Petition — Jay Norris, Inc. v. Federal Trade Commission

In The

Supreme Court of the

+

October Term, 1978

No @9-434

JAY NORRIS, INC., JOEL JACOBS and MORTIMER

WILLIAMS,

Petitioners,

VS.

FEDERAL TRADE COMMISSION,

Respondent,

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT —

MILTON A. BASS

ROBERT ULLMAN .

SHELDON S. LUSTIGMAN

JACOB LAUFER

STEVEN R. TROST

Attorneys for Petitioners

747 Third Avenue

New York, New York 10017

(212) 751-9494

2625

TABLE OF CONTENTS

Page

Citations to Opinions Below ........ 0... ccc cece cece cece |

Serm@ietion .....5.... er ee ere SE eae 2

ee. Loa vc cenccces cece ce 2

Constitutional Provisions and Statutes Involved .......... 3

hs iy cbs cc's veces cesvorece 3

Reasons for Granting the Writ:

I. Review should be granted to define the scope of First

Amendment standards applicable to cease and desist

orders issued by the Federal Trade Commission and

to resolve the conflict among the circuits in that

RMON S ESS eeese UN eases cccacccccceccescs

Il. Certiorari should be granted to determine the

propriety of a cease and desist order which defeats

the statutory enforcement scheme under the Federal

Trade Commission Act and further violates all of the

judicial standards governing the issuance of such

DON SUEMERUEE USES sc ndacccsecececteccscccccs

Cee se cu bau beeccccucececeeece

il

Contents

Page

TABLE OF CITATIONS

Cases Cited:

Asheville Tobacco Board of Trade, Inc. v. F.T.C., 294 F.2d

Re I cada oda eh ach GueactNeeecaes 21

Bates v. State Bar of Arizona, 433 U.S. 350 (1977) ........ 9

Beneficial Corp. v. F.T.C., 542 F.2d 611 (3d Cir. 1976), cert.

gs ee ee 10

Bigelow v. Virginia, 421 U.S. 809 (1975) ..............00. 9

Colgate-Palmolive Company v. F.T.C. 310 F.2d 89 (Ist

ele PU a aah hha kp hae hE ew ORES CR TRAD OR 19

Encyclopedia Britannica, Inc. v. F.T.C., —— F.2d ~~ (7th

Cir. No. 76-1477, Aug. 2, 1979), 1979-2 Trade Cases 4

RPE PES cig e civ ndcncs wiuees bas heukbace es 1!

Fedders Corp. v. F.T.C. 529 F.2d 1398 (2d Cir.), cert. de-

es ee AR ED SN ocala Andes deaeeacge 5, 16

Firestone Tire & Rubber Company v. F.T.C., 481 F.2d 246

(6th Cir.), cert. denied, 414 U.S. 1112 (1973) ...... 5. 16, 20

Friedman v. Rogers, —_— U.S. —__. 59 L. Ed. 2d 100 (1979)

F.T.C. v. Cement Institute. 333 U.S. 683 (1948) ........... 21

F.T.C. v. Colgate-Palmolive Company. 380 U.S. 374 (1975)

iii

Contents

Page

F.T.C. v. Henry Broch & Company, 368 U.S. 360 (1962)

Jay Norris, Inc. v. F.T.C., 598 F.2d 1244 (2d Cir. 1979) .... 3

Linmark Associates, Inc. v. Willingboro, 431 U.S. 85

a ne er ere ee 9

National Commission on Egg Nutrition v. F.T.C., 570 F.2d

157 (7th Cir. 1977), cert. denied, __. U.S. —_, 58 L. Ed.

Se Re EN Sanne a cebaead caeekladanaceeaheee euke 10

National Dynamics Corp. v. F.T.C., 492 F.2d 1333 (2d Cir.),

ae Me rr rr 5, 16

National Society of Professional Engineers v. United

eahes, 455 UB. GTP CIGD i cc citscaccesvencweseesas 11, 12

Pittsburgh Press Co. v. Pittsburgh Commission on Human

Pemntioes, S13 UD. SHO CIGISD vei cccccnscecsveacesss 9

Porter & Dietsch, Inc. v. F.T.C., —— F.2d —~— (7th Cir. Nos.

78-1324, 78-1497, Aug. 8, 1979) 1979-2 Trade Cases 1

ke RP Pe ee ten ee ee ee errr tee re dG eee eee ee 5

Speigel, Inc. v. F.T.C., 540 F.2d 287 (7th Cir. 1976) ....... 21

Standard Oil Company of California v. F.T.C., 577 F.2d

Fe er eee rere Te ree 10, 11, 14

Trans World Accounts, Inc. v. F.T.C., 594 F.2d 212 (9th

ee Se ee ee bala ea keene ee aerer 21

United States v. National Society of Professional En-

eats, Dos Fae Fre CR. Ce. FTI: vc ccccenasasacea 11

iv

Contents

Page

Virginia State Board of Pharmacy v. Virginia Citizens

Consumers Council, Inc., 425 U.S. 748 (1976) ......... e,t2

Warner-Lambert Co. v. F.T.C.. 562 F.2d 749 (D.C. Cir.

1977), cert. denied, 435 U.S. 950 (1978) ............. 10, 11

Statutes Cited:

1S U.S.C. GAS 2... cvcccccdvcscescheaueeaeenen a eseeea ane 3, 18

1S U.S.C. BASED) onc cccnccceseccssuscunensaueeeeuen ners 18

15 U.S.C. 945(c) (IDTS) oo oo cc cccescucceceudeneness eeuee 5

15 U.S.C. 94S) Supp. 1979) «2. cceccnadewessundeestceen 7, 19

15 U.S.C. §45(m) (Supp. 1979) .......cccccccccceeseceees 3

1S U.S.C. GEMe) os vcccccsescasuecgeuunee eee 3, 17, 18

28 U.S.C. $I2SAGD) . occ ceccesscsncgauens ee eeeeeeeeeeee 2

United States Constitution Cited:

First Amendment ..ccsccccccecvsuses 2, 3,9, 10, 12, 13, 14, 18

APPENDIX

Appendix A — Opinion of United States Court of Appeals

for the Second Circuit. Jay Norris, Inc., Officially Re-

ported at 598 F.2d 1244 (2d Cir. 1979) ........0. eee la

V’

Contents

Page

Appendix B — Official Report of Administrative Proceed-

ee, MN cy ec ec nawMhadeeaaewe’s 20a

Appendix C — Advertisements Submitted to The United

States Court of Appeals for the Second Circuit ........ 138a

Appendix D — The First Amendment to the Constitution

eT ess vkse cay eee nunesecesnena 140a

Appendix D -—- The Federal Trade Commission Act, 15

CE ise beRGos othe Nas 04 ENE Raed ee Wane be se I4la

Appendix D — The Federal Trade Commission Act, 15

i Bae ed a hee ees eles a a 147a

In The

Supreme Court of the United States

+

October Term, 1978

No.

JAY NORRIS, INC., JOEL JACOBS and MORTIMER

WILLIAMS,

Petitioners,

VS.

FEDERAL TRADE COMMISSION,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

Petitioners pray that a writ of certiorari issue to review the

judgment of the United States Court of Appeals for the Second

Circuit, entered in the above-entitled case on May I, 1979.

CITATIONS TO OPINIONS BELOW

The opinion of the Court of Appeals for the Second Circuit

is reported at 598 F.2d 1244 (2nd Cir. 1979) and is set forth in

Appendix A. The course of administrative proceedings before

2

the Federal Trade Commission has been officially reported by

that Agency at 91 F.T.C. 751 er seq. all of which is set forth in

Appendix B as follows: Complaint-20a: Initial Decision-34a;

Opinion by the Commission-103a; Fina! Order-128a.

JURISDICTION

The judgment of the United States Court of Appeals for the

Second Circuit was entered on May |, 1979. The jurisdiction of

this Court is invoked under 28 U.S.C. §1254(1). By order dated

July 16, 1979, this Court extended petitioners’ time to file the

instant petition for a writ of certiorari to and including

September 14, 1979.

QUESTIONS PRESENTED

1. Whether the First Amendment prevents the Federal

Trade Commission from going beyond reasonable and effective

statutory alternatives by issuing a cease ind desist order which

imposes a perpetual prohibition on all future unadjudicated

commercial speech by petitioners, unless nonspecific collateral

requirements for prior substantiation are met with the result

that in a civil penalty enforcement proceeding (A) the

Commission is relieved from the need for showing falsity or

deception; and (B) petitioners are deprived of the right to

establish truth, even by way of affirmative defense.

2. Whether the Federal Trade Commission has statutory

authority to issue a cease and desist grder which includes a

perpetual prohibition on all future unadjudicated advertising by

petitioners unless nonspecific collateral requirements for prior

substantiation are met, and which effectively shifts the

Commission's primary statutory burden of proof by authorizing

a civil penalty enforcement proceeding where (A) the

Commission is relieved from the need for showing falsity or

deception: and (B) petitioners are deprived of the right to

establish truth. even by wavy of affirmative defense.

3

CONSTITUTIONAL PROVISIONS AND STATUTES

INVOLVED

The constitutional provision involved herein is the First

Amendment to the Constitution of the United States.

The statutory provisions involved herein are the Federal

Trade Commission Act, 15 U.S.C. §45, and 15 U.S.C. §53(a).

These provisions are set forth in Appendix D.

STATEMENT OF THE CASE

Since 1953, petitioner Jay Norris, Inc. has been a mail-order

company engaged in the selling of gift, novelty and general

merchandise products to the consumer.' This business is

conducted by mailing catalogues listing hundreds of products to

consumers throughout the United States, as well as by

substantial national magazine and newspaper advertising. At

issue in this petition is a ruling by the United States Court of

Appeals for the Second Circuit which sanctions the imposition

of unprecedented restrictions on petitioners’ ability to

communicate truthful information to the public.2 Moreover,

the Federal Trade Commission (hereinafter “FTC” or “the

Commission”) has announced its intention to require all

advertisers to comply with the provisions of the cease and desist

order issued in this case pursuant to its statutory authority under

15 U.S.C. §45(m) (Supp. 1979).3 If not set aside the Second

Circuit’s ruling will have a drastic and restrictive impact

throughout the United States on advertisers presenting truthful

information to the public.

1. Petitioners Joel Jacobs and Mortimer Williams are officers of Jay

Norris. Inc.

2. Jay Norris, Inc. v. F.T.C., 598 F.2d 1244 (2d Cir. 1979) (Appendix A).

3. See 91 F.T.C. 751. 857 (1978) (Appendix B at 126a) (Section 5 of the

Federal Trade Commission Act. 15 U.S.C. §45. is set forth in Appendix D).

4

This proceeding began with a “garden variety” FTC staff

complaint alleging that various parties, including the petitioners*

here, had misrepresented seven products in the course of mail-

order business operations.4 The otherwise routine complaint was

transformed into a major FTC test case by the inclusion in the

proposed order of an all-encompassing requirement of prior

substantiation which would have prohibited any and all

advertising claims whatsoever unless certain technical

substantiation requirements were met.’ Never before had such

an all-encompassing order been entered in an FTC proceeding.

Also significant is the absence from the complaint of any charge

that the petitioners, in their advertisements, had made any

representations concerning the extent of their prior

substantiation for any given product.

An extensive hearing was held before an Administrative

Law Judge where most of the charges were vigorously disputed.

The Administrative Law Judge rendered an initial decision

which dismissed the complaint as regards one of the products in

question,® but sustained most, but not all, of the charges in the

4. The complaint also included various charges concerning unfair

practices relating to the conduct of mail-order business in general. These

provisions, not at issue here, resulted merely in the issuance of an order which

required petitioners to comply with the provisions of a subsequently enacted

trade regulation rule.

5. Petitioners’ answer to the complaint dealt with this request as follows:

“There is no legal basis for the absolute requirements set

forth in paragraph 9 of the proposed order. Scientific tests.

eic.. May not be necessary with respect to all products.

Common knowledge may establish the safety of products

without the necessity for a company conducting separate

‘scientific tests.” There is similarly no legal basis and *here

can be no legal requirement for so vaguely defied a

standard a» ‘other competent objective material.”

6. YI F.C. at 795 (Appendix B at 64a).

complaint with respect to the other six products. He

recommended to the Commission a remedial cease and desist

order, which included a modified “prior substantiation”

provision. Upon appeal to the Commission, most, but not all, of

the findings of the Administrative Law Judge were sustained. A

final order was entered which included a once-again modified

“prior substantiation” provision. An appeal to the United States

Court of Appeals for the Second Circuit followed pursuant to

the judicial review provisions of 15 U.S.C. §45(c) (1973).

In view of the overriding importance of the unprecedented,

all-encompassing “prior substantiation” order,’ all of the other

vigorously disputed issues in the case were disposed of by

agreement and stipulation of counsel. The Second Circuit was

left with only this major issue for resolution. The Second Circuit

upheld the FTC's order but modified it because it was “poorly

phrased”* and “ungramatical, as well as badly worded.”’ The

thrice-modified order is now presented to this Court for review

by way of the instant petition for certiorari.

In its opinion, the Commission found that petitioners had

misrepresented a _ safety characteristic for one product

7. The order in this case should not be confused with situations where

prior substantiation provisions are used as an escape clause to an otherwise

absolute prohibition on the making of a claim which has been found to be false.

Fedders Corp. v. F.T.C., 529 F.2d 1398 (2d Cir.), cert. denied, 429 U.S. 818

(1976). Also distinguishable are situations where the advertising itself was

found to have made misrepresentations concerning the existence of prior

substantiation. National Dynamics Corp. v. F.T.C., 492 F.2d 1333 (2d Cir.),

cert. denied, 419 U.S. 993 (1974), or where specific findings are made that an

advertisement has misrepresented the quality or extent of prior substantiation

efforts. Porter & Dietsch, Inc. v. F.T.C.. — — F.2d — ~ (7th Cir. Nos. 78-

1324. 78-1497. Aug. 8. 1979) 1979-2 Trade Cases 962.796; Firestone Tire &

Rubber Company v. F.T.C., 481 F.2d 246 (6th Cir.). cert. denied, 414 U.S.

1112 (1973). None of these factors are present here.

%. 59K F.2d at 1245 (Appendix A at 2a).

9. 598 b.2d at 1253 (Appendix A at 18a).

6

(automobiles)'® and the performance characteristics of four

products.'' Two other products were found to have been

misrepresented, but not in terms of safety or performance

characteristics. '?

Based upon the foregoing, the S cond Circuit authorized

the Commission to enter an order by which petitioners are

prohibited:

“... from representing the safety or performance

characteristic(s) of amy product’ unless

petitioners have a reasonable basis for the

representation(s) consisting of competent and

objective material, available in written form, that

fully and completely substantiates such

representation(s).”'? (Emphasis added.)

This seemingly innocuous language portends drastic

consequences for petitioners in the conduct of their business

operations. The impossibility of applying these vague criteria to

establish compliance for the multitude of mail-order products

sold by Jay Norris was explained to the Second Circuit, and

sample advertisements were submitted to the court to illustrate

the difficulties involved.'* The Second Circuit, in upholding the

order, however, confirmed petitioners’ concern as to its broad

10. As regards another product (roach powder), safety was not actually an

issue. and petitioners were merely required to disclose in future advertisements

that safe use required the following of the directions provided with the

product.

11. A flame gun. roach powder, TV antenna and automobiles.

12. A Lincoln-Kennedy penny as to historical and numismatic value and a

flashlight as to the coverage of the manufacturer's guaranty.

13. 59% F.2d at 1253 (Appendix A at 18a-19a).

14. Copies of these advertisements are set forth in Appendix C.

and all-encompassing scope. Petitioners are prohibited from

making even a truthful claim if, at the time they make the claim,

they did not have “in written form,” “competent and objective

material,” which fully and completely substantiates the safety or

performance characteristic of “any” product.

Petitioners’ concern with this provision lies in the

Commission’s authority under 15 U.S.C. §45(l) (Supp. 1979)

to commence a civil penalty proceeding for violation of the cease

and desist order. The Second Circuit held that, in such a future

proceeding, the Commission's sole burden would be to prove:

“(1) that Norris made a safety or performance

representation and (2) that it lacked adequate

substantiation at the time that it made the

advertising claim.”'5 (Emphasis added.)

Under this formulation, if a court were to find, for any

product, that petitioners’ “prior substantiation” did not comply

with any one of the vague requirements (i.e., “reasonable basis,”

“competent and objective material”, “available in written form”

or “fully and completely substantiates”), petitioners could be

subjected to civil penalties for violation of the cease and desist

order.'* The Commission would not have to prove that the

safety or performance claim itself was false, deceptive or unfair.

Even if petitioners could prove that the claim was in fact true,

there would be no defense to the civil penalty proceeding.

Under the Second Circuit's ruling, only the adequacy and

reasonableness of the written substantiation which was available

1S. SYX b.2d at 1249 (Appendix A at 10a).

16. 1S U.S.C. S450) provides for a penalty of up to $10,000 tor each

Violation. with cach separate advertisement constituting a separate offense. and

cach day of continuation of a tailure to obey a cease and desist order also to be

deemed a separate offense. The potential penalties for even a single product

advertisement are thus astronomical.

to the advertiser at the time the claim was made could be

considered. There can be no doubt (and we do not believe that

the Government will contest) that the cease and desist order can

result in the imposition of substantial civil penalties without any

finding of falsity or deception in the advertisement itself, and

without affording petitioners an opportunity to show the

truthfulness of its advertisements, even as an affirmative defense.

