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UNITED STATES v. VITASAFE CORP.

September 2, 1964

UNITED STATES of America, Plaintiff,
v.
VITASAFE CORP., Defendant



The opinion of the court was delivered by: WEINFELD

This action was instituted against the defendant, a nationwide distributor of vitamins, to recover civil penalties and to enjoin continued violations of cease and desist order issued by the Federal Trade Commission. *fn1"

The proceeding before the Commission charged a violation of the Federal Trade Commission Act by advertising in newspapers, magazines and other national media an allegedly deceptive 'thirty day free trial' offer as an inducement to the public to purchase 'Vitasafe C. F. Capsules.' The charge also included allegations that the defendant was guilty of unfair trade practices with respect to the cancellation of orders and demands for payment of cancelled orders. The defendant, without admitting any of the alleged violations, entered into an agreement as a result of which a cease and desist order issued *fn2" which, insofar as here pertinent, provided that the defendant was forthwith to desist from:

 '(3) Shipping additional merchandise and attempting to collect the price thereof, when the right of refusing such merchandise has been granted after the required notification of refusal has been given to respondent;

 '(4) Refusing to cancel orders for undelivered merchandise when the right of cancellation exists and the required notice of cancellation has been given to respondent.'

 Ten separate violations of either Paragraphs 3 or 4 of the aforesaid order, each the basis of a separate claim, are charged; all are contested by the defendant. In nine of the claims depositions were taken of witnesses in various parts of the country and, in the tenth the purchaser testified upon the trial. Following the transcription of the record, at the request of counsel extensive oral argument was heard on each separate claim. Thereafter the Court again reviewed the entire trial record, and, based thereon and on its observation of those witnesses who appeared upon the trial, is persuaded that the Government has sustained its burden of proof in nine of the claims.

 A clear pattern emerges of high-pressure methods of operation which resulted in violation of the terms of the cease and desist order. After customers received the thirty-day trial supply, automatic follow-up shipments were made prior to the expiration of the right of cancellation. In other instances, despite timely cancellation continued shipments were made. Then followed a series of dunning letters demanding payment for properly cancelled shipments, harassing letters from a credit bureau controlled by the defendant, attorney's letters threatening legal action and continuing unjustified demands over an extended period, the defendant desisting only when notified by either the Federal Trade Commission or the Better Business Bureau that customers had filed complaints.

 One case may be cited which is substantially typical, although each rests upon its own individual facts. A customer, a radio announcer living in Oklahoma, in response to a magazine advertisement ordered the thirty-day trial supply of defendant's vitamins, mailing the requested payment for handling and mailing. Subsequent to the receipt of the order he received a second thirty-day supply. Within three or four days following receipt of the latter shipment he gave the defendant the required cancellation notice. It was timely and should have terminated all future shipments. Instead, the defendant sent three successive monthly shipments together with invoices. On receipt of the fifth shipment, the customer wrote a second letter and later returned the four post-trial shipments. The defendant, notwithstanding the two cancellation notices and the return of the product, made persistent efforts to collect payment, threatened suit and continued the attempts at collection until it received a copy of a letter the customer had written to the Better Business Bureau.

 The defendant's position that such additional shipments as were sent despite proper cancellations and the persistent demands for payment made thereafter were due to the size of its operations, clerical error or malfunctioning of its electronic equipment, is neither persuasive nor supported by the record. But more important, a machine cannot be used to excuse non-compliance with the terms of the cease and desist order. Defendant's procedures and equipment could readily have been adjusted to avoid the situation here presented. Indeed, the defendant in its compliance proposal indicated that its suggested procedure 'should make it impossible for any additional shipments to reach the customer through clerical error.' But the fact is that the defendant, to serve its own economic interest, bunched orders and geared the timing of the additional shipments without regard to initial or subsequent cancellation periods and in disregard of the customers' right to discontinue. *fn3"

 The defendant's methods are perhaps exemplified by the absence of crucial records and the inadequacy of such records as were produced. *fn4" In six of the ten claims the defendant was unable to produce a single record. The limited records it did produce in the instance of the other claims revealed striking inaccuracies on material matters. Indeed, in one instance defendant's 'fulfillment manager' acknowledged that a letter to a customer who had complained about its failure to honor a cancellation -- incidentally a letter allegedly based upon defendant's records -- had contained unexplained discrepancies and had omitted two payments for which the customer was entitled to credit.

 With so much depending upon the date the defendant received a customer's request for a trial supply, it is singular that the defendant, with all its electronic equipment did not record the day it received the request. In the light of continued shipments despite timely cancellation, repeated with regularity and occurring throughout the country, it is difficult to accept the defendant's contention that these were the result of clerical error or electronic malfunction.

 The Court makes the following findings of fact:

 CLAIM NO. 1 (Mrs. R. K. Strong)

 1. Mrs. R. K. Strong, of Butte, Montana, accepted defendant's thirty-day trial offer which appeared in Coronet Magazine, with the right to cancel future shipments at the end of three weeks.

 2. Approximately two weeks after her receipt of the trial supply, and before the expiration of her right to cancel, the defendant sent an additional shipment which Mrs. Strong, within two or three days of its receipt, delivered to the post office for return to the defendant. She also sent defendant a form postcard which came with the second shipment, as well as a letter indicating that she did not desire additional shipments. These were sent prior to the expiration of the three week cancellation period referred to in the advertisement.

 3. Notwithstanding this timely cancellation the defendant sent ten dunning letters, two collection agency letters and, in addition, an attorney at defendant's direction also made a demand upon her for payment.

 4. Mrs. Strong complained to the Federal Trade Commission, after which she heard nothing further from the defendant.

 CLAIM NO. 2 (C. Allan Ingals, Jr.)

 5. C. Allan Ingals, Jr., of Park Forest, Illinois, accepted for his wife and himself the defendant's offer, which appeared either in the magazine Coronet or Reader's Digest, of a thirty-day supply of vitamins with the right to cancel future monthly shipments.

 6. Ingals received the first samples in April, 1958; within three weeks thereafter he received the second shipment of two bottles of vitamins, one for himself and one for ...


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