Foam Rubber City, Inc.

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Ix THE MATTER OF FOAvr RUBBER CITY, IKC., ET AL.

COKSEXT ORDJ. , ETC. , IX REGARD TO Tile ALLEGED VIOLATION OF Tile FEDERAL TRADE CO::UUSSIQ:: ACT Docket 8239. Complaint, Dec. 1960-Decision, Apr. 4, 1961 COIl Rent order requiring a furniture manufacturer at College Point, Long Island, K. Y., and its five subsidiaries-two at the Long Island location and three in Chicago-to cease such practices as representing falsely in newspaper auvertising that the higher prices following tbo term Reg." were the usual retail prices for their fl1niture and that the difference between the higher and lower prices represented savings to purchasers, and that the prices used in connection with such terms as Chain 'Vide Clearance Sale Special Purchase Sale Annual Invent'\ry Sale, and "Discount Sale were reductions from customary retail Vril'\'s; and to cease representing by use of the term "Foam Rubber City " that only foam rubber was used in the construction of their products, when in fact the cheaper and less desirable polyurethane (polyfoum) was used in a substantial part of them.

, Complaint 58 F.

IPLAIXT Pursuant to the provisions of the Federal Trade Commission Act and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe t.hat Foam Rubber City, Inc., a corporation, Foam Jlubbcr City " , Inc., a corporation, Foam Rubber City National, Inc. , " corporation, Foam Rubber City of Chicago, Inc. , a corporation 2" Foam Rubber City of Chicago , aInc., a corporation, National Foam Rubber City of Chicago, Inc. corporation, and Victor Sabatino, Donald Lewis, Joseph ICraw?s and 1\lo1'ton Klein, individually and as offcers of each of said corporations, hereinafter referred to as respondents, have viola,ted the provisions of said Act, and it appea.ring to the Commission that a proceeding by it in respect thereof would be in the public intel'8st hereby issues its complaint, stating its charges in that respect as follows:

PARAGRAPH 1. Respondent Foam Rubber City, Inc. , is a corpora+ tion organized, existing and doing business under and by virtue of the laws of the State of New York, with its principal offce and place of business iocatcd Rt 1l7 20 14th Road, Collcge Point, Long Ishnd, New York. It is the parent company and Rll of the other corporate respondents are subsidiaries of said corporation. It exercises general control oyer the practices of said subsidiaries. It is also engaged in manufacturing furniture.

Respondent Foam Rubber City " , Inc. also is a New York corporation and does business at the same address as the parent corporation. It operates company-mvned retail furniture stores located in the K e,v York City metropolitan area. Respondent Foam Rubber City National, Inc. is a Ne\" York corporation and does business at the same address as the parent corporation. It se1J s to and services franchise dealers in the eastern portion of the United States.

Responde.nt Foam Rubber City of Chicago, Inc., is an illinois corporation organize, , existing and doing- business under and bv virtue of the laws of the Stat of Illinois with its principal offc and place of business located at 2509 Cermack Road, Chicago Illinois. It is engaged, among other things, in manufacturing furniture. Re,spondent "2" Foam Rubber Cit.y of Chicago, Inc. is a corporation organized, existing fmd doing business nncler and by virtue of t.he laws of t.he State of 11Enois with its principal offec and place of business locat.ed at 2:'09 Cermack Road, Chicago, 11Enois. It operates company-owned retail furniture stores located in the City of Chicago, Iliu"ois.

:FOAM RCDBER CITY) INC.) ET AL. 545 543 Complaint Respondent National Foam Rubber City of Chicago, Inc. is also an Illinois corporation with its place of business located at 2509 Cermack Road, Chicago, Illinois. It sells to and services franchise dealers in the Chica.go andmiclwestern trading area. Respondents Victor Sabatino, Donakl Lewis J oseph I(rauss and ::forton Klein are offcers of an the corporate respondents named herein. They formulate, direct and control the policies, acts and practices of a11 respondents, including the acts and practices hereinafter set forth and described. Theil' addresses are the same as that of the parent company.

m. 2. Respondents Foam Hubber City Inc. and Foam Hubber City of Chicago, Inc. manufacture furni.ture which is sold by stores of subsidiaries and franchise dealers. Said furniture is shipped from the States of New York and Illinois by sa,id respondents to said stores and franchise dealers located in other states. Respondent Foam Rubber City, Inc. prepares advertising matter for use by the retail stores operated by its subsidiaries and franchise dealers which it transmits to said stores and fn.nchise dealers from the State of New York to said stores and dealers at their locations in other states. Some or a11 of said stores and dea1el's use said advertising matter in advertising the merchandise so supplied to them. Some of respondents' furniture is a, lld has been shipped across state Jines to members of the public after purchase by them from a store or stores operated by respondents. Respondents thus maintain and at all times mentioned herein have maintained, a course trade in said furniture, in commerce, as "commerce:: is defined in the Federal Trade Commission Act.

m. 3. In the course and conduct of their aforesaid business, and for the purpose of inducing the purchase of their furniture, the respondents have made nurnerous statements in advertisements i.nserted in newspapers ,with respect to prices of their furniture and the savings result.ing to purchasers.