The prejudicial impact of the order at issue herein cannot be

overstated. Most products sold and advertised by petitioners

necessarily involve at least a performance characteristic. If, for

example, petitioners desired in the future to advertise Bayer

aspirin with a performance claim “for the temporary relief of

minor aches, pains, headaches and fever,” such advertisement

could fall within the scope of the all-encompassing cease and

desist order approved in this case. The same would be true for

the corn skewers advertised by petitioners (see Appendix C) to

help prevent burned and buttery fingertips while eating hot corn,

as well as virtually every other product routinely sold in a mail-

order catalogue. Petitioners would be in violation of the cease

and desist order unless, before advertising Bayer aspirin or corn

skewers, they had a reasonable basis for those performance

claims based upon competent and objective material available in

written form that fully and completely substantiated the claim

for relief of minor aches and pains, headaches and fever, and

prevention of burnt and buttery fingers.

Most disheartening is the further impact of the order in a

civil penalty proceeding. If petitioners sought to introduce

testimony affirmatively proving that Bayer aspirin is effective or

that the corn skewer advertisement is accurate, they would be

barred from doing so unless the information had been available

to them in written form at the time the claim was made. Even if

petitioners believed in the truth of the representations made and

the sufficiency of available data. they would nevertheless be

subject to the uncertainty that a court might later find that their

9

belief did not have a “reasonable basis,” since the data available

to them was not sufficiently “competent,” “objective” or was not

as “full and complete” as might theoretically be desirable.

It is respectfully submitted that, short of submitting an

advertisement, together with the written substantiating data, to

the Commission for review prior to advertising every product

hereafter sold by petitioners, there will be no reasonable way for

petitioners to conduct their mail-order business. Otherwise, the

uncertainties inherent in the all-encompassing prior

substantiation order approved by the United States Court of

Appeals for the Second Circuit automatically subjects them to

the risk of substantial civil penalties for each and every product

they sell. The serious legal issues raised herein and the drastic

implications for petitioners and all other advertisers, fully

warrant the granting of this petition.

REASONS FOR GRANTING THE WRIT

Review should be granted to define the scope of First

Amendment standards applicable to cease and desist orders

issued by the Federal Trade Commission and to resolve the

conflict among the circuits in that regard.

The attempt by the Federal Trade Commission in this test

case to expand the scope of its authority in issuing cease and

desist orders runs afoul of the important constitutional

protections applicable to commercial speech. Bates v. State Bar

of Arizona, 433 U.S. 350 (1977); Linmark Associates, Inc. v.

Willingboro, 431 U.S. 85 (1977); Virginia State Board of

Pharmacy vv. Virginia Citizens Consumer Council, Inc., 425

U.S. 748 (1976): Bigelow v. Virginia, 421 U.S. 809 (1975);

Pittshurgh Press Co. v. Pittsburgh Commission on Human

Relations, 413 U.S. 376 (1973).

ee eh ae ee ee TEE Cree ae

10

Four circuit courts of appeal have agreed that First

Amendment considerations dictate that the Federal Trade ~

Commission must exercise restraint in formulating remedial

orders which infringe on protected commercial speech and which

may further amount to impermissible prior restraints on such

speech. Standard Oil Company of California v. F.T.C., 577 F.2d

653, 662 (9th Cir. 1978); National Commission on Egg Nutrition

ve FLT.C., 570 F.2d 157, 164 (7th Cir. 1977), cert. denied,

U.S. —_, $8 L. Ed. 2d 113 (1978); Warner-Lambert Co. vy.

F.T.C., 562 F.2d 749, 768-71 (D.C. Cir. 1977), cert. denied, 435

U.S. 950 (1978); Beneficial Corp. v. F.7.C., 542 F.2d 611. 619-

620 (3d Cir. 1976), cert. denied, 430 U.S. 903 (1977).

Under the standard adopted by these circuits and based

upon the decisions of this Court, the Federal Trade Commission

is required to select the least restrictive remedy which is

reasonably required to prevent recurrence of the violations

which have been adjudicated.

In Beneficial Corp. v. F.T.C., supra, the Third Circuit

applied this First Amendment standard in vacating an

order by the Commission because it went further than was

necessary for the elimination of deception. 542 F.2d at 619-620.

The Ninth Circuit, in Standard Oil Co. of California v. F.T.C..,

supra, applied the same standard in vacating another

Commission order, further emphasizing that:

“. .. administrative agencies may not pursue

rigorous enforcement to the extent of

discouraging advertising with no concomitant

gain in assuring accuracy and truthfulness.” 577

F.2d at 662.

In National Commission on Egg Nutrition v. F.T.C . Supra,

the Seventh Circuit struck down one portion of an FTC order

because “{t}he First Amendment does not permit a remedy

Which is broader than that which is necessary to prevent

deception, . . . or correct the effects of past deception.” 570 F.2d

at 164. Accord, Encyclopedia Britannica, Inc. v. F.T.C., — —

F.2d —— (7th Cir. No. 76-1477, Aug. 2, 1979), 1979-2 Trade

Cases 62,793 at 78,610-11 [applying standard but finding that

given remedy was the least restrictive alternative }.

The D.C. Circuit has similarly indicated its accentance of

this standard in Warner-Lambert Co. v. F.T.C., supra. The

court upheld an FTC order based upon an express finding that a

less restrictive remedy was not available under the facts of that

case. 562 F.2d at 770-771. See also, Standard Oil Co. of

California v. F.T.C., 577 F.2d at 662, n.5.

The foregoing standard was implicitly adopted by this

Court in its affirmance of the D.C. Circuit in National Society

of Professional Engineers v. United States, 435 U.S. 679 (1978).

The District Court in that case had found that a professional

organization’s prior statements on an issue of competitive

bidding had violated the antitrust laws and, accordingly,

enjoined the organization from continuing to make the unlawful

statements. The Court of Appeals upheld this restriction but

struck down a further requirement that the organization

affirmatively issue statements in support of competitive bidding.

United States v. National Society of Professional Engineers, 555

F.2d 978, 984 (D.C. Cir. 1977). The D.C. Circuit reiterated the

standard that regulation of commercial speech by the State

“... should not be more intrusive than necessary to achieve

fulfillment of the governmental interest.” /d. This Court

affirmed the decision of the Court of Appeals as regards the

injunction which was issued and noted that in that type of case

the remedy was an “unavoidable consequence of the vielation.”

435 U.S. at 697."

17. This Court added that it agreed with the standard laid down by the

Court of Appeals and that under the circumstances, the injunction issued was

not more intrusive than reasonably necessary to eliminate the consequences of

the illegal conduct. National Society of Professional Engineers v. United

States, 435 U.S. at 697-698.

12

The United States Court of Appeals for the Second Circuit,

in the instant case, upheld the broad restriction on petitioners’

speech without engaging in the substantial analysis indicated by

the rulings of the Third, Seventh. Ninth and D.C. Circuits.

Instead, the Second Circuit said only that it considered the

blanket remedy of prior substantiation to be “reasonable.”'* The

adoption of this much broader standard was apparently the

result of the Commission's express argument below, that the

standard adopted by the Third, Seventh. Ninth and D.C.

Circuits is erroneous.'? Moreover, the Commission argued that

the opinion of this Court in National Society of Professional

Engineers v. United States was intended to imply that mere

reasonableness of an FTC restraint on commercial speech is

always enough to pass constitutional muster.2? But see text

accompanying n. 17, supra.

It is respectfully submitted that certiorari should be granted

in this case to resolve the conflict between the circuits as to the

applicable First Amendment standard governing the issuance of

FTC cease and desist orders and to determine under such

standards whether the broad prior substantiation order issued in

this case is permissible.

The prior substantiation provision reflects a total lack of

administrative restraint in imposing an infringement upon

truthful commercial speech and goes far beyond the least

restrictive interference which is reasonably necessary to

accomplish legitimate governmental objectives. Moreover, even

under the formulation adopted by the Second Circuit. the

prohibition must be considered as completely unreasonable

when its practical results are considered in terms of the drastic

infringement of the exercise of protected free speech rights.

18. 59% F.2d at 1252 (Appendix A at 1a).

19. Brict of Respondent in Second Circuit at 35.

MO. ded at 34-36.

13

Here, the Federal Trade Commission has gone far beyond

the confines of its statutory objectives as set forth in the Federal

Trade Commission Act. The prior substantiation order prohibits

all truthful commercial speech hereafter entered into by

petitioners unless the technical requirements are met. While the

theoretical purpose of prior substantiation is to insure truthful

and non-deceptive advertising, the opposite results from the

order. Truthful advertising is prohibited, and penalties are

imposed for failing to comply with abstract propositions

inherent in the prior substantiation order.

The vice in the FTC order at issue is that it seeks to regulate

the reasonableness of opinion and belief by petitioners instead of

the actual content of their future advertisements. By ignoring

truth or falsity, the FTC would, instead, in future civil penalty

proceedings, look only to the reasonableness of petitioners’

belief as to the truth or falsity of a safety or performance

characteristic. This strikes at the very heart of First Amendment

protections to which petitioners are entitled. Petitioners should

not be subjected to the risk of having their opinion as to truth or

falsity second-guessed by the Federal Trade Commission, based

upon a finding that their opinion was not “reasonable” due to a

technical failure to comply with the “competent”, “objective”,

“full”, or “complete” substantiation requirements.

Although commercial free speech is not necessarily entitled

to the full scope of protection otherwise available under the First

Amendment, this Court has emphasized that this is so only

because an advertiser who disseminates information concerning

his products or services presumably can determine more readily

than others whether his speech is truthful and protected.

Virginia Pharmacy Board vy. Virginia Citizens Consumer

Council, 425 U.S. at 771-772, n. 24. The instant prior

substantiation order completely destroys petitioners’ ability to

rely upon their own determination that their proposed speech is

protected. Petitioners are subjected to uncertainty and

interference as to each and every performance or safety claim

Sdn eae 2 See ee

id

they may make: not in terms of inherent truth, falsity. fairness or

deception, but rather, in terms of the adequacy of the procedures

by which petitioners reach their decision to disseminate

commercial information.*' The First Amendment cannot be

interpreted to, in effect. permit the transformation of the Federal

Trade Commissior into a de facto national censoring board for

all advertisers.

The Second Circuit discussed its rejection of petitioners’

First Amendment claim solely in terms of this Court's decision

in Friedman v. Rogers, U.S. __, 59 L. Ed. 2d 100 (1979).

Apparently, the Second Circuit construed this recent decision as

a retreat from the principles previously expressed by this Court

with regard to protected commercial speech. This Court,

however, stressed that such was not the case, and while

upholding a ban on the use of a trade name, stated:

“We emphasize, in so holding, that the restriction

on the use of trade names has only the most

incidental effect on the content of the commercial

speech of Texas optometrists ... [T]he factual

information associated with the trade names may

be communicated freely and explicitly to the

public.” ____ US. at 59 L. Ed. 2d at 113-

114.

21. The Second Circuit dismissed petitioners’ concerns with respect to the

foregoing. by reference to the Rules of the Federal Trade Commission which

provide an opportunity for the receint of advice from the Agency prior to the

publication of any advertisement. See 598 F.2d at 1251 (Appendix A at 14a).

The Ninth Circuit has pointed out that the vice inherent in such a restriction

lies:

“also in the requirement that one who is subject to its terms

must ‘either expose his major business decisions to a

Commission veto or remain in the dark regarding their legal

consequences... - [citations omitted|’ Standard Oil

Company of California vo F.T.C., 577 &.2d 653. 662 (9th

Cir, 197%)

15

Here the opposite is true since the restrictions imposed by the

all-encompassing prior substantiation order impinge directly on

the content of protected speech. Review should be granted to

correct the Second Circuit’s serious misconstruction of this

Court's decision in Friedman v. Rogers, supra.

There can be no doubt that the prior substantiation order

was not the least restrictive remedy which was reasonably

available to the Commission for the violations found. This was a

test case seeking to expand the Commission’s authority and was

expressly so regarded by the Commission below. FTC advised

the Second Circuit that, in reliance upon the expansive prior

substantiation provision, it had entered only narrow

prohibitions with regard to the six products found to have been

misrepresented. In the event that the Court would find the prior

substantiation provision unlawful, the Commission requested

that it be given a new opportunity upon remand for

consideration of the application of more traditional remedies.?2

The alternative and constitutionally permissible remedies

reasonably available to the Commission are obvious. First, the

remedial order in this case contains prohibitions on

misrepresentations with respect to the six products which were

found to have been misrepresented. These have been drafted in a

manner which already includes some “fencing in” beyond the

specific misrepresentations which were found. Conceivably, if

any of these involve a specific type of practice which is

reasonably capable or likely of repetition with regard to other

unrelated products, a broader order might have been entered in

that regard. Instead, the Commission found that there was no

22. “Because it entered the substantiation provision, the Commission

entered only a narrow prohibition of misrepresentations of six specific

products which were found to have been misrepresented. If it were unable to

enter a substantiation order. the Commission should be able to consider

whether to issue a broader prohibition of misrepresentation of performance or

safety characteristics.” Bricf for Respondent before Second Circuit at 39. n. 28.

16

common element amongst the various findings of

misrepresentation which could be applied across the board to

other products. This should have dictated that remedial

provisions adopted with specific reference to those products

were sufficient. Instead, the Commission added a broad prior

substantiation provision, totally unrelated to the violations

found. There was neither evidence of, nor any finding that, the

advertisements in question made any reference to the extent of

prior substantiation, or that petitioners’ prior substantiation

efforts were in any way related to the claims found

objectionable.

In the latter respect, all of the cases cited by the Second

Circuit as precedent for upholding substantiation requirements

are radically different from the case at bar. See Fedders Corp. v.

F.T.C., 529 F.2d 1398 (2d Cir.), cert. denied,429 U.S. 818

(1976); National Dynamics Corp. v. F.T.C., 492 F.2d 1333 (2d

Cir.), cert. denied, 419 U.S. 993 (1974): Firestone Tire & Rubber

Company v. F.T.C., 481 F.2d 246 (6th Cir.), cert. denied, 414

U.S. 1112 (1973). In each instance, the substantiation

requirement was limited to one type of product or was

occasioned by the fact that prior advertising had been found to

misrepresent the nature or existence of prior substantiation.

Here, no such finding was made by the Administrative Law

Judge or the Commission and prior substantiation was engrafted

into the cease and desist order independent or any relationship

to actual violations found in the advertising content.23

The statutory remedies which entitle the Federal Trade

Commission to adjudicate truth or falsity in an administrative

hearing are available for the correction of any future unfair

23. The Commission contends that it is entitled to include this type of

prior substantiation provision in any cease and desist order which follows an

adjudication of misrepresentations. Brief for Respondent in Second Circuit at

1X.

17

advertisements by petitioners.74 If the Commission believes that

such proceedings are too time consuming or insufficient to

protect the public, the statute further provides the remedy of a

direct application to a United States District Court for

injunctive relief under 15 U.S.C. §53(a). The blanket prohibition

applicable to all products bypasses the basic statutory

procedures and is not necessary for the protection of the public.

The mere convenience which would accrue to the Federal Trade

Commission from being relieved of its burden in an injunction

action under 15 U.S.C. §53(a) is not a _ constitutionaliy

permissible reason for authorizing an immediate action for civil

penalties as against non-adjudicated truthful commercial speech.

The incongruous, burdensome and unreasonable results

which can obtain as a result of this type of prior substantiation

order are clear. Petitioners might be subjected to severe

sanctions for failure to comply with the technical requirements

of “full and complete” substantiation, while the very same claim

by another company could escape enforcement consequences

because the Commission could not or would not undertake to

meet its burden of establishing falsity, deception or unfairness.

Even more bizarre is the fact that the prior substantiation ¢ ‘der

‘does not permit the assertion of truth, even as an affirmative

defense in rebuttal to any charge of violation.

If a safety or performance characteristic claim is completely

true, and the advertisement makes no misrepresentations as to

the nature or extent of prior substantiation, then no

24. The Commission and the Second Circuit make reference to the fact

that this is the third proceeding which Jay Norris has had before the

Commission. One of these was a consent order and, in any event, none of them

involved any misrepresentations of safety or performance claims. There is no

merit to the implicit suggestion that petitioners are frequent and flagrant

violators of the Act. Even if so, the speedy remedy of injunction under 15

U.S.C. §53(a) is the proper alternative to the constitutionally impermissible

prohibition on truthful commercial speech.

governmental or public interest is served by prohibiting such

advertising. Such advertising is in no way unfair to the consumer

and cannot be prohibited. The essential issue presented to this

Court for review is the propriety of such an absolute per se ban

by the Commission on all advertising. for all products hereafter

sold by petitioners, which is based upon requirements unrelated

to the inherent truth or accuracy of a given advertisement.

The constitutional infirmity of the prior substantiation

order herein is further demonstrated by the violation of all of the

traditional restrictions on the Commission’s authority to issue

cease and desist orders. See Point II, infra. Review is urgently

needed in order to resolve the circuit conflicts as to standards for

First Amendment protection and to further insure thet the basic

protections established by this Court in this decade with respect

to commercial speech are not effectively destroyed by the order

sanctioned in this case.

Certiorari should be granted to determine the propriety ofa

cease and desist order which defeats the Statutory enforcement

scheme under the Federal Trade Commission Act and further

violates all of the judicial standards governing the issuance of

such orders.

In addition to the serious violations of First Amendment

principles, the cease and desist order also violates all of the

fundamental criteria for the issuance of such orders as a matter

of statutory interpretation. The Statutory scheme under the

Federal Trade Commission Act, 15 U.S.C. §45, contemplates a

two-step procedure which is defeated by the instant FTC order.

First, the statute requires the Commission to establish that an

unfair or deceptive act or practice has been committed in

accordance with the hearing requirement of 15 U.S.C. §45(b).25

25. It the Commission believes that more expeditious relief is needed. it

can apply directly to the United Seaies District Courts for an injunction under

1S U.S.C. §53¢a).

et 0 Ha ren

19

If a violation is found, this section authorizes the Commission to

enter a cease and desist order against “such act or practice.”

