. at 31-32; Knowles Dep. at 11. 40. The respondents mailed solicitation packages virtually on a daily basis; between October 1986 and March 1988, the peak mailing was approximately 500,000 solicitations per month, Knowles Dep. at 11, or millions5 1 5 5 4 5 1014 2413 68 35 96.964676 ands 1 5 5 4 6 1099 2413 178 36 96.274864 millions of solicitations each year. Orrico Dep. at 39.

41. The respondents sold service contracts in at least the following 25 states: Alabama, Arkansas, California, Colorado, District of Columbia, Florida, Georgia, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Mississippi, Missouri, New York, North Carolina, Ohio, South Carolina, Tennessee, Texas, West Virginia and Wisconsin. CX 10 at 4(c). GRIFFIN SYSTEMS, INC., ET AL. 551 515 Initial Decision 42. The respondents could not sell service contracts throughout the country because many states have privacy laws which prohibit companies from obtaining information about state residents from the state government. Giordano Dep. at 42-43. In other states, including Florida, service contracts are considered a form of insurance, to be sold only by licensed insurance companies. Since Griffin was not an insurance company, the firm was prohibited from selling contracts in those states. Id.

43. In contesting law enforcement actions brought by at least two states, Maryland and Ohio, the respondents have maintained they were not engaged in the business of insurance. Instead, they claimed that their sale of service contracts was subject to federal regulatory jurisdiction under the Magnuson-Moss Warranty Act. See e.g. CX 139; CX 141.

44, The Griffin solicitation materials stated that the Vehicle Protection Plan was not an individual insurance program. CX 14 at 3; CX 17 at 3.

C. The Representations Made by the Respondents 45. Certain solicitation materials which the respondents mailed to consumers stated that purchasers of the Vehicle Protection Plan were fully5 1 5 1 3 3 742 1879 179 45 96.654305 protected5 1 5 1 3 4 935 1878 135 46 96.095932 against5 1 5 1 3 5 1083 1878 84 46 96.934120 high5 1 5 1 3 6 1181 1879 113 44 96.687561 repairs 1 5 1 3 7 1306 1879 125 35 95.603020 costs. CX 14 at 1. See also CX 15 at 1.

46. Certain brochures accompanying the solicitation materials stated that Griffin would pay thes 1 5 2 2 7 1212 2060 79 29 96.861465 costs 1 5 2 2 8 1308 2053 43 36 96.687057 of5 1 5 2 2 9 1365 2054 115 45 96.507607 repairs 1 5 2 2 10 1496 2064 40 25 96.832420 or5 1 5 2 2 11 1553 2054 241 45 96.837646 replacements 1 5 2 2 12 1812 2054 42 35 97.000473 of4 1 5 2 3 0 514 2112 1336 46 -1 5 1 5 2 3 1 514 2113 152 35 96.880730 covered5 1 5 2 3 2 679 2119 92 39 96.943130 parts5 1 5 2 3 3 785 2123 46 25 96.086189 on5 1 5 2 3 4 845 2112 57 35 96.409088 thes 1 5 2 3 5 917 2112 111 46 96.409088 majors 1 5 2 3 6 1042 2112 218 35 96.790344 mechanical5 1 5 2 3 7 1276 2123 97 24 96.672668 areas5 1 5 2 3 8 1387 2112 42 35 96.215828 of5 1 5 2 3 9 1439 2123 89 34 96.367027 yours 1 5 2 3 10 1540 2112 168 35 94.629707 vehicle. CX 14 at 3. See also CX 17 at 3. Over 100 automobile components were listed as covered by the plan. CX 14 at 4; CX 17 at 4. 47. These solicitation brochures also stated that all service contracts were subject to a single deductible of $25, which the owner paid only once during the lifetime of the plan. CX 14 at 4; CX 17 at 4. The solicitation materials did not mention any other deductible or other limitation on the amount Griffin would pay for the repair or replacement of a covered part. CX 14; CX 17. 48. Certain solicitation materials also stated that Griffin would pay consumers a rental car allowance of up to $20 per day if, dues 1 5 4 2 15 1814 2703 36 28 96.990974 to4 1 5 4 3 0 514 2754 1334 46 -1 5 1 5 4 3 1 514 2755 58 35 96.244858 thes 1 5 4 3 2 591 2755 223 35 96.312683 mechanical5 1 5 4 3 3 832 2755 217 35 95.476196 breakdown5 1 5 4 3 4 1068 2755 42 35 96.770844 of5 1 5 4 3 5 1126 2766 19 24 96.864754 a5 1 5 4 3 6 1163 2755 155 34 96.304138 covered5 1 5 4 3 7 1336 2761 76 39 96.761414 parts 1 5 4 3 8 1429 2754 147 46 96.661415 eligibles 1 5 4 3 9 1594 2754 57 35 96.158363 for5 1 5 4 3 10 1667 2761 181 39 96.894020 payment,4 1 5 4 4 0 513 2812 1336 46 -1 5 1 5 4 4 1 513 2824 89 34 96.195770 yours 1 5 4 4 2 615 2813 139 35 96.568398 vehicles 1 5 4 4 3 767 2814 62 34 96.537041 has5 1 5 4 4 4 844 2820 35 28 96.994919 to5 1 5 4 4 5 892 2814 45 34 96.637901 be5 1 5 4 4 6 950 2813 82 45 96.413071 kept5 1 5 4 4 7 1046 2812 187 45 96.455719 overnight5 1 5 4 4 8 1247 2818 34 29 96.881020 at5 1 5 4 4 9 1294 2812 57 35 96.964561 thes 1 5 4 4 10 1366 2812 113 45 96.698547 repairs 1 5 4 4 11 1492 2812 166 45 95.023476 facility. CX 14 at 4; CX 17 at 4.

Initial Decision Wi7E.T.C.

49, Finally, certain solicitation materials stated that there was no limit to the number of claims a plan holder may submit, and that the owner should use the plan as5 1 3 1 3 7 1234 712 98 35 95.426308 often5 1 3 1 3 8 1346 722 38 25 95.426308 as5 1 3 1 3 9 1397 710 216 45 94.849762 necessary. CX 14 at 3; CX 17 at 3. See also Respondents’ Answer to Complaint at paragraph 9. 50. The solicitation materials noted that the coverage discussed was for informational purposes only, and that the service agreement detailed all conditions and terms of the plan. CX 14 at 3; CX 17 at 3. However, the service agreement was not sent to consumers as part of the solicitation materials. CX 14 at 6; CX 15 at 6; Knowles Dep. at 11.

51. The solicitation materials also noted that consumers would receive a full5 1 3 3 2 4 935 1241 126 37 96.896889 refunds 1 3 3 2 5 1074 1241 123 34 97.013824 within5 1 3 3 2 6 1211 1239 48 36 96.919090 605 1 3 3 2 7 1272 1240 87 44 96.998596 days5 1 3 3 2 8 1373 1239 31 34 96.455406 if5 1 3 3 2 9 1414 1245 61 28 96.455406 not5 1 3 3 2 10 1488 1237 217 46 96.953690 completely5 1 3 3 2 11 1720 1235 191 36 93.874214 satisfied. CX 14 at 3; CX 17 at 3. The materials stated: During the first 60 days of Plan ownership, you have the option to cancel the plan for a full refund, provided no claim has been filed. If you have filed a claim or have owned the plan for more than 60 days, cancellation refunds will be made under the Rule of 78's (The Sum of Digits Method) based on expiration of time or mileage, whichever is the lesser.

CX 14 at 3; CX 17 at 3.

52. Once consumers decided to purchase the Vehicle Protection Plan, they filled out the Agreement Registration Form. CX 14 at 5-6; CX 15 at 2. Consumers chose the term of the contract and the method of payment, and signed the registration form. /d. Coverage under the contract began upon the respondents’ approval of the registration and processing of the payment. Id.; CX 17 at 2. 53. After the respondents approved the consumer's registration form, the purchaser received the service agreement, which listed in detail the terms of the contract. Commission Exhibit 23, which is a copy of Exhibit B to the Complaint, is a sample of the respondents’ service agreement. Respondents’ Answer to Complaint at paragraph 11. Other versions of the respondents’ service agreements are included as CX 24 through CX 29. The relevant terms of these contracts are virtually identical.

54. A section of the respondents’ service agreement, entitled What5 1 5 4 2 2 800 2660 33 35 96.391617 Is5 1 5 4 2 3 850 2658 195 40 87.310661 Covered, states the following: We agree to pay for the reasonable repair or replacement of parts/units within the components covered by this agreement. Such repair or replacement must have GRIFFIN SYSTEMS, INC., ET AL. 553 515 Initial Decision arisen from the failure of defective parts/units, which failure may occur during the normal use of your vehicle.

In no event will our liability exceed the actual cash value of your vehicle prior to the time of the mechanical breakdown. The actual cash value will be determined by the published wholesale value of the vehicle. Replacement may be made with like kind and quality and depreciation or betterment applied. CX 23 at 2-3. Similar, if not exact language was used in the respondents’ other service agreements. See CX 24 - CX 29. D. The Respondents' Acts and Practices 55. As a standard practice, the respondents applied a depreciation deduction to the value of all parts installed in a vehicle. CX 110- CX 119; Orrico Dep. at 70-72; Giordano Dep. at 117; Molzan Dep. at 43-44; Sender Dep. at 29-30; Stoudmire Dep. at 23; Canitia Dep. at 23-30.

56. The depreciation deduction typically amounted to one percent for each 1,000 miles driven, once the vehicle had 15,000 miles or more on the odometer. CX 111. In most instances, the depreciation deduction never exceeded 50 percent. CX 112; CX 115; CX 116; CX 119.

57. In describing how the rental car allowance would be calculated, the respondents’ service agreements stated: In computing the rental amount due you, we will consider only the actual working time on the repair of your vehicle, as follows: One day's transportation expense will be due for each 8 hours of flat rate time, provided that your vehicle must be retained overnight for the repair of covered parts eligible for payment. This provision excludes:

1. Down time waiting for parts or any other delays beyond the control of the repair facility.

2. Down time for routine maintenance repairs. CX 23 at 4. See also CX 24 at 4; CX 25 at 6; CX 26 at 4; CX 27 at 3; CX 28 at 2; CX 29 at 2.

58. According to a former Griffin customer service representative, the following is a practical effect of the limitations on the rental car allowance, as set forth above. If a repair facility worked on a consumer's vehicle for three hours on Monday and three hours on Initial Decision 117 F.T.C.

Tuesday, the consumer would not receive a rental car reimbursement, even though the car was kept in the repair facility overnight, because only six hours were spent on the repairs. Sender Dep. at 85-86. 59. Neither the respondents’ solicitation materials nor their service agreements stated that the respondents had the right to cancel a service contract, for any reason whatsoever, once Griffin approved the consumer's agreement registration. See CX 14; CX 15; CX 17; CX 22 - CX 29.

60. The documents included as Commission Exhibits 120 and 121 show at least 12 consumers whose claims were denied and contracts were canceled either because the consumer had submitted too many claims, or for “underwriting” purposes. See also CX 12 at 5, 15.

61. Orrico stated that during 1990, someone from Great Plains instructed Griffin to cancel all unlimited mileage service contracts. Orrico Dep. at 84-87. According to Orrico, Griffin proceeded to cancel all of these unlimited mileage contracts unless the consumer stated that they wanted the contract to continue. Consumers who cashed their refund checks went5 1 3 4 6 6 1323 1632 133 45 85.199539 away. Orrico Dep. at 84-87. 62. Volume IV of the Commission's Trial Exhibits, CX 146, includes approximately 100 letters from the respondents to consumers, canceling the consumers' service contracts for either no stated reason or because the respondents purportedly were experiencing “continuing operating losses." See also CX 123. 63. Commission Exhibit 124 is a printout of contract holder information maintained on the respondents’ computer system. Compare CX 124 with CX 12 at 4 through 22 (Griffin's response to Commission staff's access letter). This document shows three consumers whose contracts were canceled due to Ends 1 3 6 5 9 1735 2211 43 36 96.971603 of5 1 3 6 5 10 1788 2211 203 36 86.560059 Business. 64. Commission Exhibit 125 are printouts of summary information concerning Griffin contract cancellations. Those printouts state that during the period January 1, 1982 through December 31, 1988, 2,494 contracts were canceled. CX 125 at 1. During the period April 1, 1989 through May 31, 1989, 2,494 contracts were canceled. CX 125 at 3. Finally, the printouts state that on May 20, 1990, 8,499 contracts were canceled. CX 125 at 4. 65. According to the terms of the respondents’ service contracts, consumers were required to obtain prior authorization for repairs by calling a toll-free number. See, e.g., CX 23 at 7. When consumers called in for authorization of a repair, they were told to take their GRIFFIN SYSTEMS, INC., ET AL. 555 515 Initial Decision vehicle to the repair facility of their choice, and to have the service manager call back the respondents for authorization. CX 10 at paragraph 7; Molzan Dep. at 25-26; Orrico Dep, at 54-56. 66. A number of former Griffin employees indicated that in many instances, consumers found it difficult, if not impossible, to get through to Griffin on the telephone. Molzan Dep. at 24-25, 53, 81- 82; Stoudmire Dep. at 12-14, 60-64, 100-01; Cassidy Dep. at 18, 20- 21; Knowles Dep. at 19-20; Biederman Dep. at 52, 56. 67. The respondents’ telephone records indicate that in many months, thousands, and even tens of thousands, of telephone calls to the respondents’ toll free numbers were not answered. See Danielson declaration, CX 142, at paragraph 10 and the attachments thereto. See also CX 143 and CX 145.

68. The Commission has received 1,278 complaints from consumers concerning the respondents’ acts and practices. CX 142 at paragraph 5. Of those 1,278 complaints, at least 710 consumers complained about the difficulty in reaching Griffin by telephone, including at least 211 consumers who complained specifically that they had been unable to reach Griffin in order obtain prior authorization. /d. at paragraph 6.

69. In some of the complaints received by the Commission, consumers speak of calling the respondents numerous times in a day, for many days in a row, only to reach a busy signal or a tape recording stating that no one is in the office, or to be put on hold for periods of over one hour, only to be disconnected in the end. CX 142 at paragraph 6.

70. The respondents also received complaints, both orally and in writing, from consumers who could not get through on the telephone lines to obtain authorization. Stoudmire Dep. at 67-69; Molzan Dep. at 26-28, 56.

