Community Associations Institute; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 931 0085]

Community Associations Institute; Proposed Consent Agreement With

Analysis To Aid Public Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: In settlement of alleged violations of federal law prohibiting

unfair acts and practices and unfair methods of competition, this

consent agreement, accepted subject to final Commission approval, would

prohibit, among other things, a Virginia-based association, whose

members are managers of residential community associations, from

interfering in any way with the truthful advertising and solicitation

efforts of its members in the future, and would require it to remove

any code of ethics provisions inconsistent with this prohibition.

DATES: Comments must be received on or before May 20, 1994.

ADDRESSES: Comments should be directed to: FTC/Office of the Secretary,

room 159, 6th St. and Pa. Ave., NW., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT:

Michael McNeely, FTC/S-3308, Washington, DC 20580. (202) 326-2904.

SUPPLEMENTARY INFORMATION: Pursuant to section 6(f) of the Federal

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Sec. 2.34 of the

Commission's Rules of Practice (16 CFR 2.34), notice is hereby given

that the following consent agreement containing a consent order to

cease and desist, having been filed with and accepted, subject to final

approval, by the Commission, has been placed on the public record for a

period of sixty (60) days. Public comment is invited. Such comments or

views will be considered by the Commission and will be available for

inspection and copying at its principal office in accordance with

section 4.9(b)(6)(ii) of the Commission's Rules of Practice (16 CFR

4.9(b)(6)(ii)).

Agreement Containing Consent Order To Cease and Desist

In the Matter of The Community Associations Institute, a

corporation.

The Federal Trade Commission having initiated an investigation of

certain acts and practices of the Community Associations Institute, a

corporation, and it now appearing that the Community Associations

Institute, hereinafter sometimes referred to as ``CAI'' or ``proposed

respondent,'' is willing to enter into an agreement containing an order

to cease and desist from engaging in certain acts and practices being

investigated, It is hereby agreed by and between CAI, by its duly

authorized officer, and its attorney, and counsel for the Federal Trade

Commission that:

1. CAI is a corporation organized, existing and doing business

under and by virtue of the laws of the District of Columbia, with its

principal office and place of business located at 1630 Duke Street,

Alexandria, Virginia 22314.

2. CAI admits all the jurisdictional facts set forth in the draft

of complaint here attached.

3. CAI waives:

(a) Any further procedural steps:

(b) The requirement that the Commission's decision contain a

statement of findings of fact and conclusions of law;

(c) All rights to seek judicial review or otherwise to challenge or

contest the validity of the order entered pursuant to this agreement;

and

(d) Any claim under the Equal Access to Justice Act.

4. This agreement shall not become part of the public record of the

proceeding unless and until it is accepted by the Commission. If this

agreement is accepted by the Commission, it, together with the draft of

complaint contemplated thereby, will be placed on the public record for

a period of sixty (60) days and information in respect thereto publicly

released. The Commission thereafter may either withdraw its acceptance

of this agreement and so notify proposed respondent, in which event it

will take such action as it may consider appropriate, or issue and

serve its complaint (in such form as the circumstances may require) and

decision in disposition of the proceeding.

5. This agreement is for settlement purposes only and does not

constitute an admission by CAI that the law has been violated as

alleged in the draft of complaint here attached.

6. This agreement contemplates that, if it is accepted by the

Commission, and if such acceptance is not subsequently withdrawn by the

Commission pursuant to the provisions of Sec. 2.34 of the Commission's

Rules of Practice and Procedure, the Commission may, without further

notice to proposed respondent, (1) issue its complaint corresponding in

form and substance with the draft of complaint here attached and its

decision containing the following order to cease and desist in

disposition of the proceeding, and (2) make information public in

respect thereto. When so entered, the order to cease and desist shall

have the same force and effect and may be altered, modified or set

aside in the same manner and within the same time provided by statute

for other orders. The order shall become final upon service. Delivery

by the U.S. Postal Service of the complaint and decision containing the

agreed-to order to proposed respondent's address as stated in this

agreement shall constitute service. Proposed respondent waives any

right it may have to any other manner of service. The complaint

attached hereto may be used in construing the terms of the order, and

no agreement, understanding, representation, or interpretation not

contained in the order or the agreement may be used to vary or

contradict the terms of the order.

7. Proposed respondent has read the draft complaint and order

contemplated hereby. It understands that once the order has been

issued, it will be required to file one or more compliance reports

showing that it has fully complied with the order. Proposed respondent

further understands that it may be liable for civil penalties in the

amount provided by law for each violation of the order after the order

becomes final.

Order

I

It is ordered that, for purposes of this order, the terms

``respondent'' or ``CAI'' mean the Community Associations Institute,

its trustees, councils, committees, boards, divisions, officers,

representatives, delegates, agents, employees successors, and assigns.