After the cease and desist order becomes final, a further

violation with respect to the same previously adjudicated act or

practice results in the severe sanctions of a civil penalty

proceeding under 15 U.S.C. §45(1). In the instant case, the

FTC is entitled to invoke the drastic sanctions of a civil penalty

- proceeding without any prior adjudication of falsity, unfairness

or deception. Any further advertisement, which has absolutely

no relationship to the advertisements or deceptive practices

found in the instant case, enables the FTC to bypass the first

stage hearing requirement and proceed directly to the civil

penalty provisions. Congress clearly did not intend to give the

Commission such authority.

Under the statute, the FTC is required to prove falsity,

unfairness or deception in the first instance by conducting a full

adjudicatory hearing. Here, the cease and desist order shifts the

statutory burden of proof by bypassing the adjudicatory hearing

and subjecting petitioners to sanctions in a civil penalty

proceeding solely if petitioners have not previously proven their

claims by a “reasonable” basis. The order should be recognized

for what it is in fact — an attempted administrative shortcut

applicable to all future advertisements by petitioners aimed at

bypassing the specific adjudicatory process which is a

prerequisite for any penalty proceeding.

The basic purpose of the statute is further frustrated by the

prohibition on truthful commercial speech, which is not false or

deceptive in any manner, merely because the technical

requirements of the prior substantiation clause are not met. If

the safety or performance claim is completely true and the

advertisement does not misrepresent or falsely describe any prior

substantiation characteristic, the public is not injured and the

statute was never meant to apply. This Court, for example,

agreed with the First Circuit decision in Colgate- Palmolive

Company v. F.T.C., 310 F.2d 89, 94 (Ist Cir. 1962) which stated

20

that where the consumer is not injured in light of correct and

accurate representations of a product, there is no violation of the

statute merely because of a collateral inaccuracy. See F.7.C. v.

Colgate- Palmolive Company, 380 U.S. 374, 379-381 (1965). In

the Colgate case, this Court upheld the FTC's appeal from a

subsequent decision of the First Circuit only because the

Commission had specifically found that the collateral inaccuracy

of the use of a prop in a television advertisement was false or

misleading because the advertising itself represented that the

viewers were seeing an actual rather than a_ simulated

performance test.

Under the statute, the courts have previously upheld prior

substantiation orders only when the advertisement itself was

found to have falsely or deceptively represented the nature of

prior substantiation characteristics. See, e.g., Firestone Tire &

Rubber Co. v. F.T.C., supra. Here, none of the advertisements

in question were found to have represented anything as regards

the nature of prior substantiation and the cease and desist order

is not limited to future advertisements which make such

representations. The result is that completely truthful and lawful

advertisements are prohibited by the cease and desist order

merely because the collateral technical requirements of a prior

substantiation provision might not be complied with. Such

agency action is without any statutory foundation or support.

This Court has emphasized that the severity of possible

penalties prescribed by the statute for violations of a cease and

desist order “underlines the necessity for fashioning orders which

are, at the outset, sufficiently clear and precise to avoid raising

serious questions as to their meaning and application.” F.T7.C. v.

Henry Broch & Company, 368 U.S. 360, 367-368 (1962).

Specificity and clarity are unmistakenly absent from the cease

and desist order entered in this case. Petitioners have been told

that they must have a “reasonable” basis for their

advertisements. The use of the vague “reasonable” standard of

conduct as a basis for a cease and desist order was condemned

21

long ago in Asheville Tobacco Board of Trade, Inc. v. F.T.C.,

294 F.2d 619, 627-629 (4th Cir. 1961). The requirements of

“competent” and “objective” material which provides a

“reasonable” basis to believe that a safety or performance claim

is “fully” and “completely” substantiated is impossibly vague and

indefinite as a penal standard for future conduct. See Trans

World Accounts, Inc. v. F.T.C., 594 F.2d 212, 216-217 (9th Cir.

1979); Speigel, Inc. v. F.T.C., 540 F.2d 287 (7th Cir. 1976). See

also, F.T.C. v. Cement Institute, 333 U.S. 683, 726 (1948).

The courts have also required that FTC cease and desist

orders be no more restrictive than necessary to correct the

violations found. See, e.g., Trans World Accounts, Inc. v.

F.T.C., 594 F.2d at 216. While some “fencing in” is authorized,

the prohibitions must be reasonably related to the violations

found at the adjudicatory hearing. Overbroad cease and desist

orders have thus been rejected. See, e.g., Spiegel, Inc. v. F.T.C.,

540 F.2d at 295-296.

There was no finding in this case that the violations found

with respect to the six advertisements were in any way connected

with the nature of petitioners’ prior substantiation efforts.”

Without any relationship to actual past violations, FTC imposed

a prohibition applicable to all future advertisements without any

limitation whatsoever. This, petitioners repectfully submit, is per

se overbroad.*’

Petitioners recognize that the prohibition against

overbreadth and vagueness in cease and desist orders is subject

26. In fact. there was no evidence below dealing with petitioners’ prior

substantiation efforts since the complaint did not charge that the

advertisements misrepresented any aspect of petitioners’ “prior substantiation”.

As a result. no findings were made relating to prior substantiation deficiencies.

27. Overbreadth, in the instant case. is so extreme that it even precludes

the assertion of iruth as an alfirmative delense.

22

to exception in certain circumstances. Thus, a broad order may

be justified if an adjudicated specific practice is capable or likely

of repetition with respect to other products. See, e.g., F.T.C. v.

Colgate-Palmolive Company, 380 U.S. at 394-395. On the other

hand, some vagueness as to what is a future violation can be

tolerated where it is limited to a specific product for which some

other violation has been adjudicated. To combine both

vagueness and overbreath without any reasonable relation to the

actual practices committed by petitioners is, however,

unprecedented in the history of enforcement under the statute.

FTC has imposed the instant remedy of prior substantiation

of all future safety and performance characteristics in an

admitted test case designed to have applicability to all

advertisers. FTC intends to use this type of order as a standard

provision in future enforcement proceedings. Certiorari should

be granted to determine the legality of this type of blanket

provision which, in one paragraph, violates in combination, all

of the basic restrictions and limitations which have previously

been placed on cease and desist orders as a matter of statutory

construction. The importance of this issue warrants immediate

review to set aside this completely unjustified attempt by FTC to

bypass the traditional statutory requirements.

CONCLUSION

For the foregoing reasons, the petition for a writ of

certiorari should be granted.

Respectfully submitted,

MILTON A. BASS

“ROBERT ULLMAN

SHELDON S. LUSTIGMAN

JACOB LAUFER

STEVEN R. TROST

Attorneys for Petitioners

——— ee

.

'

>

~

APPENDIX A — OPINION OF UNITED STATES COURT

OF APPEALS FOR THE SECOND CIRCUIT, JAY

NORRIS, INC., OFFICIALLY REPORTED AT 598 F.2d 1244

(2d Cir. 1979)

JAY NORRIS, INC., Joel Jacobs, and Mortimer Williams.

Petitioners,

FEDERAL TRADE COMMISSION, Respondent.

No. 623, Docket 78-415]

United States Court of Appeals, Second Circuit

Argued Feb. 22, 1979

Decided May |, 1979.

Review was sought of a cease and desist order of the

Federal Trade Commission prohibiting a mail order business

from representing and advertising the safety or performance of

any product without prior written substantiation of the

representations. The Court of Appeals, Oakes, Circuit Judge,

held that the order was not invalid as imposing the burden of

proof on petitioners in future enforcement proceedings, as being

outside the Commission's statutory power, as being overbroad,

vague or indefinite, as being tantamount to industry-wide

rulemaking or as violating the First Amendment.

Order rephrased and enforcement granted.

Robert Ullman, Bass, Ullman & L[ustigman, New York

City, for petitioners.

2a

Appendix A

Jerold D. Cummins, Deputy Asst. Gen. Counsel, F.T.C.,

Washington, D.C. (Michael N. Sohn, Gen. Counsel, Gerald P.

Norton, Deputy Gen. Counsel, W. Dennis Cross Asst. Gen.

Counsel, Clarence R. Laing, Jr., Atty., Washington, D.C., of

counsel), for respondent.

Before FEINBERG, OAKES and VAN GRAAFEILAND,

Circuit Judges. |

OAKES, Circuit Judge:

Petitioners, a gift and novelty mail-order house and its two

shareholders, officers, and directors, launch a multi-pronged

attack against one rather poorly phrased paragraph of a lengthy

Federal Trade Commission cease and desist order issued under

Section S(a) of the Federal Trade Commission Act (the Act), 15

U.S.C. §$45(a).' After a series of modifications? the paragraph

1. Section S(a) of the Federal Trade Commission Act, 15 U.S.C. §45(a),

provides:

Unfair methods of competition unlawful; prevention by

Commission—Declaration of unlawfulness; power to

prohibit unfair practices

(al) Unfair methods of competition in or affecting

commerce, and unfair or deceptive acts or practices in or

affecting commerce are declared unlawful.

(2) The Commission is empowered and directed to

prevent persons, partnerships, or corporations [with

exceptions not relevant here] from using unfair methods of

competition in or affecting commerce and unfair or

deceptive acts or practices in or affecting commerce.

Petitioners seek review of the Commission's order as authorized under §5(c) of

the Act. 1S U.S.C. §45(c).

2. The Commission's staff counsel goes by the title of counsel supporting

the complaint or Complaint Supporting Counsel. She proposed in the draft

(Cont'd)

3a

Appendix A

(Part I, Paragraph 6) prohibits petitioners from “[rJepresenting

the safety or performance of any product unless such claims are

fully and completely substantiated by a reasonable basis which

shall consist of competent and objective material available in

written form.”

The attack on this paragraph — the arguments tend to

overlap — is that it improperly shifts the burden of proof to

petitioners in a possible future false or deceptive advertising

charge; is beyond the Commission’s statutory power under

Section 5(a)(1) of the Act, 15 U.S.C. §45(a)(1); is too broad for

purposes of injunctive relief; is unduly burdensome as well as

vague and indefinite; was reached by “ad hoc adjudication”

rather than by rule-making; and is an_ unconstitutional

interference with and prior restraint on Free Speech. We are not

Rersuaded by any of the arguments advanced, but we do

rephrase the order in the interest of clarity.

(Cont'd)

order accompanying the complaint (under Federal Trade Commission Rules,

16 C.F.R. §3.11(b)(3) where practical the proposed order is a part of the

complaint) that petitioners be prohibited from

Representing the safety, efficacy, performance, content

or any other characteristic of any product unless such claims

are fully and completely substantiated by a reasonable basis

which shall consist of competent scientific tests and such

substantiation material is available to the public. In cases

where respondent can show that no competent scientific test

can substantiate the claim, a reasonable basis shall consist

of other competent objective material.

The administrative law judge modified the proposed order to read:

Representing the safety, efficacy, performance, content,

or any other characteristic of any product unless such claims

are fully and completely substantiated by a reasonable basis

which shall consist of competent objective material and

substantiative materia! is available to the public.

The Commission in turn modified the administrative law judge's order to read

as set forth in text.

4a

Appendix A

1. FACTS

Petitioner Jay Norris, Inc. (Norris), has done business for

twenty-five years by mail-order catalogues and advertisements in

national newspapers like the New York Times and magazines

like TV Guide. The instant proceeding, Norris’s third before the

Federal Trade Commission (FTC or Commission) within fifteen

years,’ involved false and deceptive advertising claims made as

to efficacy, performance, and safety in connection with six

widely varying products — (1) a propane “flame gun” that

would “dissolve the heaviest snow drifts, whip right through the

thickest ice”; (2) roach powder that was “completely safe to use”

and “never loses its killing power—even after years”5; (3) an

“electronic miracle” that makes “your home wiring a huge [TV

or FM ‘radio] antenna for super reception”®; (4) a “5-year”

3. The first FTC proceeding against petitioners ended in a consent order

prohibiting various misrepresentations of vitamins and vitamin-mineral

preparations. Jay Norris Co., 68 FTC 702 (1965). The second proceeding was

an adjudication of violations because of petitioners’ misrepresentations of

wholesaling and wholesale prices. Federated Nationwide Wholesalers Service

v. FTC, 387 F.2d 253 (2d Cir. 1968).

In addition, Jay Norris has been subjected to orders of the United States

Postal Service as well as the New York State Bureau of Consumer Frauds and

Protection. After a hearing by an administrative law judge, the Postal Service

determined that Norris was engaged in a scheme or device for obtaining money

or property through the mail by means of materially false representations in

connection with its Lincoln-Kennedy penny, one of the same iterns that was at

issue here. The Postal Service's Judicial Officer entered an order on February

27, 1974, limiting the postal services thereafter available to Norris. Norris has

also agreed with the New York consumer protection agency in an Assurance of

Discontinuance dated June 30, 1976, that it would cease and desist from

representing simulated or imitation substances as genuine or natural.

4. According to expert testing and consumer testimony, it did neither.

5. It was neither safe nor so deadly.

6. It does not.

_

Sa

Appendix A

flashlight that carries an “absolute 5-year guarantee”’; (5) a

“minted” Lincoln-Kennedy Commemorative” penny

accompanied by a free “Plaque of Coincidences”*; and (6)

“carefully maintained” cars “in regularly maintained fleet

use. . thoroughly serviced.”? The quotations are selective and

are by no means inclusive of the falsity and deception that the

advertising blurbs relating to these six products display.

Both the administrative law judge and the Commission

itself gave careful attention to the petitioners’ arguments

attacking the order originally proposed with the complaint by

the complaint counsel, and each in turn modified that proposal.

See note 2, supra. In supporting the breadth of the order

entered, the administrative law judge and Commission each

relied on cases upholding somewhat similar orders requiring

objective substantiation for scientific claims but involving

discrete products, e.g., Fedders Corp. v. FTC, 529 F.2d 1398 (2d

Cir.) (air conditioners), cert. denied, 429 U.S. 818, 97 S.Ct. 63,

50 L.Ed.2d 79 (1976); Firestone Tire & Rubber Co. v. FTC, 481

F.2d 246 (6th Cir.) (tires), cert. denied, 414 U.S. 1112, 94 S.Ct.

841 38 L.Ed.2d 739 (1973); the Commission also relied on its

case which held that that representations of objective product

characteristics made without substantiation are for that reason

deceptive. National Dynamics Corp., 82 FTC 488, 559-60 (1973),

affd in pertinent part, 492 F.2d 1333 (2d Cir.), cert. denied, 419

U.S. 993, 95 S.Ct. 303, 42 L.Ed.2d 265 (1974). The Commission

7. The manufacturer's guarantee was for five years’ or ten hours’ use.

8. There is no such official penny; and the item offered for sale has no

numismatic or historical significance, is not “commemorative,” and was never

“minted.” The “Plaque” was not free.

9. The cars, no longer sold, were former New York City taxicabs, and

many owners had nothing but trouble with them.

6a

Appendix A

further pointed out that the order's substantiation requiremefii

related only to safety and performance (efficacy) claims, not

other characteristics, although the order, as in American

Aluminum Corp., 84 FTC 21 (974), aff'd, 522 F.2d 1278 (Sth

Cir. 1975), covers all of petitioners’ products. The Commission

also referred to petitioners’ history of violations and noted that

the deceptive advertising here covered products widely varying

in price and use, making product coverage of the order

incapable of limitation to a narrow subgroup.'°

Il. DISCUSSION

A. Shift in the Burden of Proof

Petitioners contend that the requirements of full and

complete substantiation prior to its representation of the safety

and performance of any product evidences an “explicit

intention . . . to relieve the Commission of its burden of proving

any alleged falsity of safety or performance representations

made by Petitioners for any product.” There is no doubt that the

Commission has the burden of proof in administrative

proceedings precedent to the issuance of a cease and desist

order; petitioners correctly cite to Section 4(d) of the

Administrative Procedure Act, 5 U.S.C. §556(d), and the

10. The Commission's opinion observed at footnote 35:

No logical sub-grouping of respondents’ products is

suggested as a basis for limiting product coverage and there

appears to be none. Respondents’ products generally, like

the one involved in this case, vary tremendously in price and

use. In any event, this record demonstrates that respondents’

penchant for misrepresentation of performance is not

confined to a narrow sub-group of products they sell.

7a

Appendix A

Commission’s Rules of Practice for Adjudicative Proceedings,

16 C.F.R. §3.43(a), in support of this principle.''

The precise claim, however, is that the practical effect of the

Commission’s order brings about a shift of burden of proof ina

subsequent proceeding in a federal district court under Section

5(), 15 U.S.C. §45(), to enforce a cease and desist order. For

example, petitioners say, if they advertise Brand X as 100%

effective, the Commission may, utilizing the order, challenge the

claim as without substantiation, without regard to whether the

representation is true or false; and once the Commission raises

this challenge petitioners would have the burden of producing

“competent and objective material available in written form” to

rebut the charge.

This court in Federated Nationwide Wholesalers Service v.

FTC, 398 F.2d 253 (2d Cir. 1968), held that the shifting of the

Commission's burden in a subsequent enforcement proceeding

was impermissible. But see S. S. S. Co. v. FTC, 416 F.2d 226,

229 (6th Cir. 1969). However, it was the specific wording of the

order at issue in Federated that brought about the shift. In

Federated, the Commission’s order coupled an_ express

prohibition against a seller’s representation that it was a

wholesaler or sold merchandise at wholesale prices with a

proviso that the seller would have a “defense” in any

enforcement proceeding if the seller made substantial sales to

retailers or if the prices did not exceed the prices paid by

retailers. But one obvious problem with the order was that it did

not take into account the evidence in the record that “40% of the

.. . Sales [weJre made to retailers and [we]re therefore wholesale

11. The cited statute and Rules of Practice relate not to the enforcement

of remedial orders in the courts but to the burden of proof in administrative

proceedings to determine a statutory violation, a distinction pointed out in

United States v. J. B. Williams Co., 498 F.2d 414 (2d Cir. 1974), at 441-45

_ (dissenting opinion).

