In the Matter of the Complaint Against:

INTERNATIONAL SEWING MACHINE DISTRIBUTORS,
Post Office Box 924 at
Norman, Oklahoma 73069

P.S. Docket No. 5/64

04/25/77

Sobernheim, Rudolf; Administrative Law Judge

APPEARANCES:
Thomas A. Ziebarth, Esq.
Consumer Protection Office,
Law Department, Washington, D.C. 20260 for Complainant

James J. Robertson, Esq.
Kagay, Turner, Eyres & Robertson,
705 Carillon Tower East, 13601 Preston Road,
Dallas, Texas 75240 for Respondent

INITIAL DECISION

This is a proceeding by complainant against respondent under 39 USC 3005 which authorizes action against respondent on evidence satisfactory to the Postal Service that respondent is "engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations." Complainant alleges that respondent is engaged in such a scheme in the sale of "Dressmaker" or "Goodhousekeeper" sewing machines. Specifically complainant in paragraphs (2) and (3) of the complaint alleges that respondent through the use of advertisements (Compl. Ex. 1 through 3) makes representations, directly or indirectly, in substance and effect, whether by affirmative statements, omission or implication, as follows:

"(a) The recipient of the circular and pro forma 'check' has been selected by the Judges as a second prize winner in the 'Win a Dressmaker' drawing; and

(b) The 'Dressmaker' or 'Goodhousekeeper' sewing machines featured in Respondents' promotional materials (or sewing machines substantially identical thereto) are regularly and usually sold at retail for $299.95."

Complainant further alleges in paragraph 4 of the complaint that these representations are false and materially so.

Respondent denies the allegations of the complaint except that it admits conducting a "drawing" for a prize or award and the use of direct mail advertisements.

A hearing was held in Dallas, Texas, on 7 and 8 December 1976 at which both parties presented testimonial and documentary evidence. Briefs were filed by both parties after the hearing. After the hearing respondent filed a request for admissions to which complainant responded and a motion for dismissal which was denied.

FINDINGS OF FACT

1. International Mail Order Company is engaged in the sale of sewing machines under the name and style of International Sewing Machine Distributors at Norman, Oklahoma 73069.

2. Customers for the sewing machines are obtained through "drawings" conducted by cooperating outlets. The cooperating store or outlet displays the sewing machine which is the first prize to be won in the drawing.

3. Entrants must fill out an entry blank (Compl. Ex. 1), printing their name, address, city, state and zip code. These must be stated in order to make the entrant eligible to win, as entrants are clearly advised.

4. Between the space for the entrant's name and address and the foregoing statement of the basic condition for eligibility the entry blank set forth the "drawing" rules in an 8-line paragraph of small print. The rules state, among other provisions, that all entries become the property of International Mail Order Company and that the first prize winner, determined by public drawing, will receive the merchandise on display which the record indicates to be one of the Dressmaker sewing machines being sold by respondent. The rules end with the following sentence:

"All other entrants will be mailed a consolation prize of a $200 merchandise certificate good toward the purchase of merchandise offered by I.M.O.CO."

This entry blank is in current use by respondent (T 309).

5. The entrants other than the first prize winner are advised of having won second prizes "in our recent 'Win a Dressmaker' Drawing" by a letter (Compl. Ex. 2, p. 1) used at the time when the instant proceeding was initiated in August 1976. The letter continues:

"The enclosed check is the prize you have won. This check is good toward the purchase of the $299.95 Deluxe 24 Cam Zig-Zag Dressmaker Dial-A-Stitch Sewing Machine shown above. It is a Full Size Heavy Duty Sewing Machine that makes Zig-Zag and Fancy Stitches Automatically. (Comes complete in portable case and includes complete set of sewing accessories valued at $15.75.)

The $299.95 Model 2400 Deluxe Dressmaker Dial-A-Stitch Zig-Zag is designed to do everything easier and faster. It makes Buttonholes, Sews on Buttons, and does 1001 beautiful decorative Zig-Zag patterns, at the drop of a cam automatically. It is second to none, the very Best Machine you can own.

It is a brand new 1975 model ... the top of the line.

The Dressmaker sewing machine is sold and serviced in all 50 states and has a 25-year guarantee bond. This letter gives the prices and what you have won. To help you take advantage of the Second Prize check you may use our lay-away plan and pay the balance at $10.00 a month or more with no interest or carrying charges added. So fill out the enclosed order blank and mail today. Satisfaction or refund of money guaranteed.