71. In numerous instances where prior authorization was not received, the respondents denied the claims of those consumers who attempted to reach the company but were unable to do so, thus failing to obtain the necessary authorization prior to the initiation of repairs. Canitia Dep. at 36-37; Cassidy Dep. at 27-28; Molzan Dep. at 26-28. 72. Volume V of the Commission's Trial Exhibits, CX 147, includes approximately 100 form letters from the respondents to consumers, denying the consumers' claims because they failed to obtain a pre-authorized claim number before sending in the claim. Each of these letters is followed by the consumer's written response, Initial Decision 117 F.T.C.

stating in detail the difficulty the consumer experienced in obtaining such authorization over the telephone from the respondents. See also Molzan Dep. at 56; CX 142 at paragraph 12. 73. The Commission has received at least 100 consumer complaints about the delay in receiving from Griffin cancellation refunds which were due them, and at least 89 consumer complaints that the amount of their cancellation refund from Griffin was substantially less than what they had expected. CX 142 at paragraph 7.

II. DISCUSSION In their solicitation materials, respondents stated that purchasers of the Vehicle Protection Plan were fully protected against high repair costs, and that the firm would pay the cost of repair or replacement of covered parts on the major mechanical areas of the consumer's vehicle. (F. 45, 46.) Over 100 automobile components were covered by the plan. (F. 46.) The solicitation brochure stated that all policies were subject to a single deductible of $25, which the owner paid only once during the lifetime of the plan. (F. 47.) Respondents made two other significant promises in their solicitations. They stated that they would pay consumers a rental car allowance of up to $20 per day if, dues 1 5 2 3 10 1417 1866 34 28 96.843750 to5 1 5 2 3 11 1465 1860 57 34 96.538017 thes 1 5 2 3 12 1536 1861 221 34 95.610840 mechanical5 1 5 2 3 13 1771 1861 217 34 96.215897 breakdown4 1 5 2 4 0 649 1916 1340 47 -1 5 1 5 2 4 1 649 1916 42 35 96.956680 of5 1 5 2 4 2 706 1927 19 24 96.735115 a5 1 5 2 4 3 742 1917 157 34 96.243500 covered5 1 5 2 4 4 915 1923 75 38 96.286270 parts 1 5 2 4 5 1007 1917 146 44 96.644020 eligibles 1 5 2 4 6 1171 1917 58 35 96.664574 for5 1 5 2 4 7 1244 1923 181 39 96.203766 payment,5 1 5 2 4 8 1444 1928 89 35 96.397995 yours 1 5 2 4 9 1549 1918 142 35 96.820663 vehicles 1 5 2 4 10 1708 1918 64 35 96.668900 has5 1 5 2 4 11 1790 1924 36 29 96.059723 to5 1 5 2 4 12 1843 1918 45 35 96.059723 be5 1 5 2 4 13 1905 1918 84 45 96.773888 kept4 1 5 2 5 0 649 1974 1339 47 -1 5 1 5 2 5 1 649 1974 188 45 96.356857 overnight5 1 5 2 5 2 853 1980 33 29 97.015457 at5 1 5 2 5 3 903 1974 58 35 97.015457 thes 1 5 2 5 4 977 1974 115 46 97.003494 repairs 1 5 2 5 5 1108 1974 169 46 90.915817 facility. (F. 48.) And, they stated that there was no limit to the number of claims a plan holder may submit, and that the owner should use the plan as5 1 5 2 7 9 1414 2091 98 36 96.894791 often5 1 5 2 7 10 1528 2103 38 25 96.500603 as5 1 5 2 7 11 1582 2093 223 44 87.518211 necessary. (F. 49.) Respondents did not pay the entire cost of replacing a covered part. They applied a depreciation deduction to the value of all parts installed in a vehicle. (F. 55.) This deduction was one percent for each 1,000 miles driven, once the vehicle had 15,000 miles or more on the odometer. (F. 56.) Respondents’ solicitation materials promised the rental car allowance whenever the vehicle had to be kept overnight at the repair facility. The service agreement limited this coverage to thes 1 5 4 3 10 1870 2560 115 34 96.804916 actual4 1 5 4 4 0 646 2615 1339 47 -1 5 1 5 4 4 1 646 2615 163 46 96.400566 workings 1 5 4 4 2 828 2615 86 35 96.442406 times 1 5 4 4 3 932 2626 46 25 96.754715 on5 1 5 4 4 4 997 2616 58 35 96.847351 thes 1 5 4 4 5 1072 2616 116 46 96.550667 repairs 1 5 4 4 6 1205 2616 42 35 96.981438 of5 1 5 4 4 7 1262 2628 90 34 96.441559 yours 1 5 4 4 8 1369 2617 171 41 94.002396 vehicle, excluding down time waiting for parts or5 1 5 4 5 5 1046 2685 68 34 96.123718 any5 1 5 4 5 6 1127 2675 100 35 96.647530 others 1 5 4 5 7 1239 2675 122 45 96.865799 delays5 1 5 4 5 8 1375 2675 141 45 96.402016 beyond5 1 5 4 5 9 1530 2676 57 34 96.746437 thes 1 5 4 5 10 1600 2676 136 34 95.852249 controls 1 5 4 5 11 1751 2676 42 34 97.018822 of5 1 5 4 5 12 1804 2677 57 33 96.992744 thes 1 5 4 5 13 1874 2676 113 45 96.843140 repair4 1 5 4 6 0 644 2732 1341 45 -1 5 1 5 4 6 1 644 2732 171 45 93.214539 facility. (F. 57.) Consumers received a rental car reimbursement only if the total repair time on the vehicle was eight hours or more, even if the repair took more than one day. (F. 58.) GRIFFIN SYSTEMS, INC., ET AL. 557 515 Initial Decision Respondents' solicitation materials stated that there was no limit to the number of claims that a consumer may submit. In fact, the respondents denied claims and canceled policies solely on the grounds that a consumer had submitted too many claims in the past. (F. 60.) Respondents’ misrepresentations were likely to deceive consumers who were acting reasonably. Cliffdale Associates, 103 FTC 110, 164-65 (1984), appeal dismissed sub nom, Koven v. FTC, No. 84-5337 (11th Cir. October 10, 1984). There was no disclosure in respondents’ solicitation materials that would put consumers on notice that they would be reimbursed for parts only on a depreciated basis. Nor were there any statements indicating a restriction on the rental car allowance or a limit on the number of claims that may be presented. Most of the misrepresentations were express and contrary to the terms of the contract.' The reasonable consumer would rely on the information presented in the solicitation materials and would therefore be deceived. Cliffdale Associates, 103 FTC at 178. The misrepresentations were material to the purchasing decisions. A material claim is likely5 1 3 3 2 7 1292 1634 36 28 97.012108 to5 1 3 3 2 8 1344 1627 110 35 93.299751 affects 1 3 3 2 9 1473 1626 248 42 37.782406 [consumers’]5 1 3 3 2 10 1739 1625 128 34 96.735016 choice4 1 3 3 3 0 526 1683 1341 49 -1 5 1 3 3 3 1 526 1688 51 40 96.048431 of,5 1 3 3 3 2 594 1699 40 23 96.351707 or5 1 3 3 3 3 648 1688 155 34 96.698715 conducts 1 3 3 3 4 818 1687 199 45 96.567085 regarding,5 1 3 3 3 5 1034 1698 19 24 96.502708 a5 1 3 3 3 6 1068 1686 180 46 93.509895 product. Jd. at 165. Express claims are presumptively material, Jd. at 178-182. Respondents’ claims went to what the consumers received for the money they paid. The misrepresentations therefore influenced consumers’ decisions to purchase the service contracts.

Respondents breached their service contracts with many customers. The respondents unilaterally canceled service contracts, even though neither the solicitations nor the service agreements gave respondents that right. (F. 60-64.) Thousands of consumers' policies were canceled. (F. 64.) The respondents canceled service contracts that had an unlimited mileage term. (F. 61.) Respondents also breached their service contracts by denying the claims of consumers who failed to obtain prior authorization for repairs, even though respondents hindered consumers’ ability to obtain such authorization. (F. 66-70.) According to the terms of the service contract, respondents required consumers to obtain prior The explanation in the service agreement of the depreciation deduction on parts and the limitation on the rental car allowance does not negate the deceptions in the solicitation materials. When the first contact between a seller and a buyer occurs through a deceptive practice, the law may be violated even if the truth is subsequently made known to the purchaser. Cliffdale Associates, 103 FTC at 180.

Initial Decision 117 F.T.C.

authorization for repairs by calling a toll-free number. (F. 65.) Respondents made it difficult for many of these consumers to get through on the telephone lines to obtain the required authorization. Griffin employees' telephone records and consumer complaints confirm that many consumers could not get through to respondents in order to obtain prior authorization. (F. 66-70.) The respondents failed to honor the terms of their contracts. They unilaterally canceled consumers’ contracts without the express right to do so. Unilateral cancellation is a breach of contract. Rochdale Village, Inc. v. Public Service Employees Union, Local No. 80, 605 F.2d 1290, 1297 (2d Cir. 1979), citing Restatement of Contracts Sections 317, 318.

Respondents breached their contracts by establishing a condition precedent to the consumer's receipt of payment by requiring consumers to obtain an authorization from the firm prior to the initiation of repairs, and then wrongfully hindering the consumer's ability to perform that condition. Although a condition precedent must be performed before a contract can be enforced, where the promisor prevents the performance by the other party, the condition is negated. District-Realty Title Ins. Corp. v. Ensmann, 767 F.2d 1018, 1023 (D.C. Cir. 1985); Ethyl Corp. v. United Steelworkers of America, 768 F.2d 180, 185 (7th Cir.), cert. denied, 475 U.S. 1010 (1985); Shear v. National Rifle Assn, 606 F.2d 1251, 1254-55 (D.C. Cir. 1979). Consumers who fail to perform a condition precedent to a contractor's obligation may still recover performance under that contract when their ability to perform has been wrongfully hindered by the conduct of the other party. Rohde v. Mass. Mutual Life Ins., 632 F.2d 667, 670 (6th Cir. 1980). By denying the claims from such consumers, respondents have breached their service contracts and deceived the public.

Respondents’ acts were not only deceptive but unfair. To justify a finding of unfairness the injury to consumers: must5 1 3 4 2 10 1723 2413 46 35 96.934570 be5 1 3 4 2 11 1783 2410 219 41 95.631149 substantial;4 1 3 4 3 0 665 2469 1339 53 -1 5 1 3 4 3 1 665 2482 25 35 96.520386 it5 1 3 4 3 2 723 2487 93 29 96.496208 must5 1 3 4 3 3 849 2486 60 29 96.809227 not5 1 3 4 3 4 941 2479 45 35 96.827194 be5 1 3 4 3 5 1018 2476 229 46 96.437485 outweighed5 1 3 4 3 6 1279 2476 48 45 96.854355 by5 1 3 4 3 7 1360 2485 69 33 96.540428 any5 1 3 4 3 8 1462 2471 286 45 96.389984 countervailing5 1 3 4 3 9 1780 2469 154 37 96.406609 benefits5 1 3 4 3 10 1969 2475 35 28 96.406609 to4 1 3 4 4 0 665 2527 1340 54 -1 5 1 3 4 4 1 665 2549 207 26 96.825951 consumers5 1 3 4 4 2 886 2549 40 23 96.855324 or5 1 3 4 4 3 940 2535 233 46 96.268959 competitions 1 3 4 4 4 1188 2535 73 34 96.611725 that5 1 3 4 4 5 1276 2533 58 36 96.611725 thes 1 3 4 4 6 1348 2532 156 46 96.757637 practices 1 3 4 4 7 1519 2531 190 45 96.060616 produces;5 1 3 4 4 8 1726 2530 70 34 96.934135 ands 1 3 4 4 9 1810 2528 27 35 96.971954 it5 1 3 4 4 10 1851 2533 95 30 96.569443 must5 1 3 4 4 11 1960 2527 45 35 96.569443 be4 1 3 4 5 0 666 2586 1340 57 -1 5 1 3 4 5 1 666 2609 43 24 96.928391 an5 1 3 4 5 2 735 2597 115 46 96.928391 injury5 1 3 4 5 3 877 2596 72 36 96.998489 that5 1 3 4 5 4 973 2604 210 26 96.615875 consumers5 1 3 4 5 5 1210 2591 217 37 96.688011 themselves5 1 3 4 5 6 1454 2590 109 35 96.566399 could5 1 3 4 5 7 1588 2595 61 28 97.000641 not5 1 3 4 5 8 1675 2587 213 45 96.435745 reasonably5 1 3 4 5 9 1914 2586 92 34 96.970802 have4 1 3 4 6 0 667 2643 1339 52 -1 5 1 3 4 6 1 667 2655 184 36 95.598953 avoided. Orkin Exterminating Co. v. FTC, 849 F.2d 1354, 1364 (11th Cir. 1988), cert. denied, 488 U.S. 1041 (1989). The substantial consumer injury caused by respondents is harmful5 1 3 5 2 2 860 2832 35 34 96.797653 in5 1 3 5 2 3 914 2831 43 35 96.797653 its5 1 3 5 2 4 977 2836 59 29 97.012947 nets 1 3 5 2 5 1053 2828 161 36 95.996559 effects. International Harvester Co., 104 FTC 949, 1061 (1984). The respondents’ conduct produced no GRIFFIN SYSTEMS, INC., ET AL. 559 515 Initial Decision countervailing benefits to consumers or competition. Rather, the respondents obtained an unfair competitive advantage by making claims of extended service coverage and then not providing such coverage. “The market forces that reward efficient competitors would be impaired if a seller is allowed to gain a competitive edge by unilaterally changing the bargains it has made." Orkin Exterminating Co., 108 FTC 263, 365 (1986).