8a

Appendix A

transactions.” id. at 259 (emphasis added); in these cases the

seller's representations fell within the first part of the proviso

and could not properly have been the basis for any enforcement

proceeding, no matter who had the burden of proof. Another

problem with the order is more relevant to the specific challenge

that Norris raises with regard to the burden of proof. By

absolutely prohibiting the representations and allowing a

defense, “the Commission [decreed] what in effect [wa]s clearly a

shifting of the burden of proof from itself to petitioners,” which

the court held was unwarranted. /d. at 260.'?

Federated obviously does not stand for the proposition that

every FTC order containing a prohibition amounts to a shift in

the burden of proof. The court noted, 398 F.2d at 260, that the

Seventh Circuit in Western Radio Corp. v. FTC, 339 F.2d 937,

940 (7th Cir. 1964), cert. denied, 381 U.S. 938, 85 S.Ct. 1770, 14

L.Ed.2d 701 (1965), had reviewed an order requiring the

manufacturer to cease and desist from making certain statements

about the merits of its product unless it established that the

claims were true. The Seventh Circuit, in rejecting the argument

that the order shifted the burden of proof construed the order as

only prohibiting false advertising and noted in dictum that it did

not anticipate that a court in an enforcement proceeding wouid

regard the order as having shifted the burden of proof. The

court in Federated was careful to point out that it reached the

issue Of the burden of proof only because the order that it was

reviewing was “too explicit to be subject to a validating

interpretation.” 398 F.2d at 260. And the Federated court in fact

12. The court acknowledged the Commission's “broad discretion” under

FTC v. Colgate-Palmolive Co., 380 U.S. 374, 392, 85 S.Ct. 1035, 13 L.Ed.2d

904 (1965). and agreed that “‘those caught violating the Act must expect some

fencing in. FTC v. National Lead Co., 352 U.S. 419, 431, 77 S.Ct. 502, 1

L.Ed.2d 438 (1957).” Federated Nationwide Wholesalers Service v. FTC, 398

F.2d 253. 260. (1968).

9a

Appendix A

approved an order prohibiting the seller from representing that

it was a wholesaler or sold at wholesale prices unless it made a

substantial and significant number of sales to retailers and sold

at prices generally paid by retailers. /¢/.

It is thus apparent that this case is different from Federated

and that the perceived shift in the burden of proof in that case is

not involved here. Here there is no defense carved out by way of

proviso from an absolute and overinclusive prohibition, the

express wording of which in Federated compelled the court to

find a shift in the burden of proof. The order here is for all

practical purposes of the same form and effect as the order

approved in Western Radio Corp. and the order as modified in

Federated; it is not at all like the order struck down in Federated

(even though, we note, upheld in S.S.S. Co., supra). We find no

explicitness preventing “a validating interpretation”; rather, we

agree with the Seventh Circuit that a court in an enforcement

proceeding would recognize no shift in the burden of proof.

Norris asserts that

[w]ithout the slightest change in its meaning or

impact of the words being used, the order in the

instant case might just as well use the words that

Petitioner shall cease and desist from:

“{mJaking representations as to the safety

or performance of any product; provided,

however, that it shall be a defense in any

enforcement proceeding under this order

for petitioners to show:

(a) that such claims are fully and

completely substantiated by a reasonable

basis and

10a

Appendix A

(b) that such reasonable basis consists

of competent and objective material

available in written form.”

But the “change in... meaning or impact of the words being

used” is the very difference between the Commission's order in

Federated, which the court held was impermissible, and the

order that the court itself in Federated imposed. Under the order

in the instant case, the Commission has the burden of showing

in a civil penalty proceeding in federal district court both (1) that

Norris made a safety or performance representation and (2) that

it lacked adequate substantiation at the time that it made the

advertising claim. Under the Norris version above the

Commission would only have to show that Norris made the

claim. Norris’s failure, if any, to comply with the requirement of

prior substantiation is part of the Commission’s case;

compliance is not part of Norris’s case by way of defense.

To the extent that any such requirement imposes a burden,

it is more akin to a burden of production than a burden of

proof. The issue is whether the order as a whole is reasonable in

light of the Commission’s findings and its broad remedial

powers. See note 12 supra. As we stated recently in /7T

Continental Baking Co. v. FTC, 532 F.2d 207, 220-21 (2d Cir.

i976):

“(T]he Cummission has a wide discretion in its

choice of a remedy to ‘cope with the unlawful

practices’ disclosed by the record,” Fedders Corp.

v. FTC, 529 F.2d 1398, 1401 (2 Cir. 1976),

quoting FTC v. Mandel Bros. Inc., 359 U.S. 385,

392, 79 S.Ct. 818, 3 L.Ed.2d 893 (1959), and...

“[s]o long as the remedial order is reasonably

related to the unlawful practices found to exist,

the Commission’s order should be upheld.”

Fedders, supra, at 1402.

en

lla

Appendix A

See also Chrysler Corp. v. FTC, 182 U.S. App. D.C. 359, 366,

561 F.2d 357, 364 (1977). To that question we now turn.

B. The Commission's Statutory Power

Petitioners, perhaps in another way of making their first

point, argue that the order is beyond the Commission’s statutory

power because Section 5(a)(1) of the Act, 15 U.S.C. § 45(a)(1),

relates only to “unfair or deceptive acts” and does not define

violations with respect to prior substantiation and lack of

substantiation for the assertion made. This, if a representation

is true, the argument runs, no one is deceived or treated unfairly

by the mere lack of prior substantiation. But cases both without

and within this circuit have held otherwise in situations where a

seller or manufacturer has misrepresented safety or performance.

The Sixth Circuit has upheld an order prohibiting

representations as to tire performance or safety characteristics

“unless each such characteristic [is] fully and completely

substantiated by competent scientific tests.” Firestone Tire &

Rubber Co. v. FTC, supra, 481 F.2d at 250. This court has

upheld an order prohibiting claims as to the air cooling,

dehumidification, and circulation performance characteristics of

air conditioners unless the manufacturer “has a reasonable basis

for such statement or representation, which shall consist of

competent scientific, engineering or other similar objective

material or industry-wide standard based on such material.”

Fedders Corp. v. FTC, supra, 529 F.2d at 1400-01. And we

followed Fedders in spirit with /77T Continental Baking Co. v.

FTC, supra, 532 F.2d at 220-21, even though we there limited an

order that prohibited representations as to “nutritional

properties ... unless the advertised nutritional value can be

substantiated for the average and ordinary use of the product by

consumers.” But the ground of modification was that the order

was not reasonably related to the misrepresentation charged,

and /7T is not a limitation on the FT'C’s power to require prior

12a

Appendix A

substantiation in a proper case as a reasonable remedy for

specific deception practiced. See also National Dynamics Corp.

ve FTC. supra, 492 F.2d at 1336.

In cach case, of course, the prohibitions of the remedial

order must bear a reasowable relationship to the deceptive acts

found. Becr use there is no question that Norris wrongfully made

safety ana performance representations in the past, the

requirement of prior substantiation is properly imposed in the

remedial order as reasonably calculated to prevent violations of

the sort found to have been committed. The requirement is not

imposed as an‘additional burden on petitioners in respect to

their truthful claims; rather it prohibits only claims that they

cannot substantiate even while it permits continued advertising

on the basis of all truthful, objectively substantiated claims.

We agree with the FTC that its order is a “mereO

recogni{tion] that Jay Norris is in a better position than

consumers to evaluate safety and performance claims for

products sold by it and that, given the proven predilection of Jay

Norris to misstate these characteristics, the company [may]

henceforth be required to have a reasonable basis for such

claims.” In fact, as the Commission has pointed out, the

obligation that it imposes on Norris is “no greater than is

required of all advertisers under Section 5.” It is merely more

explicit. As a proper remedy for past violations, this much we

leave and must in the nature of the administrative

procedure to the agency's expertise and sound discretion.

C. The Order's Breadth and Definiteness of Terms

Petitioners argue, nevertheless, that this order is too broad

because it covers all of the myriad of its products when only six

13a

Appendix A

were shown to have been deceptively represented.'* Petitioners

also contend that the order is too vague and imprecise.

The broadness attack can be dealt with quickly. First, the

order covers only safety and performance representations, the

specific characteristics that petitioners are wont to exaggerate.

See note 2 supra. Second, as to the order’s coverage of items

other than those as to which deception has been specifically

found, it is well settled that this agency, like others, may fashion

its relief “as a prophylactic and preventive measure,” FTC v.

Mandel Brothers, Inc., 359 U.S. 385, 392-93, 79 S.Ct. 818, 824, 3

L.Ed.2d 893 (1959), to restrain other similar or related acts, at

least where the misrepresentations have been so extensive and so

substantial in number. Where misrepresentation is “not

restricted to an isolated instance but [is] found in numerous

advertisements ... courts have often upheld FTC orders

encompassing all products or all products in a broad category,

based on violations involving only a single product or group of

products.” /7T Continental Baking Co. v. FTC, supra, 532 F.2d

at 223 (collecting cases). In this case, “all product” coverage is

particularly appropriate because the six particular products

specifically mentioned in the complaint are random samplings of

Norris’s inventory, see note 10 supra, which is constantly

changing and which petitioners could manipulate to avoid the

substantiation requirement if the order were directed only

against specific products. As the Supreme Court said in FTC v.

Colgate-Palmolive Co., 380 U.S. 374, 395, 85 S.Ct. 1035, 1048.

13 L.Ed.2d 904 (1965), “it [is] reasonable for the Commission to

prevent . . . similarly illegal practices in future advertisements.”

So, too, in tailoring a remedial order to fit future proclivities,

the Commission may take into account petitioners’ past history

of noncompliance. See Motion Picture Studio Mechanics, Local

52 v. NLRB, 593 F.2d 197, 200-01 (2d Cir. 1979), following

13. Because the complaint was limited to these six items, the

Commission's counsel was prevented by the administrative law judge trom

introducing evidence as to other items.

l4a

Appendix A

NLRB v. Express Publishing Co., 312 U.S. 426, 436-37, 61 S.Ct.

693, 85 L.Ed. 930 (1941); see also K. Davis, Administrative Law

Treatise §8.19 (1958 & 1970 Supp.).

Petitioners’ argument that the order is vague and imprecise

must stand or fall with the same arguments regarding the

relationship of the order to the unlawful practices found. Thus, ©

although the Supreme Court quoted from cases holding that “an

order's prohibitions ‘should be clear and precise in order that

they may be understood by those against whom they are

directed,’” especially because of the severe penalties to which

violators may be subject, citing FTC v. Cement Institute, 333

U.S. 683, 726, 68 S.Ct. 793, 92 L.Ed. 1010 (1948), and FTC v.

Henry Broch & Co., 368 U.S. 360, 367-68, 82 S.Ct. 431, 7

L.Ed.2d 353 (1962), the Court reiterated in the same breath that

“it does not seem ‘unfair to require that one who deliberately

goes perilously close to an area of proscribed conduct shall take

the risk that he may cross the line.’” FTC v. Colgate-Palmolive

Co., supra, 380 U.S. at 392-93, 85 S.Ct. at 1046, quoting from

Boyce Motor Lines, Inc. v. United States, 342 U.S. 337, 340, 72

S.Ct. 329, 96 L.Ed. 367 (1952). The Court in Colgate implied

that justified broadness did not make an order too vague; and as

noted above, it upheld an order prohibiting similar practices

with respect to any product that the company advertised.

Petitioners’ vagueness fears can be assuaged by resort to the

Commission’s rules.

If . . . a situation arises in which [petitioners] are

sincerely unable to determine whether a proposed

course of action would violate the present order,

they can, by complying with the Commission’s

rules, oblige the Commission to give them

definitive advice as to whether their proposed:

action, if pursued, would constitute compliance

with the order.

lSa

: Appendix A

Colgate-Palmolive, supra, 380 U.S. at 394, 85 S.Ct. at 1047

(footnote omitted). Accord, Fedders Corp. v. FTC, supra, 529

F.2d at 1404; see 16 C.F.R. §3.61(d).

D. The Use of Adjudication in Lieu of Rulemaking

In reliance on NLRB v. Wyman-Gordon Co., 394 U.S. 759,

89 S.Ct. 1426, 22 L.Ed.2d 709 (1969), petitioners maintain that

the present order is in reality a disguised form of rulemaking

intended to have general applicability. The Wyman-Gordon

case, however, turned on a much different set of circumstances.

The procedure challenged there was that the agency was relying

on a “rule” that it had announced in an earlier unrelated

adjudicatory proceeding in which the NLRB invited employer

groups and trade unions to submit briefs as amici curiae and

imposed only prospective application of the procedure adopted.

The plurality held that the procedure could not be applied to

Wyman-Gordon as a rule of general applicability because it had

been set forth not by rulemaking but by adjudication. There is

no such conduct in the present proceedings, and petitioners

completely miss the holding of Wyman-Gordon that in

fact sustained the NLRB’s application to the company

in the context of the adjudicatory proceeding

against the company of the very procedure invalidated as a rule

of general applicability. The procedure, although not a rule of

agency practice because of non-compliance with rulemaking

requirements, was nevertheless a valid order specifically directed

against the company. Norris was similarly involved in an

adjudicatory proceeding with an agency whose order against it is

properly imposed in that context.

Norris also argues that the Commission should not apply a

standard of prior substantiation unless it undertakes to do so

“by a proposed industry-wide rule applicable to representations

made by all companies in the industry, in accordance with the

rule-making machinery provided by Congress.” In the absence of

16a

Appendix A

an abuse of discretion in the particular case, however, the agency

is not required to proceed by rulemaking rather than

adjudication. Wyman-Gordon did not alter the established rule

that “the choice between rulemaking and adjudication lies in the

first instance in ‘he [agency’s] discretion.” NLRB v. Bell

Aerospace Co., 416 U.S. 267, 294, 94 S.Ct. 1757, 1771, 40

L.Ed.2d 134 (1974). In light of the number and severity of

Norris's violations as well as its past history of violations, the

Commission has adequately supported its decision to proceed

against Norris by adjudication, and it properly imposed the

requirement of prior substantiation in its discretion in fashioning

a remedy. As the Commission correctly points out in its brief, “a

demonstrated violator may appropriately be fenced in by being

put to a duty somewhat greater than the Act may require of the

world at large.” “{[T]hose caught violating the Act must expect

some fencing in.” FTC v. National Lead Co., 352 U.S. 419, 431,

77 S.Ct. 502, 510, 1 L.Ed.2d 438 (1957). See note 12 supra.

E. First Amendment Considerations

Petitioners’ final attack on the Commission’s order is based

on the line of recent Supreme Court cases extending the

protections of the First Amendment to commercial speech.'4

14. The cases include Pittsburgh Press Co. v. Pittsburgh Comm'n on

Human Relations, 413 U.S. 376, 93 S.Ct. 2553, 37 L.Ed.2d 669 (1973)

(commercial advertising protected, but specific bar to sex-designated want ads

upheld): Bigelow v. Virginia, 421 U.S. 809, 95 S.Ct. 2222, 44 L.Ed.2d 600

(1975) (advertisement of abortions referral agency not subject to criminal

punishment): Virginia State Bd. of Pharmacy v. Virginia Citizens Consumer

Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976) (holding

unconstitutional statute that declared advertising of prices of prescription

drugs by licensed pharmacist to be unprofessional conduct); Linmark

Associates, Inc. v. Willingboro, 431 U.S. 85, 97 S.Ct. 1614, 52 L.Ed.2d 155

(1977) (ordinance prohibiting real estate “For Sale” or “Sold” signs, ostensibly

‘ to prevent “white flight,” held unconstitutional); Bates v. State Bar of Arizona,

433 U.S. 350, 97 S.Ct. 2691, 53 L.Ed.2d 810 (1977) (routine legal services may

(Cont'd)

17a

Appendix A

Petitioners argue that the order runs afoul of First Amendment

prohibitions, or at the very least amounts to a prior restraint,

because it reaches even truthful speech if not substantiated.

The use of the requirement of substantiation as regulations

is clearly permissible. Commercial transactions are still subject

to governmental regulation, Ohralik v. Ohio State Bar

Association, 436 U.S. 447, 455-56, 98 S.Ct. 1912, 56 L.Ed.2d 444

(1978); and false or misleading commercial advertising does not

have the same protections that similar noncommercial speech

may have. See Virginia State Board of Pharmacy v. Virginia

Citizens Consumer Council, Inc., 425 U.S. 748, 771-72, 96 S.Ct.

1817, 48 L.Ed.2d 346 (1976); see also Ohralik, supra. Untruthtul

commercial speech, or even deceptive or misleading commercial

speech, is clearly subject to restraint. Bates v. State Bar of

Arizona, 433 U.S. 350, 383, 97 S.Ct. 2691, 53 L.Ed.2d 810

(1977); Virginia State Board, supra. Only because of petitioners’

business practices is truthful speech indistinguishable trom

deceptive speech except by reference to reasonable

substantiation for the representations. Petitioners can be

constitutionally required to make the distinction obvious in this

way.

Even since the briefs in this case were filed, the Supreme

Court, on the basis that “restrictions on false, deceptive, and

misleading commercial speech” are “permissible,” upheld a

Texas statute prohibiting the practice of optometry under an

assumed name, trade name, or corporate name. Friedman v.

Rogers, U.S. 99 S.Ct. 8&7, 894, 59 L..Ed.2d 100

(Cont'd)

be advertised). See also Beneficial Corp. v. FTC, 542 F.2d 611 (3d Cir. 1976).

cert. denied. 430 U.S. 983, 97 S.Ct. 1679, 52 L.Ed.2d 377 (1977) (overturning

ETC ban on “Instant Tax Refund” advertising).

See Pitofsky, Beyond Nader: Consumer Protection and the Regulation of

Advertising, 90 Harv.L.Rev. 661, 671-73 (1977).