This check is valuable. If you are unable to use it, you may assign or sell it to a friend; however, please notice the expiration date."

6. Accompanying the letter is a flyer depicting a Model 2400 Dressmaker sewing machine referred to as "$299.95 Comparable Value" (Compl. Ex. 2, pp. 2-3), an "Order Form" by means of which the customer can return the endorsed so-called $200 check to respondent, and send his or her personal check or money order for $99.95 and request prompt shipment of "The $299.95 Model 2400 Dressmaker Sewing Machine" (Compl. Ex. 3, p. 1), the so-called check or merchandise certificate for $200.00 and a return envelope (id., p. 2). All but the flyer are in use by respondent unchanged since this proceeding started (T 309-310).

7. The so-called $200 check is not drawn on any bank and usable by the second-prize winners or their assignees only in completing the purchase of a new sewing machine.

8. Currently, respondent uses a letter (Compl. Ex. 4) which advises the addressee of being a second-prize winner in "our recent 'Advertising Campaign' Drawing". The letter updates the description of the "$299.95" Dressmaker sewing machine toward the purchase of which the so-called $200 check is good.

The machine has now 30 rather than 24 cams and will make stretch stitches for sewing knit fabrics. It is now also the "1977" rather than the "1975" model. On the other hand a 25-year guarantee bond, previously given, is now omitted.

9. A revised flyer (Compl. Ex. 4) not only represents the current model but describes it only as "$299.95" without the further words beneath the figure "Comparable Value" which were found in the earlier flyer.

10. Respondent's advertising material advises the entrants that the judges have selected their entry as second-prize winners in the recent drawing.

11. All entrants except those who fail to complete the entry blank properly are declared second-prize winners and receive the material described above and part of the record as complainant's exhibits 2 through 4.

12. The drawing for the first prize winner as well as the sorting-out of the entry blanks are performed for respondent by the store or other outlet distributing the entry blanks and conducting the drawing (T 295-297).

13. All entrants are plainly informed on the entry blank that they will receive a "consolation prize" if not the first-prize winner and that such prize is in effect the so-called check toward the purchase of merchandise offered by International Mail Order Company.

14. Respondent does not state in express language that the Dressmaker sewing machine featured in its advertising material (Compl. Ex. 2 through 4) or sewing machines substantially identical thereto are "regularly and usually sold at retail for $299.95" (see Compl., par. 3(b)). Respondent in such materials does describe the Dressmaker sewing machines sold by it as "$299.95" sewing machines (ibid., passim) and in the now discontinued flyer as "$299.95 Comparable Value" (Compl. Ex. 2, p. 2).

15. The sewing machines which respondent is selling to entrants in its drawings are manufactured in Taiwan and have a single function drop-in cam arrangement. Its 1977 version has a stretch-stitch capability which the 1975 version lacked. The name "Dressmaker" applied by respondent to the sewing machines sold by it is an open line name which anyone can use.

16. Respondent acquires its supply of sewing machines from domestic distributors but all of these acquire the machines from the same source: the Lih-Tzer factory in Taiwan.

17. The "Dressmaker" sewing machines have a solid steel needle bar and cast iron housing. Similar machines, made by Toyota in Japan, have a hollow steel needle bar and aluminum housing (T 224-225). There are advantages and disadvantages to the various material combinations (see T 225 et seq.; T 248 et seq., 251) but on the evidence presented to me I cannot find that such distinctions give one type of sewing machine a material advantage over the other.

18. The record does not show the cost of the "Dressmaker" sewing machine to the distributors from whom respondent buys or to respondent. Part of the Lih-Tzer production goes, however, to an American company, called "NELCO", and is sold by it as the NELCO "T-209". This sewing machine and respondent's Dressmaker Model 2400 are identical (T 153) and one distributor at least, called by complainant, testified that he sold the T-209 sewing machine to dealers for $65 to $70 (T 67). A stretch stitch attachment to the "Dressmaker" sewing machine would increase its wholesale price by from $15 to $40, depending on quality and place of manufacture (T 175, 269). The cost of the Dressmaker sewing machine to its manufacturer or to respondent does not make it a "$299.95" sewing machine.

19. As of December 1976 respondent had sold approximately 16,000 to 17,000 Dressmaker sewing machines to second-prize winners of its drawings or their assignees, if any (T 281).

