RustEvader Corporation; David F. McCready; Proposed Consent Agreement With Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. D-9274]

RustEvader Corporation; David F. McCready; 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 or deceptive acts or practices and unfair methods of

competition, this consent agreement, accepted subject to final

Commission approval, would require, among other things, the Altoona,

Pennsylvania-based former owner and president of RustEvader Corporation

to pay $200,000 in consumer redress and would prohibit him from using

the names ``Rust Evader'' or ``Rust Buster'' for any device that he

markets as reducing corrosion in motor vehicle bodies. McCready is also

prohibited from making any claims about the performance, efficacy, or

attributes of any product for use in motor vehicles without having

appropriate substantiation to back up the claim and from

misrepresenting the existence or results of any test or study. The

consent agreement settles allegations stemming from advertising for

RustEvader's ``Rust Evader'' device that purportedly reduced corrosion

in motor vehicle bodies.

DATES: Comments must be received on or before September 9, 1996.

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

Room 159, 6th St. and Pa. Ave., N.W., Washington, DC 20580.

FOR FURTHER INFORMATION CONTACT: Michael Milgrom, Federal Trade

Commission, Cleveland Regional Office, 668 Euclid Avenue, Suite 520-A,

Cleveland, OH 44114. (216) 522-4210.

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

Trade Commission Act, 38 Stat. 721, 15 U.S.C. 46 and Section 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 With David F. McCready Containing Consent Order to Cease

and Desist

The agreement herein, by and between David F. McCready,

individually and as an officer of RustEvader Corporation, a/k/a Rust

Evader Corporation, sometimes d/b/a/ REC Technologies, a corporation,

hereinafter sometimes referred to as respondent, and his attorney, and

counsel for the Federal Trade Commission, is entered into in accordance

with the Commission's Rule governing consent order procedures. In

accordance therewith the parties hereby agree that:

1. RustEvader Corporation, a/k/a Rust Evader Corporation, sometimes

d/b/a REC Technologies (REC)is a corporation organized, existing, and

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

Pennsylvania, with its office and principal place of business located

at 1513 Eleventh Avenue, Altoona, Pennsylvania 16603.

Respondent David F. McCready has been an owner, officer and

director of said corporation. At times material to the complaint

herein, he formulated, directed, and controlled the policies, acts, and

practices of said corporation. His address is RD 4 Box 92 B, Altoona,

Pennsylvania 16601.

2. Respondent has been served with a copy of the complaint issued

by the Federal Trade Commission charging him with violations of Section

5(a) of the Federal Trade Commission Act (15 U.S.C. Sec. 45(a)) and of

Section 102(c) of the Magnuson-Moss Warranty-Federal Trade Commission

Improvement Act (15 U.S.C. Sec. 2302(c)), and has filed an

[[Page 36066]]

answer to said complaint denying said charges.

3. Respondent admits all the jurisdictional facts set forth in the

Commission's complaint in this proceeding.

4. Respondent 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.

5. This agreement shall not become a 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 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 the respondent,

in which event it will take such action as it may consider appropriate,

or issue and serve its decision, in disposition of the proceeding.

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

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

alleged in the complaint, or that the facts as alleged in the

complaint, other than jurisdictional facts, are true.

7. 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 Section 3.25(f) of the

Commission's Rules, the Commission may without further notice to

respondent, (1) issue 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 decision

containing the agreed-to order to respondent's address as stated in

this agreement shall constitute service. Respondent waives any right he

might have to any other manner of service. The complaint may be used in

construing the terms of the order, and no agreement, understanding,

representation, or interpretation not contained in the order or in the

agreement may be used to vary or to contradict the terms of the order.

8. Respondent has read the complaint and the order contemplated

hereby. He understands that once the order has been issued, he will be

required to file one or more compliance reports showing that he has

fully complied with the order. Respondent further understands that he

may be liable for civil penalties in the amount provided by law for

each violation of the order after it becomes final.

Order

* * * * *

Definitions

For the purposes of this Order, the following definitions shall

apply:

A. ``Electronic corrosion control device'' shall mean any device or

mechanism that is intended, through the use of electricity, static or

current, to control, retard, inhibit or reduce corrosion in motor

vehicles.

B. ``Rust Evader'' shall mean the electronic corrosion control

device sold under the trade names Rust Evader, Rust Buster, Electro-

Image, Eco-Guard, and any other substantially similar product sold

under any trade name.