18a

Appendix A

(1979). The FTC is charged by Congress with the duty of

protecting consumers from the deceptive and misleading use of

commercial speech or advertising, a substantial and, to use the

Supreme Court's phrase in Friedman, “well-demonstrated,” id.

at ___, 99 S.Ct. 887, interest made national under the

Commerce Power. The instant order does no more, and it may

even do less, than the Texas statute in Friedman, in imposing

conditions to avoid deceptive commercial speech; as such it does

not infringe the First Amendment. The prohibition in Friedman

was a total ban on a business practice or form of advertising

because of the potential for deception; the prohibition here is

only of actually unsubstantiated safety and performance

advertising claims for which Norris has shown a marked

predisposition. Petitioners must accordingly help enable the

public to tell the truthful from the false.

Under traditional First Amendment doctrine, the issue of

prior restraint would still remain. We note, however, that even

as the Supreme Court held certain commercial speech protected

from absolute prohibition, it has seen fit to comment twice

already in the short life of First Amendment protection for

commercial speech that the doctrine of prior restraint may be

inapplicable. See Friedman, supra, U.S. at —... & n. 9,

S.Ct. 887: birginia State Board, supra, 425 U.S. 771 n. 24, 96

S.Ct. 1817, 48 L.Ed.2d 346. On this open question we hold only

that because the FTC here imposes the requirement of prior

substantiation as a reasonable remedy for past violations of the

Act, there is no unconstitutional prior restraint of petitioners’

protected speech.

Ill. MODIFICATION

Although we reject petitioners’ attacks on the Commission's

order, we rephrase the order in the interest of clarity. We find

the order as it comes to us ungrammatical as well as badly

worded. We modify it to prohibit petitioners from representing

19a

Appendix A

the safety or performance characteristic(s) of any product unless

petitioners have a reasonable basis for the representation(s)

consisting of competent and objective material, available in

written form, that fully and completely substantiates such

representation(s).

As modified, enforcement granted. Motion of the parties

dated February 21, 1979, for modification of the order of the

FTC granted.

20a

APPENDIX B — OFFICIAL REPORT OF

ADMINISTRATIVE PROCEEDINGS 91 F.T.C. 751) ET

SEQ.

In THE MATTER OP

JAY NORRIS CORP., ET AL.

ORDER, OPINION, ETC., IN REGARD TO ALLEGED VIOLATION OF

THE FEDERAL TRADE COMMISSION ACT

Docket 9054. Complaint, Sept. 3, 1975—Final Order, May 2, 1978

This order, among other things, requires a Freeport, L.1., N.Y. mail-order house to

cease misrepresenting, in the advertising and sale of consumer products, that

dissatisfied customers will receive prompt refunds; and that exchanges and

refunds are expeditiously processed; that all parcels are insured against loss

or damage; and that non-delivery is caused by the United States Postal

Service. The order requires that purchases be shipped within time periods

specified, and in the event of shipping delays, customers must be offered the

option of consenting to the delays or cancelling their transactions. The firm is

further obligated to honor such cancellations and to make proper refunds in a

timely manner. The order further prohibits the company from making false

or unsubstantiated claims regarding the characteristics, efficacy, perfor-

mance, safety, and value of its consumer products. Additionally, the order

requires the corporation and the Pan-Am Car Distributors Corp., both

engaged in the advertising and sale of used motor vehicles, to cease

misrepresenting that their vehicles have been inspected and repaired in

preparation for delivery to purchasers; or that they are in a safe mechanical

and operation condition and will render normal, adequate and satisfactory

service.

Allegations of the complaint are dismissed as to Fecierated Nationwide Wholesalers

Service, Garydean Corp., t/a Nationwide \Wholesalers Service, and P-N

Publishing Company, Inc.

Appearances

For the Commission: Irving C. Koch and Sol Grand.

For the respondent: Robert Ullman, Bass, Ullman & Lustigman,

New York City.

CoMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act,

and by virtue of the authority vested in it by said Act, the Federal

Trade Commission, having reason to believe that Jay Norris Corp.,

Federated Nationwide Wholesalers Service, Garydean Corp., a

Corporation trading as Nationwide Wholesalers Service, P-N Publ-

ishing Company, Inc., a corporation, Pan-Am Car Distributors Corp.,

& Corporation and Joel Jacobs, Mortimer Williams and Kenneth

individually and as officers of said corporations, hereinafter

referred to as the respondents, have violated the provisions of said

Act, and it appearing to the Commission that a proceeding by it in

21a

Appendix B

respect thereof would be in the public interest, hereby issues its

complaint, stating its charges in that respect as follows:

I, RESPONDENTS

PARAGRAPH 1. Respondents Jay Norris Corp., Federated Nation-

wide Wholesalers Service, Garydean Corp., trading as Nationwide

Wholesalers Service, [2] P-N Publishing Company, Inc., and Pan-

Am Car Distributors Corp. are corporations organized, existing and

doing business under and by virtue of the laws of the State of New

York, with their principal offices and place of business located at 31

Hanse Ave., Freeport, Long Island, New York.

Individual respondents Joel Jacobs and Mortimer Williams are

officers of said corporations. Kenneth Mann is an officer of Pan-Am

Car Distributors Corp. They formulate, direct and control the acts

and practices of the corporate respondents including the acts and

practices hereinafter set forth. Their business addresses are the

same as that of the corporate respondents.

Il. NATURE OF RESPONDENTS’ BUSINESS

Par. 2. Respondents are engaged in the advertising, offering for

sale, sale and distribution of numerous articles of merchandise by

mail order which they offer through newspaper, magazine, and

catalog advertisements, including roach powder, TV antennas, socks,

flashlights, flame guns, jewelry, books, girdles, watches, home

furnishings, cheeses, ex-taxis sold as used cars and numerous other

articles of merchandise. .

Par. 3. Respondents in the course and conduct of their business

have been and are now engaged in the advertising, offering for sale,

sale and distribution of merchandise which they ship or cause to be

shipped when sold, from the State of New York to purchasers located

in various other States of the United States or directly from

manufacturers and distributors located in various other States to

purchasers located throughout the nation, and have maintained a

substantial course of trade in said merchandise in or affecting

commerce as “commerce” is defined in the Federal Trade Commis-

sion Act.

Par. 4. Respondents are now, and at all times mentioned herein

have been, in substantial competition in commerce with other

corporations, [3] firms and individuals engaged in the sale and

distribution of products of the same general kind and nature as those

sold by respondents.

22a

Appendix B

Ill. ACTS AND PRACTICES ~ REPRESENTATIONS

Par. 5. In the course and conduct of their business, and for the

purpose of inducing the purchase of their products, respondents have

made statements and representations in the advertising, offering for

sale, sale and distribution of their products through flyers, catalogs,

brochures and advertisements published in mail order catalogs and

national newspapers and magazines.

Par. 6. The statements and representations made as alleged in

Paragraph Five hereof, include statements regarding respondent's

guarantees, deliveries and refunds. Typical and illustrative, but not

all inclusive, of statements and representations with respect to their

guarantees, deliveries and refunds, are the following:

30-DAY MONEY-BACK GUARANTEE Mail No-Risk Coupon Now

ORDER BY MAIL WITH CONFIDENCE 30-DAY MONEY-BACK GUARANTEE

30-DAY MONEY-BACK GUARANTEE ON ALL PURCHASES

30-DAY MONEY-BACK GUARANTEE ON ALL PURCHASES CHRISTMAS DELIV-

ERY GUARANTEED IF YOU ORDER NOW

BUY WITH CONFIDENCE! If not delighted, return your order within 30 days for

refund of full purchase price

MONEY-BACK IF NOT DELIGHTED-SEND CHECK OR MONEY ORDER

QRDER NOW PROMPT DELIVERY GUARANTEED

“PERSONAL CHECKS” To insure immediate shipment of your order, please have

your check certified. [4] Otherwise, allow about 2 weeks until your check clears your

benk

Satistaction quaranteed or money refunded

YOUR CUARANTEE OF SATISFACTION. . .Everything you buy from JAY

NORRIS CORP. is ALWAYS FIRST QUALITY. Any item not up to your expectations

return in 30 days for full refund.

Unless item is marked express collect, use this easy chart to figure postage insurance,

shipping and handling charges. It’s only part of the delivery cost-we pay the rest.

-If Your Order Is- wp to

$15.00 add $1.70

$15.01 to $20.00 add $2.20

$20.01 to $30.00 add $3.20

$30.01 to $40.00 add $4.20

$40.01 to $50.00 add $5.20

$50.01 to $60.00 add $6.00 a"

over $00.00 add $7.20 ee

23a

Appendix B

DIRECT FACTORY SHIPMENT:

Some items in this catalog are shipped direct from the factory. Such shipments are

sent to you Parcel Post, Express Collect or Freight Collect, depending on weights

REFUND: If for any reason, there is a refund due you after your order has been filled,

we will send you such refund promptly.

SHIPPING INFORMATION:

Orders are usually filled within 24 hours of receipt (with the exception of factory

shipments). . Allow 1 to 3 weeks for factory shipments to reach you. . .

Dear Customer:

Because you did not receive your order, we must assume that it was lost in the

mails. [5]

If you will be kind enough and return all these papers together with the original or

photostatic copy of your check or money order, showing that it was cashed by us, a

tracer will be placed and if necessary, a duplicate shipment will be made.

Please give us full details and information pertaining to the merchandise, such as

size, color, price, style number, etc.

We regret any inconvenience we may have caused you. Thank you for your

cooperation.

Very truly yours,

JAY NORRIS CORP.

Par. 7. Through the use of the statements and representations

alleged in Paragraph Six hereof, and others of similar import and

meaning, respondents have represented, and are now representing,

directly or by implication, that:

1. Merchandise paid for by a certified check is shipped to

purchasers immediately.

2. Merchandise paid for by a non-certified check is shipped to

purchasers about two weeks after said check has been approved for

payment at the purchaser’s bank.

8. The full purchase price of the product plus all additional

charges paid by the purchaser in connection with said purchase are

refunded by respondents if the purchaser is dissatisfied for any

reason.

4. A sum of money in the form of cash, check, money order or

other negotiable currency is refunded to purchasers if they are

dissatisfied for any reason.

5. Pursuant to respondents’ 30-day money back. guarantee,

purchasers will receive a full refund if the merchandise is returned

to respondents within 30 days from the date of the purchaser's

receipt of said merchandise. [6]

6. In a substantial number of cases, the non-delivery of the

24a

Appendix B

purchaser’s order, is caused by the loss of the merchandise by the

United States Postal Service.

7. Purchasers of respondents’ products pay only part of the

delivery cost and the respondents absorb the remaining portion of

said cost.

8. Exchanges or refunds are expeditiously processed by respon-

dents.

9. All parcels shipped to purchasers, except those items marked

express collect, are insured against loss, damage or other casualty by

respondents.

Par. 8. In truth and in fact:

1. In numerous instances, merchandise paid for by a certified

check is not shipped to purchasers immediately. Delays of as long as

one month to one year have been encountered.

2. In numerous instances, merchandise paid tor by a non-

certified check is not shipped to purchasers about two weeks after

said check has been approved for payment at the purchaser’s bank.

Delays of as long as one month to one year have been encountered.

3. The full purchase price of the product, plus all additional

charges paid by the purchaser in connection with said purchase, are

not refunded by respondents if the purchaser is dissatisfied. Postage,

handling, shipping and insurance claims are deducted by respon-

dents from the full purchase price.

4. A sum of money in the form of cash, check, money order or

other negotiable currency is not refunded to purchasers if they are

dissatisfied for any reason. Respondents [7] give purchasers a credit

certificate which must be used to purchase merchandise from the

respondents or be returned to the respondents in order to receive a

cash refund.

5. Pursuant to respondents’ 30-day money back guarantee

purchasers do not receive a full refund if the merchandise is

returned to respondents within 30 days from the date of the

purchaser’s receipt of said merchandise.

6. In numerous instances, the non-delivery of the purchaser’s

order is not caused by the loss of the merchandise by the United

States Postal Service. Rather, respondents have failed to ship the

ordered merchandise.

7. In numerous instances, the respondents do not absorb a

portion of the delivery cost. Purchasers of respondents’ merchandise

Pay the full cost of delivery. 4°

8. In numerous instances, exchanges or refunds are not expedi-

tiously processed by respondents. Delays of many months have been

25a

Appendix B

encountered and only after purchasers write to the respondents and

to governmental authorities are refunds received.

9. All parcels shipped to purchasers except those items marked

express collect, are not insured against loss, damage or other

casualty by respondents.

Therefore, the statements and representations, alleged in Para-

graph Six hereof, were, and are, unfair or deceptive.

Par. 9. The statements and representations made as alleged in

Paragraph Five hereof include statements and representations

regarding the performance, efficacy and other characteristics of

respondents’ products. Typical and illustrative, [8] but not all-

inclusive, of the statements and representations with respect to

product performance, efficacy and other characteristics are the

following:

FLAME GUN

NEW JN INSTAJET PROPANE FLAME GUN THE WORK-SAVER THE

HEART-SAVER LIGHTWEIGHT, EASY-HANDLING FASTEST WAY WE

KNOW TO CLEAR AWAY ICE AND SNOW!.. . Whips through even the

heaviest drifts. Clears walks and driveways. Routs Clogged gutters of ice and

old leaves.

Thaws frozen pipes . . . . Produces a clean hot flame for up to 14 hours on a

single propane cylinder-easily obtainable at hardware, paint and department

stores...

Just aim The Flame Gun and watch it dissolve the heaviest snow drifts, whip right

through the thickest ice. . . in seconds!

SOCKS

YOU'LL NEVER NEED TO BUY ANOTHER PAIR OF SOCKS AGAIN FOR THE

REST OF YOUR LIFE. (unless your laundry loses them) .. . IMMEDIATE

DELIVERY GUARANTEED

... Guaranteed to wear forever in normal use - that “normal use” simply means

don't burn holes in them deliberately, or try to cut them with scissors or razor. - -

i ible we

These revolutionary 8-ply nylon socks are made of yarn so indestructib

unconditionally guarantee to give you FREE replacement pair for pair - for any you

ever wear a hole in! 6 pair only $7.98 12 pair for $14.98 [9]

ROACH POWDER

CH NESTS

of roaches ONCE AND FOR ALL! SURE-KILL WIPES OUT ROA

on Y00 PAY NOTHING Roaches can’t resist Sure-Kill. They devour its odorless

white powder and crawl to their nests, where they die. Then, # deadly chain reaction

26a

Appendix B

starts, that wipes out every roach and every egg in the nest. Sure-Kill is safe to use,

and never loses its killing power-even after years. A single can cleans out 6 to 8 rooms

GUARANTEED ROACH-FREE FOR 5 YEARS. Sure-Kill roach killer is guaranteed

by the manufacturer to prevent reinfestation for up to 5 years when used as directed

and left in place.

UNCONDITIONAL GUARANTEE Our roach killer is guaranteed by the manufactur-

er to prevent reinfestation when used as directed and left in place or your money back

. Completely safe to use, and never loses its killing power-even after years. . .

TV ANTENNA

ELECTRONIC MIRACLE TURNS YOUR HOUSE WIRING INTO JUMBO TV

ANTENNA. . ONLY $1.99 - 2 for $3.65 now you can bring in every channel in your

area sharp and clear without installing an expensive outdoor antenna or using

unsightly rabbit ears. This simple little invention does the trick. You attach it easily

and quickly to your TV set, then plug it into wall outlet. . .makes your home wiring a

huge antenna for super reception. . .

Every home a super receiver ELECTRONIC MIRACLE [10] TURNS YOUR HOUSE

WIRING INTO A JUMBO TV ANTENNA... .

. . Do you know that you have one of the greatest TV antennas ever constructed? It’s

better than any set of rabbit ears, more efficient than complicated external antennas.

It's your house. Yes, the wiring in your home constitutes a great antenna that acts as

a super receiver for TV, FM, all kinds of difficult reception. . . .

FLASHLIGHT

NEW! 5 - YEAR FLASHLIGHT USED ON THE APOLLO MISSIONS DEVELOPED

FOR AMERICA’S ASTRONAUTS Totally new and revolutionary power cell

(developed and used by the government in manned moon flights) keeps this flashlight

shining bright for at least 5 years with 10 times the staying power of an ordinary

flashlight. No external switch to corrode or break. (NASA wanted a fool-proof switch

for their flashlight going to the moon). Now you can have it for your car or home -

YOUR COST $7.99, 2 for $14.99

ABSOLUTE 5 - YEAR GUARANTEE Every command modual flashlight carries this

absolute 5 - year guarantee. Carry your flashlight with you, keep it at home. It must

work even if you haven't touched it for 5 years or your money back. So don't be

another minute without the one safety element every car, every family needs.

CARS

BUY CHOICE. . - NOT CHANCE Buy direct and get the carefully maintained car of

your choice below wholesale price. All cars are standard four door, six passenger

sedans equipped with automatic transmissions, heater, defroster and*feature durable

‘inyl interiors. They have been in regularly maintained fleet use and derviced far

Dore frequently than the average car owner can afford to do. Each car has been

ly serviced by our mechanics [11] to put it in good operating condition and

Passes careful inspection before being released for delivery. These top-quality ex-taxis

27a

Appendix B

have been carefully selected for best value. . . We offer these fine cars at the prices

shown (F.0.B., N.Y.) There are no hidden costa. . . .

IDEAL FOR PERSONAL USE OR TO RESELL AT A PROFIT!

1970 DODGE CORONET, AUTOMATIC TRANSMISSION $999.

1969 FORD CUSTOM DODGE CORONET, AUTOMATIC TRANSMISSION $799.

1969 CHEVROLET BISCAYNE, AUTOMATIC TRANSMISSION, $899.

Only Pan Am gives you this 100% o.k. checkout certificate. Dependable Pan Am gives

you a good car at a low price. Our highly trained mechanics double-check each car for

all the terms below. When a car leaves our premises it is checked out as follows:

Brakes Fan Belt ~ Starter

Plugs Spare Tire Water Pump

Points Jack Fuel Pump

Lights Transmission Block

Battery Heater Color

Generator Defroster

MAIL THIS COUPON WITH YOUR DEPOSIT - ORDER AS MANY AS YOU WANT.

