Federal Trade Commission v. Arthur Murray Studios (key documents, 1969-70)

UNITED STATES OF AMERICA

BEFORE

FEDERAL TRADE COMMISSION

DOCKET NO. 8776

IN THE MATTER OF:

ARTHUR MURRAY STUDIO OF WASHINGTON, I N C . , e t a l

COMPLAINT

682 3197

UNITED STATES OP AMERICA BEFORE FEDERAL TRADE COMMISSION

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.. corporations, and

VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations.

DOCKET NO. 87?6

COMPLAINT 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 that Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, hereinafter referred to as respondents, have violated the provisions of said Act, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues its complaint stating its charges in that respect as follows:

PARAGRAPH ONE: Respondent Arthur Murray Studio of Washington, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the District of Columbia, with its principal office and place of business formerly located at 72h lVth Street, Northwest, in the City of Washington, District of Columbia.

2

Respondent Arthur Murray Studio of Baltimore, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 217 Worth Charles Street, in the City of Baltimore, State of Maryland.

Respondent Arthur Murray Studio of Bethesda, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 923 Elmo Drive, Bethesda, Maryland.

Respondent Arthur Murray Studio of Silver Spring, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 93k Ellsworth Drive, Silver Spring, Maryland.

Respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, are individuals and are officers of all the corporate respondents. They formulated, directed, and controlled the acts and practices of the corporate respondents, including the acts and practices hereinafter set forth. Respondent Victor F. Horst's business address is the Racket Club, 7930 East Drive, Harbour Island, Miami Beach, Florida. Respondent Edward Marandola, also known as Edward Mara, maintains his business address at 9 West Washington, Chicago, Illinois.

PARAGRAPH TWO: The individual respondents, are now, and for some time last past have been engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public. The corporate respondents for some time last past have been, engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public.

PARAGRAPH THREE: In the course and conduct of their business as aforesaid, respondents for some time last past have caused, their advertising matter to be published in newspapers of interstate circulation and

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their promotional materials to be sent or otherwise conveyed to various prospective customers residing in the States of Maryland and Virginia and the City of the District of Columbia. Advertising matter, contracts, letters, checks or other written instruments and communications have been sent and have been received between the respondents at their former places of business located in Washington, D.C., and in various other States of the United States. In addition, written communications and instruments, including payroll records, contracts, payment records and other documents, have been passed between the aforesaid studios and a bookkeeping firm located in the State of Florida, owned by the individual respondents. As a result of said interstate advertising and promotion and as a result of said transmission and receipt of said written instruments and communications, respondents have maintained a substantial course of trade in said courses of dancing instruction in commerce, as "commerce" is defined in the Federal Trade Commission Act.

PARAGRAPH FOUR: In the course and conduct of their aforesaid business, respondents have made certain representations in newspaper advertisements, and by other means, including social security number contests, "special selection" offers, and "Can You.Spell" contests, in which the winner is awarded a gift certificate entitling him or her to a specified number of Arthur Murray lessons purportedly worth from $35-$65. The representations made in newspaper advertisements have included those which relate to special or introductory offers purporting to furnish the first lesson of a course of dance instruction or a short course in dancing either at a reduced price or free of charge.

Typical and illustrative, but not all inclusive, of such representations made by respondents are the following:

"CAN YOU SPELL WIN A $65.00 DANCE COURSE IF YOU CAN FIND THE MISSPELLED WORDS

* * * * * * * * ■■■■ *

Arthur Murray's is making this amazing offer to show some lucky winners the fun

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and good times to be had with them. The winners will receive a $65.00 Dance Course at the exciting Arthur Murray Studio

WIN PRIZES WORTH $300 $250 $200 $150 $100 $75

PLAY THE EXCITING NEW SOCIAL SECURITY GAME

WINNERS EVERY WEEK SOCIAL SECURITY GAME RULES.

Every week there will be WINNERS in each prize category. The winning number will be selected from among

social security numbers sent to us ...." PARAGRAPH FIVE: By and through the use of the afore

said statements and representations, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by implication, that:

1. Said contests are based on abilities and skills of the contestants or upon chance and that a winner will be chosen on one of these bases.