II

It is further ordered that respondent, directly or indirectly, or

through any person or any corporate or other device, in or in

connection with its activities as a professional association in or

affecting commerce, as ``commerce'' is defined in the Federal Trade

Commission Act, forthwith cease and desist from:

A. Prohibiting, restricting, regulating, impeding, declaring

unethical, interfering with, or advising against truthful, non-

deceptive advertising and solicitation, including, but not limited to:

general mailings to condominium or homeowner associations, solicitation

targeting specific condominium or homeowner associations, telephone or

personal solicitation designed to attract current clients of another

manager, communicating with condominium or home owners, quoting prices

for services before being asked to do so, and offering to provide free

services; or

B. Inducing, suggesting, urging, encouraging, or assisting any non-

governmental person or organization to take any action that if taken by

respondent would violate this order;

Provided that nothing contained herein shall prohibit respondent

from formulating, adopting, disseminating to its component societies

and to its members, and enforcing reasonable ethical guidelines

governing the conduct of its members with respect to advertising,

including unsubstantiated representations, that respondent reasonably

believes would be false or deceptive within the meaning of section 5 of

the Federal Trade Commission Act.

III

It is further ordered that respondent shall:

A. Within thirty (30) days after the date this order becomes final:

1. Remove any current code of ethics provision that is inconsistent

with the provisions of Part II of this order; and

2. Revoke any interpretation or policy statement, including any

report regarding ``Marketing Versus Unethical Solicitation'' that is

inconsistent with the provisions of Part II of this order.

B. Maintain Article XII, Section 12, of the CAI Bylaws as amended

and adopted on June 21, 1993, and revoke, during its recertification

process, the charter of any local chapter unless and until the chapter

certifies that it will ensure compliance with and the integrity of said

Bylaw provision.

C. Cease and desist for a period of one (1) year from maintaining

or continuing respondent's affiliation with any local chapter or other

organization of homeowner association managers within one hundred and

twenty (120) days after respondent learns or obtains information that

would lead a reasonable person to conclude that said organization has

engaged, after the date this order becomes final, in any act or

practice that if engaged in by CAI would be prohibited by Paragraph II

of this order; unless prior to the expiration of the 120 day period

said organization informs respondent by verified written statement of

an officer that the organization has ceased and will not resume such

act or practice, and respondent has no grounds to believe otherwise.

D. Within thirty (30) days after respondent takes any action

pursuant to Part III.B or III.C above, notify the Federal Trade

Commission of such action and provide all documentation related

thereto.

E. Within thirty (30) days after the date this order becomes final,

distribute by United States mail an announcement in the form shown in

Appendix A to this order (hereinafter ``Appendix A'') to each

Professional Community Association Manager, each member of the CAI

Association Management Specialist and Chief Executive Officers of

Management Companies committees, and each local chapter, and use its

best efforts to encourage each chapter to publish Appendix A in its

newsletter.

F. Within ninety (90) days after the date this order becomes final,

publish in Community Management and Common Ground, or any successor

publications: (1) This order, (2) the accompanying compliant, (3)

Appendix A, and (4) any Code of Ethics provision, interpretation,

policy statement, or other document that CAI revises pursuant to Part

III.A above.

G. Within one hundred and twenty (120) days after the date this

order becomes final, and annually for five (5) years thereafter on the

anniversary date of this order, file with the Secretary of the Federal

Trade Commission a verified written report setting forth in detail the

manner and form in which respondent has complied and is complying with

this order.

H. For a period of five (5) years after the date this order becomes

final, maintain and make available to the Federal Trade Commission

staff for inspection and copying, upon reasonable notice, records

adequate to describe in detail any action taken in connection with the

activities covered by this order.

I. Notify the Federal Trade Commission at least thirty (30) days

prior to any proposed changes in respondent, such as dissolution of

reorganization resulting in the emergence of a successor corporation or

association, or any other change in the corporation or association

which may affect compliance obligations arising out of this order.

Appendix A

Dear Member: This letter is to inform you that, without

admitting liability or any wrongdoing, we have voluntarily entered

into an agreement with the Federal Trade Commission that resulted in

the entry of a consent order on [enter date]. Although the consent

order required that CAI take specific actions with regard to CAI's

ethics provisions and by-laws, CAI had already taken some of those

actions before entry of the order. In June, 1993, CAI repealed the

Professional Courtesy provision of the various CAI Codes of Ethics,

and amended the by-laws to provide that all ethics provisions which

relate to advertising or solicitation would be limited to

prohibition of false or deceptive advertising by members, and that

CAI would not otherwise limit or control advertising or soliciting

practices.