ALL CARS ARE SOLD ON AN AS IS FIRST ORDER FIRST SERVE BASIS.

LINCOLN - KENNEDY PENNY

NOW AVAILABLE THE ONLY LINCOLN-KENNEDY PENNY EVER MINTED

UNCIRCULATED COMMEMORATIVE LINCOLN HEAD PENNY WITH KENNE-

DY PROFILE Here's unusual news for collectors and anyone interested in unique

commemorative issues. . .issues that may never be repeated again. A new uncirculat-

ed Lincoln Head penny is now available. This (12) unique coin shows the profile of

President Kennedy stamped on the surface looking at President Lincoln. The

relationship is uncanny. Never released for ordinary use, the coin is perfectly legal

tender and is sanctioned by Section 332 of the U.S. Code. As a coin of both historical

and numismatic significance it is certain to become a collector's item that will grow

and grow in value. Because, however, this coin is not in circulation, you may obtain it

only through an offering of this sort, and we urge you to order now, avoid

disappointment. And if you order right away, you will also receive the Plaque of

Coincidences showing the startling parallels in the career of these two tragic figures.

. .. These and many more astonishing coincidences are yours in your Free Plaque of

Coincidential Facts when you order The Lincoln-Kennedy Commemorative Penny.

Par. 10. Through the use of the statements and representations

alleged in Paragraph Nine hereof, and others of similar import and

meaning, respondents have represented and are now representing,

directly or by implication that:

FLAME GUN

1. The “JN INSTA-JET PROPANE FLAME GUN” is able to whip through

28a

Appendix B

the heaviest snow drifts and the thickest ice in seconds and is

effective and efficient in clearing walks and driveways of ice and

snow.

SOCKS

Respondents’ nylon socks are indestructible.

Respondents’ nylon socks last forever.

oo po

ROACH POWDER

4. Respondents’ roach powder is safe to use. _

5. Respondents’ roach power gets rid of roaches once and for all.

13

| : Respondents’ roach powder creates a deadly chain reaction

which eliminates and kills roaches and eggs.

7. The manufacturer has unconditionally guaranteed that res-

pondents’ roach powder prevents reinfestation when used as directed

and left in place or it will refund money.

8. Respondents’ roach powder does not lose its capacity to kill

under any conditions of use.

TV ANTENNA

9. Respondents’ TV antenna will bring sharp and clear reception

even in difficult areas.

10. The performance of respondents’ TV antenna is superior to

any rabbit ear antenna or outdoor antenna.

11. Respondents’ TV antenna will turn all types of house wiring

into a TV antenna.

12. Respondents’ TV antenna is an electronic miracle.

FLASHLIGHT

13. Respondents’ “FIVE YEAR FLASHLIGHT” carries an absolute 5-

year guarantee.

CARS

14. Cars delivered to purchasers are in good mechanical and

physical condition.

15. Cars delivered to purchasers are in safe operating condition.

16. Cars delivered to purchasers are finished and look as pictured

and described in respondents’ advertising materials. [14]

17. Cars are checked by expert mechanics and necessary repairs

are made prior to release for delivery. ay

29a

Appendix B

18. Cars delivered to purchasers are in sound condition and

repair and render normal, adequate and satisfactory service.

19. Respondents’ cars may be readily resold by the purchasers at

a profit.

20. Cars are regularly ordered and received in advance of their

being offered for sale and are held in stock until purchase orders are

received.

21. Respondents’ cars have undergone thorough and complete

servicing and inspection before being released and approved for

delivery.

22. Each price quoted for respondents’ motor vehicles is the full

price and there are no hidden costs.

23. Respondents bear the liability and responsibility of delivery

of cars to purchasers at any destination in the United States where

such purchasers may reside.

LINCOLN-KENNEDY PENNY

24. Respondents’ Lincoln-Kennedy penny was minted by the

United States Treasury Department.

25. Respondents’ Lincoln-Kennedy penny is a coin of historical

and numismatic significance which is certain to grow in value.

26. The issuance of respondents’ Lincoln-Kennedy penny was

sanctioned by Section 332, Title 18, U.S. Code.

27. A free plaque containing historical coincidences between the

lives of President Lincoln and President Kennedy is provided to

purchasers with each coin order. [15]

Par. 11. In truth and in fact:

FLAME GUN

1. The “JN INSTA-JET PROPANE FLAME GUN” is not able to whip

through the heaviest snow drifts and the thickest ice in seconds and

is not effective and efficient in clearing walks and driveways of ice

and snow.

SOCKS

2. Respondents’ nylon socks are not indestructible.

3. Respondents’ nylon socks do not last forever.

ROACH POWDER

4. Respondents’ roach powder is not safe to use. Ingestion of the

powder may cause sickness or death.

5. Respondents’ roach powder does not get rid of roaches once

30a

Appendix B

and for all. The roach powder is a formulation of boric acid which

works slowly. In many residential buildings cockroaches can reinfest

before they are eliminated.

6. Respondents’ roach powder does not create a deadly chain

reaction which eliminates and kills roach and eggs. Each cockroach

must contact the insecticide to be killed. Respondents’ roach powder

will not kill roach eggs. “i

7. The manufacturer has not unconditionally guaranteed that

respondents’ roach powder prevents reinfestation when used as

directed and left in place or it will refund money.

8. Respondents’ roach powder loses its capacity to kill under

certain conditions of use. If wet, it cakes and does not adhere to the

insects. If covered by grease or food deposits or non-insecticidal

dusts, it becomes ineffective. [16]

TV ANTENNA

9. Respondents’ TV antenna will not bring sharp and clear

reception in difficult areas.

10. The performance of respondents’ TV antenna is not superior

to rabbit ear antennas or to outdoor antennas.

11. Respondents’ TV antenna will not turn all types of house

wiring into a TV antenna. If house wiring is encased in metal, it is

shielded from the reception of any TV signals.

12. Respondents’ TV antenna is not an electronic miracle.

?

FLASHLIGHT

13. Respondents’ “FIVE YEAR FLASHLIGHT” does not carry

an absolute 5-year guarantee. The flashlight is guaranteed by the

manufacturer to store and remain usable for 5 years or to operate for

a total of 10 hours, which ever comes first. The manufacturer further

clearly states in its guarantee that the light will not stay “on”

continuously for 5 years.

CARS

14. In a number of instances, cars delivered to purchasers are not

in good mechanical and physical condition.

15. In a number of instances, cars delivered to purchasers are not

in safe operating condition.

16. In a number of instances, cars delivered to purchasers are not

finished and do not look as pictured and described in respondents’

advertising materials. [17]

17. In a number of instances, cars are not checked ‘by expert

uae

3la

Appendix B

mechanics and necessary repairs are not made prior to release for

delivery.

18. Cars delivered to purchasers are not in sound condition and

repair and do not render normal, adequate and satisfactory service.

19. Respondents’ cars may not be readily resold by the purchas-

ers at a profit.

20. In a number of instances, cars are not regularly ordered and

received in advance of their being offered for sale and are not held in

stock until purchase orders are received.

21. In a number of instances, respondents’ cars have not

undergone thorough and complete servicing and inspection before

being released and approved for delivery.

22. In numerous instances, each price quoted for respondents’

motor vehicles is not the full price and there are hidden costs.

Purchasers are often required to expend large sums of money for the

delivery of the cars or to enable cars to pass state motor vehicle

registration safety or inspection requirements or to put cars into safe

operating condition.

23. Respondents do not bear the liability or responsibility for

delivery of cars to purchasers at any destination in the United States

where such purchasers may reside.

LINCOLN-KENNEDY PENNY

24. Respondents’ Lincoln-Kennedy penny was not minted by the

United States Treasury Department. No branch of the United States

Government had anything to do with the production of this coin. [18]

25. Respondents’ Lincoln-Kennedy penny is not a coin of histori-

cal and numismatic significance which is certain to grow in value. It

is a privately produced novelty item using an ordinary penny.

26. The issuance of respondents’ Lincoln-Kennedy penny was not

sanctioned by Section 332, Title 18, U.S. Code. Section 332 refers to

the debasement of gold and silver coins by the physical removal or

dimunition of the gold or silver content.

27. A free plaque containing historical coincidences between the

lives of President Lincoln and President Kennedy is not provided to

purchasers with each coin order. The ordinary paper card upon

which the Lincoln-Kennedy penny is pasted is neither “free” nor is it

a “plaque.” Said card was never offered for sale by respondents at a

regular price but was always offered for sale in conjunction with the

penny.

Therefore, the statements and representations as alleged in

Paragraph Nine hereof were, and are, unfair or deceptive.

ee Wee

32a

Appendix B

TV. Acts or Practices - Farture To Disctose MATERIAL

Facts

Par. 12. In the further course and conduct of their business, as

aforesaid, respondents have made statements and representations as

aforesaid, without disclosing material facts. Such material facts

include, but are not limited to, the following:

FLAME GUN

Initial purchase of respondents’ flame gun does not include the

propane cylinder mentioned in respondents’ advertisements of its

flame gun. The propane cylinder, which is an essential component of

the flame gun, must be purchased at an additional cost. [19]

Respondents’ flame gun is not assembled when delivered but

rather must be assembled by purchasers after delivery.

ROACH POWDER

Respondents’ roach powder is 50% boric acid and 50% inert

ingredients.

Respoadents’ roach powder is hazardous. The product may be

harmful to human beings and pets. Special precautions should be

taken in the use of this product.

FLASHLIGHT

Respondents’ flashlight has an on life of 10 to 20 hours.

Manufacturer’s guarantee of respondents’ flashlight is not abso-

lute. The manufacturer guarantees that the light can be stored and

remain usable for 5 years or operate for a total of ten hours,

whichever comes first.

CARS

Respondents’ cars are ex-New York City taxicabs.

Respondents’ advertise that the cars are “FOB New York” and

‘As Is” without disclosing the import or meaning of those terms.

Respondents’ cars are not inspected for compliance with any state

motor vehicle inspection law.

Interiors of motor vehicles have not been cleaned or reconditioned

by respondents prior to their being offered for sale.

Drivers hired to deliver cars to purchasers are independent

contractors and are not respondents’ agents, servants or employ

_The aforesaid ‘material facts, if known to consumers would

likely to affect their consideration of whether or not to purchase

33a

Appendix B

respondents’ products. Therefore, the advertisements, acts or

practices, which fail to disclose the aforesaid material facts are

unfair or deceptive. [20]

V. Orner ACTS AND PRACTICES

Par. 13. In the further course and conduct of their business as

aforesaid respondents have:

(a) Deposited purchasers’ checks and money orders into their bank

accounts within three days to one week from receipt of such checks

and money orders and have failed to either ship the merchandise

ordered or to refund money for one month to one year;

(b) Failed to answer letters of inquiry from consumers or have

made inadequate responses which have thereby delayed or prevent-

ed purchasers, seeking deliveries of merchandise or refunds of their

money, from obtaining same; .

(c) Failed to provide a business telephone listing in the official

telephone directory for its location or in any published telephone

directory and have maintained an unlisted business telephone

number;

(d) Placed the burden of record keeping upon the purchasers who,

upon seeking a refund, exchange, or delivery of the advertised

merchandise ordered and paid for by them, have been required by

respondents to provide copies of their cancelled checks, original

order blanks or various correspondence received from respondents,

as well as the full details pertaining to the merchandise ordered such

as the size, color, price, style number and the date the order was

placed;

(e) Utilized numerous corporate and business names such as Jay

Norris Corporation, P.N. Publishing Corporation, Norris Nutrition,

Garydean Corp., Federated Nationwide Wholesalers Service, Feder-

ated Wholesalers Service, Nationwide Service, Cheese[21 Jlovers

International, Pan American Car Distributors Corporation, Associ-

ated Auto Wholesalers Corporation, American Value Corporation,

and various other corporate and business names, post office box

numbers and addresses, in such manner as to create confusion in the

minds of purchasers who are unable to relate all the names used to

the Jay Norris Corporation or to its principal owners.

Such business practices by respondents constitute unfair or

deceptive acts or practices and unfair methods of competition in

commerce in violation of Section 5 of the Federal Trade Commission

Act. 7

Par. 15. The use by respondents of the aforesaid unfair or

deceptive representations, acts and practices has had, and now has,

34a

Appendix B

the capacity and tendency to mislead members of the purchasing

public into the erroneous and mistaken belief that said statements

and representations were and are true and into the purchase of a

substantial volume of respondents’ products.

Par. 16. The aforesaid acts and practices of respondents as herein

alleged are all to the prejudice and injury of the public and of respondents’

competitors, constitute unfair methods of competition in or affecting

commerce and unfair or deceptive acts or practices in violation of Section

5 of the Federal Trade Commission Act.

IntTIAL DEcIsION BY MILES J. BROWN, ADMINISTRATIVE LAW

JUDGE

Aucust 31, 1977

PRELIMINARY STATEMENT

The Federal Trade Commission issued its complaint in this matter

on September 3, 1975 (mailed October 3, 1975), charging respondents

with unfair methods of competition in or affecting commerce and

unfair or deceptive acts or practices in or affecting commerce in

violation of Section 5 of the Federal Trade Commission Act, as

amended, (15 U.S.C. 45). [2]

In their answer, respondents denied that they had violated the

Federal Trade Commission Act as alleged in the complaint. They

asserted that the individual respondents acted only in their capacity

as corporate officers. They further asserted that the respondent

corporations, other than J. Norris Corp. (“Norris”) and Pan-Am Car

Distributors Corp. (“‘Pan-Am”), had nothing to do with the matters

which were the subject of the complaint.

Thereafter, for approximately ten months, there was sporadic

pretrial discovery occasioned by several long continuances prompted

by the fact that the complaint counsel originally assigned to this

matter was concurrently handling another adjudicative matter on

which she was the only Federal Trade Commission counsel of record.

On July 6, 1976, complaint counsel filed a list of witnesses containing

140 names. On August 2, 1976, complaint counsel filed her 219 page

list of Commission exhibits identifying 4236 numbered documents

(many multi-paged) and not cross-referenced to the allegations of the

complaint. Whereupon respondents’ counsel moved for an extension

of time until December 30, 1976, in which to file their witness and

document lists, on the grounds that the “overwhelming volume of

complaint counsel's avalanche of documents (not to mention the list

35a

ess Appendix B

.- %

of 140 witnesses) represents extraordinary cause for this request.”

(Motion for Rescheduling of Dates. . ., dated August 17, 1976.)

On September 9, 1976, the administrative law judge issued an

order requiring complaint counsel to file amended lists of proposed

exhibits and proposed witnesses and otherwise vacated all other

pretrial requirements therefore imposed on counsel. Shortly thereaf-

ter, other complaint counsel were assigned to this matter. On

November 30, 1976, substitute complaint counsel filed their amended

and abbreviated lists.

Adjudicative hearings commenced on January 11, 1977. Complaint

counsel concluded their case-in-chief on February 1, 1977, utilizing

14 trial days. Respondents’ answering case commenced February 28,

1977. On March 2, 1977, after three days of hearings, respondents’

counsel advised that respondent Joel Jacobs, the only remaining

witness for respondents, was incapaciated and he requested a

continuance of the hearings. After several hearing dates were

postponed, due to the continuing incapacity of Mr. Jacobs, the

parties, on April 21, 1977, filed a stipulation consenting to the

written testimony of Joel Jacobs, including questions and answers on

direct examination, as well as on cross-examination. On April 28,

1977, [3] the administrative law judge approved the stipulation and

directed that Mr. Jacob’s written testimony be incorporated into the

record.

On May 23, 1977, the administrative law judge was notified that

the exhibits, which had remained in the New York Regional Office

since the last hearing date of March 2, 1977, pending further

hearings for presentation of Mr. Jacob’s testimony, had been

delivered to the Secretary's office. On June 1, 1977, the administra-

tive law judge issued his order making certain corrections to the

record, closing the record for receipt of evidence, and establishing

due dates for filing of proposed findings and reply briefs."

Any motions appearing on the record not heretofore or hereby

specifically ruled upon either directly or by the necessary effect of

the conclusions in this initial decision are hereby denied.

The proposed findings and conclusions submitted by counsel

supporting the complaint (“CSCPF’’) and counsel for respondents

(Resp. PF’’) have been given careful consideration and to the extent

not adopted by this decision, in the form proposed or in substance,

are rejecied as not supported by the evidence or as immaterial.

This case deals with certain matters relating to the business of

selling, by mail-order, through advertisements disseminated by

* On August 16, 1977, the administrative law judge requested an extensinn of time until September 13, 1977, in

which to file this initial decision. On August 30, 1977, he was notified that the Commission had granted his request.

36a

Appendix B

catalogs and newspapers or magazines. Certain challenged acts and

practices relate to the handling of orders and shipments and, in

addition, to respondents’ handling of consumers’ inquiries and

complaints relative to non-delivery, money-back guarantees and

refunds. Other matters relate to c'tain advertising representations

concerning the efficacy, performance and characteristics of specific

products and the truth or falsity of such representations. Allegations

relating to the failure to disclose material facts were also included in

the complaint.

Having reviewed the entire record in this proceeding, and having

considered the demeanor of the witnesses? [4] together with the

pleadings, the proposed findings, conclusions, and arguments

submitted by counsel supporting the complaint and counsel for

respondents, I make the following findings of fact based on the

record considered as a whole:

FINDINGS AS TO THE FACTS

About the respondents.

1. Respondents Norris, Pan-Am, Federated Nationwide Wholes-

alers - Garydean Corp.’ (“Federated”) and P-N Publishing Company,

Inc. (“P-N”) are all New York corporations with their principal

offices located at 31 Hanse Ave., Freeport, Long Island, New York

(Compl. Par. 1; Ans. Par. 1).