2. The winner of said contests will receive a gift certificate worth a stated amount or, either without charge or at a reduced price, a bona fide course of dancing instruction or a specified number of bona fide dancing lessons.

PARAGRAPH SIX: In truth and in fact: 1. Said contests are not based on skills

or abilities of the contestants or upon chance, nor are winners chosen on any of these bases. The purported contests are so simple of solution or the winning thereof so easy, as to

remove them from the categories of competition, skill, or special selection, and are such that substantially everyone, if not all, can qualify and win. Rather the purported quizzes, puzzles, and contests are designed to attract members of the purchasing public for the purpose of obtaining leads to prospective purchasers of dance instruction.

2. The winners of said contests do not receive a gift certificate .worth the stated amount, or a bona fide course of dancing instruction or a specified number of bona fide dancing lessons. Although they receive some dance instruction in the beginning of the specified time, the balance of the course is devoted to salestalk designed to induce the purchase of further dancing lessons or the signing of a long term dancing instruction contract.

Therefore, the statements, representations and practices as set forth in PARAGRAPHS h and 5 hereof were and are false, misleading and deceptive.

PARAGRAPH SEVEN: In the course and conduct of their aforesaid business, respondents have made certain representations on postal cards sent through the United States mail.

Typical and illustrative, but not all inclusive, of such representations are the following:

"Your Telephone Number was selected today, and this entitles any adult to a Wonderful Gift, fully paid for by our Advertising Department .... No obligation or charge to you. Please call 78V0880 between 3:00 p.m. and 9:00 p.m., Monday through Friday, to tell us the name and address of the person entitled to the gift."

PARAGRAPH EIGHT: By and through the use of the aforesaid statements and representations, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by implication, that the recipient has been selected to receive a valuable and unconditional gift.

PARAGRAPH NINE: In truth and in fact the recipient has not been selected to receive and will not receive a valuable or unconditional gift. After dividing the local telephone directory into certain sections, respondents' representatives send cards to each name listed therein, for the purpose of obtaining leads to prospective purchasers of dancing instruction. The recipient of respondents' "gift" is lured into one of respondents' studios under the guise of receiving a "dance certificate" supposedly entitling him to a number of free dancing lessons. Instead, he is thereupon subjected to a sales talk to induce the purchase of a course of dancing instruction.

Therefore, the statements and representations as set forth in PARAGRAPHS 7 and 8 herein were and are false, misleading and deceptive.

PARAGRAPH TEN: In the course and conduct of their aforesaid business, respondents have made representations concerning adult social clubs in newspaper advertisements appearing in the Washington, D.C. area of which the following are typical and illustrative, but not all inclusive thereof:

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Jr&Tl. For Sing5o People Ove?~30

v/ho. Want MO?Q Fun. out of Lira ■ Coma — Join >sn» of ths nicest psopEs in town who eta hiving cosd timet- galore at our new dub! Meet nsw p:op!a, M*Ko new incntfi. Enjoy our <hlty mixed, our eav socials waskJy, our cab (tight club parties. Age nukes no difference whether youra 25 or 45 (or oldsi). '

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PARTY TIME CLU3..724 14th St, H.W., Washington, D.C. Pieasu i«nd without obligotior. your brochura NAMS . . , . . . . . . . , . , . , . . . . . „ ; . . . .

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• COME! LET US INTRODUCE YOU TO OUR MEMBERS. See how easy it is to get acquainted . . . how friendly and congenial our members ore. See with your own eyes how much fun our members have at the Club week after week..' . You'll havo the timo of your life.

o SAY WEEKLYS"OCTAtS?TGALATlTGHT CLUB PARTIES have made a big hit with our members. It gives them a won* derful opportunity to have more fun . . .-meet new people . . . make new friends.

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r3E3E3C2:riE3E3E3E3E2ir3EBE3! For Your Free Brochure Call 525-5275 Or Mail Coupon Today

PARTY TIME CLUB 724 14th'St.f N.W.