20. In March or April 1976 respondent began to advertise the Dressmaker sewing machine for sale in newspapers in Pennsylvania, California, Texas, New Mexico and perhaps Missouri. Respondent's management consultant, called as its witness, was not sure of the last point (T 274, 276). See Resp. Ex. 8 (Dallas, Tex., Times-Herald); Resp. Ex. 9 (Hobbs, N.M., News-Sun)) for such ads in April and May 1976.

21. These ads offer up to 30 days free trial of the sewing machine with an option to buy it for 29 monthly payments of $10.00 each and a thirtieth payment of $9.95 or a grand total of $299.95. However, if the purchaser was willing to pay the purchase price at once respondent, initially at least, furnished the purchaser an IM 19 stainless steel cookware set of some value as a bonus (T 279). For samples of such contracts see Compl. Ex. 6 (cash sale); Compl. Ex. 7 (installment sale). Respondent's management consultant also testified to such sales through newspaper advertisements at a $360 price (T 273) but no independent proof of such sale or sales was furnished.

22. Altogether several hundred machines have been sold by respondent in this way since March or April 1976 (T 280) and such sales continue, mainly in small towns and suburban areas (T 277).

23. At the time of the hearing both the sales to drawing entrants and through newspaper advertising were continuing (T 282, 285).

24. City Sewing Machine Company of Marysville, Kansas, also receives the Dressmaker type sewing machine of the Lih-Tzer factory in Taiwan. It sells these machines to its puzzle contest prize winners. City Sewing Machine Co. states that these sewing machines are $249.00 machines which the contest winners may buy for a payment of $99.95 with the aid of some type of credit representing the sum of $149.50 toward the purchase price (T 159-160, 177-180).

25. Both parties have adduced a wide-ranging array of list or recommended prices, price quotations and sales prices for the Dressmaker sewing machine, the NELCO T-209 and other sewing machines, some of which are only remotely of a class comparable to the Dressmaker sewing machine sold by respondent. In addition it is obvious that results in part at least depended on which side's witness was doing the asking. In evaluating this evidence the testimony given by the president of Texas Sewing Machine Distributors (T 65 et seq.) is disregarded. For he lacked any real knowledge of prices charged the public.

26. Of the sewing machines on which pricing data were given, six clearly need not be considered because they were either double function cam machines or machines of an otherwise more complex arrangement (T 154-5). These are the Universal Standard 270, Riccar, the Singer 778, the New Home model 605, and the White Sewing Machine 967 and Princess Models. In addition, the Sears Roebuck model 1515 was a much simpler and cheaper machine below the proper range of comparison. For references see Res. Ex. 1, 6, 7; T 28, 29, 31, 55, 181, 221, 225-8, 313.

27. Retailers' quotations on Dressmaker sewing machines, obtained by a postal inspector in Oklahoma City, ranged between $159.00 and $199.00 (T 15). In addition, a Fort Worth, Texas, retailer testified for complainant that he was selling this sewing machine at prices ranging from $99.00 to $149.00 (T 132). On the other hand, a test shopper employed to make inquiries on behalf of respondent in Dallas, Texas, and whose activities are summarized in Respondent's Exhibit 6, was quoted asking or list prices running from $295.00 to $389.00 (Resp. Ex. 6) and on behalf of respondent bought a demonstrator Dressmaker sewing machine at one retail outlet for $262.00. However, upon a telephone inquiry (see T 206), the same store quoted a price of $99.95 for the Dressmaker sewing machine, thus creating some doubt that the price of the demonstrator bought for respondent (see Resp. Ex. 6) represented an arms-length deal.

28. Morse Electro Products of Dallas, Texas, one of respondent's suppliers, was shown to use a price tag for Dressmaker Model 2400 sewing machines showing a "suggested retail $299.95" (Resp. Ex. 2). How regularly or widely Morse Electro Products affixes this tag to Dressmaker sewing machines sold to respondent or others is not shown. At most, however, this represents the distributor's suggested retail price and not the price paid in actual transactions.

29. NELCO's T-209 line, identical in all material respects with the Dressmaker sewing machines (T 153), was quoted to the postal inspector in Oklahoma City at a price range from $159.00 to $199.00 (T 16, 30) and by NELCO in New York at a list price of $299.50 (T 54). Respondent's test shopper found stated list prices in Dallas, Texas, at one retail outlet of $234.00 for a used and $299.00 for a new machine.