2. Respondents Joel Jacobs (“Jacobs”) and Mortimer Williams

(“Williams”) are the sole shareholders, officers and directors of

Norris, Federated and P-N (Compl. Par. 1; Ans. Par. 1; Jacobs Wr.

D6A‘). Jacobs is president of Norris (Jacobs 120). Williams is vice

president and secretary-treasurer of Norris (Jacobs 122; Williams

162). Williams is president of P-N (Williams 162) and secretary-

treasurer of Federated (Williams 162).

3. Respondents Jacobs, Williams and Kenneth Mann (“Mann”)

are the shareholders and officers and directors of Pan-Am (Compl.

Par. 1; Ans. Par. 1). Williams is treasurer of Pan-Am (Williams 163).

Mann is vice president of Pan-Am (Mann 218). In addition, Mann is

Service Director of Future Motors, a new car franchise dealer in

Long Island City, New York, selling Dodge taxicabs and other make

Dodge vehicles (Mann 212).

sda MOD MnieNee mite Biodome aie eee

behalf of complaint counsel (160).

* It w not clear whether “Garydean”™ is “Gary Dean™ (See Jacobse Wr. D4A).

* “Wr” refers to i i “D6A”"

Jacobs’ written testimony. “D6A refers to his answer to question 6 on direct examination by

37a

Appendix B

4. Norris is a “gift and novelty” mail-order company selling

general merchandise to the consumer (CX 405-7, 409-10). It has been

engaged in this business since 1953 (Jacobs 120-1).

5. Pan-Am was in the business of selling cars to consumers by

mail (Jacobs 126). It became inactive in 1975 (Jacobs 128; Mann 213).

(5)

6. Federated Wholesalers Service - Garydean trading as Nation-

wide Wholesalers Service was incorporated as one name (Jacobs

128). It was in the business of operating consumer buying clubs, ce.

finding persons who were interested in buying merchandise at lower

prices, and introducing consumers to mail-order companies located

throughout the country (Jacobs 129; see CX 741). Nationwide ceased

to operate in 1973; Federated ceased to be active in 1974; and

Garydean ceased to operate in 1972 (Jacobs 128-9; Wr. D4A). On

several occasions respondents used the name “Nationwide” in “price

testing” advertisements in connection with the Norris business (Wr.

D12A; D31A; Williams 172).

7. P-N, inactive for the last ten years, was set up to publish a

sales opportunity magazine. For a short time it also engaged in the

mail-order sale of higher priced general merchandise (Jacobs 127;

Wr. D16A). On several occasions respondents have used the name

“P.N. Publications” in connection with advertising under their

master contract with TV Guide Magazine (see Jacobs Wr. D21A;

D24A; see Finding 38).

8. Respondents Jacobs and Williams formulate, direct and

control the policies of the respondent corporations Norris, Federated

and P-N (Compl. Par. 1; Ans. Par. 1).

9. Respondents Jacobs, Williams and Mann formulate, direct and

control the policies of the respondent corporation Pan-Am (Compl.

Par. 1; Ans. Par. 1).

10. Respondents Jacobs and Williams, along with others not

respondents herein, also have business interests in other mail-order

corporations not named as respondents in this proceeding, such as

Cheeselovers International, Inc. (Jacobs Wr. D34-44A; see CX 2065)

and Overseas Discount Shopping Services, Ltd. (Jacobs Wr. D51-

53A).

About commerce and competition.

11. In the course and conduct of its business, Norris causes to be

published and mails its catalog to prospective consumers located

throughout the United States. In addition, it does substantial

national advertising in such magazines as TV Guide and places

advertisements in newspapers with interstate circulation (CX 1963;

38a

Appendix B

Jacobs 123). Also, in the course and conduct of its business, Norris

mails or otherwise causes the distribution of merchandise to

purchasers located throughout the United States. [6]

12. In the course and conduct of its business, Pan-Am causes to

be published in the Norris catalog advertisements for its cars. Also in

the course and conduct of its business, Pan-Am delivers cars to

purchasers thereof located outside the State of New York (see

Finding 49).

13. Respondents Norris, Pan-Am and J acobs, Williams and Mann

are engaged “in commerce” as “commerce” is defined in the Federal

Trade Commission Act, and business practices relating to the

matters alleged in “he complaint are “in commerce” and “affect

commerce” within the meaning of such terms as set forth in the

Federal Trade Commission Act.

14. Respondents Norris, Pan-Am and Jacobs, Williams and Mann

are in substantial competition in commerce with others engaged in

mail-order businesses distributing and selling various products in

commerce (see Jacobs 124).

(NOTE: The term “respondents,” as it may appear hereinafter

in Findings Nos. 15-48, refers to the Jay Norris Corporation,

Joel Jacobs and Mortimer Williams, only (see Discussion, p. 58).]

About guarantees, deliveries, and refunds ~

Advertising

15. In the Norris catalogs (see CXs 405, 406, 407, 409, 410) certain

statements are made concerning guarantees, deliveries and refunds.

For example, the phrase “30 Day MONEY-BACK GUARANTEE ON ALL

PURCHASES” appears prominently on the front cover (CX 409). It is

also stated: “Personal Checks: to insure immediate shipment of your

weeks until your check clears the bank.” (CX 409, order blank). On |

page 33 of CX 409 the following phrase appears: “30 day money back

guarantee on al! items in this catalog.”

Other statements include:

Unless item is marked express collect, use this easy chart to figure-postaga insurance,

shipping and handling charges. It's only part of the delivery cost - we pay the rest.

If your order ia up to-

39a

Appendix B

ST ab itiisdasietsaitirts ale bcaciaiesaiinidtseilaeslabhapdiisbhasiaiaes atic abt add $1.70

I ntitchis onihntembaciiasetiohanaaiesubidiadinkanbe ice sd add $2.20

RRR Dm RET ae Sea = add $3.20

SN IIT ci cn cnnudcdbeunendindnennadanecdsuabediacoe: add $4.20

I IIE, tins ii nichcdsenicenvantieatnesmeddeibaceian add $5.20

EET Se ee oF add $6.00

tara titrarichintewcibsndiinnitibiniessudee add $7.20

(CX407, p. 52).

16. In the Norris newspaper and magazine advertisements

similar statements are made concerning guarantees, deliveries and

refunds.

Order now. Christmas Delivery Guaranteed. Mail no risk coupon now. . . . only $9.99

plus $1.00 each for shipping and handling, under your money back guarantee. . . 30-

day money back guarantee (CX 2, Flame Gun, Parade Magazine, November 28, 1971).

(See also CX 3261.)

30-day money-back guarantee! Mail no-risk coupon now!. . . only 7.99 plus $1.00 each

for shipping and handling, under your money-back guarantee . . . prompt delivery

guaranteed (CX 4, Flame Gun, Parade Magazine, November 5, 1972.)

Mail no-risk coupon today for a lifetime supply of socks . . . immediate delivery

guaranteed (CX 8, Parade Magazine, January 4, 1970.)

Buy with confidence - 30-day Money-Back Guarantee (CX 17, N.Y. Times, October 24,

1971). (See also CXs 20, 24, 25, 44, 67.)

Buy with confidence - Money-Back Guaranteed (CX 28 California Living Magazine,

January 7, 1973.)

Use this Jumbo TV Antenna for 30 days at our risk if not completely satisfied return

for prompt refund. . . only $1.99 plus 60¢ shipping and handling under your money

back guarantee (CX 886, 1-46 Jay Norris, 1975.) :

[8] Order by mail with confidence - 30 day money back guarantee (CX 62, Parade

Magazine, August 12, 1973 Lincoln-Kennedy Penny.)

Use these products 30 days at our risk. If not completely satisfied, return for refund.

(CX 96A-D, Parade Magazine, February 9, 1975.)

90 Day Money Back Guarantee . . . you may return within 30 [90] days for prompt

refund of purchase price (CX 117 A, H, Parade Magazine, March 14, 1976.)

Try this bait oil 30 days at our risk, if not completely satisfied, return for prompt '

refund (CX 386, New York City Metro T.V. Guide, February 15-21, 1975).

Representations

17. It is found that, through the printed statements contained in

respondents’ catalogs, newspaper and magazine advertisements, as

well as various communications to persons who have ordered

40a

Appendix B

merchandise, respondents have, as alleged in the complaint,

represented directly or indirectly, that:

a. merchandise paid for by a certified check ie shipped to

purchasers immediately;

b. merchandise paid for by a non-certified check is shipped to

purchasers about two weeks after said check has been approved for

payment at the purchaser’s bank;

c. the full purchase price of the product plus all additional

charges paid by the purchaser in connection with said purchase are

refunded by respondents if the purchaser is dissatisfied for any

reason;

d. a sum of money in the form of cash, check, money order or

other negotiable currency is refunded to purchasers if they are

dissatisfied for any reason; [9]

e. pursuant to respondents’ 30-day money back guarantee,

purchasers will receive a full refund if the merchandise is returned

to respondents within 30 days from the date of the purchaser’s

receipt of said merchandise;

f. in a substantial number of cases, the non-delivery of the

purchaser’s order, is caused by the loss of the merchandise by the

United States Postal Service;

g. purchasers of respondents’ products pay only part of the

delivery cost and the respondents absorb the remaining portion of

said cost;

h. exchanges or refunds are expeditiously processed by respon-

dents; and

i. all parcels shipped to purchasers, except those items marked

express collect, are insured against loss, damage or other casualty by

respondents.

Consumer testimony

18. Complaint counsel presented consumer witnesses who testi-

fied about their prepaid mail-orders from respondent Norris and

problems concerning delayed delivery or non-delivery of the

merchandise ordered.

On January 8, 1973, Andrew Littlejohn ordered a flame gun from

Norris by mail, paying for the merchandise by postal money order. A

month later, having not received the ordered merchandise, Mr.

Littlejohn wrote to Norris, but received no reply. Receiving no reply

to subsequent letters, he contacted the Post Office Department and

the Better Business Bureau. On May 8, 1973, he received the flame

gun (337-339; see CX 3233). ae

Frank Trupia ordered a TV Antenna by mail fromNorris on April

4la

Appendix B

10, 1973 (332; CX 4251E). Not having received the merchandise by

June 1, Mr. Trupia wrote to Norris. Receiving no response, Mr.

Trupia, at the end of June, wrote to Norris again, threatening to take

the matter to the Better Business Bureau. Norris responded to the

second letter and in August Mr. Trupia received the ordered

merchandise (332-334). [10]

In early 1973 Lester Colodny ordered a two drawer file from

Norris, by mail (see CX 3091). After he wrote several letters, he

received a form notice two months later and sometime after that

received the merchandise (347-349).

Lois Johnson ordered a tool set from Norris by mail. She paid by

certified check (3188). When she did not receive the merchandise

after 4-6 weeks, she wrote to them. Norris sent her a post card

response (CX 3190A, B dated August 27, 1975). When she still did not

receive the merchandise she wrote again and received another post

card response requesting information about the order (CX 3190C, D

dated January 2, 1976). Miss Johnson did not answer the second card

and never received the ordered merchandise (411-419).

Jeffrey Feldman ordered a socket wrench and tool set from Norris

by mail on March 16, 1973 (CXs 3129AB, 3130). When he received his

bank statement he noticed that his check had been cashed by Norris.

Not having received the ordered merchandise, he wrote to Norris,

but received no response. He wrote several more letters to Norris

and received no reply. He then wrote to the Federal Trade

Commission and, thereafter, received the ordered merchandise in

the first week of June 1973 (424-4239).

On March 24, 1974, Richard Waysse ordered a tube of glue from

Norris by mail (CX 3320AB). On April 24, 1974, not having received

the ordered merchandise, he wrote to Nerris requesting the

merchandise or a refund. He received a post card from Norris

advising him to wait four weeks after the original order (CX 3321C).

On May 24, 1974, Mr. Waysse requested Norris to send him a refund

(CX 3323). He refused to accept the package from Norris when it was

delivered in the latter part of June 1974 (435-439; see CX 3330). He

subsequently received a refund on July ?2, 1974 (CX 3334).

On November 5, 1973, Mr. White ordered a wrench and tool set

from Norris by mail. After he inquired about delivery, Norris

advised him that they were out of stock (453-456; see CXs 3358,

3359AB). He never received the merchandise (456, 459). [11]

On December 4, 1973, Mr. Henick ordered two sets of “Everything

Organizers” from Norris by mail (483; CX 3173). He never received

the merchandise although Norris was advised of the failure of

delivery (see 487, 493; CXs 3173, 3178). :

42a

Appendix B

Clara Zappa ordered a “five-year” flashlight from Norris by mail

in January 29, 1973, and when she did not receive the merchandise

by May 1, 1973, she contacted the Better Business Bureau. She

received the flashlight in May 1973 (529, 531-3; CX 3365, 3366).

Angela Martone ordered “Spanish Fly” fisting lure bait from

American Value in February 1975, and after writing four letters to

American Value" requesting shipment or a refund, she contacted the

Better Business Bureau and in September 1975 received the

merchandise (543-47, 549; CX 3256AB).

Allen Carreau ordered a solar blanket in April 1973. Norris

requested he remit an additional 50¢, which he did (CX 3074). He did

not receive the merchandise until December 1973 or January 1974

after he had contacted Norris in June, and, receiving no reply, the

Better Business Bureau in October (551-556; CX 3073).

Charles Silverman ordered a tool set from Norris by mail early in

November 1973. In January 1974 he wrote to Norris twice advising

that he had not received the merchandise, and receiving no response

to either letter, contacted the Better Business Bureau on January 8,

1974. He then received a communication from Norris and received

the merchandise in May 1974.

Leslie Gordon ordered a book from Norris by mail in February

1973 (CX 3168). When he did not receive the merchandise he wrote to

Norris in March, but received no reply (570-1). After he wrote to the

Attorney General of New York, he received a post card from Norris

in April or May advising that they were going to ship the book, but

he never received either the merchandise or a refund (572, 574).

In November 1971, responding to an advertisement that guaran-

teed delivery by Christmas, Frank Matullo ordered a [12] flame gun

by mail from Norris (CX 3060B, 3261). When he did not receive it, he

wrote to Norris, but received no response. After he complained to the

Better Business Bureau in March 1972, he received a card from

Norris, and a few weeks later received the flame gun (576-586).

On March 29, 1974, Catherine Cunningham ordered a socket

wrench tool set from American Value by mail (CX 3095-6). In two

weeks she received a card from Norris advising that there would be a

delay in shipment. When six months passed and she still had not

received the ordered merchandise, Mrs. Cunningham, in November,

wrote to Norris, but received no response. Again in January she

wrote to Norris but received no answer. After contacting the Bettér

Business Bureau, she received a letter from Norris (CX 3098). She

pA di nen on “American Valus.” « trade name used by Norris when advertising in TV Guide, see Finding

43a

Appendix B

supplied the information requested and in three or four weeks (in

February or March of 1975) received the tool set (617-621).

Andrea Discepolo, in May of 1974, ordered a “moon mission”

blanket from American Value by mail. Not receiving the ordered

merchandise after ten months she wrote to American Value, but

received no response. She wrote again a month later, but received no

response. Four to six weeks after contacting the Better Business

Bureau she received the product (629-637; CXs 3114, 3115).

In March 1973, Arthur Fink ordered some “miracle cement” from

Norris, by mail. He wrote to Norris in May advising that he had not

received the ordered merchandise, but received no response. He

wrote again and received a letter from Norris asking for details

about his order. Not receiving the merchandise by June, he wrote

again requesting a refund. In July he contacted the New York Times,

the newspaper in which the Norris advertisement appeared, and

thereafter he received the merchandise (657-660).

At the end of January 1973, Henry Flury ordered two sets of tools

from Norris by mail, responding to an advertisement in the New

York Times (668). He received the merchandise in the beginning of

April after he had cancelled his order and requested a refund (670).

On January 15, 1975, Jeffrey Simkowitz ordered “a couple of

stainless steel [measuring] tapes” from Norris by mail (see CX

3305A). Three months later, not having received the ordered

merchandise, he wrote to Norris. They responded by card telling him

to wait four weeks from the time he sent in the order (CX 3305B). On

May 30, 1975, [13] he contacted the Better Business Bureau and in

June received a communication from Norris stating that if he

wanted a refund he should send them the cancelled check but if he

received the tapes in the meanwhile to disregard their letter. He

received the tapes in the middle of June (677-683).

In 1975, John Clampet ordered an “Aztex Pendant” from

American Value by mail (685-6; see CX 3080). When he did not

receive the ordered merchandise and could not contact “American

Consumer” by telephone, he contacted the Better Business Bureau.

Thereafter Norris contacted him and advised that the product had

been reshipped. Mr. Clampet never received it (688-689; CX 3084).

On April 24, 1974, John Amato ordered a pair of “Swedish

scissors” from Norris by mail. After not receiving the ordered

merchandise fot three weeks, Mr. Amato wrote Norris and received

a reply that there was a delay due to a strike. He sent two other

letters and received other “excuses” (693-694, 697; CX 3041, 3042). In

June, he finally received a pair of scissors (695).

On January 28, 1973, William Veale ordered a set of tools from

44a

Appendix B

Norris by mail (703; CX 3318). Not receiving the ordered merchan-

dise in four or five weeks, Mr. Veale wrote to Norris, but received no

reply. He again wrote to Norris two or three weeks later, but

received no answer (705). He thereafter secured a refund after

contacting the Consumer Affairs Office, State of New York (705-6;

see CX 3319).

In February 1975, Gloria Gebel ordered a Monaco shaver from

Norris, by mail (776-7). In March, having not received the razor-

shaver, she tried to contact Norris by telephone and when that

proved unsuccessful she complained to the Better Business Bureau

(779). The merchandise was delivered at the end of March or early

April (779).