Picaio sond your booklet, without obligation "How To Get Mora Fun Out of lifo"

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Come meet refined van and women . . our pleasant imiltown ei it broom . . . joint in the fun and g::-..,.., . . . <[a,ICtft c v e n i f y a ) l | .v d never danced i>e«7)re. Why don't yom investigate? A 10c phone call could possibly start a new social life for you.

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STEP INTO OUR SOCIAL WORLD Af&> ENJOY LIVING WITH OUR

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As an active member of The Holiday Club, you will participate in gay night club parties at VVashington's finer Supper Clubs and dinners at Washington's most attractive restaurants. You will spend week-ends and vacations with the club at resorts, on trips to Puerto Rico isassau and other wonderful places. Read ali about it in the free book "How to Get More Out of Life." Call Miss Blake at 783-8391 for a free copy. Call noon 'til 9 P.M. today and all week. Absolutely no. obligation and no sales* man wul bother you.

Coal »•» »n?tfcer day « a j y ^ ° « « m a ^ g fha m 9 V , thai my change year enth* life. C«U MISS BUKb NOW FOR FREE BOOK "How lo gat raore fun out of lifa"

Cell noon "HI 9 P.M. today end all week

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in less than 3 The Holiday your shyness poise and sell tive personali that carry ovi Not only tha DATE APPE enjoy more 1

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PARAGRAPH ELEVEN: By and through the use of the aforesaid statements and representations, and others of similar import not specifically set out herein, respondents have represented, directly or by implication, that the Party Time Club and the Holiday Club were bona fide adult social clubs offering members a program of activities such as daily and weekly social events and gala night club parties.

PARAGRAPH TWELVE: In truth and in fact, the Party Time Club and the Holiday Club were not bona fide adult social clubs offering members a^program of activities such as daily and weekly social events and gala night club parties. These clubs were devices used as a means of obtaining the names of prospective students and of luring prospects into the studios where the sales presentation for dancing instruction purchases may be made. Unless a member contracted to purchase a substantial amount of dance instruction, usually between P+50-$5,000, there were no activities in which he might participate irrespective of any club registration which he may have paid.

Therefore, the statements and representations as set forth in PARAGRAPHS 10 and 11 hereof were and are false, misleading and deceptive.

PARAGRAPH THIRTEEN: In the course and conduct of their aforesaid business, respondents, directly or through their representatives and employees, have used various unfair and deceptive techniques and practices as a means of selling initial or supplemental courses of dance instruction. Typical and illustrative, but not all inclusive, of such techniques and practices are the following:

1. The use of sham "dance analysis tests" for the alleged purpose of evaluating the student's ability, progress or proficiency, when in fact all students and prospective students are given the same test results regardless of dancing ability, aptitude or proficiency.

2. Respondents represent to students or prospective students that upon completion of a given course of dancing instruction the student will have

11 -10-

achieved a specified standard of proficiency, whereas, in fact, before the given course of dance instruction is completed and before the specified standard of proficiency has been achieved, the prospect or student is subjected to further coercive sales efforts toward the purchase of additional instruction in dancing.

3- The use of "relay salesmanship", involving successive efforts of a number of different Arthur Murray representatives who, in a single day by force of number and unrelenting sales talks, and aided occasionally by hidden listening devices monitoring conversation with the prospect or student, attempt to persuade and do persuade a lone prospect or student to sign a contract for dancing instruction.

h. The use of intense, emotional, and unrelenting sales pressure to persuade a prospect or student to sign a contract obligating such person to pay for a substantial number of dancing lessons at substantial cost without affording such person a reasonable opportunity to consider and comprehend the scope and extent of the contractual obligations involved. Such contracts often provide for more than 100 hours of dancing instruction with a cost to the prospect or student in excess of $1500, and such person is insistently urged, cajoled, and coerced to sign such a contract hurriedly and precipitately through the use of persistent and emotionally forceful sales presentations which are often of several hours duration.

Therefore, these statements, representations and practices as hereinabove set forth were and are unfair and deceptive.