Respondents' breach of their service contracts was a unilateral act which consumers could not have avoided through5 1 3 2 2 9 1603 1060 57 35 96.765167 thes 1 3 2 2 10 1673 1059 157 36 96.712517 exercises 1 3 2 2 11 1843 1059 42 35 96.498444 of4 1 3 2 3 0 546 1118 1333 43 -1 5 1 3 2 3 1 546 1132 192 25 96.593452 consumers 1 3 2 3 2 767 1121 157 36 92.755424 choice. Jnternational Harvester, 104 FTC at 1061. Consumers5 1 3 2 4 2 808 1191 82 35 96.833473 may5 1 3 2 4 3 910 1187 56 28 96.681969 acts 1 3 2 4 4 986 1186 35 29 96.838371 to5 1 3 2 4 5 1041 1180 107 35 96.790237 avoids 1 3 2 4 6 1168 1179 116 46 96.447266 injury5 1 3 2 4 7 1303 1178 126 37 96.986412 before5 1 3 2 4 8 1448 1178 26 36 96.810089 it5 1 3 2 4 9 1492 1189 127 25 96.193558 occurs5 1 3 2 4 10 1639 1178 33 35 96.193558 if5 1 3 2 4 11 1687 1178 83 46 96.704193 they5 1 3 2 4 12 1789 1178 92 35 96.945564 have4 1 3 2 5 0 545 1236 1338 48 -1 5 1 3 2 5 1 545 1250 124 25 95.882965 reasons 1 3 2 5 2 684 1246 34 28 96.734650 to5 1 3 2 5 3 733 1238 186 46 96.368294 anticipates 1 3 2 5 4 933 1239 57 35 96.315643 thes 1 3 2 5 5 1004 1238 204 46 96.522591 impending5 1 3 2 5 6 1223 1238 99 34 96.488022 harms 1 3 2 5 7 1336 1238 67 34 96.488022 ands 1 3 2 5 8 1417 1237 56 35 96.222656 thes 1 3 2 5 9 1487 1247 122 25 96.946518 means5 1 3 2 5 10 1624 1243 35 29 97.012276 to5 1 3 2 5 11 1674 1236 105 36 96.608665 avoids 1 3 2 5 12 1793 1236 35 41 96.829109 it,5 1 3 2 5 13 1843 1247 40 24 96.829109 or4 1 3 2 6 0 546 1294 1340 48 -1 5 1 3 2 6 1 546 1298 80 44 96.924454 they5 1 3 2 6 2 641 1307 82 35 95.843826 may5 1 3 2 6 3 739 1298 84 34 96.392090 seeks 1 3 2 6 4 838 1303 36 29 96.836784 to5 1 3 2 6 5 888 1296 158 45 96.131363 mitigate5 1 3 2 6 6 1061 1297 57 34 96.880440 thes 1 3 2 6 7 1133 1296 151 45 94.001671 damages 1 3 2 6 8 1300 1295 184 35 96.899666 afterwards 1 3 2 6 9 1499 1295 31 34 96.995735 if5 1 3 2 6 10 1542 1295 81 45 96.127449 they5 1 3 2 6 11 1638 1306 59 23 96.233536 ares 1 3 2 6 12 1712 1305 115 24 96.786201 aware5 1 3 2 6 13 1842 1294 44 35 96.455925 of4 1 3 2 7 0 545 1353 1335 47 -1 5 1 3 2 7 1 545 1356 168 44 96.880020 potential5 1 3 2 7 2 727 1365 155 25 96.277893 avenues5 1 3 2 7 3 897 1355 133 34 96.852303 towards 1 3 2 7 4 1043 1355 72 34 96.001251 that5 1 3 2 7 5 1128 1354 98 35 91.442039 end. Orkin, 849 F.2d at 1365, quoting 108 FTC at 366.

In this case, consumers could not act to avoid injury before it occurred because they could not avoid it. While the Vehicle Protection Plan offered a 60 day money-back guarantee to all purchasers, this guarantee was limited only to those consumers who did not submit a claim during the 60 day period. For those consumers who did file a claim during that period, or who owned the plan for more than 60 days, refunds were based on the Rule of 78's.’ (F. 51.) Since all of the unfair practices in question became evident only after a claim was filed, this 60-day refund policy was of limited value to consumers in curing these problems. The only method of mitigating any damage would be to attempt to obtain a refund from the respondents. Most consumers had no available means fully to mitigate their damages once the respondents breached their contracts.”

In summary, respondents solicited business by promising that purchasers of their Vehicle Protection Plan were fully protected against high repair costs due to mechanical breakdown. (F. 45-54), 2 The Rule of 78's is a mathematical formula used to refund unearned interest when an installment note is paid before maturity and in which the majority of the interest is assessed at the beginning of the loan. By using this type of refund calculation, the respondents limited the amount of refunds they would have to pay since the majority of the value of the VPP was consumed at the beginning of the contract, when the least number of claims would be submitted. (CX 126-1, 2); Draper v. American Funding Ltd., 285 Cal. Rptr. 640, 642 n.2, 234 Cal. App. 3rd 345, 348 n.2 (C.A. 2nd Dist. 1991). 3 : .

When consumers requested and received a refund, those payments were inadequate and delayed. (F. 73.) Initial Decision 117 F.T.C.

including a rental car allowance (F. 48), and the right to file claims as often as necessary (F. 49). These promises were false, misleading, and deceptive because, in fact, respondents applied depreciation deductions to the cost of the parts (F. 55, 56), limited the rental car allowances (F. 57, 58), and canceled the contracts of consumers who submitted too many claims (F. 59-64). Moreover, respondents unfairly broke their promises by these unilateral cancellations and by interfering with the attempts of consumers to obtain prior authorization for repairs. (F. 59-72.) III. RESPONDENTS' AFFIRMATIVE DEFENSES Respondents argue that the practices of Griffin Systems, Inc. are outside the jurisdiction of the Commission because they constitute the business5 1 5 1 3 3 929 1396 43 36 96.929970 of5 1 5 1 3 4 985 1396 205 36 65.264565 insurance and are regulated5 1 5 1 3 8 1586 1398 48 45 96.566109 by5 1 5 1 3 9 1651 1398 96 36 96.566109 States 1 5 1 3 10 1764 1399 87 35 93.649780 law within the meaning of the McCarran-Ferguson Act, 15 U.S.C. 1012. They also argue that Alfonso S. Giordano is not liable under the Federal Trade Commission Act.

A. The Business5 1 6 1 1 4 1362 1689 44 45 96.469994 of5 1 6 1 1 5 1411 1691 221 34 94.281799 Insurance Respondents’ service contracts are not automobiles 1 7 1 1 7 1773 1807 218 34 96.626961 breakdown4 1 7 1 2 0 652 1863 1337 45 -1 5 1 7 1 2 1 652 1863 184 35 96.607864 insurance5 1 7 1 2 2 851 1863 180 45 89.162498 policies, which are treated as the business5 1 7 1 2 9 1728 1864 43 35 96.833809 of5 1 7 1 2 10 1782 1865 207 34 72.945145 insurance by the FTC's regulations under the Magnuson-Moss Warranty Act, 16 CFR 700.11. A mechanical breakdown insurance ("MBI") policy “differs from a service contract in that the former must be approved by a state department of insurance, and is in fact an insurance policy, while the latter is simply a contract between two parties." (F. 9.) Griffin sold service contracts, not MBI policies. (F. 6.) In MBI policies, applications, rates and other relevant documents are subject to approval by the insurance departments of every state where they are sold. Orrico Dep. at 108; Giordano Dep. at 139. This gives purchasers the protection of the states’ insurance regulations. Orrico Dep. at 108. No state regulatory authority approved Griffin's service contracts. (Giordano Dep. at 140.) In analyzing the practices of a company that issued health insurance policies, the United States Supreme Court has identified three criteria relevant to the determination of whether a practice involves the business5 1 7 3 4 4 1102 2795 42 35 96.682678 of5 1 7 3 4 5 1156 2796 218 34 90.809204 insurance. GRIFFIN SYSTEMS, INC., ET AL. 561 S15 Initial Decision [Flirst, whether the practices has the effect of transferring or spreading a policyholder's risk; second, whether the practice is an integral part of the policy relationship between the insurer and the insured; and third, whether the practice is limited to entities within the insurance industry. None of these criteria is necessarily deter-minative in itself... . Union Labor Life Ins., Co. v. Pireno, 458 U.S. 119, 129 (1982), citing Group Life & Health Ins., Co. v. Royal Drug Co., 440 U.S. 205 (1979). See also Metropolitan Life Ins., Co. v. Mass., 471 U.S. 724, 743 (1985).

Applying these criteria to the present case, respondents’ service contracts only cover the risk of loss from defects within the automobile itself, rather than from damages or losses unrelated to vehicle defects, such as accidents, vandalism, negligence, natural disasters, or other similar occurrences. The risk of loss from product defects is more properly classified as a warranty rather than insurance. And the third criteria is not met in this case, since the practice of selling service contracts is not limited to entities within the insurance industry.* No federal court has ever determined whether automobile service contracts like those sold by the respondents constitute the business4 1 3 3 3 0 522 1776 1336 52 -1 5 1 3 3 3 1 522 1776 43 35 96.384254 of5 1 3 3 3 2 581 1776 206 36 89.081070 insurance within the meaning of the McCarran Ferguson Act. Respondents, in state litigation, claimed that their plan was not insurance and that Griffin was subject to FTC regulatory jurisdiction under Magnuson-Moss. (F. 43.) The Supreme Court of Ohio, the state from which Griffin conducted its business,° accepted this argument. Griffin Systems, Inc. v. Ohio Dept. of Insurance, 61 Ohio St. 552 (1991).° The Court distinguished between contracts like respondents’ vehicle protection plan which indemnifies against defects in parts of the automobile, and contracts of insurance indemnifying against loss or damage resulting from perils outside of and unrelated to defects in the article covered by the contract. The Court held that respondents’ motors 1 3 3 14 6 1219 2423 139 35 96.786552 vehicles 1 3 3 14 7 1372 2424 137 34 96.389236 services 1 3 3 14 8 1522 2432 202 37 96.892845 agreements 1 3 3 14 9 1738 2425 117 35 96.711319 which4 1 3 3 15 0 517 2478 1337 51 -1 5 1 3 3 15 1 517 2478 176 45 96.658409 promises5 1 3 3 15 2 717 2485 35 29 96.548813 to5 1 3 3 15 3 775 2486 232 38 96.853340 compensate5 1 3 3 15 4 1031 2480 57 35 93.218842 thes 1 3 3 15 5 1111 2481 180 45 92.804314 promisee5 1 3 3 15 6 1313 2482 57 35 96.948952 for5 1 3 3 15 7 1391 2482 133 45 96.999962 repairs5 1 3 3 15 8 1548 2483 236 35 96.648056 necessitated5 1 3 3 15 9 1807 2484 47 45 96.907555 by4 1 3 3 16 0 517 2536 1337 48 -1 5 1 3 3 16 1 517 2536 220 36 96.133942 mechanical5 1 3 3 16 2 764 2537 218 35 96.249001 breakdown5 1 3 3 16 3 1007 2539 171 45 96.440269 resulting5 1 3 3 16 4 1204 2540 223 44 96.360260 exclusively5 1 3 3 16 5 1454 2540 93 35 96.236099 from5 1 3 3 16 6 1573 2541 127 34 96.236099 failures 1 3 3 16 7 1724 2542 69 33 96.647667 dues 1 3 3 16 8 1819 2548 35 28 96.906364 to2 1 4 0 0 0 515 2592 594 14 -1 3 1 4 1 0 0 515 2592 594 14 -1 4 1 4 1 1 0 515 2592 594 14 -1 5 1 4 1 1 1 515 2592 594 14 95.000000 2 1 5 0 0 0 513 2609 1342 332 -1 3 1 5 1 0 0 589 2609 1045 51 -1 4 1 5 1 1 0 589 2609 13 19 -1 5 1 5 1 1 1 589 2609 13 19 96.806732 44 1 5 1 2 0 620 2628 1014 32 -1 5 1 5 1 2 1 620 2628 56 22 96.980659 This5 1 5 1 2 2 688 2628 46 23 96.983971 facts 1 5 1 2 3 745 2629 69 22 96.983971 alone5 1 5 1 2 4 826 2629 18 23 96.945358 is5 1 5 1 2 5 856 2633 40 19 96.969299 not5 1 5 1 2 6 906 2629 148 30 96.452591 dispositive.5 1 5 1 2 7 1077 2630 77 23 96.520813 Unions 1 5 1 2 8 1165 2630 81 23 96.520813 Labor5 1 5 1 2 9 1254 2631 57 29 95.889168 Life,5 1 5 1 2 10 1321 2631 48 23 96.844238 4585 1 5 1 2 11 1381 2631 55 23 92.797874 U.S.5 1 5 1 2 12 1448 2636 22 18 96.002274 at5 1 5 1 2 13 1485 2632 50 23 93.005348 133.5 1 5 1 2 14 1555 2632 34 28 91.553650 (F.5 1 5 1 2 15 1601 2632 33 27 96.910576 2.)3 1 5 2 0 0 589 2665 109 48 -1 4 1 5 2 1 0 589 2665 109 48 -1 5 1 5 2 1 1 589 2665 11 22 81.378601 55 1 5 2 1 2 619 2686 34 27 70.815552 (F.5 1 5 2 1 3 665 2686 33 27 95.109955 2.)3 1 5 3 0 0 513 2723 1342 218 -1 4 1 5 3 1 0 589 2723 1263 51 -1 5 1 5 3 1 1 589 2723 12 20 85.237511 65 1 5 3 1 2 630 2742 50 23 96.495644 Thes 1 5 3 1 3 697 2743 44 30 96.490089 slips 1 5 3 1 4 757 2743 100 30 96.725288 opinions 1 5 3 1 5 874 2743 19 23 96.244164 is5 1 5 3 1 6 909 2743 43 24 96.284767 CX5 1 5 3 1 7 973 2743 50 24 94.039528 140.5 1 5 3 1 8 1055 2744 45 23 96.413635 But5 1 5 3 1 9 1115 2752 41 15 96.554596 sees 1 5 3 1 10 1172 2745 87 29 94.952530 Griffin5 1 5 3 1 11 1276 2746 108 28 95.712761 Systems,5 1 5 3 1 12 1416 2746 47 22 91.442261 Inc.5 1 5 3 1 13 1482 2754 17 15 90.074677 v.5 1 5 3 1 14 1517 2746 45 23 91.699303 Ins.5 1 5 3 1 15 1594 2746 196 27 93.755486 Commissioner,5 1 5 3 1 16 1806 2747 46 23 96.012016 No.4 1 5 3 2 0 514 2783 1338 40 -1 5 1 5 3 2 1 514 2783 264 26 92.452782 88203036/CL843965 1 5 3 2 2 790 2785 141 28 96.666016 (Baltimore5 1 5 3 2 3 941 2785 56 30 96.832603 City5 1 5 3 2 4 1008 2785 47 24 95.211800 Cir.5 1 5 3 2 5 1076 2786 36 24 95.887054 Ct.5 1 5 3 2 6 1134 2787 134 23 96.520279 December5 1 5 3 2 7 1279 2787 37 28 96.785088 20,5 1 5 3 2 8 1333 2787 70 28 95.998985 1988)5 1 5 3 2 9 1416 2788 123 27 96.619400 (included5 1 5 3 2 10 1550 2795 25 17 96.619400 as5 1 5 3 2 11 1587 2788 43 24 95.012917 CX5 1 5 3 2 12 1647 2788 106 30 94.886200 138-13);5 1 5 3 2 13 1761 2785 91 38 96.746483 Griffin4 1 5 3 3 0 513 2826 1342 34 -1 5 1 5 3 3 1 513 2826 108 29 96.771980 Systems,5 1 5 3 3 2 634 2827 45 22 84.510719 Inc.5 1 5 3 3 3 702 2835 17 14 84.510719 v.5 1 5 3 3 4 734 2827 140 27 96.614021 Washburn,5 1 5 3 3 5 890 2827 42 24 82.835632 1535 1 5 3 3 6 944 2828 34 23 86.438049 Ill.5 1 5 3 3 7 999 2829 61 29 96.513542 App.5 1 5 3 3 8 1073 2829 41 22 95.253883 3rd5 1 5 3 3 9 1129 2829 51 26 95.253883 113,5 1 5 3 3 10 1191 2829 47 23 87.520027 5055 1 5 3 3 11 1250 2830 91 22 87.520027 N.E.2d5 1 5 3 3 12 1357 2830 55 22 89.891350 112!5 1 5 3 3 13 1427 2830 45 27 56.402901 (II.5 1 5 3 3 14 1492 2831 63 29 96.719650 App.5 1 5 3 3 15 1574 2830 36 24 96.383347 Ct.5 1 5 3 3 16 1627 2831 77 28 95.529785 1987).5 1 5 3 3 17 1724 2831 24 23 95.264336 In5 1 5 3 3 18 1760 2831 56 23 95.264336 both5 1 5 3 3 19 1826 2831 29 23 96.954025 of4 1 5 3 4 0 514 2868 1341 33 -1 5 1 5 3 4 1 514 2868 64 23 97.004906 these5 1 5 3 4 2 587 2875 74 20 96.699547 cases,5 1 5 3 4 3 672 2869 37 23 96.750710 thes 1 5 3 4 4 718 2875 78 17 95.945389 courts5 1 5 3 4 5 806 2869 144 24 96.441612 determined5 1 5 3 4 6 961 2870 47 23 96.441612 that5 1 5 3 4 7 1017 2870 88 23 96.430519 Griffin5 1 5 3 4 8 1116 2878 48 15 96.496613 was5 1 5 3 4 9 1174 2872 107 29 96.496613 engaged5 1 5 3 4 10 1291 2872 22 22 96.999916 in5 1 5 3 4 11 1324 2872 37 22 96.899994 thes 1 5 3 4 12 1372 2872 109 23 96.792465 business5 1 5 3 4 13 1491 2872 28 22 96.792465 of5 1 5 3 4 14 1526 2872 122 23 96.835976 insurance5 1 5 3 4 15 1660 2872 21 23 96.963120 in5 1 5 3 4 16 1692 2873 37 22 96.632828 thes 1 5 3 4 17 1740 2873 76 23 96.632828 States5 1 5 3 4 18 1826 2873 29 23 96.995934 of4 1 5 3 5 0 513 2909 467 32 -1 5 1 5 3 5 1 513 2909 125 30 96.555801 Maryland5 1 5 3 5 2 649 2911 45 22 96.636009 ands 1 5 3 5 3 705 2910 98 27 89.046181 Illinois,5 1 5 3 5 4 815 2911 165 30 96.882057 respectively. Initial Decision 117 F.T.C.