C. ``Competent and reliable scientific evidence'' shall mean tests,

analyses, research, studies, or other evidence, based on the expertise

of professionals in the relevant area, that has been conducted and

evaluated in an objective manner by persons qualified to do so, using

procedures generally accepted in the profession to yield accurate and

reliable results.

I

It is ordered that respondent David F. McCready, individually and

as an officer of RustEvader Corporation, directly or through any

corporation, subsidiary, division or other device, in connection with

the manufacturing, packaging, labeling, advertising, promotion,

offering for sale, sale, or distribution of the Rust Evader, in or

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

Commission Act, shall forthwith cease and desist from representing, in

any manner, directly or by implication, that such product is effective

in preventing or substantially reducing corrosion in motor vehicle

bodies.

II

It is further ordered that respondent David F. McCready,

individually and as an officer of RustEvader Corporation, directly or

through any corporation, subsidiary, division or other device, in

connection with the manufacturing, packaging, labeling, advertising,

promotion, offering for sale, sale, or distribution of any product for

use in motor vehicles in or affecting commerce, as ``commerce'' is

defined in the Federal Trade Commission Act, shall forthwith cease and

desist from making any representation, directly or by implication,

concerning the performance, efficacy or attributes of such product

unless such representation is true and, at the time such representation

is made, respondent possesses and relies upon competent and reliable

evidence, which, when appropriate, must be competent and reliable

scientific evidence, that substantiates the representation.

III

It is further ordered that respondent David F. McCready,

individually and as an officer of RustEvader Corporation, directly or

through any corporation, subsidiary, division or other device, in

connection with the manufacturing, packaging, labeling, advertising,

promotion, offering for sale, sale, or distribution of any product for

use in motor vehicles in or affecting commerce, as ``commerce'' is

defined in the Federal Trade Commission Act, shall forthwith cease and

desist from misrepresenting, in any manner, directly or by implication,

the existence, contents, validity, results, conclusions,

interpretations or purpose of any test, study, or survey.

IV

It is further ordered that respondent David F. McCready,

individually and as an officer of RustEvader Corporation, directly or

through any corporation, subsidiary, division or other device, in

connection with the manufacturing, packaging, labeling, advertising,

promotion, offering for sale, sale, or distribution of any product for

use in motor vehicles in or affecting commerce, as ``commerce'' is

defined in the Federal Trade Commission Act, shall forthwith cease and

desist from misrepresenting, in any manner, directly or by implication,

that any demonstration, picture, experiment or test proves,

demonstrates or confirms any material quality, feature or merit of such

product.

V

It is further ordered that respondent David F. McCready,

individually and as an officer of RustEvader Corporation, directly or

through any corporation, subsidiary, division or other device, in

connection with the manufacturing, packaging, labeling, advertising,

[[Page 36067]]

promotion, offering for sale, sale, or distribution of the Rust Evader

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

Trade Commission Act, shall forthwith cease and desist from employing

the terms Rust Evader or Rust Buster in conjunction with or as part of

the name for such product or the product logo.

VI

It is further ordered that respondent David F. McCready,

individually and as an officer of RustEvader Corporation, directly or

through any corporation, subsidiary, division or other device, in

connection with the manufacturing, packaging, labeling, advertising,

promotion, offering for sale, sale, or distribution of any consumer

product in or affecting commerce, as ``commerce'' is defined in the

Federal Trade Commission Act and actually costing the consumer more

than five dollars ($5.00), shall forthwith cease and desist from

conditioning any written or implied warranty of such product on the

consumer's purchase or use, in connection with such product, of any

article or service (other than article or service provided without

charge under the terms of the warranty) which is identified by brand,

trade, or corporate name.

VII

It is further ordered that respondent David F. McCready,

individually and as an officer of RustEvader Corporation, his

successors and assigns, shall be liable for consumer redress in the

amount of two hundred thousand dollars ($200,000.00) as provided

herein:

A. Not later than five (5) days from the date this Order becomes

final, respondent shall deposit into an escrow account to be

established by the Commission for the purpose of receiving payment due

under this Order (``Commission escrow account''), the sum of two

hundred thousand dollars ($200,000.00).

