Civic Development Group, Inc., et al.; Analysis To Aid Public Comment

FEDERAL TRADE COMMISSION

[File No. 972-3025]

Civic Development Group, Inc., et al.; Analysis To Aid Public

Comment

AGENCY: Federal Trade Commission.

ACTION: Proposed consent agreement.

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SUMMARY: The consent agreement in this matter settles alleged

violations of federal law prohibiting unfair or deceptive acts or

practices or unfair methods of competition. The attached Analysis to

Aid Public Comment describes both the allegations in the draft

complaint that accompanies the consent agreement and the terms of the

consent order--embodied in the consent agreement--that would settle

these allegations.

DATES: Comments must be received on or before May 26, 1998.

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

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

FOR FURTHER INFORMATION CONTACT:

Eileen Harrington or Hugh Stevenson, FTC/H-238, Washington, D.C. 20580.

(202) 326-3127 or 326-3511.

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 above-captioned 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. The following Analysis to Aid

Public Comment describes the terms of the consent agreement, and the

allegations in the complaint. An electronic copy of the full text of

the consent agreement package can be obtained from the FTC Home Page

(for March 18, 1998), on the World Wide Web, at ``http://www.ftc.gov/

os/actions97.htm.'' A paper copy can be obtained from the FTC Public

Reference Room, Room H-130, Sixth Street and Pennsylvania Avenue, N.W.,

Washington, D.C. 20580, either in person or by calling (202) 326-3627.

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)).

Analysis of Proposed Consent Order To Aid Public Comment

The Federal Trade Commission (``Commission'') has accepted an

agreement to a proposed consent order from Civic Development Group,

Inc., and Community Network, Inc., corporations, and Scott Pasch and

David Keezer, individually and as officers of Civic Development Group,

Inc., and Richard McDonnell, individually and as an officer of

Community Network, Inc. (``Respondents'').

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.

This matter concerns representations made by Respondents when they

solicit consumers by telephone to contribute money to the non-profit

organization, the American Deputy Sheriffs' Association (``ADSA'').

The Commission's complaint in this matter charges Respondents with

engaging in unfair or deceptive acts or practices in connection with

soliciting consumers by telephone to contribute to the ADSA. According

to the complaint, in the course of making such solicitations,

Respondents misrepresent to consumers that: money contributed by

consumers to the ADSA had in the past benefitted law enforcement

offices in the town, city, county, or state in which the consumers

reside; money contributed to the ADSA by consumers had been used in the

past to purchase bullet-proof vests for law enforcement offices in the

town, city, county, or state in which the consumers reside, and money

contributed to the ADSA by consumers had been used in the past to pay

death benefits to the survivors of deceased law enforcement officers

who resided or worked in the town, city, county, or state in which the

consumers reside.

The complaint also alleges that Respondents misrepresented that:

Money contributed to the ADSA by consumers would be used to benefit law

enforcement offices in the town, city, county, or state in which the

consumers reside; money contributed to the ADSA by consumers would be

used to purchase bullet-proof vests for law enforcement offices in the

town, city, county, or state in which the consumers reside; and money

contributed to the ADSA by consumers would be used to pay death

benefits to the survivors of deceased law enforcement officers who

reside or work in the town, city, county, or state in which the

consumers reside.

The consent order contains provisions designed to remedy the

violations charged and to prevent Respondents from engaging in similar

deceptive or unfair acts or practices in the future.

Paragraph I of the order prohibits Respondents, in connection with

a telephone solicitation, from misrepresenting the purpose for which

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charitable contribution has been or will be used.

Paragraph II of the order prohibits Respondents, in connection with

a telephone solicitation, from misrepresenting the geographic location

of the charity, organization or program that has benefitted or will

benefit from the charitable contribution.

Paragraph III of the order prohibits Respondents, in connection

with a telephone solicitation, from misrepresenting any fact material

to the decision of any person to make a charitable contribution.

Paragraph IV of the order requires that Respondents, in connection

with telephone solicitations, adopt an education and monitoring program

designed to ensure compliance with Paragraph I through III of the

order. As part of this education and monitoring program, Respondents

must tape-record and review 1,000 solicitation telephone calls every

thirty days.

Paragraph V of the order provides that in any action brought by the

Commission to enforce the order, unless Respondents know or reasonably

should have known of the violation, there shall be a rebuttable

presumption that Respondents exercised good faith in complying with

Parts I through III of the order, if Respondents show by a

preponderance of the evidence that they have established and maintained

the education and monitoring program mandated in Paragraph IV of the

order.

Paragraph VI of the order requires Respondents, for a period of

five (5) years, to maintain and permit representatives of the

Commission access to Respondents' business premises to inspect and copy

all documents relating in any way to any conduct that is the subject of

this order.

Paragraph VII of the order requires that Respondents, for a period

of five (5) years, permit representatives of the Commission to

interview and depose, under oath, at the Respondents' business

premises, the officers, directors, or employees of any such business

with regard to compliance with the terms of this order.

Paragraph VIII of the order prohibits Respondents from providing

the means and instrumentalities to, or otherwise assisting and

facilitating any person who Respondents know or should know makes false

or misleading representations about the purpose for which charitable

contributions have been or will be used, the geographic location of the

charity, organization or program that has benefitted or will benefit

from charitable contributions or any fact material to any person to

make any charitable contribution.

Paragraph IX of the order requires that Respondents, for a period

of five (5) years from the date of entry of the order, deliver a copy

of the order to all current and future principals, officers, directors,

and managers of Respondents' companies or of any affiliated companies

having responsibilities with respect to the subject matter of the

order, and shall secure from each such person a signed and dated

statement acknowledging receipt of the order.