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PARAGRAPH FOURTEEN: In the course and conduct of their aforesaid business, and at all times mentioned herein, respondents have been in substantial competition, in commerce, with corporations, firms and individuals in the sale of dancing lessons of the same general kind and nature as those sold by respondents.

PARAGRAPH FIFTEEN: 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 mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were true and into the purchase of substantial quantities of dancing instruction by reason of said erroneous and mistaken belief.

PARAGRAPH SIXTEEN: The aforesaid acts and practices of respondents, as herein alleged, were all to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitute, unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this ^rd day of April A.D. 1969, issues its complaint against said respondents.

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NOTICE Notloe Is hereby given to each of the respondents

hereinbefore named that the 20th day of May A.D 1969* at 10:00 A.M.o'clock is hereby fixed as the time* and Federal Trade Commission Offices, 1101 Building, 11th & Penna. Avenue, N.W., Washington, D. C. as the place when and where a hearing will be had before a hearing examiner of the Pederal Trade Commission, on the oharges set forth in this complaint, at which time and place you will have the right under said Act to appear and show cause why an order should not be entered requiring you to cease and desist from the violations of law charged in this complaint.

You are notified that the opportunity is afforded you to file with the Commission an answer to this complaint on or before the thirtieth (30th) day after service of it upon you. An answer in which the allegations of the complaint are contested shall contain a concise statement of the facts constituting each ground of defense; and specific admission, denial, or explanation of each fact alleged in the complaint or, if you are without knowledge thereof, a statement to that effect. Allegations of the complaint not thus answered shall be deemed to have been admitted.

If you elect not to contest the allegations of fact set forth in the complaint, the answer shall consist of a statement that you admit all of the material allegations to be true. Such an answer shall constitute a waiver of hearings as to the facts alleged in the complaint, and together with the complaint will provide a record basis on which the hearing examiner shall file an initial decision containing appropriate findings and conclusions and an appropriate order disposing of the proceeding. In such answer you may, however, reserve the right to submit proposed findings and conclusions and the right to appeal the initial decision to the Commission under Section 3.52 of the Commission's Rules of Practice for Adjudicative Proceedings.

Failure to answer within the time above provided shall be deemed to constitute a waiver of your right to appear and contest the allegations of the complaint and shall authorize the hearing examiner, without further notice to you, to find the facts to be as alleged in the complaint and to enter an initial decision containing such findings, appropriate conclusions and order.

14 i

v,QO „ThG î 1 ™ 1 ?? l s t h e form of order which the Commission has reason to believe should issue if the facts are found to be as alleged in the complaint: * ,7 XJ#IS ORDERED that respondents Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and S e i r °£ f l c e r s' a n d respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, or other services, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from: '

1. Advertising or otherwise offering or conducting any quiz, contest, or other device which purports to base the selection of the winner upon skills or abilities of the contestants or upon chance.

2. Using any promotion for the purpose of obtaining leads to prospective purchasers of dancing instruction or to induce people to come to respondents' studios unless respondents disclose fully and conspicuously in each and every announcement or description of such promotion (a) that the purpose of such promotion is to induce prospective purchasers of dancing lessons to come to respondents' studios, and (b) that, once at respondents' studios, the prospective purchaser will be subjected to attempts by respondents, through their employees or representatives, to sell said prospective purchasers a course of dancing instruction.

3. Representing, directly or by implication, by means of social security number contests, "special selection offers", "Can You Spell" contests, or any other promotion offer or contest

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or any certificates relating thereto, or by any other method or means, that a course of dancing instruction or a specified number of dancing lessons, or any other service or thing of value will be furnished free of charge, at a reduced price, or for any price, unless the entire period or periods of bona fide dancing instruction or other service or thing of value is in fact furnished in every instance as represented. Representing on any postal cards sent through the United States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of:

(a) The nature of the gift the recipient is to receive, and

(b) The full name and address of the offeror of the gift, and

(c) The manner in which such recipient has been selected.

Representing, directly or by implication, that the Party Time Club or the Holiday Club, or any other club, group or organization offers members a program of activities such as daily or weekly social events or gala night club parties, or any other activities, unless there is clear and conspicous disclosure in connection with each offer that such activities are available only upon the purchase of a substantial amount of dancing lessons and the total cost of such lessons is disclosed.