In accordance with the terms of the order, you are hereby

notified that, among other requirements of the order, CAI may not

prohibit or restrict its members from engaging in any advertising or

solicitation that is truthful and nondeceptive, by any means,

including through provisions in the Code of Professional Ethics for

PCAMS, the AMS Code of Professional Ethics, and the CEO-MC Code of

Ethics. In particular, CAI may not interfere if its members solicit

or advertise truthfully and nondeceptively, including, but not

limited to, engaging in any of the following activities:

1. solicitation targeting specific condominium or homeowner

associations;

2. telephone or personal solicitation designed to attract

clients of another manager;

3. communicating with owners;

4. quoting prices for services before being asked to do so;

5. offering to provide free services; and

6. sending general mailings to condominium or homeowner

associations.

Similarly, the order bars local chapters from interfering with

members' advertising and solicitation activities, including, but not

limited to, the type listed above.

The order contains a proviso permitting CAI and its chapters to

adopt and enforce reasonable ethical guidelines prohibiting

advertising, including unsubstantiated representations, that they

reasonably believe would be false or deceptive within the meaning of

Section 5 of the Federal Trade Commission Act.

The order does not bar CAI from taking action against any member

that a court or state regulatory agency has found engaged in

tortious interference with contract.

For more specific information, members should refer to the FTC

Order itself. CAI will provide any member with a copy of the order

and accompanying complaint upon request.

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Counsel

Community Associations Institute

Analysis of Proposed Consent Order T Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement to a proposed consent order from the Community

Associations Institute (``CAI'').

The proposed consent order has been placed on the public record for

sixty (60) days for reception of comments by interested persons.

Comments received during this period will become part of the public

record. After sixty (60) days, the Commission will again review the

agreement and the comments received and will decide whether it should

withdraw from the agreement or make final the agreement's proposed

order.

Description of Complaint

A complaint prepared for issuance by the Commission along with the

proposed order alleges that CAI members, particularly ``Professional

Community Association Manager'' (``PCAM'') members, of CAI agreed to

restrict truthful, nondeceptive solicitation. More specifically, the

complaint alleges that CAI adopted and maintained Section B.4 of its

Code of Professional Ethics for PCAMS, which requires PCAMS to ``(1)

exhibit professional courtesy by not interfering with contractual

relationships between other professional managers and their clients and

(2) give notice to other professional managers of any contracts with

their clients to the extent that such notice is useful and does not

interfere with the ability to compete fully.'' The complaint further

alleges that CAI circulated interpretations that declared that certain

truthful, nondeceptive solicitation violated this Code of Professional

Ethics provision. It also alleges that CAI and some of its local

chapters enforced this provision to discourage truthful, nondeceptive

solicitation and otherwise suppressed such solicitations.

The complaint alleges that CAI's agreement to restrict solicitation

injured consumers by depriving them of truthful information pertinent

to the availability of a professional residential community association

manager and of the benefits of competition among professional

residential community association managers.

Description of the Proposed Consent Order

The proposed order would prohibit CAI from restricting truthful,

non-deceptive advertising and solicitation, including, but not limited

to, general mailings to condominium or homeowner associations,

solicitations targeting specific condominium or homeowner associations,

telephone or personal solicitation designed to attract current clients

of another manager, communicating with condominium or homeowners,

quoting prices for services before being asked to do so, and offering

to provide free services. It would further prohibit CAI from inducing

or encouraging any non-governmental person to take an action that

violates the order.

The proposed order would permit CAI to enforce reasonable ethical

guidelines governing the conduct of its members with respect to

advertising and solicitation, including unsubstantiated

representations, that respondent reasonably believes would be false or

deceptive within the meaning of Section 5 of the Federal Trade

Commission Act.

The proposed order further requires CAI, as part of its annual

chapter review program, to deny recertification to any local chapter

that does not certify that it will comply with the order. Under the

order, CAI must cease and desist for one year from maintaining or

continuing its affiliation with any chapter or other organization after

CAI leans of any order violation.

The proposed order would require CAI to make all of its codes of

ethics consistent with the order and revoke any interpretations that

conflict with the order. It would also require CAI to distribute the

order to its local chapters, PCAMs, and other committee members;

publish the order and related documents in certain CAI publications;

file compliance reports; retain certain documents; and notify the

Commission of certain changes in its corporate structure.

The purpose of this analysis is to facilitate public comment on the

proposed order, and it is not intended to constitute an official

interpretation of the agreement and proposed order or to modify in any

way their terms.

The proposed consent order has been entered into for settlement

purposes only and does not constitute an admission by CAI that the law

has been violated as alleged in the complaint.

Donald S. Clark,

Secretary.

[FR Doc. 94-6537 Filed 3-18-94; 8:45 am]

BILLING CODE 6750-01-M