defects in the motor vehicle parts does not constitute a contract ‘substantially amounting to insurance’. . ." 575 N.E.2d at 808.’ Providers of service contracts cannot avoid FTC jurisdiction over such contracts by relabeling them as mechanical breakdown insurance: An agreement must be actively regulated by state law to be insurance. 42 Fed. Reg. 36111 (July 13, 1977). Griffin only sold its service contracts in states where they were not considered insurance. (F. 42.) Griffin's office was located in Cleveland, Ohio. (F. 2.) Griffin was not licensed as an insurance company. (F. 42.) The states other than Ohio where Griffin sold its service contracts had no greater ability through licensing or direct presence of person or property to enforce their laws. Ohio found that Griffin's service contracts were not insurance. Griffin was not regulated by state law in any state in which it sold service contracts, and it is not exempt from Commission jurisdiction. Travelers Health Association v. FTC, 298 F.2d 820, 824-25 (1962).

B. Mr. Giordano's Liability Respondents argue that Mr. Giordano should not be held liable because he did not own stock in Griffin and did not have ultimate and sole control of the corporation. Mr. Giordano helped in organizing4 1 5 1 4 0 668 1871 1333 46 -1 5 1 5 1 4 1 668 1873 57 35 93.283279 thes 1 5 1 4 2 742 1872 297 45 88.967163 company,.and setting up thes 1 5 1 4 6 1358 1872 142 40 96.795906 formal,5 1 5 1 4 7 1519 1878 76 39 96.805489 steps 1 5 1 4 8 1611 1872 47 45 96.732262 by5 1 5 1 4 9 1675 1878 77 39 96.515282 steps 1 5 1 4 10 1768 1871 233 45 94.207581 procedures for the office, (F. 18), and he was the person in charge of administration of Griffin. Jd. Mr. Giordano interviewed people for various positions at Griffin and had the authority, as part of a group, to hire employees and set the salary of anybody5 1 5 1 8 10 1624 2105 82 34 96.859245 who5 1 5 1 8 11 1720 2104 145 35 96.705750 worked5 1 5 1 8 12 1878 2103 56 36 97.004951 for5 1 5 1 8 13 1947 2104 57 35 96.777130 thea 1 5 1 9 0 667 2162 1336 48 -1 5 1 5 1 9 1 667 2163 277 47 91.782417 organization, (F. 29); he supervised various Griffin employees, including the office manager, (F. 20), and he routinely advised Griffin personnel of the policies and practices of the firm, insofar5 1 5 1 11 12 1966 2289 37 25 96.903206 as4 1 5 1 12 0 667 2338 751 45 -1 5 1 5 1 12 1 667 2340 58 34 96.210083 thes 1 5 1 12 2 741 2339 216 35 96.408577 solicitations 1 5 1 12 3 973 2339 69 35 96.963211 ands 1 5 1 12 4 1057 2338 199 45 80.864403 mailings. (F. 21.) Mr. Giordano signed for Griffin bank accounts, including the payroll accounts, (F. 22), he conducted an auditing5 1 5 2 2 9 1761 2453 180 35 93.384773 function of claims received in the mail from consumers, (F.30), and he received 7 The Court explained the difference between insurance and a warranty by referring to two earlier cases involving guarantees by tire companies. The first, which the Court found to be insurance, guaranteed against defects in the tire, without limit as to time, and also, for a limited time, against loss or damage for cuts, bruises, under-inflation, faulty brakes or other hazards that may render the tire unfit. The second, which the Court found to be a warranty and not insurance, guaranteed only repair or replacement for a limited time for defects in the tire and excluded damages, and did not cover punctures, collisions, fire, etc. 575 N.E.2d at 806. GRIFFIN SYSTEMS, INC., ET AL. 563 515 Initial Decision a daily list of claims to be paid and countersigned the claims checks. (F. 31.) Mr. Giordano determined if Griffin or Great Plains had funds to pay claims. id. Mr. Giordano created detailed cost analyses of the Griffin contracts, analyses of the number of plans sold for each make and model of automobile, and analyses of the costs of claims from each make and model of auto. (F. 32.) Mr. Giordano also was involved in redesigning Griffin solicitation material and contract packages mailed to consumers. (F. 24.) In the solicitation materials, changes were made in the wording and content as well as in the format and design. Mr. Giordano made some of those content changes. Id. CX 31 is Mr. Giordano's handwritten copy of a solicitation letter sent to consumers; CX 37 is his handwritten copy of the service contract. (F. 26.)® Mr. Giordano signed cover letters to the solicitation materials and other documents distributed by the respondents. (F. 27.) Mr. Giordano also assisted other companies in the sale of service contracts by using solicitation materials similar to Griffin's, containing many of the same misrepresentations. USAWA was formed with the intention of selling service contracts in a manner similar to Griffin. (F. 15.) Mr. Giordano was involved in the revision of its solicitation materials, (F. 25.), which were virtually identical to the Griffin solicitations. (F. 15.) Great Plains began to sell MBI policies on its own behalf after Griffin acquired the firm. (F. 9.) Mr. Giordano was an officer and director of the firm. (F. 16.) The Great Plains solicitation materials, like the USAWA materials, were substantially similar to Griffin's. (F. 9.) Universal Security Insurance Company approached Great Plains to administer its MBI program since Great Plains was familiar with these plans. Mr. Giordano assisted Universal Security in creating their solicitation brochures, which were similar to those used by Great Plains and Griffin. (F. 34.) From 1988 through at least May 1992, Mr. Giordano was vice president and director of ASWA, a Florida company that, like Griffin, sold automobile service contracts through the mail. (F. 35.) In Standard Distributors, Inc. v. FTC, 211 F.2d 7, 13-15 (2nd Cir. 1954), a corporate officer was held liable for the deceptive acts of the corporation's salesmen because he was in5 1 3 5 3 9 1531 2706 61 39 96.715584 tops 1 3 5 3 10 1608 2701 137 34 96.880272 controls 1 3 5 3 11 1763 2700 42 35 96.580254 of5 1 3 5 3 12 1818 2701 58 34 96.097504 thea 1 3 5 4 0 540 2754 1333 40 -1 5 1 3 5 4 1 540 2754 175 35 96.462212 activities5 1 3 5 4 2 744 2755 73 35 96.094955 that5 1 3 5 4 3 845 2755 57 35 96.549377 thes 1 3 5 4 4 930 2755 248 36 96.549377 Commissions 1 3 5 4 5 1207 2756 95 35 95.712730 finds5 1 3 5 4 6 1332 2764 35 28 96.393723 to5 1 3 5 4 7 1395 2758 91 34 96.428993 have5 1 3 5 4 8 1514 2758 158 34 96.417122 violated5 1 3 5 4 9 1700 2759 58 34 96.804512 thes 1 3 5 4 10 1786 2759 87 35 96.507324 Act Mr. Giordano claims that he did not draft these documents, and merely wrote5 1 5 1 2 14 1690 2876 13 14 96.288383 a5 1 5 1 2 15 1713 2874 63 24 96.288383 great5 1 5 1 2 16 1786 2869 53 22 96.577629 deals 1 5 1 2 17 1850 2869 28 22 96.969307 of2 1 6 0 0 0 539 2911 870 31 -1 3 1 6 1 0 0 539 2911 870 31 -1 4 1 6 1 1 0 539 2911 870 31 -1 5 1 6 1 1 1 539 2911 85 30 96.989441 things,5 1 6 1 1 2 635 2911 87 30 96.804893 simply5 1 6 1 1 3 733 2912 103 23 96.643707 because5 1 6 1 1 4 847 2912 8 23 96.567635 I5 1 6 1 1 5 866 2912 59 23 96.690796 have5 1 6 1 1 6 936 2919 13 16 96.690796 a5 1 6 1 1 7 959 2919 56 22 96.643219 very5 1 6 1 1 8 1027 2913 86 28 96.450516 legible5 1 6 1 1 9 1124 2913 178 29 93.304436 handwriting. (F. 26.) Initial Decision 117 F.T.C.

although he had acted5 1 3 1 1 5 1113 602 36 35 96.469933 in5 1 3 1 1 6 1165 603 98 45 97.005959 goods 1 3 1 1 7 1278 602 99 42 97.005859 faith,5 1 3 1 1 8 1394 604 86 35 96.812592 with5 1 3 1 1 9 1495 605 70 35 96.990280 dues 1 3 1 1 10 1579 605 192 46 96.848846 diligence,5 1 3 1 1 11 1788 613 35 28 96.998619 to5 1 3 1 1 12 1838 614 148 38 96.723198 prevent4 1 3 1 2 0 646 658 1337 48 -1 5 1 3 1 2 1 646 658 58 34 93.292892 thes 1 3 1 2 2 721 658 371 46 92.221077 misrepresentations5 1 3 1 2 3 1110 661 105 35 95.615364 made5 1 3 1 2 4 1233 661 47 45 95.615364 by5 1 3 1 2 5 1297 662 58 34 96.652351 thes 1 3 1 2 6 1374 662 210 36 86.261154 salesmen. 211 F.2d at 13, 15.

Similarly, a corporate officer in Benrus Watch Co. v. FTC, 352 F.2d 313 (8th Cir. 1965), cert. denied, 384 U.S. 939 (1966), was held liable despite his assertion that he did not formulate, direct or control any of the acts and practices alleged in the complaint, or have knowledge of such acts and practices. 352 F.2d at 324-25. The Eighth Circuit held that he did5 1 3 1 8 7 1295 1022 62 28 96.828285 not5 1 3 1 8 8 1374 1016 94 46 96.853210 deny5 1 3 1 8 9 1486 1016 73 36 96.898216 that5 1 3 1 8 10 1576 1017 45 36 96.962677 he5 1 3 1 8 11 1639 1028 73 25 96.741150 was5 1 3 1 8 12 1732 1028 43 25 96.367813 an5 1 3 1 8 13 1794 1018 131 36 96.758560 officers 1 3 1 8 14 1942 1019 43 35 96.460861 of4 1 3 1 9 0 640 1071 1340 48 -1 5 1 3 1 9 1 640 1071 138 35 93.070442 Benrus5 1 3 1 9 2 802 1071 129 42 96.906288 which,5 1 3 1 9 3 955 1073 166 45 96.161224 standings 1 3 1 9 4 1144 1073 116 41 96.750687 alone,5 1 3 1 9 5 1279 1073 160 46 96.460022 justifies5 1 3 1 9 6 1463 1075 57 35 96.938889 thes 1 3 1 9 7 1543 1075 183 36 96.857613 inferences 1 3 1 9 8 1749 1077 72 35 96.657112 that5 1 3 1 9 9 1843 1077 45 35 96.738335 he5 1 3 1 9 10 1911 1077 69 36 96.935608 had4 1 3 1 10 0 641 1130 921 48 -1 5 1 3 1 10 1 641 1130 201 46 96.605545 something5 1 3 1 10 2 858 1136 36 30 96.993271 to5 1 3 1 10 3 909 1130 47 37 96.823441 do5 1 3 1 10 4 972 1130 85 37 96.296402 with5 1 3 1 10 5 1073 1131 152 47 90.330109 policy. 352 F.2d at 325.