Typical and illust.rative of the rdoresaid representations are the following:

York Chair Finn Chair Coycred-$39. Covered- 59. Reg.-$69. Rcg.-$109. The Claremont-Sofa Bed Coveren-$99.

Reg. $139.

PAR. 4. By and through the use of t.he abm quoted statements and ot-,hersof similar import not specific.ally set out herein, the respon(lent.s represented that the higher stated prices set ant. in said advertisements in connection with the term "Reg. " were the prices 6S1- :JT- 63- 'JG , , 546 FEDERAL TRADE COMMISSION DECISIOKS Complaint 58 F.

at which the advertised merchandise had been usually and customarily sold by respondents at reblil in the recent regular course of business and that the diucrence between the higher and lower prices usual and cus-represented savings to purchasers from respondents' tomary retail prices.

PAR. 5. The aforesaid representations were and are false, n1is leading and deceptive. In truth and in fact, the higher prices set out werein said advertisements in connection with the term "Reg." :fctitious and in excess of the prices at which the advertised merchandise had been usually and customarily sold by respondents in the recent regular course of business and the differences bet"een the higher and lower prices did not represent savings to purchasers from respondents' usual and customary retail prices. PAn. 6. Respondents and their franchise dealers in their advertising use such expressions as "Chain ,Vide Clearance Sale Special inPurch Lse Sale Annual Inventory Sale" and "Discount Sale" connection with prices of various articles of furniture, thereby represent.ing that the pric.es set out. const-itutc reduct.ions from the prices at which said furniture had been usuoJly and customarily sold and that by purchasing the furniture flt said prices reductions from the usual and customary prices are afforded to purchasers. In truth and in fact, the advertised prices are the prices at which the furniture is usually and customarily sold (tnd no savings are afforded when the furniture is purchased at the a.cvertised prices. PAR. 7. Advertising prepared by respondents and used by all outlets in connection ,,'ith the sale of said products features the expression "Foam Rubber City.

Through the use of the aforesaid expression, the respondents represent, directly or by implication, that only foam rubber is used in the construction of their products, when such is not the fact. In truth and in fact, polyurethane (polyfoam), a cheaper and less durable product is llsed in the construction of a substantial part of said products, and respondents do not disclose that fact in instances.

PAR. 8. By l'e.a:: m of the aforesaid prflctices, as described in P,tl'agraplJs Six nncl Seven, the respondents place in the hands of their retail store's and franchise dealers the means a,rid instrumentalities by which t-hey may mislead and deceive the public as to the prices of their furniture and the mat.eri t1s used in the construction thereof.

PAu. 9. In the c.onc1uct of their businesses, at all times mentioned herein, respondents have been in substa,ntial competition, in commerce, with corporations, firms, and individuals in the sale of furni- FOA:\f RUBBER CITY, INC. , ET AL. 547 .543 Complaint ture of the same general kind and nature as that sold by respondents. PAR. 10. The USe by respondents of the aforesaid false, misleading and deceptive statements, representations and practices has had and now has, the capacity and tendency to Inislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were and are true and into the purchase of substantial quantities of respondents' furniture by reason of said erroneous and mistaken belief. As a consequence thereof, substantiflJ trade in commerce has been, and is being, unfairly diverted to respondents from their competitors and substantial injury has thereby been, and is being, done to competition in commerce. PAIL 11. The aforesaid acts and practices of respondents, as herein alleged, were and are aJl to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitute unfair and deceptive acts and practices and unfair methods of competition, in C0111111e1'ce, within the intent and meaning of the Federal Tra,de Commission Act.

Mr. Dewitt T. Puckett for the Commission. 111 r. il orton Klein of College Point, i'. Y., for respondent. INITIAL DECISION BY EDGAR A. BUTTLE HEARn EXAl\:INCH On December 28, 1960, the Federal Trade Commission issued its cOlnplaint against the above-named respondents charging them with violating the provisions of the Federal Trade Commission Act in connection with the offering for sale, sale or distribution of furniture and other articles of merchandise. On January 19, 1961, the respondents pnd counsel supporting the complaint entered into an agreement conta.ining a consent order t.o cease and desist in accordance with section 3.25(a) of the Rules of Practice and Procedure of the C01lll1ission.

Under the foregoing agreement, the respondents admit the jurisdictional facts alleged in the complaint a,nd agree an10ng other things, that the cease and desist order there set forth may be entered without further notice and shall have thc same force and effect as if entered after a full hearing. The agreement includes a waiver by the respondents of all rights to ehal1enge or contest thc validity of the order issuing in accordance there1with; and recites that the said agreement shall not become a part of the offcial record unless and until it becomes a part of the decision of the Commission, and that it is for settlement purposes only and does not constitute an admission by the respondents that they have violated the law as alleged in the complaint. The hearing examiner finds that t.he content of the said 548 FEDERAL TRADE COMMISSIO DECISIONS Decision 58,' agreement meets all the requirements of section 3. 25 (b) of the Rules of Practice.