B. Provided however, that if, at the time this Order becomes final,

respondent has not completed the sale of respondent's property known as

RD 4 Box 92B, Altoona, Pennsylvania 16601, then respondent shall

deposit, into the Commission escrow account, not later than five

(5)days from the date this Order becomes final, the sum of forty

thousand dollars ($40,000.00). Respondent shall deposit the remaining

one hundred sixty thousand dollars ($160,000.00) into the Commission

escrow account upon the sale of respondent's property known as RD 4 Box

92B, Altoona, Pennsylvania 16601 at the time of the sale of said

property or six months from the date that this Order becomes final,

whichever first occurs. Respondent shall provide security for the one

hundred sixty thousand dollars ($160,000.00) by means of a mortgage on

the property known as RD 4 Box 92B, Altoona, Pennsylvania 16601. Such

mortgage shall be in a form, and shall be entered into by such date as

agreed to by the parties, but no later than five (5) days from the date

this Order becomes final.

C. In the event of any default in payment to the Commission escrow

account, which default continues for more than ten (10) days beyond the

date of payment, respondent shall also pay interest as computed under

28 U.S.C. Section 1961, which shall accrue on the unpaid balance from

the date of default until the date the balance is fully paid.

D. The funds deposited by respondent in the Commission escrow

account, together with accrued interest, shall, in the discretion of

the Commission, be used by the Commission to provide direct redress to

purchasers of the Rust Evader in connection with the acts or practices

alleged in the complaint, and to pay any attendant costs of

administration. If the Commission determines, in its sole discretion,

that redress to purchasers of this product is wholly or partially

impracticable or is otherwise unwarranted, any funds not so used shall

be paid to the United States Treasury. Respondent shall be notified as

to how the funds are distributed, but shall have no right to contest

the manner of distribution chosen by the Commission. No portion of the

payment as herein provided shall be deemed a payment of any fine,

penalty, or punitive assessment.

E. At any time after this Order becomes final, the Commission may

direct the agent for the Commission escrow account to transfer funds

from the escrow account, including accrued interest, to the Commission

to be distributed as herein provided. The Commission, or its

representative, shall, in its sole discretion, select the escrow agent.

F. Respondent relinquishes all dominion, control and title to the

funds paid into the Commission escrow account, and all legal and

equitable title to the funds vests in the Treasurer of the United

States and in the designated consumers. Respondent shall make no claim

to or demand for return of the funds, directly or indirectly, through

counsel or otherwise; and in the event of bankruptcy of respondent,

respondent acknowledges that the funds are not part of the debtor's

estate, nor does the estate have any claim or interest therein.

VIII

It is further ordered that for five (5) years after the last date

of dissemination of any representation covered by this Order,

respondent David F. McCready, or his successors and assigns, shall

maintain and upon request make available to the Federal Trade

Commission for inspection and copying:

I. All materials that were relied upon in disseminating such

representation; and

B. All tests, reports, studies, surveys, demonstrations or other

evidence in their possession or control that contradict, qualify, or

call into question such representation, or the basis relied upon for

such representation, including complaints from consumers.

IX

It is further ordered that respondent David F. McCready shall, for

a period of ten (10) years from the date of issuance of this Order,

notify the Federal Trade Commission within thirty (30) days of the

discontinuance of his present business or employment and of his

affiliation with any new business or employment. Each notice of

affiliation with any new business or employment shall include the

respondent's new business address and telephone number, current home

address, and a statement describing the nature of the business or

employment and his duties and responsibilities.

X

It is further ordered that this Order will terminate twenty (20)

years from the date of its issuance, or twenty (20) years from the most

recent date that the United States or the Federal Trade Commission

files a complaint (with or without an accompanying consent decree) in

federal court alleging any violation of the Order, whichever comes

later; provided, however, that the filing of such complaint will not

affect the duration of:

A. Any paragraph in this Order that terminates in less than twenty

(20) years;

B. This Order's application to any respondent that is not named as

a defendant in such complaint; and

C. This Order if such complaint is filed after the Order has

terminated pursuant to this paragraph.

Provided further, that if such complaint is dismissed or a federal

court rules that the respondent did not violate any provision of the

Order, and the dismissal or ruling is either not appealed or upheld on

appeal, then the

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Order will terminate according to this paragraph as though the

complaint was never filed, except that the Order will not terminate

between the date such complaint is filed and the later of the deadline

for appealing such dismissal or ruling and the date such dismissal or

ruling is upheld on appeal.