Under the principle of Standard Distributors and Benrus Watch, complete ownership and control is not an essential element, and liability could be imposed on Mr. Giordano as an officer. However, Mr. Giordano has participated to a substantial extent in the operations of Griffin, including the deceptive practices charged in the complaint. Mr. Giordano was one of three persons, including Mr. Orrico and Mr. Boughton, who controlled the operations of Griffin. (F. 16-35.) Mr. Giordano personally reviewed and revised the solicitation materials containing deceptive representations. (F. 24.) He wrote by hand the contract containing provisions that conflict with representations made in the solicitation materials. (F. 26.) He decided when claims would be paid. (F. 31.) He participated in the acts and practices of Griffin, and controlled them to the extent needed to impose individual liability under Section 13(b) of the FTC Act. Mr. Giordano claims that he only did what he was told. As an officer in control of the unlawful activities, this does not shield him from liability. Mr. Giordano participated in deceptive practices of which he was aware. This is sufficient to impose liability under the FTC Act.

CONCLUSIONS OF LAW 1. The Federal Trade Commission has jurisdiction over the respondents and the promotion, marketing and sale of their vehicle service contracts under Section 5 of the Federal Trade Commission Act.

2. Respondents' use of false, misleading and deceptive representations, and respondents’ failure to disclose material facts, as herein found, were likely to mislead reasonable consumers into believing that such representations were true and induced them to GRIFFIN SYSTEMS, INC., ET AL. 565 515 Initial Decision purchase respondents’ service contract by reason of those mistaken beliefs.

3. The acts and practices of respondents as herein found were all to the prejudice and injury of the public and constitute unfair and deceptive acts or practices in or affecting commerce in violation of Section 5(a) of the Federal Trade Commission Act. 4. The accompanying order is necessary and appropriate under applicable legal precedent and the facts of this case. ORDER DEFINITIONS For the purposes of this order, the following definitions shall apply:

1. Services 1 7 1 1 3 853 1507 178 34 87.104683 contract shall mean a written agreement to perform, over a fixed period of time or for a specified duration, any service relating to the maintenance or repair (or both) of a vehicle, which contract is sold to consumers for separate consideration than the vehicle in question.

2. Covered vehicle, repair or part shall mean any vehicle, repair or part which is subject to the terms of a service contract. I.

It is ordered, That respondents Griffin Systems, Inc., a corporation, its successors and assigns, its officers, and Gennaro J. Orrico, Robert W. Boughton, and Alfonso S. Giordano, individually and as officers of said corporation, and respondents’ agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the promotion, advertising, offering for sale, sale, distribution or administration of any service contract in or affecting commerce, as “commerce” is defined in the Federal Trade Commission Act, as amended, do forthwith cease and desist from orally, visually, in writing, or in any other way misrepresenting, directly or by implication, any material term or condition of such service contract, including, but not limited to, the following: Initial Decision 117 F.T.c.

A. That any purchaser of such service contract will be paid the full cost of repairing or replacing any covered part of a covered vehicle;

B. That such service contract will fully protect the purchaser against repair costs;

C. That any purchaser of such service contract will receive a rental car allowance if, due to a mechanical breakdown of a covered part, a covered vehicle has to be kept overnight at a repair facility; and D. That any purchaser of such service contract may submit, as often as necessary, an unlimited number of claims pursuant to those contracts.

Il.

It is further ordered, That respondents Griffin Systems, Inc., a corporation, its successors and assigns, its officers, and Gennaro J. Orrico, Robert W. Boughton, and Alfonso S. Giordano, individually and as officers of said corporation, and respondents’ agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the promotion, advertising, offering for sale, sale, distribution or administration of any service contract in or affecting commerce, as “commerce” is defined in the Federal Trade Commission Act, as amended, do forthwith cease and desist from failing to disclose clearly and conspicuously, in the first written communication with, or solicitation of, a prospective purchaser of a service contract, the following material terms and conditions of such service contract: A. Whether the purchaser of the service contract will be paid the full cost of repairing or replacing a covered part of a covered vehicle and, if not, the depreciation factor or other device that will be used in determining the amount that the purchaser of the service contract will receive for such a repair or replacement; B. Whether the purchaser of the service contract will be paid a rental car allowance if a covered vehicle is subject to repairs and, if so, the precise manner in which said rental car allowance is calculated; and C. The number and/or total dollar value of claims that may be submitted by the purchaser of the service contract. GRIFFIN SYSTEMS, INC., ET AL. 567 515 Initial Decision iil.

It is further ordered, That respondents Griffin Systems, Inc., a corporation, its successors and assigns, its officers, and Gennaro J. Orrico, Robert W. Boughton, and Alfonso S. Giordano, individually and as officers of said corporation, and respondents’ agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the promotion, advertising, offering for sale, sale, distribution or administration of any service contract in or affecting commerce, as commerce is defined in the Federal Trade Commission Act, as amended, do forthwith cease and desist from failing to provide to each prospective purchaser of such service contract, prior to the prospective purchaser making any payment, agreeing to make any payment or signing any document for the purchase of such service contract, the full text of the contract along with a clear and conspicuous statement that the prospective purchaser is under no obligation to purchase the service contract unless the prospective purchaser agrees to the terms contained therein. IV.

It is further ordered, That respondents Griffin Systems, Inc., a corporation, its successors and assigns, its officers, and Gennaro J. Orrico, Robert W. Boughton, and Alfonso S. Giordano, individually and as officers of said corporation, and respondents’ agents, representatives and employees, directly or through any corporation, subsidiary, division or other device, in connection with the promotion, advertising, offering for sale, sale, distribution or administration of any service contract in or affecting commerce, as com-4 1 6 1 9 0 524 2334 1337 42 -1 5 1 6 1 9 1 524 2339 134 35 89.426758 merce is defined in the Federal Trade Commission Act, as amended, do forthwith cease and desist from:

A. Unilaterally canceling such service contract without the express right to do so clearly and conspicuously disclosed to a potential purchaser of the service contract prior to the sale of such a contract;

B. Preventing or substantially hindering the purchaser of such service contract from performing any condition precedent, established in the service contract, for the purchaser's obtaining any Initial Decision 117 F.T.C.

benefit provided for under the terms of the service contract, including, but not limited to, the obtaining of prior authorization for such repair or replacement;

C. Denying the valid claims of a purchaser of such service contract when such purchaser was unable, due to the acts or practices of the respondents, to perform any condition precedent; and D. Refusing to comply promptly with any term or condition of any such service contract.

V.

It is further ordered, That respondents, their successors and assigns shall distribute a copy of this order to each present and future officer, agent, representative and employee having sales, advertising, policy making or administration responsibilities for any service contract, and shall secure from each such individual a signed statement acknowledging that he or she has received and read this order.

VI.

It is further ordered, That for at least three (3) years following the date of service of this order, respondents, their successors and assigns shall maintain and upon request make available to the Federal Trade Commission for inspection and copying: A. A sample copy of every service contract offered for sale, sold or administered by the respondents, their successors and assigns; B. A sample copy of every promotional material relating to the offering for sale, sale or administration of service contracts disseminated by the respondents, their successors and assigns; C. A complete contract history for each purchaser of a service contract, including, but not limited to, the identity of the type of service contract purchased by the consumer, a record of any and all claims submitted, the amount of those claims, the date when those claims were first submitted, the response to those claims, the amount paid on each claim, the amount of any rental car allowance that was paid, and the date when each payment was sent to the claimant; D. A record of every service contract canceled by the respondents, their successors and assigns, the reason for the GRIFFIN SYSTEMS, INC., ET AL. 569 515 Initial Decision cancellation, and the amount refunded to the purchaser of the service contract because of the cancellation;

E. A record of the number of telephone lines used by respondents, their successors and assigns to answer calls regarding claims for repairs placed pursuant to service contracts, the number of employees present on a daily basis who are responsible for answering telephone calls from claimants, the number of employees present on a daily basis who are responsible for authorizing the repairs requested by the claimants, and the number of employees present on a daily basis authorized to process and pay claims to claimants; and F. The originals of the signed statements required by Part V of this order.

VIL.

It is further ordered, That the individual respondents named herein, for a period of 10 years from the date of service of this order, shall promptly notify the Commission of any discontinuance of their present business or employment and of their affiliation with any new business or employment, each such notice to include the respondent's new business address and a statement of the nature of the business or employment in which the respondent is newly engaged as well as a description of the respondent's duties and responsibilities in connection with that business or employment. VUI.

It is further ordered, That the respondents, their successors and assigns, 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 corporation which may affect compliance obligations arising out of this order.

IX.

It was further ordered, That the respondents shall, within sixty (60) days after service upon them of this order, file with the Opinion LI7F.T.C.

Commission a report, in writing, setting forth in detail the manner and form in which they have complied with this order. X.

It is further ordered, That to the extent than any provision of this order is predicated on the commission of acts and practices that are “regulated by State law” as the “business of insurance,” as specified in 15 U.S.C. 1012(b), and case law thereunder, that provision shall not apply in those States in which said acts or practices are so regulated.

OPINION OF THE COMMISSION BY AZCUENAGA, Commissioner:

Griffin Systems, Inc. ("Griffin"), Gennaro J. Orrico, and Alfonso S. Giordano (collectively, respondents) have appealed Administrative Law Judge (“ALJ”) James P. Timony’s Initial Decision granting complaint counsel’s motion for summary decision.'! The ALJ concluded that respondents engaged in unfair and deceptive acts and practices in connection with Griffin’s automobile service contracts in violation of Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45 (1993). We affirm.

On October 8, 1991, the Commission issued a complaint against the respondents alleging that they had violated Section 5 of the FTC Act. The complaint alleged that the respondents made deceptive representations to persuade consumers to purchase their automobile service contracts. The complaint also alleged that the respondents had engaged in the unfair practice of refusing to reimburse valid claims under their automobile service automobile contracts. After pretrial discovery, complaint counsel and the respondents made cross-motions for summary decision based on stipulated material facts. On June 30, 1993, the ALJ issued an order, which constitutes the Initial Decision, granting complaint counsel's motion for summary decision.

The respondents raise two arguments on appeal. The respondents argue that Griffin's activities are regulated as the business of Robert W. Boughton was also named in the complaint. On June 30, 1993, the ALJ granted default judgment against Mr. Boughton. Mr. Boughton has not appealed. GRIFFIN SYSTEMS, INC., ET AL. 571 515 Opinion insurance under state law, and therefore its activities are exempt from Commission jurisdiction under the McCarran Ferguson Act. 15 U.S.C. 1011 et seg. The respondents also contend that it was inappropriate to hold Mr. Giordano individually liable. FINDINGS OF FACT On May 10, 1993, the parties submitted stipulated facts in connection with their notions for a summary decision. The ALJ adopted these stipulated facts as his findings of fact in the Initial Decision, and neither party challenges the findings on appeal. We adopt the ALJ's findings of fact.’ I. The Respondents Griffin Systems, Inc. ("Griffin"), is an Ohio corporation with its principal place of business in Cleveland.’ From 1984 to 1988, Griffin marketed and sold a service contract to vehicle buyers.’ Griffin administered and paid claims submitted under its service contracts from 1984 to 1991.° Griffin continues to exist in corporate form, but it has no employees.° In December 1986, Griffin purchased Great Plains Insurance Company ("Great Plains"), which was headquartered in Nebraska.’ After being purchased by Griffin, Great Plains sold mechanical breakdown insurance policies, and it used solicitation materials that were similar to Griffin's solicitation materials.° Gennaro J. Orrico is the sole owner and president of Griffin.” Mr. Orrico developed Griffin's marketing strategy and was responsible All references to findings of fact (“FF”) in this opinion are to the findings of fact contained in the Initial Decision.

3 FF 2.

4 BF 3.

> EF.

FF 10.

FF 8.

FF 9.

FF 11 and 12.

Opinion 117 F.T.C.

for preparing and disseminating Griffin's solicitation materials.'° He also was responsible for establishing Griffin’s operating procedures and standards, including the standards and procedures used to evaluate submitted claims, to cancel contracts, and to make refunds. !! Alfonso S. Giordano was a director, vice president, and treasurer of Griffin from 1985 to 1987.'2 During this period of time, Mr. Giordano worked regularly at Griffin's home office in Cleveland." Mr. Giordano administered the day-to-day affairs of that office. His duties included, among other things, hiring and supervising employees, advising employees about solicitation policies and practices, redesigning solicitation materials, and signing solicitation materials sent to prospective customers.’ In 1987, Mr. Giordano left Griffin to become the vice president and a director of Great Plains, an insurance company Griffin had purchased.'* Mr. Giordano remained with Great Plains until 1991, when he resigned to become the president of Metro General Insurance Agency, an insurance company related to Great Plains. '® II. The Business Practices in Question Griffin purchased lists of new car buyers from state departments of motor vehicles, and then sent those buyers promotional materials about Griffin's service contract.'’ Griffin mailed its promotional materials to prospective customers in 25 states. Griffin did not mail its promotional materials to prospective customers in other states either because the state would not sell lists of new car purchasers or because state insurance laws permitted only licensed insurance companies to sell the type of service contract Griffin sold.'® FF 13 and 14.

FF 13.

FF 13.

FF 18.

FF 18, 20, 21, 24, 26, and 27.

FF 16.

Id.

FF 39.

FF 42.

GRIFFIN SYSTEMS, INC., ET AL. 573 S15 Opinion The promotional materials Griffin sent to prospective customers contained a number of representations about the service contract. These materials represented that Griffin would pay for the cost of repairing or replacing certain parts of the major mechanical areas of a vehicle, including over 100 automobile components.’ The materials also claimed that Griffin would pay a car rental allowance of up to $20 per day if a customers vehicle had to be kept overnight at the shop to repair a covered part.”” They also represented that there was no limit on the number of claims that customers could submit to Griffin.”! The promotional materials contained a registration form that prospective customers were instructed to submit along with their payment to apply for the Griffin service contract.”” Once Griffin had received the registration form and payment, Griffin would send a copy of its service agreement to the customer.” The service agreement contained the full terms and conditions of the Griffin service contract.

The service agreement contained significant restrictions and limitations that were inconsistent with the representations Griffin made in its promotional materials. For example, even though Griffin had simply claimed in its promotional materials that it would repair or replace vehicle parts, the service agreement revealed that Griffin would apply a depreciation deduction of up to 50% of the value of all parts installed in a vehicle. Another example is that although Griffin’s promotional materials represented that its customers would be paid up to $20 per day as a car rental allowance if a customers automobile was in the shop overnight for the repair or replacement of a covered part, the service agreement imposed the additional condition that the total time to repair or replace a covered part was eight hours or more.” If a customer's car was in the shop overnight, but the total time to repair or replace a covered part was less than eight hours, Griffin did not pay for car rental. 19 EF 46, 20 FF 47.

*l EF 49.

22 EF 52, 23 EF 53, 4 FE 55 and 56.

25 FF 57.

Opinion LIT F.T.C.