This proceeding having now come on for final consideration by the hearing examiner on the complaint and the aforesaid agreement for consent order, and it appe,firing that said agreement provides for an appropriate disposition of this proceeding, the afol'psaid agreement is hereby accepted and is ordered filed upon becoming part of the Commission s decision in aecorclance with section 3. of the Hules of Practice; and in consonance "with the terms of said agreement, the hearing examiner makes the following jurisdictional findings and order:

1. Respondent Foam Hubber City, Inc., is a corporation orga.nize.c1, existing and doing business under and by virtue of the la,\ys of the St.ate of Kew York, with its principal offceancl place of business located at. 117-20 14th Road, College Point, Long Island, Xe,v York. It is the parent company and all of the other corporate respondents are subsidiaries of said corporation. It exercises general control over the practices of saiel subsidiaries. It is also engaged in manufacturing furniture.

Re,sponde.nt. Foam Rubber City " , Inc., also is a Xmr- York corporation and docs business at the same address as the pn.lent corpol'fltion. It operates company-m,ned retail fnrlliture stores located in the New York City metropolitan area. Respondent Foam Rubber City National, Inc., is a :New York corporation and does business at the same address as the parent corporation. It sells to and services franchise dealers in the eastern portion of the United States.

Respondent Foam Rubber City of Chicago, Inc., is an Illinois corporation orga,nized, existing and doing business under and by virtue of the laws of the State of Illinois, with its principal offce and place of business located at 2509 Cermack Road, Chicago, Illinois. It is engaged, among other things, in manufacturing furniture. Respondent "2" Foam Rubber City of Chieago, Ine., is a corporaration organi7,ed, existing and doing business under and by virtue of the laws of the State of Illinois, with its principal offce and p1rLCe of business located at 2509 Cormack Road, Chicago, Illinois. It operates company-owned retail furniture stores located in the City of Chicago, Illinois.

Respondent K ational Foam Hubber City of Chieago, Ine. , is also an Illinois corporation with its place of business located at 2509 Cermack Road, Chicago, I1Jinois. It sells to and SelTic.es franc.hise, dealers in the Chicago and midwestern trading area. , , , , , FORM RUBBER CITY INC. ET AL. 549 543 Order Respondents Victor Sabatino, Donald Lewis, tToseph E::rauss and :\Iortoll Klein are offcers of all the corporate respondents Hamed herein. They formulate, direct and control the policies, acts and practices of all respondents. Their addresses are the same as that of the parent com pn.ny.

2. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and of the respondents hereinabove named. The complaint. states a cause of tction a,against said responde,nts under the Federal Trade Commission Aet, and this proceeding is in the interest of the public.

OUDEH It is ordered That respondents, Foam Rubber City, Inc., Foam Rubber City " , Inc., Foam Hubber City National, Inc., Foam Hubbel' City of Chicago, Inc. :2" Foam Rubber City of Chic tgo, Inc. X ational Foam Rubber City of Chicago, Inc., corporations, and their oflcers, and Victor Sabatino, Donald Lewis, Joseph KTauss and :Mortoll Klein, individually and fls officers of all of said corporations and respondents agents, representatives and employees, directly or through any corporate or other device, in connection with the offering for sale, sale or distribution of furniture or any other articles of merchandise, in commerce, as "commerce" is defined in the Fcdcal Trade Commission Act, (10 :forthwith cease and desist from: 1. H.epresellting, directly or by implication: (a) That any amount is respondents' usual and customary retail price of respondents merchandise when such amount is in excess of the price at which said merchandise is usually and customarily sold at retail by respondents and their franchise dealers in the recent regular course of their business;

(b) That any saving from respondents' retail price is afforded to the purchasers of respondents' merchandise, unless the price at \which it is offered constitutes a reduction from the price at which said me.rclmnclisc has been nsnally and customarily sold by respondents and their franchise dealers in the recent, regular course of business.

2. losing the ,,"ords or expressions "regular reg. clearance sale discount sale special purchase sale" or "sale, or any ot.her ,vord or expressions of the same import, to describe or refer to rehtil prices of r0'sponclents: nwrchandise unless such prices constitute reductions from the. prices at which the advertised merchandise hfts been sold bv respondents and their franehise dealers in the recent l'egnlal' COllrse of business.

3. Iisrepresent1ng in any manner the amount of sflvings available to purchasers of respondents' mm'Chandise, or the amounts by ,which Complaint 58 F.

the prices of said merchandise are reduced from the prices at which said merchandise is usually and customarily sold at retail in the recent, regular course of business.

4. J\1isrepresent.ing the materials used in the const.ruction of merchandise.

5. Furnishing Ineans and instrumentalities to others by and through which they may mislead the public as to any of the matters and things prohibited in paragraphs 1 , 2, 3 and 4 thereof. DECISION OJ.' THE C01lnnsslO A::D ORDJm TO FILE REPORT OF CO ITLIANCE Pursuant to Section 3.'2 of the Commission s Rules of Practice the initial decision of the hearing examiner shall, on the 4th day of April 1961, become the decision of the Commission; and accordingly:

It is orcleTed That the respondents herein shall, within sixty (60) days after service upon them of this OI'der, file with the Commission a report in writing setting forth in detaH the manner and form in which they have complied with the order to cease and desist.