On October 1, 1975, Peter Sanchez sent his check for $21.49 to

Norris, ordering a shaver-razor by mail (789-90; see CX 3288). When

Mr. Sanchez had not received the ordered merchandise by October

30, 1975, he wrote to Norris on that date demanding a refund (791).

He received the shaver two or three days later (792). [14]

On June 10, 1975, Bethuel Webster sent his check for $14.99, and

on June 24 a check for an additional 70¢, to Norris, ordering a pair of

sunglasses by mail (CX 3337). On July 30, Mr. Webster wrote to

Norris advising that he had not received the ordered merchandise

(1192). On August 19, 1975, having not received a response to his

July 30th letter, he sent to Norris a copy of that letter. Norris

responded by post card, received by Mr. Webster August 20, advising

that the sunglasses should be received shortly. Having not received

the ordered merchandise by September 3, 1975, Mr. Webster

requested a refund or the ordered product (CX 3342). On September

10, 1975, Norris requested verification of the purchase (CX 3339). Mr.

hag responded and received the merchandise about October 10,

In November 1974, Francisco DeLima ordered frora Norris by mail

a refrigerator defroster and some pairs of socks (1205). Having not

received the ordered merchandise Mr. DeLima contacted the

Consumer Affairs Office (New York City) in January 1975 and the

Consumer Affairs Office (Nassau County) six months after placing

his order. Norris then communicated with him asking whether to

still ship the merchandise. He responded “no” and advised them that

he wanted his money back.

19. Respondents also presented a number of consumer witnesses.

They testified that in response to advertisements in newspapers, and

in two instances, catalogs (see Nierenberg 1792;.Trial,1794), they had

ordered various items of merchandise by mail from Norris and had

received the ordered merchandise anywhere from a week to four

45a

Appendix B

weeks, but in most instances from 10 days to two weeks (Horn 1623-

5: in 1974 or 1975, “wall plaque,” “plastic container for milk carton,”

“artificial flowers;” Burns 1632-33: in 1974 or 1975, “graffiti

remover,” “rust buster;” Curley 1641-2: in 1975, “hose connection;”

Nelson 1647-8: in 1976, “magic window cloth;” Calderaro 1649-50: in

1969, 1972 and 1973, “weather zone,” “opera glasses,” “clip-on

glasses;” Dulsky 1658-9: in 1972, 1974 and 1976; “framed pictures,”

graffiti remover,” “rust buster;” Ferrari 1668: in 1973, “heating

pad;” Shands 1674-76: in 1973 or 1974, “book;” Vercy 1680-2: in 1974,

“hose nozzle;” Brown 1685: in 1976, “graffiti remover;” Kefer 1785-

87: from 1972 to 1976, “hose nozzle,” “adhesive,” “wall duster;”

Nierenberg 1791-3; in 1974 or 1975, “happy home recipe;” Trial

1793-4: in 1974, “wall hanging;” Lengyel 1796-7: in 1975, “carving

knives;” Lowery 1797-8: in 1974, “graffiti remover;” Edwardson

1813-4: in 1975, “Make-A-Log;” Sabatino 1814-5 in 1975, “sissors;”

Dyer 1816-8: in 1974 and 1976, “vegetable slicer,” “car brushes”).

These consumer witnesses were [15] satisfied with the delivery of

their orders. To the same effect see affidavits of 21 other consumer

witnesses (RX 11-31).

Consumer Agency evidence

20. Several “Consumer Agency” witnesses testified as to the

nature of complaints lodged against Norris. Mr. Vincent, account

executive for TV Guide, testified that over the two-month period

that TV Guide analyzed customer inquiries on Norris advertising,

they received 50 complaints almost all (98%) of which related to

“late delivery” (837).

Evelyn Vargas, an employee of Parade Publication, a Sunday

supplement distributed in newspapers throughout the United States,

testified that she handled letters of complaint received by Parade

(905). Her tabulation of complaints relating to Norris, compiled at

the request of the Federal Trade Commission, indicated that most of

the complaints related to failure to deliver merchandise (CX 2484;

see also CX 2485).

Ruth Ann Marsden, an investigator with the Nassau County Office

of Consumer Affairs (927) testified she handled all Norris complaints

and in 1975 wrote a report concerning such complaints (938-9; CX

2495). Many of those complaints related to nondelivery or late

delivery and failure of Norris to respond to letters sent to them by

customers inquiring about their orders (949, 966, 988; CX 2495 C-E).

Jean Bozek, an employee of the Long Island Better Business

Bureau, who handles letters of complaint in the course of her duties,

int A ee

46a

Appendix B

testified that she tabulated complaints relating to Norris concerning

nonreceipt of merchandise and nonreceipt of refunds (999, 1014).

About respondents’ handling of mail orders

21. The day the mail is received it is opened. If the order is in

response to a “space advertisement,” that is an advertisement placed

in a magazine or newspaper instead of the Norris catalog, it is sorted

by department number. The orders are also separated according to

products and are sent to “key punch” that same evening (Jacobs

135-6). On the second day the order is “key punched,” ie, certain

information is encoded onto a computer card (136). On the third day

the order goes to the computer service, Harbor Computer Systems,

located in Hicksville, New York. On the [16] third or fourth day the

computer service returns a shipping label to Norris. Most orders on

“space advertisements” are shipped on the fourth day (Williams

181). A computer memory record is kept of the customer’s name,

address and the product purchased (136).

In the case of catalog orders, only the customers’ name and

address, the date received and the amount of money remitted are put

in the computer memory (182). Catalog orders, which are handled

manually, are given to the personnel in the warehouse as soon as the

order is opened and the information to be sent to the computer

service has been recorded on the envelope (183).

A record is made in the “cash book” of all orders as to the date

received and the amount of money sent in by the customer (184-186).

Although separate records are kept in the cash book for “s ”

sales and “catalog” sales, all monies received are deposited to the

same bank account (184).

Otherwise, Norris does not keep actual records of the customers’

orders (186). In most instances (perhaps 80%) snipments to the

customers are made through the United States Postal Service, the

rest being shipped by United Parcel Service, when it is more

economical to do so (Williams 185).

; Respondents are self-insured; that is, instead of paying for public

insurance on shipments, they make shipments at their own risk.

Because they cannot trace shipments, they make al! necessary

replacements at their own expense and at no charge to the customer

(Jacobs 146-7; Williams 200). |

About respondents’ handling of customer inquiries about nondeliv-

ery

22. Respondent Jacobs testified as follows regarding Norris’

47a

Appendix B

response to customer inquiries relating to nondelivery of merchan-

dise (140-1):

. The mail arrives. The girl opens it. She looks at it and she reads the

customer's complaint. Assuming that there is a date on which the customer says she

ordered, the girl checks the records and determines whether or not that order should

have been shipped.

If sufficient time has elapsed for the . . . order to have been shipped, assuming that

the customer hasn't complained too quickly before she would have had a chance to

receive it, the girl will send a delay notice saying that if we received your order, it

should have [17] arrived by the time you receive this notice or it will be arriving soon.

Please allow another few days. If you still don’t have it, let us know, so we can trace it.

Mr. Jacobs added that if respondents become aware of a delay in

delivery of merchandise by a manufacturer to Norris, they “notify

the customer that there is going to be a delay and tell her we expect

to ship within a matter of time” (142).

In this respect, in the course and conduct of their business,

respondents use form notices printed on post cards by which they

make various responses to customers inquiries about delivery (see

Williams 195, et seg.) One such card reads as follows (CX 4246; see

also CXs 3305B, 3321C, 3338A-D):

Dear Customer:

Your order should have arrived by this time. However, actual delivery time varies

tremendously and, unfortunately, is entirely out © our control once the shipment

leaves our warehouse. It is possible that it is still enroute to you.

Please bear in mind that it often takes the best part of a week after mailing before

an order reaches us. Then it takes a few days to process it. Since shipments are made

via Parcel Post or where possible, United Parcel Service, delivery might take as long

as another two weeks.

We suggest you allow a total of at least four weeks from the time you mail us your

order until you receive it. By now, we feel confident your shipment is either in your

hands, or will be within the next few days.

We are sorry for the inconvenience and appreciate your patience and understand-

ing.

Sincerely,

/s/

Rhea Nichols

Customer Service

(18] Another form post card used by Norris in response to a

complaint of nondelivery of merchandise reads as follows (CX 4245):

Dear Customer:

We received your letter that you did not receive your order. You did not give us all

et! pee. >) oes ¥

48a

Appendix B

the information we needed to check your order. Please us with the

information. meee ‘ following

Date you mailed order

Merchandise ordered

Amount of your check

or money order

Another form post card used by Norris where shipment might

have been delayed is CX 4243:

Re:

Dear Customer:

We are sorry there was a delay in shipping your order. It was caused by

circumstances beyond our control. If you have not yet received the merchandise,

please wait another week. If by that time you still have not gotten it, please indicate so

below and return this card to us. We will then place a tracer with the Postal

Authorities and a duplicate shipment will be made.

Thank you

/e/

Claris Walters

Customer Relations

[19] Another form post card used by Norris where nondelivery is

involved is CX 4248:

This Card is Worth $1.00 to you! See Below!

Dear Customer:

We are sorry that you did not receive the merchandise you ordered. It obviously

was lost in transit.

We are sending a duplicate shipment at once. You should be receiving it within

next 2 or 3 weeks or sooner. i

Thank you.

/s/

Evelyn Barnes

Customer Relations

PS. If you return this card with your next order you may deduct $1.00.

Nondelivery was sometimes due to the ordered item Bot being in

49a

Appendix B

stock. An example of a post card used in such circumstances reads as

follows (CX 3041a):

Dear Customer:

Thank you for your recent order.

Due to unusually heavy demand, the item you ordered is temporarily out of stock.

More is expected soon. Just as soon es the new shipment arrives, your order will be

rushed to you.

I'm sure that when it arrives, you'll be delighted with it and you will find it was

well worth waiting for.

Thank you.

/a/

Rhea Nichols

Customer Service Dept.

[20] Another form post card used by Norris in 1973 reads as follows

(CX 3092):

Dear Customer:

Thank you for your recent order.

Due to unusual circumstances beyond our control, there will be a short delay in

shipping your recent order of our product. We appreciate your patronage and consider

you a valued customer.

We will do everything possible to expedite your current order.

Please do not write. We will ship your order in two weeks or write to you again.

Respondents do not check the customers order against the informa-

tion stored in the computer which they use. (see Williams 201).

About the number of customer complaints

23. Norris’ annual volume of sales is approximately $13,000,000

(Jacobs 123). This involves the processing of approximately 2,000,000

orders a year. In 1976, the number of complaints received from

customers was about 2% of the total orders (Jacobs 148).

In 1975, the number of complaints was approximately 2-1/2% of a

total of 2,000,000 orders and in 1974 the number of complaints was

approximately 3% of a total of 1,500,000 orders (Jacobs 149).

Generally, Norris does not retain copies of customers’ letters of

complaint (Williams 189).

Unfair and deceptive practices

24. During the period of time relevant to this matter, respon-

dents on numerous occasions have deposited customers’ checks or

cashed money orders, and have not shipped the ordered merchandise

for many months after their receipt of the order and payment.

50a

Appendix B

(Johnson 411, 418; Feldman 427; Waysse 437, 439, 442-3, 446; White

455-6; Henick 485-87, 491-2; Littlejohn 337-9, Colodny 349-50,

Zappa 532; Martone 543, 545-6; Carreau 554-5; Silverman 566-7;

Gordon 571; Matullo 577-9; Cunningham 620; Discepolo 633-5; Turk

658-60; Simkowitz 678-9, 682; Gebel 777-9; Sanchez 789-92; Clampet

687-9; Amato 693-5; Veale 704-5; Webster 1187, 1190-4, 1196;

Delima 1205-6, 1211). [21] Respondents’ representations that they

ship merchandise “immediately” or in about “two weeks” are false

and misleading. Moreover, receipt and retention of monies for

merchandise not promptly shipped, is an unfair act or practice (see

Feldman 427; Waysse 440; White 453; Henick 486; Littlejohn 338;

Zappa 531; Martone 545; Silverman 567; Gordon 571; Matullo 577).

About refunds

Consumer testimony

25. Complaint counsel presented several witnesses who had

requested refunds from Norris either because they were dissatisfied

with the merchandise and had returned it or because they had not

received the merchandise ordered.

Lester Colodny returned, by mail, the files he had ordered from

Norris, requesting his money back (351; see CX 3091). Not hearing

from Norris after writing “letter after letter” he wrote to the New

York Times (CX 3090). Nine months after requesting the refund, Mr.

Colodny received it (354). The amount of the refund was the amount

he sent to Norris with his order (359).

Ralph Marino ordered and paid $19.99 plus tax, sales tax, postage

and handling for a shaver from Norris in June 1975 (362, 364). Being

dissatisfied, he returned it by mail to Norris (866). He received a

partial refund of $19.99 in about four weeks (367, 385; CX 3249).

Later he received an additional $3.10, the amount of taxes and

handling charges (390-2; CX 32484).

In July 1974 Alfred Langella ordered from Norris, and paid $7.21

for an orthopedic driver’s seat for an automobile. Not being satisfied,

he returned it promptly, requesting a refund (397-98). Failing to

hear from Norris, he telephoned them (398-9). Getting no satisfac-

tion from that contact, Mr. Langella contacted the Long Island

Better Business Bureau, the New York Times and the Federal Trade

Commission requesting help in securing his $7.21 plus shipping

charges for the return of the merchandise (399; see CX 3206).

Thereafter, in late October, he received a refund from Norris in the

amount of $7.21 which was the amount that he had requested from

Norris (401). [22] es

Sla

Appendix B

When Jeffrey Feldman did not receive the tool set that he had

ordered from Norris and paid $14.98, he wrote to Norris in May

requesting delivery or a refund. Not receiving any reply from Norris

he contacted the Federal Trade Commission (428). In the first week

of June he received the tool set (429). Being dissatisfied with the

product, Mr. Jeffrey returned it to Norris, requesting a refund (433).

He again wrote to Norris in July requesting his money back (430).

He finally received the amount that he had sent to Norris at the end

of July or early in August (4380, 434).

Richard Waysse testified that he refused to accept packages from

Norris after he had demanded a refund of $2.57. Eventually, he

received a refund after writing to many consumer agencies (444: see

CX 3334).

John White testified that after he was notified by Norris that they

did not have the tool set he had ordered in stock, he requested a

refund. He never received either the merchandise or the refund (456,

458).

Bernard Henick testified that he requested a refund because the

merchandise he ordered was never delivered to him, but he never

received the refund (493).

Bruce Peters returned certain merchandise to Norris he had

ordered in January 1974 (516; CX 3267). Not receiving the refund

after three weeks, he wrote to several consumer agencies (518). In

August 1976, at the suggestion of the attorney who was complaint

counsel in this matter at that time, Mr. Peters wrote to respondent

Joel Jacobs and promptly received a refund of the amount he had

paid to Norris ($23.58) (519).

Angela Martone testified that she wrote to Norris in March 1975

about nondelivery of merchandise and requested a refund if they did

not have the merchandise. She received the merchandise in

September 1975, after contacting the Better Business Bureau (545-

46,549).

Arthur Fink testified that he received the ordered merchandise

after he had requested that Norris make a refund (659-62). [23]

Henry Flury testified that he received the merchandise he ordered

from Norris after he had requested a refund, having not received the

merchandise within a reasonable time (669-70). He returned the

merchandise to Norris and received a partial refund ($25.00) after

| - contacting the New York Times and the Better Business Bureau

(670). Later he received the balance of the refund ($5.98) (673).

Jeffrey Simkowitz testified that he received the merchandise

ordered after he had requested a refund from Norris because of

nondelivery (683).

ee,

52a

Appendix B

John Amato testified that he returned certain merchandise to

Norris for a refund of $4.93 (693). About two months later Norris

advised they would make a refund, and sent a money order for $2.00

and stamps, which amounted to 13¢ less than the total amount he

had paid to Norris (696).

William Veale testified that upon nondelivery of merchandise he

secured a refund of $12.00, $2.00 less than the amount he paid

Norris, after contacting the Consumer Affairs Office (705-6).

Gloria Gebel returned a shaver-razor to Norris at the end of March

or early April. After contacting the Nassau Consumer Affairs Office

towards the end of April, in about two weeks she received the refund

($19.95) which was less than the amount she had paid Norris ($22.89)

(782). She did not pursue the matter further (784).

Peter Sanchez testified that he received the ordered merchandise

from Norris after he had requested a refund because of nondelivery

(791-2). Being dissatisfied with the product, he returned it in early

November to Norris and demanded a refund (793-4). After complain-

ing to the Postal Authorities he received a refund check dated

November 24, 1975 ($21.49) (795).

Francisco DeLima received a refund from Norris upon request

after the merchandise he ordered was not delivered and after he had

contacted the Nassau Consumer Affairs Office ( 1208).

John Dierenger returned a product to Norris with which he was

dissatisfied and received what he considered to be a partial refund.

After writing to the Better Business Bureau, Norris refunded the

balance of 47¢ plus l¢, in the form of postage stamps (1229), which

represented the amount of postage he had paid to return the product

to Norris (1233; see CX 3111). [24]

Richard Scully returned a damaged kite that he had ordered in

April 1973 from Norris three or four days after receipt (506-7). He

received a second kite in November after contacting the Better

Business Bureau, Long Island (508; CXs 3299, 3300, 3301).

A bout respondents’ handling of customers’ requests for refunds

26. Respondent Jacobs testified that, generally, returns are

opened within a matter of two or three days after the parcel arrives

(at most seven days during “peak season”). The parcel is opened and

duly recorded at which time the girl is actually writing the

customer's refund check and an apology.

If a complaint comes in on a refund, the girl would write the

custo

This text is long and has been trimmed here. Open the source document for the complete record.