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Using "dance analysis" tests or any other device purportedly designed to evaluate dancing ability, progress, or proficiency when such test or device is not so designed and so used; or misrepresenting in any manner a student's or prospective student's dancing ability, or the progress made or proficiency achieved by a student during the course of or as a result of taking respondents' courses of instruction. Representing, directly or by implica-tion^ that upon completion of a given course of instruction in one specific dance, a specified standard of proficiency will be achieved when, before the specified course is completed or the given standard has been achieved, the student is or will be subjected to sales efforts to induce the purchase of additional dance instruction. Using in any single day "relay salesmanship" , that is, consecutive sales talks or efforts of more than one representative to induce the purchase of dancing instruction. Entering into one or more contracts or written agreements under which a student or other party is obligated to pay a total amount which at any one time exceeds $1500. All contracts or written agreements shall bear the following notation in at least 10-point bold type:

"Notice; You may rescind (cancel) this contract, for any reason whatever, by submitting notice in writing of your intention to do so within seven (7) days from the date of making this agreement.

If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be promptly refunded."

At the time of signing of any contract or written agreement, respondents shall also communicate orally to each party the terms of the above notice. Entering into a contract with a student who is already under a contract with respondents that provides for dancing instruction, until fewer than 15 lesson hours remain under the existing contract. Any contract entered into under such circumstances shall state the' number of lesson hours remaining under the existing contract and shall provide that all dancing instruction previously contracted for shall be used or completed prior to the commencement of the additional lessons. Failing to deliver to each party a copy of every contract entered into by such party providing for dancing instruction or other services. Failing to deliver a copy of this order to cease and desist to all present and future employees, instructors, or other persons engaged in the sale of respondents' services, and failing to secure from each employee or other person a signed statement acknowledging receipt of said order. Failing to post in a prominent place in each studio a copy of this cease and desist order, with the notice that any student or prospective student may receive a copy on demand. Failing, after the acceptance of the initial report of compliance, to submit a report to the Commission once every year during the next three years describing all complaints respecting unauthorized

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representations, all complaints received from customers respecting representations by salesmen which are claimed to have been deceptive, the facts uncovered by respondent in his investigation thereof and the action taken by such respondent with respect to each such complaint.

IN WITNESS WHEREOF, the Federal Trade Commission has caused this, its complaint to be signed by its Secretary and its official seal to be hereto affixed, at Washington, D.C., this 3rd day of April, 1969.

By the Commission.

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UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION

In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF VIRGINIA, INC., ARTHUR MURRAY STUDIO OF BETPIESDA, INC. and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and VICTOR F. HORST and ; EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations

ANSWER ON BEHALF OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC.

The Arthur Murray Studio of Washington, Inc. makes the following answer to the Complaint heretofore filed by the Federal Trade Commission, as follows:

1. In answer to the allegations of Paragraph One, this Respondent respectfully represents that under date of Sept. 12, 1968, it sold, assigned and transferred all of its assets to P & P Enterprises, Inc. The consideration of such transfer of assets was the assumption of certain of the liabilities. There, was no cash consideration and not all of the liabilities were assumed.

Further answering, said Respondent states that it' is inactive at the present time, has no place of business, and is not engaged in business. •• ( ;

2. In answer to the allegations of Paragraph Two, Respondent is not now engaged in the operation of a dance studio, but as alleged in answer to Paragraph One, has sold and transferred all of its assets and is now out of business.

DOCKET NO. 8776

22

3. In answer to the allegations of Paragraph Three, Respondent is not now engaged in the operation of a dance studio, but as alleged in answer to Paragraph One, has sold and transferred all of its assets and is now out of business.

Further answering, this Respondent admits that it formerly caused advertising matter to be published in newspapers of interstate circulation and sent advertising matter and other material through the mail, but that none of said advertising or mailings are now being carried on because of

...the fact that the company is out of business.