30. As is apparent, prices for sewing machines vary greatly depending upon the manner in which their sale is promoted. Even retail store sales prices in actuality vary greatly, depending on seasonal promotions, trade-in opportunities and hard bargaining. Retail prices suggested by manufacturers or distributors are not necessarily a true measure of the monetary ranking of a sewing machine. For such prices are only nominal and sales at varying discounts, on the record made here, are the rule rather than the exception.

31. Based on the foregoing detailed findings of fact and the record as a whole I find:

a. Respondent makes the representation set forth in paragraph 3(a) of the complaint. However, especially in the light of the rules set forth on the drawing entry blank (Compl. Ex. 1), the representation is not false.

(i) No entrants can in the light of the stated rules be led to understand other than that their selection as second-prize winners is based solely on their non-selection as first-prize winner and, of course, proper completion of the entry blank.

(ii) Complainant's argument that entrants are either unwilling or unable to read the simple rules set forth on the front of the entry blank and must be assumed to have entered the drawing in ignorance or incomprehension thereof is not acceptable. But even if such assumption were correct any falsity in the representation made by respondent would not be material. The entrant does not likely care how he became a second-prize winner.

b. Respondent does not represent that the Dressmaker sewing machines sold by it or substantially identical sewing machines are regularly or usually sold at retail for $299.95. Nothing in the language used by respondent in its advertising material indicates that the phrase actually used: "The $299.95 ... Dressmaker ... Sewing Machine" (Compl. Ex. 2, p. 1) refers in any way to regular or usual retail prices at which the Dressmaker sewing machines are sold. Nothing elsewhere in respondent's advertising material refers to price comparisons. It avoids in every way to state that the $299.95 figure is a regular and usual retail price and no such implication is warranted. The distributor price tags (Resp. Ex. 2) are not exhibited to the drawing entrants to persuade them that the Dressmaker sewing machines are sold regularly for $299.95. This is not on the facts a pre-ticketing situation.

c. The representation which respondent does make is the far more nebulous one, to wit: that the Dressmaker sewing machine sold by it, whether the 1975 or 1977 model, is a "$299.95 ... Sewing Machine." Such an allegation may well be, and might on the record be shown to be, false and materially so since the expectation or lure of a bargain would be a powerful magnet in attracting purchasers to respondent's sewing machines. But what makes a sewing machine a $299.95 item may require evidence other than that offered here, focusing on the alleged regular and usual retail price in the light of complainant's allegation in paragraph 3(b) of the complaint.

d. Although the complaint refers in paragraph 3(b) to "Goodhousekeeper" sewing machines, the only reference thereto in respondent's advertising material is on the order forms outside the body thereof (Compl. Ex. 3, p. 1; Ex. 4). Respondent neither offers them for sale nor makes any representation whatever in respect thereof.

CONCLUSIONS OF LAW

1. In view of the ultimate findings of fact arrived at herein it becomes unnecessary to discuss most of the authorities cited by the parties.

2. The representation alleged by complainant in paragraph (3)(a) of the complaint and found hereinabove to have been made by respondent is not, in the light of respondent's actual conduct, false.

3. Respondent does not make the representations alleged in paragraph (3)(b) of the complaint as to the Dressmaker sewing machines. No representations of any kind are made by respondent as to the Goodhousekeeper sewing machines. They have no part in this proceeding.

4. While Donaldson v. Read Magazine, 333 U.S. 178 (1948), authorizes and requires the decider of false representation complaints under 39 USC 3005 to consider the impact of the representation made on the mind of the ordinary reader and to consider his understanding thereof, in the instant case the ordinary reader would neither be deceived as to the nature of the selection process which made him a second-prize winner nor be induced to believe by the phrasing of respondent's advertising that the Dressmaker sewing machine or substantially identical machines are regularly and usually sold at retail at $299.95.

5. This last is, however, the precise charge of misrepresentation made by complainant in paragraph (3)(b) of the complaint and is the only charge before me. The representation that was actually made by respondent is one sufficiently different in thrust to prevent an explanation of the issues in accordance with 39 CFR 952.12, specifically since complainant has not brought up this matter by the motion provided for this purpose in 39 CFR 952.12(c).

6. Accordingly, no action against respondent is authorized under 39 USC 3005 and no mail stop order shall issue.