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FTC v. US SALES CORP.

January 31, 1992

FEDERAL TRADE COMMISSION, Plaintiff
v.
US SALES CORPORATION, also d/b/a DATA RESOURCE SYSTEMS, and DEAN S. VLAHOS, individually and as an officer and director of US Sales Corporation, Defendants.



The opinion of the court was delivered by: BRIAN BARNETT DUFF

MEMORANDUM OPINION

 The Federal Trade Commission (FTC) brought action under § 13(b) of the Federal Trade Commission Act (FTC Act), 15 U.S.C. § 53(b), to secure preliminary and permanent injunctive relief and restitution for Defendants' allegedly unfair and deceptive acts and practices. The FTC claims that certain of Defendants' acts and practices violate § 5(a) of the FTC Act, 15 U.S.C. § 45(a). The FTC now seeks summary judgment on Counts II and III of its complaint.

 Background

 The US Sales Corporation, also doing business as Data Resource System and Surplus Distribution, Inc., was incorporated in Connecticut in October, 1988. Dean S. Vlahos is the sole shareholder, President and director of the US Sales Corporation which did not become active until January 1, 1991. Prior to that date, Vlahos operated his business as a sole proprietorship. He remains intimately involved in the operations of the US Sales Corporation.

 One area of business for US Sales and Vlahos is selling information about how to purchase repossessed or forfeited cars at government auctions. A second area is selling information about how to obtain secured credit cards. The FTC, in Counts II and III, charges that the defendants have engaged in unfair and deceptive practices in promoting those areas of business.

 A. Hot Cars

 The defendants advertised the automobile auction information service on both radio and television. The advertisements encouraged listeners and viewers to call a 900 number (1-900-HOT-CARS) for information regarding government auctions of automobiles.

 The script for US Sales' "Hot Cars" radio advertisement was as follows:

 THINKING OF BUYING A RED HOT CAR? DID YOU KNOW THAT YOU CAN FIND CARS, TRUCKS AND VANS, RIGHT NOW FOR HOT PRICES. . . . AS LITTLE AS . . . $ 100 -- ?

 THAT'S RIGHT . . . RED HOT CARS IN GOOD CONDITION, RIGHT NOW FOR AS LITTLE AS . . . . $ 100 -- !

 EVERY SINGLE DAY, SPECIAL HOT LIQUIDATION SALES ARE SELLING CARS, TRUCKS AND VANS IN YOUR AREA AT PRICES SO LOW THEY'RE PRACTICALLY GIVING THEM AWAY!

 THESE HOT CARS WERE CONFISCATED IN DRUG SEIZURES, USED BY GOVERNMENT AGENTS, OR REPOSSESSED BY BANKS. . . AND THEY'RE BEING SOLD TODAY FOR AS LITTLE AS . . . $ 100.

 FIND OUT WHERE TODAY'S HOT SALES ARE, BY CALLING 1 900 HOT CARS. . . . ONLY $ 2 A MINUTE. . . . YOU KNOW, THIS CAN BE YOUR CHANCE TO MAKE MONEY TOO. . . . FIND ANYTHING FROM A FAMILY CAR TO A RED HOT FERRARI AND GET IT AT TREMENDOUS SAVINGS. . . . OR SELL IT AT HUGE PROFITS. REMEMBER, THERE ARE SALES GOING ON TODAY! TO FIND OUT WHERE, CALL 1 900 HOT CARS. . . . THAT'S 1-900 H-O-T C-A-R-S . . . CALL 1-900 HOT CARS RIGHT NOW!

 The audio portion of television advertisements *fn1" utilized by US Sales for its 1-900-HOT-CARS telephone number stated:

 THINKING ABOUT BUYING A CAR, FROM A FORD TO A RED HOT FERRARI, YOU CAN NOW BUY CARS, TRUCKS AND VANS IN GOOD CONDITION FOR HOT PRICES, AS LOW AS $ 100. JUST CALL, 1-900-HOT-CARS AND FIND OUT WHERE TO BUY CARS FOR AS LITTLE AS $ 100. CARS, REPOSSESSED BY BANKS, CONFISCATED AND USED BY GOVERNMENT AGENTS, ARE BEING SOLD TODAY AND EVERY DAY NEARBY FOR HOT PRICES, AS LOW AS $ 100. FIND TODAY'S HOT DEALS. CALL 1-900-HOT-CARS TO FIND OUT WHERE, 1-900-HOT-CARS, CALL NOW.

 The video portion of the television commercials showed pictures of sports cars and late model cars, including a Jaguar, a Mustang, a Thunderbird, a Ferrari and a Corvette. The pictured automobiles all appeared to be brand new and in marvelous condition. In "fine print" appearing at the bottom of the television screen during the closing seconds of the commercial, a disclaimer was flashed stating that the cars shown are "for illustration purposes." The disclaimer is extremely difficult to read as it is flashed on the screen quickly in small print. It was also only one line out of four lines of disclaimers at the bottom of the screen. The court was able to read the disclaimer only after numerous viewings of the commercial and after "pausing" the videotape. The FTC has also offered the affidavit of Tanisha Moore who experienced similar difficulty in reading the "fine print" disclaimers of the 1-900-HOT-CARS television advertisement.