4 & 5. This Respondent respectfully represents that it does not now do any newspaper advertising or make any representations as alleged in Paragraiph Four since it is out of business. It admits that while engaged in the dance business it advertised certain contests and games, substantially as alleged in Paragraph Four.

6. In answer to the allegations of Paragraph Six, the Respondent respectfully represents that since it is now out of business it does not conduct any contests such as are described in Paragraph Six.

Further answering, however, this Respondent denies that the statements, representations and practices as set forth in Paragraphs Four and Five were false, misleading and deceptive.

7, 8 & 9. The Respondent respectfully represents that it is now making no representations on postal cards since it is not engaged in any business.

Further answering, this Respondent respectfully says that no false or deceptive representations were made by it.

10, 11 & 12. In answer to the allegations of Paragraphs Ten,. Eleven and Twelve, this Respondent respectfully represents that it is not now and has not since September 12, .1968, been engaged in the dancing business and therefore has not since that date made any representations concerning adult social clubs and newspaper advertising appearing in the Washington, D.C. area, or anywhere.

Further answering, this Respondent says that no

statements or representations which it formerly made when it was engaged in business as to adult or social clubs were false and deceptive.

13. In answer to the allegations of Paragraph Thirteen, this Respondent represents that it has not been engaged in business since September 12, 1968, and has engaged in no techniques or practices as described since that date.

Further answering, the Respondent denies that statements, representations and practices as described were unfair and deceptive.

14. In answer to the allegations of Paragraph Fourteen, the Respondent is not now engaged in business and therefore is not in competition of any kind with corporations, firms or individuals.

15. The Respondent denies the allegations of Paragraph Fifteen.

i i

16. The Respondent denies that it is carrying on acts or practices to the prejudice and injury of the public as alleged in Paragraph Sixteen, and further denies its acts and practices constituted unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce. The Respondent respectfully represents that it is not now and has not since September 12, 1968, been engaged in any kind of business and that the matters alleged in the Complaint are moot.

Further answering, Respondent respectfully represents that it is not now in business and no problem exists with respect to allegedly unfair acts, practices or methods.

Further answering, the Respondent respectfully represents that public interests arid the protection of the. public does not require issuance of any Orders or relief since the corporation involved is out of business and has given up its Arthur Murray franchise.

By.its attorneys,

^ r f w ^

&~ 24


/m* BECE1VED ft MAY 1 6 1969

^ ^ S f C R E T A R Y

In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ) ARTHUR MURRAY STUDIO OF BALTIMORE, INC. i ) ARTHUR MURRAY STUDIO OF VIRGINIA, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC. and ) ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., ) corporations, and VICTOR F. HORST and • EDWARD MARANDOLA, also known as ' EDWARD MARA, individual] Ly and as c >fficers ) of said corporations

DOCKET NO. 8776

ANSWER ON BEHALF OF ARTHUR MURRAY STUDIO OF BALTIMORE, INC.

The Arthur Murray Studio of Baltimore, Inc. makes the following answer to the Complaint heretofore filed by the Federal Trade Commission, as follows:

1. In answer to the allegations of Paragraph One, this Respondent respectfully represents that under date_of February -6, 1969, it entered into an agreement covering all operations "' •of the studio, and has not been.engaged in the dancing instruction business since that date.

Further answering, said Respondent states that it is inactive at the present time, has no place of business, and is not engaged in the dancing instruction business.

2. In answer to the allegations of Paragraph Two, Respondent is not now engaged in the operation of a dance studio.

25

3. In answer to the allegations of Paragraph Three, Respondent is not now engaged in the operation of a dance studio-

Further answering, this Respondent admits that it formerly caused advertising matter to be published in newspapers of interstate circulation and sent advertising matter and other material through the mail, but that none of said advertising or mailings are now being carried on because of

. the fact that the company is out of the dancing instruction business

4 & 5. This Respondent respectfully represents that it does not now do any newspaper advertising or make any representations as alleged in Paragraph Four since it is out of the business. It admits that while engaged in the dance business it advertised certain contests and games, substantially as alleged in Paragraph Four.