Griffin’s performance under its service contract also was inconsistent with the representations in its promotional materials. Griffin’s promotional materials represented that there was no limit to the number of claims that a customer could submit. Griffin, however, denied claims simply because a customer had submitted too many claims.”° In addition to making these misrepresentations to induce sales of its contracts, Griffin engaged in other practices that harmed consumers. Griffin had no right under its contract to cancel service contracts.”” Nevertheless, Griffin canceled almost 14,000 contracts, including canceling the contracts of customers who submitted too many claims, contrary to the representations contained in Griffin's promotional materials.”

Griffin also required its customers to obtain prior authorization for repairs by calling a toll-free number.” Former Griffin employees indicated that in many instances consumers found it difficult to get through to Griffin on the telephone; in fact, telephone records indicate that in many months up to tens of thousands of telephone calls to Griffin’s toll-free number were not answered.” Although the respondents knew that many consumers”! were unable to obtain prior authorization for repairs because of problems with reaching Griffin through its toll-free number,” they nevertheless denied repair claims for failure to obtain that authorization.” The respondents have stipulated that they engaged in these acts and practices. The ALJ concluded that the respondents had made misrepresentations about the amount of payment to be made for replacement of a covered part, the conditions imposed on obtaining rental car reimbursement, and the number of claims that could be submitted under the Griffin vehicle service contract.’ The ALJ also concluded that the respondents engaged in unfair practices by 26 EF 50.

27 EF 59, FF 60 and 64.

29 FE 6S, 30 FF 66 and 67.

The magnitude of this problem is readily apparent in that the Commission received 710 letters from consumers complaining that they were unable to reach Griffin via telephone for prior authorization. FF 68.

3 FF 70.

33 EE 71 and 72.

34 See Initial Decision at 13-14.

GRIFFIN SYSTEMS, INC., ET AL. 575 515 Opinion breaching their service contracts without any right to do so and by interfering with the attempts of consumers to obtain the prior authorization required under their contracts for repairs.*° On appeal, the respondents do not challenge the ALJ's determination that Griffin engaged in these unfair and deceptive acts and practices in violation of Section 5. Instead, they argue that their activities are exempt from Commission jurisdiction under the McCarran Ferguson Act and that Mr. Giordano should not be held individually liable.

CONCLUSIONS OF LAW I. McCarran Ferguson Act The respondents argued in their motion for summary decision that their activities are exempt from Commission jurisdiction under the McCarran Ferguson Act, 15 U.S.C. 1011 et seg. The ALJ rejected this argument, concluding that the Commission had jurisdiction because Griffin's activities are not regulated as the business of insurance under state law. The respondents challenge this conclusion on appeal.

Before addressing the specific arguments raised in this appeal, it is instructive briefly to review the genesis of the McCarran Ferguson Act. The states traditionally have regulated the business of insurance, and the constitutionality of state insurance regulation was addressed in the early case of Paul v. Virginia, 75 U.S. (8 Wall.) 168 (1869). In that case, an insurance agent was convicted under a Virginia statute for selling an insurance policy without a license. The insurance agent appealed his conviction, arguing that the Virginia Statute was invalid because he was selling policies in Virginia issued by a New York fire insurance company, a form of interstate transaction that only the federal government could regulate under the Commerce Clause. The Supreme Court rejected the argument and upheld the Virginia statute, stating that issuing insurance policies was not a transaction of commerce, even though the parties to a contract may be located in different states. Jd. at 183. The Court also said 5 See Initial Decision at 15-17. The ALJ apparently determined that these acts of breaching service contracts and hindering attempts to obtain prior authorization were deceptive as well as unfair. The Commission does not reach the questions of whether these acts were deceptive. Opinion LI7F.T.C.

that insurance contracts are “local transactions, and are governed by the local law.” Id.

The states developed extensive schemes of insurance regulation in response to the decision in Paul and similar cases. In 1944, however, the specter of federal insurance regulation displacing state insurance regulation was created by United States v. Southeastern Underwriters Assn, 322 U.S. 533 (1944). In Southeastern Underwriters Assn, an association of fire insurance companies allegedly fixed insurance premiums and monopolized fire insurance in certain states in violation of the Sherman Act, 15 U.S.C. 1 and 2. The association argued that the federal government did not have the authority under the Commerce Clause to apply the Sherman Act to its interstate activities. The Supreme Court rejected the argument, holding that-Congress had the authority under the Commerce Clause to regulate interstate insurance activities as a form of commerce. Id. at 553. The Court also held that the Sherman Act was applicable to the interstate insurance business.

Congress acted quickly in response to Southeastern Underwriters Assn to prevent federal regulation from precluding the states from regulating insurance. In 1945, Congress enacted the McCarran Ferguson Act to turns 1 3 3 4 5 1084 1741 90 35 96.460297 backs 1 3 3 4 6 1189 1743 58 34 96.460297 thes 1 3 3 4 7 1262 1743 123 35 96.608162 clock on insurance regulation. SEC v. National Securities, Inc., 393 U.S. 453, 459 (1969); Prudential Insurance Co. v. Benjamin, 328 U.S. 408, 429 (1946). Specifically, Congress enacted the McCarran Ferguson Act because thes 1 3 3 7 9 1792 1918 190 36 96.835526 continued4 1 3 3 8 0 640 1968 1340 46 -1 5 1 3 3 8 1 640 1968 195 45 93.124413 regulations 1 3 3 8 2 853 1968 18 21 92.551712 *5 1 3 3 8 3 890 1969 18 20 91.125778 *5 1 3 3 8 4 927 1969 18 21 91.125778 *5 1 3 3 8 5 961 1968 47 46 97.009010 by5 1 3 3 8 6 1026 1969 57 35 97.000465 thes 1 3 3 8 7 1099 1971 135 34 96.834419 several5 1 3 3 8 8 1251 1971 115 35 97.010529 States5 1 3 3 8 9 1382 1971 43 35 96.709229 of5 1 3 3 8 10 1438 1972 56 35 96.885201 thes 1 3 3 8 11 1509 1972 166 36 96.428650 business5 1 3 3 8 12 1691 1974 43 34 96.995506 of5 1 3 3 8 13 1746 1974 189 36 96.489357 insurance5 1 3 3 8 14 1950 1974 30 37 96.967476 is4 1 3 3 9 0 641 2024 766 46 -1 5 1 3 3 9 1 641 2024 35 35 96.888741 in5 1 3 3 9 2 692 2024 57 35 96.808411 thes 1 3 3 9 3 764 2025 120 45 96.836517 public5 1 3 3 9 4 901 2025 175 36 78.951744 interest.”5 1 3 3 9 5 1098 2026 39 36 96.203995 155 1 3 3 9 6 1154 2026 129 36 95.156960 U.S.C.5 1 3 3 9 7 1305 2028 102 35 94.383186 1011.3 1 3 4 0 0 638 2081 1341 221 -1 4 1 3 4 1 0 713 2081 1266 52 -1 5 1 3 4 1 1 713 2081 39 34 97.006676 In5 1 3 4 1 2 772 2081 160 35 96.797791 additions 1 3 4 1 3 952 2088 36 29 97.004860 to5 1 3 4 1 4 1007 2082 101 35 97.006462 others 1 3 4 1 5 1125 2083 218 36 96.624023 restrictions5 1 3 4 1 6 1363 2095 47 24 96.017731 on5 1 3 4 1 7 1429 2085 58 35 96.017731 thes 1 3 4 1 8 1506 2096 63 25 96.626350 uses 1 3 4 1 9 1588 2086 43 35 96.947617 of5 1 3 4 1 10 1645 2085 137 37 96.510475 federal5 1 3 4 1 11 1802 2088 177 45 96.510475 authority4 1 3 4 2 0 640 2136 1339 52 -1 5 1 3 4 2 1 640 2136 145 46 96.709839 relating5 1 3 4 2 2 798 2144 35 28 97.001587 to5 1 3 4 2 3 845 2138 195 41 96.310211 insurance,5 1 3 4 2 4 1055 2139 56 35 96.773903 thes 1 3 4 2 5 1123 2139 195 37 96.582443 McCarran5 1 3 4 2 6 1331 2141 180 46 96.582443 Ferguson5 1 3 4 2 7 1524 2142 68 35 96.586906 Acts 1 3 4 2 8 1605 2143 181 45 96.184456 expressly5 1 3 4 2 9 1800 2143 109 36 96.979927 limits5 1 3 4 2 10 1923 2144 56 35 97.019188 thea 1 3 4 3 0 639 2193 1337 53 -1 5 1 3 4 3 1 639 2193 269 37 67.658661 Commission's5 1 3 4 3 2 917 2195 224 45 96.911278 jurisdictions 1 3 4 3 3 1154 2207 85 25 96.951653 overs 1 3 4 3 4 1252 2196 115 37 96.943031 unfair5 1 3 4 3 5 1378 2208 40 25 96.967827 or5 1 3 4 3 6 1429 2198 185 46 96.328651 deceptive5 1 3 4 3 7 1627 2205 73 29 96.923645 acts5 1 3 4 3 8 1714 2199 68 35 96.923645 ands 1 3 4 3 9 1795 2200 181 46 96.753777 practices.4 1 3 4 4 0 638 2251 1079 51 -1 5 1 3 4 4 1 638 2251 74 35 96.589676 Thes 1 3 4 4 2 727 2252 198 35 96.356361 McCarran5 1 3 4 4 3 941 2253 183 45 95.786140 Ferguson5 1 3 4 4 4 1139 2254 70 34 94.863998 Acts 1 3 4 4 5 1222 2255 169 44 96.886810 provides5 1 3 4 4 6 1407 2255 36 35 96.685356 in5 1 3 4 4 7 1459 2256 158 35 96.814865 relevant5 1 3 4 4 8 1632 2263 85 39 96.728203 part:2 1 4 0 0 0 638 2364 1344 91 -1 3 1 4 1 0 0 638 2364 1344 91 -1 4 1 4 1 1 0 640 2364 1342 43 -1 5 1 4 1 1 1 640 2364 86 35 93.198082 [T]he5 1 4 1 1 2 739 2364 120 29 96.935089 Federal5 1 4 1 1 3 872 2364 94 29 96.375183 Trades 1 4 1 1 4 979 2364 206 31 96.497421 Commissions 1 4 1 1 5 1199 2367 57 29 93.193123 Acts 1 4 1 1 6 1270 2368 16 16 92.585983 *5 1 4 1 1 7 1301 2367 15 17 91.438240 *5 1 4 1 1 8 1332 2367 15 18 91.438240 *5 1 4 1 1 9 1372 2367 75 30 96.311211 shall5 1 4 1 1 10 1461 2368 36 29 96.901154 be5 1 4 1 1 11 1510 2368 167 39 95.659760 applicable5 1 4 1 1 12 1690 2374 31 24 96.918549 to5 1 4 1 1 13 1733 2369 48 29 96.918549 thes 1 4 1 1 14 1794 2370 139 30 96.571480 business5 1 4 1 1 15 1946 2370 36 30 96.604362 of4 1 4 1 2 0 638 2412 1160 43 -1 5 1 4 1 2 1 638 2412 154 29 96.946503 insurance5 1 4 1 2 2 805 2418 29 23 96.868973 to5 1 4 1 2 3 847 2412 49 30 96.537216 thes 1 4 1 2 4 907 2418 101 24 96.537216 extent5 1 4 1 2 5 1020 2413 61 30 96.987373 that5 1 4 1 2 6 1093 2415 73 28 96.905739 such5 1 4 1 2 7 1179 2414 136 30 96.881622 business5 1 4 1 2 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1088 2577 129 34 96.279449 extends 1 5 1 2 5 1245 2584 35 28 96.737091 to5 1 5 1 2 6 1306 2578 102 35 96.763672 those5 1 5 1 2 7 1435 2578 177 36 96.756943 activities5 1 5 1 2 8 1639 2579 72 35 96.444656 that5 1 5 1 2 9 1737 2590 70 24 96.826248 are:5 1 5 1 2 10 1837 2581 54 42 96.924706 (1)5 1 5 1 2 11 1918 2581 58 35 96.237923 thea 1 5 1 3 0 638 2629 1337 51 -1 5 1 5 1 3 1 638 2631 180 35 92.808052 business of insurance"; and (2) regulated5 1 5 1 3 7 1481 2635 47 45 96.938255 by5 1 5 1 3 8 1543 2642 86 29 93.256889 states 1 5 1 3 9 1644 2629 131 42 0.000000 law.’”*5 1 5 1 3 10 1788 2637 29 34 95.468910 It5 1 5 1 3 11 1830 2637 145 36 95.468910 follows2 1 6 0 0 0 634 2714 594 13 -1 3 1 6 1 0 0 634 2714 594 13 -1 4 1 6 1 1 0 634 2714 594 13 -1 5 1 6 1 1 1 634 2714 594 13 95.000000 2 1 7 0 0 0 634 2743 1340 176 -1 3 1 7 1 0 0 634 2743 1340 176 -1 4 1 7 1 1 0 709 2743 1265 55 -1 5 1 7 1 1 1 709 2743 28 21 94.315910 365 1 7 1 1 2 760 2762 84 23 96.667114 Courts5 1 7 1 1 3 854 2763 59 22 95.387543 have5 1 7 1 1 4 923 2763 86 23 96.744354 treated5 1 7 1 1 5 1019 2763 45 24 96.913200 this5 1 7 1 1 6 1074 2764 88 23 96.976334 sections 1 7 1 1 7 1171 2764 29 24 97.010490 of5 1 7 1 1 8 1207 2764 36 24 96.907814 thes 1 7 1 1 9 1254 2765 129 24 96.794380 McCarran5 1 7 1 1 10 1393 2766 119 30 96.746613 Ferguson5 1 7 1 1 11 1522 2767 46 23 95.847000 Acts 1 7 1 1 12 1577 2774 24 16 95.219467 as5 1 7 1 1 13 1612 2767 116 30 95.219467 requiring5 1 7 1 1 14 1738 2772 105 25 96.907265 separates 1 7 1 1 15 1853 2768 121 30 95.835022 showings4 1 7 1 2 0 634 2806 1338 36 -1 5 1 7 1 2 1 634 2806 145 31 96.777832 concerning5 1 7 1 2 2 794 2807 122 24 95.028618 “business5 1 7 1 2 3 929 2808 29 23 96.978294 of5 1 7 1 2 4 970 2808 137 24 93.979034 insurance and “regulated by state law.” See Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119, 134.9 (1982); McIlhenny v. American Title Ins. Co., 418 F. Supp. 364, 367 (E.D. Pa. 1976).