Paragraph X of the order requires that Respondents Civic

Development Group, Inc. and Community Network, Inc. notify the

Commission at least thirty (30) days prior to any change in the

corporation(s) that may affect compliance obligations arising under

this order. Provided, however, that, with respect to any proposed

change in the corporation about which Respondents learn less than

thirty (30) days prior to the date such action is to take place,

Respondents shall notify the Commission as soon as is practicable after

obtaining such knowledge.

Paragraph XI of the order requires that Respondents Community

Network, Inc., Civic Development Group, Inc., and their successors and

assigns and Respondents Scott Pasch, David Keezer, and Richard

McDonnell, within sixth (60) days after the date of service of the

order, and again 180 days following entry of the order, and again at

such other times as the Federal Trade Commission may require, file with

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

and form in which they have complied with this order.

Paragraph XII of the order requires that Respondents Scott Pasch,

David Keezer, and Richard McDonnell, for a period of ten (10) years

after the date of issuance of the order, notify the Commission of the

discontinuance of their current business or employment, or of their

affiliation with any new business or employment.

Paragraph XIII of the order provides for a twenty (20) year sunset

provision.

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 any of

their terms.

By direction of the Commission, Commissioner Azcuenaga and

Commissioner Swindle not participating.

Donald S. Clark,

Secretary.

Statement of Chairman Robert Pitofsky and Commissioner Sheila F.

Anthony

Today, we issue the attached administrative settlement for public

comment. The proposed agreement would resolve serious allegations about

misrepresentations made by respondents in connection with their

telephone fundraising efforts on behalf of a non-profit organization.

We present our views on one particular provision in the proposed Order

to ensure that it is not misconstrued to suggest to some that the

Commission is steering in a new direction.

Part V of the Order provides respondents with a limited rebuttable

presumption that they have exercised good faith in complying with key

injunctive provisions of the Order, if respondents show, by a

preponderance of the evidence, that they have established and

maintained the education and compliance program mandated in Part IV. In

this case, including this provision is acceptable.

Part IV of the Order establishes numerous and significant

monitoring and education requirements designed to ensure that

respondents make no deceptive representations in connection with any

charitable solicitations by telephone. These requirements include, but

are not limited to: disseminating a brochure that discusses the

obligations of a professional fundraiser to current and future

employees and agents (Part IV.A); monitoring a random and

representative sample of employees and agents in each location from

which solicitations are made to ensure compliance with the injunctive

provisions (Part IV.C); and taping a random and representative sample

of telephone solicitations in each location in which solicitations are

made and reviewing a random sample of at least 1000 such calls every 30

days to ensure compliance with the injunctive provisions (Part IV.D).

Part IV.E further requires that respondents terminate any employee or

agent who makes more than one material representation that violates the

injunctive provisions in any consecutive twelve-month period.

Given the circumstances of this case as well as the strength and

scope of the monitoring and education requirements in Part IV, we are

of the view that the limited rebuttable presumption delineated in Part

V is acceptable. (Under current law, good faith is among those factors

relevant to determining an appropriate civil penalty amount where an

order has been violated. See United States v. Danube Carpet Mills, Inc.

737 F.2d 998, 993-94 (11th Cir. 1984); United States v. Reader's Digest

Ass'n, 662 F.2d 955, 967-68 (3d Cir. 1981), cert, denied, 455 U.S. 908

(1982)). This provision does not establish a defense to any subsequent

enforcement actions. Similarly, it in no way precludes the

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Commission from taking action should it determine that respondents are

not in full compliance with any final order. Furthermore, the

Commission continues to adhere to its Policy Statement Concerning

Errors and Omissions Clauses in Consent Decrees, 59 F.R. 34440 (July 5,

1994). We consider it highly unlikely that other facts would present

themselves--in the administrative or federal court context--that would

warrant application of the same or a similar rebuttable presumption.

Statement of Commissioner Mozelle W. Thompson

I am writing to express my concurrence with the Statement of

Chairman Robert Pitofsky and Commissioner Sheila F. Anthony on the

proposed consent agreement that the Commission accepted today for

public comment in Civic Development Group, Inc. I have voted to support

this proposed agreement in recognition of the allegation of serious

harm caused by respondents through their fraudulent telemarketing

fundraising and the need to place such respondents under order.

However, one provision of the order raises issues addressed by my two

aforementioned colleagues and that I wish also to address through this

Statement.

Part V of the Order in Civic Development Group states that in any

Commission action to enforce the order, ``there shall be a rebuttable

presumption that the respondents have exercised good faith in complying

with [substantive provisions of the order] if the respondents show, by

a preponderance of the evidence, that they have established and

maintained the education and compliance program mandated in Paragraph

IV of the order * * *.''

I question the propriety of accepting a consent agreement that

results in shifting the burden of proof to benefit a party that the

Commission is claiming engaged in unlawful conduct. There are serious

risks in permitting any party or adjudicative body to interfere with

the Commission's well-supported prosecutorial discretion, and it could

be argued that the limited rebuttable presumption in Part V allows

respondent's compliance with the procedural requirements to detract

from the Commission's ability to pursue substantive violations.

For purposes of this case only, I accept the order's burden-

shifting provision and concur with the Chairman, Commissioner Anthony,

and staff that this order is acceptable based on the unique and

specialized aspects of this case. Accordingly, in my view, the order

presented here should not be regarded as having precedential value.

I trust that staff will continue to work closely with the company

to monitor its compliance with the stringent requirements of Part IV as

well as all other requirements of the order.

[FR Doc. 98-7700 Filed 3-24-98; 8:45 am]

BILLING CODE 6750-01-M