6. In answer to the allegations of Paragraph Six, the Respondent respectfully represents that since it is now out. of the business it does not conduct any contests such as are described in Paragraph Six.

Further answering, however, this Respondent denies that the statements, representations and practices as set forth in Paragraphs Four and Five were false, misleading and ■ deceptive.

7, 8 & 9. The Respondent respectfully represents that it is now making no representations on postal cards since it is not engaged in any dancing instruction business.


10, 11 & 12. In answer to the allegations of Paragraphs Ten, Eleven and Twelve, this Respondent respectfully represents that it is not now and has not since February 6, 1969, been engaged in the dancing business and therefore has not since that date made any representations concerning adult social clubs and newspaper advertising appearing in the Washington, D.C. area, or anywhere.



13. In answer to the allegations of paragraph Thirteen, this Respondent represents that it has not been engaged in the business of dancing instruction since February 6, 1959, and has engaged in no techniques or practices as described.since that date.


14.. In answer to the allegations of Paragraph Fourteen, the Respondent is not now engaged in the dancing instruction business and therefore is not in competition of any kind with •corporations, firms or individuals.


16. The Respondent denies that it is carrying on acts or practices to the prejudice and injury of the public as alleged in Paragraph Sixteen, and further denies its acts and practices constituted unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce. The Respondent respectfully represents that it is not now and has not since February 6, 1969, been engaged in the dancing business and that the matters alleged in the Complaint are moot.

Further answering, Respondent respectfully represents that it is not now in the dancing business and no problem exis with respect to allegedly unfair acts, practices or methods.

Further answering, the Respondent respectfully represents that public interests and the protection of the. public does not require issuance of any Orders or relief since the corporation involved is out of the dancing instruction business and has sublicensed. all its operations.

By its attorneys,

&vri

0*. '•• 27


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF VIRGINIA, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC. and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations

ANSWER ON BEHALF OF ARTHUR MURRAY STUDIO OF BETHESDA, INC.

The Arthur Murray Studio of Bethesda, Inc. makes the following answer to the Complaint heretofore filed by the Federal Trade Commission, as follows:

1. In answer to the allegations of Paragraph One, this Respondent respectfully represents that it ceased doing business in "1967, gave up its Arthur Murray franchise and has been wholly inactive since that date. . -!

Further answering, said Respondent states that it- is inactive at the present time, has no place of business, and is not engaged in business.

2. In answer to the allegations of Paragraph Two, Respondent is not now engaged in the operation of a dance studio, but as alleged in ansv/er to Paragraph One, has ceased doing business.

DOCKET NO. 8776

3. In answer to the allegations of Paragraph Three, Respondent is not now engaged in the operation of a dance studio, but as alleged in answer to Paragraph One, has ceased doing business.

Further answering, this Respondent admits that it formerly caused advertising matter to be published in newspapers of interstate circulation and sent advertising matter and other material through the mail, but that none of said •advertising or mailings are now being carried on because of the fact that the company is out. of business.

4 & 5. This Respondent respectfully represents that it does not now do any nev/spaper advertising or make any representations as alleged in Paragraph Four since it is out of business. It admits that while engaged in the dance business it advertised certain contests and games, substantially as alleged in Paragraph Four.



* 7, 8 & 9. The Respondent respectfully represents that it

is now making no representations on postal cards since it is not engaged in any business.


10, 11 & 12. In answer to the allegations of Paragraphs Ten, Eleven and Twelve, this Respondent respectfully represents that it is not now and has not since 1967 been engaged in the dancing business and therefore has not since that date made any representations concerning adult social clubs and newspaper advertising appearing in the Washington, D.C. area, or anywhere. . -



13. In answer to the allegations of Paragraph Thirteen, this Respondent represents that it has not been engaged in business since 1967 and has engaged in no techniques or practices as described since that date.




16. The Respondent denies that it is carrying on acts or practices to the prejudice and injury of the public as alleged in Paragraph Sixteen, and further denies its acts and practices constituted unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce. The Respondent respectfully represents that it is not now and has not since 1967 been engaged in any kind of business and that the matters alleged in the Complaint are moot.