XI

It is further ordered that respondent David F. McCready shall,

within sixty (60) days after the date of service of this Order, file

with the Commission a report, in writing, setting forth in detail the

manner and form in which he has complied with this Order.

Analysis of Proposed Consent Order to Aid Public Comment

The Federal Trade Commission has accepted, subject to final

approval, an agreement containing a proposed consent order from David

F. McCready (McCready).

On August 30, 1995, the Commission issued an administrative

complaint in this matter (described below). The administrative

complaint was withdrawn from adjudication, with respect to McCready, on

April 11, 1996, for the purpose of considering the proposed consent

agreement.

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

sixty (60) days for receipt 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 take other appropriate action, or make final the proposed order

contained in the agreement.

This matter concerns advertisements and other promotional practices

by Rust Evader Corporation (REC) in connection with the promotion and

sale of the Rust Evader, a device purported to reduce corrosion in

motor vehicle bodies. The complaint alleges that McCready directed,

formulated and controlled the acts and practices of REC during the

period when the violations occurred.

The complaint alleges that REC and McCready engaged in deceptive

advertising in violation of Section 5 of the Federal Trade Commission

Act by falsely claiming that the Rust Evader is effective to

substantially reduce corrosion in motor vehicle bodies. The complaint

also alleges that the advertising implied, falsely, that REC and

McCready had scientific substantiation for this claim.

The complaint also alleges that REC and McCready used a product

demonstration of the Rust Evader that was deceptive because it used

conditions that an automobile would not encounter in practice and that

improved the operation of the device. The complaint also alleges that

the respondents used test results to promote the Rust Evader with the

representation that such test results constituted scientific proof of

the efficacy of the device. In fact, according to the complaint, the

test results did not constitute such proof.

The complaint also alleged that REC and McCready violated Section

102(c) of the Magnuson-Moss Warranty Act by using a warranty that was

conditioned on the consumer having the Rust Evader inspected every two

years and that required the consumer to pay for the inspection.

Finally, the complaint alleged that REC and McCready provided the

means and instrumentalities for others to violate Section 5 of the

Federal Trade Commission Act.

The proposed consent order contains provisions designed to prevent

misrepresentations related to these specific matters and others. Part I

of the order prohibits McCready from representing that the Rust Evader

is effective in preventing or substantially reducing corrosion in motor

vehicle bodies.

Part II prohibits McCready from making any representation

concerning the performance, efficacy or attributes of a product

intended for use with motor vehicles unless there is competent and

reliable evidence to substantiate the representation.

Part III prohibits McCready from misrepresenting the existence,

contents, validity, results, conclusions, interpretations or purpose of

any test, study, or survey in connection with the sale or advertising

of any product for use in motor vehicles.

Part IV prohibits McCready from misrepresenting, in connection with

the sale of any product for use in motor vehicles, that any

demonstration, picture, experiment or test proves, demonstrates or

confirms any material quality, feature or merit of such product.

Part V prohibits McCready from using the names Rust Evader and Rust

Buster in connection with future sale of the Rust Evader or any

substantially similar product.

Part VI prohibits future violations of Section 102(c) of the

Magnuson-Moss Warranty Act.

Part VII requires McCready to pay the sum of $200,000 to provide a

fund for redress of consumers who purchased the Rust Evader. McCready

will pay $40,000 within five days of final issuance of the order by the

Commission, and will pay the remaining $160,000 no later than six

months after final issuance of the order. His obligation to pay the

latter sum will be secured by a mortgage on real estate he now owns.

Parts VIII, IX, and XI are compliance and reporting provisions that

require McCready to: retain all records that would bear on his

compliance with the order, notify the Commission of any changes in his

business affiliation, and report to the Commission his compliance with

the terms of the order.

Part X provides that the order will terminate automatically twenty

years from the date it becomes final unless the Commission has brought

an action in federal court alleging a violation of the order. In that

case, the order will terminate twenty years from the date that the

federal court action is filed.

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

proposed order. It is not intended to constitute an official

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

way their terms.

Donald S. Clark,

Secretary.

[FR Doc. 96-17465 Filed 7-8-96; 8:45 am]

BILLING CODE 6750-01-P