 The HOT CARS recorded message was periodically updated to remain current. The FTC has offered transcripts of the messages recorded on December 18, 1989 and January 9, 1991.

 Those who called the 900-HOT-CARS number were first advised that the recorded announcement would provide locations of auctions throughout the United States. The announcement then told the callers that if they waited until the end of the recorded message, they would be given a special toll free 800 telephone number to call for further information. On December 18, 1989, the announcement promised that the special 800 number would advise callers on auctions in their particular area.

 The recorded message on December 18, 1990 informed callers about auctions being held in fifteen different locations around the country (in Virginia, Washington, D.C., Maryland, Michigan, Ohio, New York and California) and the recorded message on January 9, 1991 provided information about auctions in three locations (New York, Chicago and Los Angeles).

 Consumers induced by the radio and television advertisements who called 1-900-HOT-CARS paid two dollars a minute while they heard a recorded message. The radio advertisement declares that the cost of the call is two dollars per minute; the television advertisement presented that information in writing on the screen. *fn2" Those who called the 900 number and waited until the end of the recorded message to obtain the "special toll free" 800 number spent twelve minutes on the line and were charged $ 24.00.

 Patient callers who waited until the end of the recorded message were indeed given an 800 number. Upon calling that 800 number, callers would speak to a live US Sales operator who would answer questions that the callers might have, such as questions concerning automobile auctions generally, questions regarding specific automobile auctions, and questions concerning such matters as how to get to a particular auction. The live operator might on occasion also inform callers of additional upcoming auctions not included in the recorded HOT CARS message.

 The main purpose of the 800 number, however, was not to provide additional information to callers of the 900 HOT CARS number. Those who called the 800 number were solicited to purchase lifetime memberships in US Sales for $ 99.95. Purchasers of lifetime memberships in US Sales were entitled to receive, free of charge on an ongoing basis for the rest of their lives, information concerning additional automobile auctions. Members of US Sales also received a variety of other benefits.

 B. Secured Credit

 In 1990, Defendants began advertising a secured credit card on both radio and television. The advertisements encouraged listeners and viewers to call a 900 number to obtain a secured credit card.

 The radio advertisement for 1-900-VISA-123 stated:

 HAVE YOU BEEN TURNED DOWN FOR A VISA OR MASTERCARD? DO YOU HAVE BAD CREDIT?

 WELL EVEN IF YOU'VE DECLARED BANKRUPTCY, NOW YOU TOO CAN OWN YOUR OWN SECURED VISA OR MASTERCARD, REGARDLESS OF YOUR CREDIT HISTORY!

 ONLY THREE DOLLARS PER MINUTE. IT'S TRUE! NOW, YOU TO [sic] CAN OWN A VISA OR MASTERCARD!, REGARDLESS OF YOUR CREDIT HISTORY!

 WOULDN'T YOU LIKE TO ENJOY THE GOOD LIFE WITH YOUR OWN VISA OR MASTERCARD?

 IT'S SIMPLE AS 1-2-3!

 JUST CALL 1-900-VISA 123 FOR INFORMATION ON HOW YOU CAN RECEIVE YOUR OWN SECURED VISA OR MASTERCARD, EVEN IF YOU'VE BEEN TURNED DOWN BEFORE!, EVEN IF YOU'VE NEVER HAD A CREDIT CARD, YOU TOO CAN BE ACCEPTED!

 JUST CALL 1-900-VISA-123! ONLY THREE DOLLARS PER MINUTE. THAT'S 1-900-VISA-123!

 CALL TODAY, AND YOU CAN HAVE THE VISA OR MASTERCARD YOU'VE ALWAYS WANTED AS EASY AS 1-2-3!

 THAT'S 1-900-VISA 123! ADDITIONAL FEES MAY APPLY.

 CALL TODAY! 1-900-VISA 123, NOW!

 The audio portion of Defendants' television commercial stated:

 HAVE YOU BEEN TURNED DOWN FOR A CREDIT CARD? WELL, EVEN IF YOU HAVE NO CREDIT OR BAD CREDIT, NO PROBLEM! NOW, YOU CAN OWN YOUR OWN SECURED VISA CARD REGARDLESS OF YOUR CREDIT HISTORY AND IT'S AS EASY AS ONE, TWO, THREE. JUST CALL 1-900-VISA-123. ENJOY THE GOOD LIFE WITH YOUR OWN SECURED VISA CARD. GOOD UP TO $ 5,000. YOU WILL NOT BE TURNED DOWN. CALL 1-900-VISA-123, NOW. 1-900-VISA-123. *fn3"

 The video portion of the television commercial emphasized that consumers would not be turned down regardless of their credit histories. The words "Regardless of Your Credit History" appeared in bold yellow letters against a bright blue background. *fn4"

 The radio and television commercials also did not explain what a secured credit card is. A secured credit card is a credit card issued by a bank that is secured by the amount of funds on deposit in a savings account at that same bank. A cardholder's credit limit is equal to the amount of funds on deposit in his or her savings account at the issuing bank.

 Consumers who were induced by Defendants' advertisements to call one of the 900 numbers were charged three dollars per minute as they reached a recored message. The actual amount they were charged depended on how long they stayed on the line. One caller who stayed on the ...


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