GRIFFIN SYSTEMS, INC., ET AL. 577 515 Opinion that the Commission does have jurisdiction if the conduct in question either is not the business5 1 3 1 2 6 1061 656 43 36 96.832787 of5 1 3 1 2 7 1115 656 207 36 93.562912 insurance or is not regulated5 1 3 1 2 12 1733 658 48 45 97.012917 by5 1 3 1 2 13 1798 664 87 29 96.325638 state4 1 3 1 3 0 546 712 99 35 -1 5 1 3 1 3 1 546 712 99 35 78.415848 law. A. Business of Insurance The respondents contend that their activities were the business4 1 5 1 2 0 542 1001 1340 49 -1 5 1 5 1 2 1 542 1001 43 36 96.493896 of5 1 5 1 2 2 595 1002 203 36 96.204720 insurance for purposes of the McCarran Ferguson Act. The ALJ rejected this argument based on an application of the three part test for determining whether activities are the business of insurance in Union Labor Life Ins. Co. v. Pireno, 458 U.S. 119 (1982).2”7 On appeal, both respondents*® and complaint counsel contend that an application of the Pireno factors supports their argument on this issue.

As an initial matter, before consideration of the Pireno factors, the Griffin vehicle service contracts must be insurance in order for the respondents' activities in connection with those contracts to be the “business of insurances." The question of whether the Griffin vehicle service contract is insurance for purposes of the McCarran Ferguson Act is a federal question. SEC. v. Variable Annuity Co., 359 U.S. 65, 69 (1959); Fry v. John Hancock Mutual Life Ins., 355 F. Supp., 1151 (N.D. Tex. 1973). No federal court, however, has addressed whether vehicle service contracts are insurance for purposes of the McCarran Ferguson Act. In addition, there is no uniformity in state court rulings on the issue of whether vehicle service contracts are insurance for other purposes,” as evidenced 7 The three factors are: (1) whether the practice has the effect of transferring or spreading a policyholder's risk; (2) whether the practice is an integral part of the policy relationship between the insurer and the insured; and (3) whether the practice is limited to entities within the insurance industry. Union Labor Life Ins. Co. 458 U.S. at 119. 3 wo 8 The respondents also argue that the Commission's interpretation in 16 CFR 700.11 (Interpretations of the Magnuson-Moss Warranty Act) acknowledges that contracts like the Griffin service contract are the business5 1 9 1 2 6 985 2509 29 23 97.002213 of5 1 9 1 2 7 1025 2509 143 24 94.647621 insurance. In 16 CFR 700.11, the Commission stated that the Magnuson-Moss Warranty Act applied to automobile breakdown insurance policies “only to the extent that they are not regulated in a particular state as the business of insurance.” This phrase simply incorporates the requirements of the McCarran Ferguson Act. The respondent's argument based on 16 CFR 700.11 is unpersuasive because it assumes that the Griffin service contract is a form of “insurance,” the very issue that is before us for decision. We also note that the respondents have stipulated that their service contract is not a mechanical breakdown insurance policy; it is simply a contract. FF 3 and 9, ° State court rulings may be instructive (because the concept of insurance developed under state law), but are not dispositive because this is a federal question. Variable Annuity Co., 359 U.S. at 69; see Dana Corp. v. Blue Cross & Blue Shield, 900 F.2d 882, 888 (6th Cir. 1990). Opinion 17 F.T.C.

by the split among the three state courts” that have addressed whether Griffin's contracts can be regulated under state insurance Statutes.

We do not reach the questions of whether the Griffin service contract is insurance or whether the respondents’ activities in connection with that contract were the business5 1 3 2 3 8 1632 874 43 36 96.744377 of5 1 3 2 3 9 1687 874 220 35 93.439743 insurance. As discussed above, the respondents must show that their activities are both the business5 1 3 2 5 4 1028 992 43 36 96.800491 of5 1 3 2 5 5 1083 992 206 36 88.340103 insurance and states 1 3 2 5 8 1515 992 202 45 92.820435 regulated to be exempt from Commission jurisdiction. Because we conclude that the respondents’ activities are not state regulated, it therefore is not necessary for us to reach the question of whether they constitute the business5 1 3 2 9 2 851 1227 42 36 96.963898 of5 1 3 2 9 3 905 1219 249 43 36.542679 insurance.”2 1 4 0 0 0 1126 1341 383 45 -1 3 1 4 1 0 0 1126 1341 383 45 -1 4 1 4 1 1 0 1126 1341 383 45 -1 5 1 4 1 1 1 1126 1343 37 33 92.064880 B.5 1 4 1 1 2 1183 1342 96 35 96.763535 States 1 4 1 1 3 1294 1341 215 45 96.789383 Regulation2 1 5 0 0 0 650 1457 1341 920 -1 3 1 5 1 0 0 650 1457 1341 572 -1 4 1 5 1 1 0 724 1457 1267 49 -1 5 1 5 1 1 1 724 1461 74 34 96.606255 Thes 1 5 1 1 2 811 1459 238 47 0.000000 respondents’5 1 5 1 1 3 1064 1459 172 35 96.718086 activities5 1 5 1 1 4 1251 1458 75 35 96.697601 also5 1 5 1 1 5 1341 1464 92 29 96.227196 must5 1 5 1 1 6 1447 1458 43 34 96.616020 be5 1 5 1 1 7 1507 1458 104 34 94.220535 state regulated" in order to be exempt from Commission jurisdiction under the McCarran Ferguson Act. The Supreme Court first addressed the issue under the McCarran Ferguson Act of whether activities were state regulated in FTC v. National Casualty Co., 357 U.S. 560, 564 (1958). In that case, the respondent insurance companies were licensed to sell insurance policies in many states. The insurance companies sent prepared advertising materials to their local agents who distributed them, as well as otherwise soliciting business, for the insurance companies.

The Commission issued a cease and desist order against the insurance companies requiring that they discontinue advertising practices that the Commission had concluded were deceptive. The Commission's order was intended to apply in all states, including those states with insurance statutes prohibiting deceptive insurance practices. The Court of Appeals set aside the order on the ground ° Griffin is permitted to sell its service contracts in Ohio because the Ohio Supreme Court has held that its service contract is not a contracts 1 7 1 2 10 1256 2487 165 29 96.776711 substantially5 1 7 1 2 11 1432 2486 139 29 96.961815 amounting5 1 7 1 2 12 1582 2491 23 18 96.789856 to5 1 7 1 2 13 1616 2485 145 24 73.722801 insurance. Griffin Systems, Inc. v. Ohio Dept. of Ins., 61 Ohio St. 3d 552. 575 N.E.2d 803 (Ohio 1991). In contrast, Griffin discontinued selling its service contract in other states when those states determined that its service contract was “insurance.” See, e.g., Griffin Systems, Inc. v. Ins. Comm'r, No. 88203036/CL84396 (Baltimore City Cir. Ct. Dec. 20, 1988); Griffin Systems, Inc. v. Washburn, 153 Ul. App. 3d 113, 505 N.E. 2d 1121 (ill. App. Ist Dist. 1987); cf. FF 41 and 42. We note, however, that the respondents have argued that their activities are the “business of insurance," even though they have stipulated that Griffin was not an insurance company, see FF 42, and that their vehicle service contract is simply5 1 8 1 3 8 1261 2861 13 17 96.588501 a5 1 8 1 3 9 1287 2854 125 27 89.453842 contract,”5 1 8 1 3 10 1427 2854 80 23 96.918434 unlike5 1 8 1 3 11 1521 2860 13 17 96.981995 a5 1 8 1 3 12 1547 2853 147 23 96.879562 mechanical5 1 8 1 3 13 1708 2852 144 23 96.734650 breakdown5 1 8 1 3 14 1867 2851 124 24 96.817459 insurance4 1 8 1 4 0 652 2896 577 33 -1 5 1 8 1 4 1 652 2899 79 30 97.014786 policy5 1 8 1 4 2 742 2898 77 24 96.102974 which5 1 8 1 4 3 831 2899 18 23 96.102974 is5 1 8 1 4 4 860 2906 29 16 96.857582 an5 1 8 1 4 5 901 2898 137 24 88.452988 “insurance5 1 8 1 4 6 1049 2897 102 31 69.487381 policy. FF 9.

GRIFFIN SYSTEMS, INC., ET AL. 579 515 Opinion that the insurance companies were state regulated to the extent that they operated in those states with insurance statutes prohibiting deceptive insurance practices.

In its appeal, the Commission argued that, because of constitutional restrictions on the power of the states to regulate interstate insurance activity, the McCarran Ferguson Act should be construed to authorize federal regulation as a supplement to state regulation in cases of interstate insurance activity. Jd. at 563. The Supreme Court concluded that it need not reach this issue because: [r]respondents’ advertising programs require distribution by their local agents, and there is no question but that the States possess ample means to regulate this advertising within their respective boundaries. Id. at 564. The Court therefore held that the Commission order was inapplicable in those states with insurance statutes prohibiting deceptive insurance practices.

The scope of the state involvement necessary for state regulation to exist under the McCarran Ferguson Act was addressed again in FTC v. Travelers Health Assn, 362 U.S. 293 (1960). In that case, the Commission had issued a cease and desist order, against a Nebraska insurance company prohibiting it from making deceptive representations in solicitation materials mailed nationwide. The Court of Appeals for the Eighth Circuit set aside the order on the ground that the insurance company’s activities were state regulated because a Nebraska statute prohibited the insurance company from engaging in unfair or deceptive practices in Nebraska or any5 1 4 2 10 9 1541 2084 101 35 96.976021 others 1 4 2 10 10 1657 2084 118 35 90.868561 state. On appeal, the Supreme Court refused to construe as state regulation under the McCarran Ferguson Act extraterritorial regulation of an insurance company by a single state. The Court stated that Congress viewed5 1 4 3 4 5 1147 2322 88 28 96.639252 states 1 4 3 4 6 1250 2316 199 45 96.241753 regulations 1 4 3 4 7 1465 2316 43 34 96.445389 of5 1 4 3 4 8 1520 2316 188 35 96.467239 insurance5 1 4 3 4 9 1725 2316 113 45 96.467239 solely5 1 4 3 4 10 1855 2316 35 34 96.752502 in4 1 4 3 5 0 554 2373 1336 46 -1 5 1 4 3 5 1 554 2379 105 29 96.287636 terms5 1 4 3 5 2 673 2373 41 36 96.824196 of5 1 4 3 5 3 723 2373 194 46 96.647720 regulations 1 4 3 5 4 931 2373 46 46 96.928795 by5 1 4 3 5 5 991 2373 58 35 97.000397 thes 1 4 3 5 6 1063 2373 67 36 96.622292 laws 1 4 3 5 7 1144 2373 42 36 96.992317 of5 1 4 3 5 8 1195 2373 57 35 96.928299 thes 1 4 3 5 9 1267 2380 85 29 96.836838 states 1 4 3 5 10 1366 2374 116 34 96.859909 where5 1 4 3 5 11 1496 2374 168 35 96.809235 occurred5 1 4 3 5 12 1678 2374 57 35 97.018387 thes 1 4 3 5 13 1749 2373 141 46 96.664597 activity4 1 4 3 6 0 555 2432 1337 45 -1 5 1 4 3 6 1 555 2433 130 44 96.789734 sought5 1 4 3 6 2 702 2439 36 28 95.674637 to5 1 4 3 6 3 756 2432 44 35 96.833755 be5 1 4 3 6 4 818 2432 213 45 94.995926 regulated. 362 U.S. at 300. The Court also said that permitting the law of one state to be used to protect the citizens of every other state was inconsistent with the purpose of the McCarran Ferguson Act in preserving state regulation because thes 1 4 3 9 9 1651 2607 133 42 93.179344 [s]states5 1 4 3 9 10 1799 2617 92 24 96.794495 were4 1 4 3 10 0 553 2665 1335 46 -1 5 1 4 3 10 1 553 2665 35 35 96.852638 in5 1 4 3 10 2 603 2665 98 36 96.854820 closes 1 4 3 10 3 715 2665 191 46 96.432350 proximity5 1 4 3 10 4 922 2671 35 29 96.594254 to5 1 4 3 10 5 972 2665 58 35 96.594254 thes 1 4 3 10 6 1044 2665 129 46 96.343933 peoples 1 4 3 10 7 1189 2665 155 35 96.343933 affected5 1 4 3 10 8 1359 2665 47 45 96.808502 by5 1 4 3 10 9 1421 2665 57 35 96.970673 thes 1 4 3 10 10 1492 2665 187 34 96.499123 insurance5 1 4 3 10 11 1693 2665 195 35 94.617836 business. Id. at 302. The Court therefore concluded: [W]e cannot believe that this kind of law of a single state takes from the residents of every other state the protections of the Federal Trade Commission Act. In our Opinion LIVF.T.C.

opinion, the state regulation which Congress provided should operate to displace this federal law means regulation by the state in which the deception is practiced and has its impact.

362 U.S. at 298-99. The Court vacated the decision of the Eighth Circuit and remanded for further proceedings. On remand, the Eighth Circuit stated that an insurance company is only state regulated where the state exercises its sovereignty to enact legislative provisions that the state is capable of enforcing through its own powers. Travelers Health Assn v. FTC, 298 F.2d 820, 823 (8th Cir. 1962). The court also said that an insurance company is not state regulated where one state would have to rely for enforcement on the provisions,5 1 4 2 7 5 1291 1281 201 35 96.864662 processes,5 1 4 2 7 6 1510 1272 69 35 93.287987 ands 1 4 2 7 7 1595 1272 330 37 92.733391 instrumentalities5 1 4 2 7 8 1941 1274 44 36 96.988075 of4 1 4 2 8 0 640 1325 345 37 -1 5 1 4 2 8 1 640 1325 146 35 96.854042 another5 1 4 2 8 2 801 1326 118 35 93.920654 state. Jd.

The court then applied this distinction to the operations of the Nebraska insurance company. It held that the insurance company was subject to state regulation in Nebraska and Virginia because it was licensed and had representatives in those states. Jd. at 823. The court also held that:

In the [other 48 states], the insurance company is without any license, agency relationships, commercial accounts, or other direct presence of person or property, upon which the state can auxiliary lay hands in enforcement compulsion. If its orders, decrees, and judgments are to be enforceable, the state must seek the aid of the statutes, instrumentalities and processes of another state. In its need to rely upon such outside means for effecting compulsion, we think that it must be held, as suggested above, that the state cannot conceptually in the situation be declared to possess ample means to regulate this advertising on the basis of its own law. Id. at 824-25. The court therefore upheld the Commission's order, except as it applied to the Nebraska and Virginia activities of the insurance company.

The opinions in National Casualty and the Travelers Health cases establish the framework for analyzing whether activities are state regulated. National Casualty concludes that state regulation exists where a state can enforce a state insurance regulatory scheme against the agents of a company that are present in the state. The opinions in the Travelers Health cases clarify that the state regulation must be based on the law of the state in which the activities occur and that the regulating state cannot rely on the laws of another state for the enforcement of its regulatory scheme.

GRIFFIN SYSTEMS, INC., ET AL. 581 515 Opinion Applying these principles, we conclude that Griffin is not regulated by its home state of Ohio. Griffin has representatives and offices in Ohio. Because it maintains a presence in that state, Ohio is capable of regulating Griffin under its insurance statutes. The Ohio Supreme Court, however, has held that its insurance statutes do not apply to Griffin’s activities because Griffin does not sell contracts substantially amounting to insurance. Griffin Systems, Inc. v. Ohio Dept. of Ins., 575 N.E. 2d at 808. In view of the decision of the Ohio Supreme Court, we conclude that the respondents’ activities in Ohio are not states 1 2 1 10 4 811 1118 199 46 95.521179 regulated for purposes of the McCarran Ferguson Act. We also conclude that Griffin is not state regulated for purposes of the McCarran Ferguson Act in any other state. Griffin is not licensed as an insurance company in any state, and it does not have representatives or property in any state other than Ohio. The only way that these other states can regulate Griffin is to seek Ohio’s assistance in the extraterritorial application of their laws. Because these states must rely on Ohio’s assistance to enforce their own statutes, Griffin is not state regulated in these other states.” Finally, we note that subjecting the respondents' activities to Commission jurisdiction is consistent with the purposes of the McCarran Ferguson Act. While the purpose of that Act is to protect state schemes for regulating the business of insurance, the respondents are not actually subject to any state regulatory scheme because Griffin is not licensed as an insurance company in any state and because Griffin discontinued selling contracts in any state that has decided its contracts could be regulated under state law as insurance. If the Commission does not prevent the respondents from continuing their unfair and deceptive activities, a regulatory gap would allow the respondents to escape both federal and state law enforcement. This is a result that we believe the Congress did not intend.

We conclude that the respondents are not exempt from Commission jurisdiction under the McCarran Ferguson Act. 2 The respondents have argued that it is inappropriate for the Commission to consider the “effectiveness” of state regulation. State regulatory activity need not be effective to constitute state regulation for purposes of the McCarran Ferguson Act. See, e.g., Seasongood v. K & K Insurance Agency, 548 F.2d 729, 734 (8th Cir. 1977); Ohio AFL-CIO v. Insurance Rating Board, 45\ F.2d 1178, 1184 (6th Cir. 1971), cert. denied, 409 U.S. 917 (1972). We have concluded that Griffin's activities are not state regulated because no state (other than Ohio) could conduct any enforcement activity at all against the respondents under its own laws. Opinion 117 F.T.C.

II. Individual Liability The complaint named Mr. Giordano individually for the actions of Griffin. The ALJ determined that the cease and desist order against Griffin also should be entered against Mr. Giordano because of his position and role in Griffin's affairs. The respondents appeal, generally arguing that Mr. Giordano played such a minor role in Griffin's affairs that this imposition of individual liability for the actions of Griffin was inappropriate.

It is well-established that an individual can be held liable for a corporation's violations of Section 5 if the individual formulates,4 1 4 2 3 0 634 1215 1333 46 -1 5 1 4 2 3 1 634 1215 157 35 96.415421 controls5 1 4 2 3 2 814 1226 39 24 96.958412 or5 1 4 2 3 3 874 1215 127 36 96.707191 directs5 1 4 2 3 4 1024 1222 186 38 96.243927 corporate5 1 4 2 3 5 1231 1216 152 45 94.841698 policy. Standard Educators, Inc. v.

FTC, 475 F.2d 401, 403 (D.C. Cir.), cert. denied, 414 U.S. 828 (1973); Benrus Watch Co. v. FTC, 352 F.2d 313 (8th Cir. 1965), cert. denied, 384 U.S. 939 (1966); Standard Distributors v. FTC, 211 F.2d 7 (2d Cir. 1954). Mr. Giordano was the executive vice president and treasurer of Griffin, a closely held corporation.” He shared authority with the other individual respondents to set prices for Griffin service contracts.“* Mr. Giordano shared authority with the other individual respondents for hiring Griffin employees, and he supervised and evaluated employees.*° He was actively involved in Griffin's solicitation of customers because he redesigned Griffin's solicitation materials and provided advice to sales personnel about solicitations.” Finally, Mr. Giordano was given the authority to sign checks drawn on Griffin's bank accounts.’ We conclude that these undisputed facts amply demonstrate that Mr. Giordano was part of the inner circle that formulated, controlled, and directed Griffin, and therefore it is appropriate to place him under order.

In support of their argument that it is inappropriate to hold Mr. Giordano individually liable for the actions of Griffin, the respondents emphasize that Mr. Giordano was not in sole control of Griffin. We are not aware of any authority indicating that sole control of a company is necessary to establish individual liability. FF 11, 12, and 16.

FF 28.

FF 20 and 29.

FF 21 and 24.

FF 22, 30, and 31.

GRIFFIN SYSTEMS, INC., ET AL. 583 S15 Opinion Indeed, there have been a number of cases in which more than one individual has been held to formulate, direct, and control the practices of a single corporation. See, e.g., FTC v. Standard Education Society, 302 U.S.112, 119-20 (1937); Benrus Watch Co., 352 F.2d at 324-25.

Griffin also argues that Mr. Giordano should not be held liable for the actions of Griffin because he was not its owner. An individual's ownership interest in a corporation is one factor that the Commission may consider in determining whether an individual should be held liable, but it is only one of the factors to be considered.“ The stipulated facts discussed above provide a more than sufficient basis for holding Mr. Giordano individually liable for Griffin's actions, notwithstanding the fact that he is not an owner of Griffin. In addition, the ALJ concluded that Mr. Giordano should be held liable for his own actions in violation of Section 5. Mr. Giordano participated in the preparation of the Griffin solicitation materials that contained misrepresentations, including making changes in the content of those materials.” He also signed cover letters sent to prospective customers along with these same deceptive promotional materials.” Accordingly, we conclude that Mr. Giordano should be held individually liable for his own actions in developing and distributing deceptive materials to consumers. Our conclusion that Mr. Giordano should be held individually liable is reenforced by our concern about possible evasion of the order. As we have noted, [w]here the corporate respondent is small and under the control of one or a few individuals, it becomes more likely that prohibited activities will recur if an order enters only against the corporation.

Virginia Mortgage Exchange, Inc., 87 FTC 182, 203 (1976). Mr. Giordano was one of the members of the inner circle that controlled the actions of Griffin, a closely held corporation. Moreover, Mr. Giordano has adapted Griffin's deceptive solicitation methods to other companies selling products similar to the Griffin service 8 Standard Education Society, 302 U.S. at 120; Standard Educators, Inc., 475 F.2d at 403; see also FTC Oper. Man. ch. 4.5.4.

49 FF 24 and 26.

3° ER 27, Concurring Statement 117 F.T.C.

contract.>! In these circumstances, we believe that it is necessary to name Mr. Giordano individually to prevent him from repeating the unlawful practices of Griffin while employed by another company. CONCLUSION The Commission adopts the factual findings contained in the ALJ's Initial Decision. On the basis of these facts and for the reasons articulated in this opinion, the Commission concludes that the respondents have engaged in unfair and deceptive acts and practices in violation of Section 5 of the Federal Trade Commission Act. The Commission also concludes that the activities of the respondents are not exempt from Commission jurisdiction under the McCarran Ferguson Act and that Alfonso Giordano is individually liable. The Commission issues the order contained in the Initial Decision. CONCURRING STATEMENT OF COMMISSIONER DEBORAH K. OWEN Under the McCarran Ferguson Act, the Federal Trade Commission Act is applicable5 1 7 1 2 5 1264 1665 36 28 96.675529 to5 1 7 1 2 6 1315 1659 52 42 96.568680 (1)5 1 7 1 2 7 1382 1658 57 34 96.969933 thes 1 7 1 2 8 1453 1656 164 35 96.972267 business5 1 7 1 2 9 1632 1654 42 36 96.624428 of5 1 7 1 2 10 1684 1655 186 34 95.940666 insurance5 1 7 1 2 11 1884 1653 53 42 95.940666 (2)5 1 7 1 2 12 1953 1659 35 28 96.746986 to4 1 7 1 3 0 649 1710 1337 50 -1 5 1 7 1 3 1 649 1724 56 34 97.012047 thes 1 7 1 3 2 719 1728 117 29 96.860519 extent5 1 7 1 3 3 849 1722 70 33 96.860519 that5 1 7 1 3 4 934 1720 85 35 96.989967 such5 1 7 1 3 5 1033 1718 163 36 96.434135 business5 1 7 1 3 6 1211 1717 29 35 96.434135 is5 1 7 1 3 7 1254 1722 61 29 96.969940 not5 1 7 1 3 8 1328 1714 181 46 96.629669 regulated5 1 7 1 3 9 1522 1714 46 44 96.675560 by5 1 7 1 3 10 1585 1720 85 28 96.897156 states 1 7 1 3 11 1685 1712 96 35 94.821884 law. 15 U.S.C.

1012(b) (clause numbers and emphasis supplied). While I concur in the finding of the Commission that Griffin's unfair and deceptive practices were not regulated by state law,' I would have gone further than the majority in analyzing the applicability of the McCarran Ferguson Act, 15 U.S.C. 1011 et seq. Specifically, I would have squarely addressed the question of whether Griffin's sale of its service contracts constituted the business5 1 7 1 10 5 1348 2120 43 36 96.847145 of5 1 7 1 10 6 1403 2118 219 37 96.613960 insurance. Analytically, the first and second prongs of Section 1012(b) are clearly interdependent; the reference in the second prong to “such business" refers back to the business5 1 7 2 3 7 1386 2295 41 36 96.662239 of5 1 7 2 3 8 1437 2294 202 36 71.379349 insurance in the first clause. Logically, then, it would seem that one could not come to a conclusion as to whether all of the elements of the second prong were met without determining whether Griffin's activities constitute such4 1 7 2 7 0 656 2519 1341 58 -1 5 1 7 2 7 1 656 2536 192 41 92.908836 business, i.e., the business5 1 7 2 7 5 1222 2531 40 35 96.637489 of5 1 7 2 7 6 1275 2528 218 37 84.310234 insurance. Thus, in my view, under the circumstances presented here, a finding on both elements of the test is mandated by the plain meaning of the statute. | FF 9 and 34, 1 also concur in finding individual liability on the part of Mr. Giordano. GRIFFIN SYSTEMS, INC., ET AL. 585 515 Concurring Statement The failure to address the issue is compounded by certain practical complications. I believe that the ALJ may very well have erred in finding that Griffin's activities were not the business of insurance, based on the factors mentioned by the Supreme Court in Union Labor Life Insurance Co. v. Pireno, 458 U.S. 119 (1982). First, the contracts spread the contract holder's risk of loss. The fact that not every risk was covered does not appear to be relevant under Supreme Court precedent; insurance policies traditionally fail to cover many kinds of risks. Second, the practices at issue are an integral part of the policy relationship between the insurer (Griffin) and the insured (its clients); they are not incidental to other aspects of the insurer's business. Finally, as to the third test, while the sale of these auto service contracts is not necessarily limited to entities in the insurance industry in all states, the Supreme Court has indicated that each factor listed in Pireno is not, in and of itself, determinative. Id. at 129. In this instance, I believe that the third consideration is insufficient to outweigh the other two, more predominant, factors. Although the Commission's opinion should not be read to condone the ALJ's conclusion on this question, the fact remains that by not opining, the Commission leaves the question open to future debate -- a debate that may be unduly influenced by the potentially erroneous conclusion of the ALJ, as may the results of future litigation. Whether the Commission majority agrees or disagrees with the ALJ will remain in doubt, and their silence perpetuates the lack of clear guidance in this area.

In sum, I concur in the well-reasoned majority opinion on the points that it reaches. I simply wish that it had addressed all of the issues before the Commission on appeal.

CONCURRING STATEMENT OF COMMISSIONER ROSCOE B. STAREK, III I concur fully in the Commission's Opinion, Decision, and Order in this matter. I write only to emphasize that the Commission can dispose of the application of the McCarran Ferguson Act, 15 U.S.C. 1011 et seq., by finding that the conduct in question is not regulated by state law. Determinations under the two prongs of 15 U.S.C. Final Order 117 F.T.C.

1012(b) are not logically interdependent.’ Instead, each is a necessary condition to finding that the Commission lacks jurisdiction by application of the McCarran Ferguson Act.’ If no aspect of the conduct at issue is regulated by a state, then he jurisdictional prohibition of the McCarran Ferguson Act cannot apply, regardless of whether the conduct can be defined as thes 1 3 1 6 10 1549 884 163 34 96.323959 business5 1 3 1 6 11 1726 883 43 35 96.323959 of5 1 3 1 6 12 1780 884 214 35 76.902084 insurance. In this matter, the Commission concludes that no aspect of the respondent's business conduct here at issue is regulated by a state. Thus, it is unnecessary to reach the business5 1 3 1 9 9 1554 1066 43 35 96.660561 of5 1 3 1 9 10 1608 1066 205 35 78.714249 insurance prong in order to conclude that the Commission has jurisdiction. FINAL ORDER This matter having been heard by the Commission on the appeal of respondents Griffin Systems, Inc., Gennaro J. Orrico, and Alfonso S. Giordano from the initial decision and on briefs and oral arguments in support of and in opposition to the appeal, for the reasons stated in the accompanying Opinion, the Commission has denied the appeal of respondents.

It is ordered, That the initial decision of the administrative law judge be adopted as the findings of fact and conclusions of law of the Commission except where it is inconsistent with the accompanying opinion.

It is further ordered, That the order contained in said intitial decision be, and it hereby is, adopted as the order of the Commission. A logical equivalent agent of Section 1012 (b) is as follows: Z is true if and only if both (i) X is true and (ii) X is limited by Y. If X is not limited by Y, then one need not determine whether proposition X is true. A determination under the first prong is clearly independent of a determination under the second: one need not determine whether the conduct at issue is regulated by state law in order to determine whether the conduct constitutes thes 1 7 1 5 8 1327 2691 109 24 96.701721 business5 1 7 1 5 9 1448 2691 28 23 97.006020 of5 1 7 1 5 10 1487 2691 144 23 93.441338 insurance. And although the second prong refers to the first, a determination under the second prong is not dependent on a determination under the first.

Conversely, finding in the negative on either prong is a sufficient condition to holding that the McCarran Ferguson Act does not deprive the Commission of jurisdiction. COLUMBIA HOSPITAL CORPORATION 587 587 Complaint