Further answering, the Respondent respectfully. represents that public interests and the protection of the. public does not require issuance of any Orders or relief since the corporation involved is out of business and has given up its Arthur Murray franchise.

By.its attorneys,


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF VIRGINIA, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC. and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations '.

ANSWER ON BEHALF OF ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.

The Arthur Murray Studio of Silver Spring, Inc. makes the following answer to the Complaint heretofore filed by the Federal Trade Commission, as follows:

* 1. In answer to the allegations of Paragraph One, this

Respondent respectfully represents that under date of Sept. 12, 1968, it sold, assigned and transferred all of its assets to P & P Enterprises, Inc. The consideration of such transfer of assets was the assumption of certain of the liabilities. There was no cash consideration and not all of the liabilities were.assumed.

Further answering, said Respondent states that if is inactive at the present time, has no place of business, and is not engaged in business.

2. In answer to the allegations of Paragraph Two, Respondent is not now engaged in the operation of a dance studio, but as alleged in answer to Paragraph One, has sold and transferred all of its assets and is now out of business.

DOCKET NO. 8776

3. In answer to the allegations of paragraph Three, Respondent is not now engaged in the operation of a dance -studio, but as alleged in answer to Paragraph One, has sold and transferred all of its assets and is now out of business.

Further answering, this Respondent admits that it formerly caused advertising matter to be published in newspapers of interstate circulation and sent advertising matter and other material through the mail, but that none of said advertising or mailings are now being carried on because of the fact that the company is out of business.

4 & 5. This Respondent respectfully represents that it does not now do any newspaper advertising or make any representations as alleged in Paragraph Four since it is out of business. It admits that while engaged in the dance business it advertised certain contests and games, substantially as alleged in Paragraph Four.



7, 8 & 9. The Respondent respectfully represents that it is now making no representations on postal cards since it is not engaged in any business.


10, 11 & 12. In answer to the allegations of Paragraphs Ten, Eleven and Twelve, this Respondent respectfully represents that it is not now and has not since September 12, 1968, been engaged in the dancing business and therefore has not since that date made any representations concerning adult social clubs and newspaper advertising appearing in the Washington, D.C. area, or anywhere.

•Further answering, this Respondent says that no


13. In answer to the allegations of Paragraph Thirteen, this Respondent represents that it has not been engaged in business since September 12, 1968, and has engaged in no techniques or practices as described since that date.



15. The Respondent denies the allegations of paragraph Fifteen.

16. The Respondent denies that it is carrying on acts or practices to the prejudice and injury of the public as alleged in Paragraph Sixteen, and further denies its acts and practices constituted unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce. The Respondent respectfully represents that it is not now and has not since September 12, 1968, been engaged in any kind of business and that the matters alleged in the Complaint are moot.


Further answering, the Respondent respectfully represents that public interests and the protection of the. public does not require issuance of any Orders or relief since the corporation involved is out of business and has given up its Arthur Murray franchise.


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO FO VIRGINIA, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations.

ANSWER ON BEHALF OF VICTOR F. HORST

1. This Respondent respectfully represents that under date of .September 12, 1968, the Respondent Arthur Murray Studio of Washington, Inc. sold and transferred all of its assets to P & P Enterprises, Inc., gave up its Arthur Murray franchise and is no longer engaged in business of any kind, said corporation now being wholly inactive.

This Respondent respectfully represents that under date of September 12, 1968, the Respondent Arthur Murray Studio of Silver Spring, Inc. sold and transferred all of its assets to P & P Enterprises, Inc., gave up its Arthur Murray franchise and is no longer engaged in business of any kind, said corporation now being wholly inactive. .

This Respondent respectfully represents that in 1967 the Respondent Arthur Murray. Studio of Virginia, Inc. ceased doing business, gave up its Arthur Murray Franchise and has been wholly inactive since that date.

This Respondent respectfully represents that in 1967 the Respondent Arthur Murray Studio of Bethesda, Inc. ceased doing business, gave up its Arthur Murray franchise and has been wholly inactive since that date.-

W RECEIVED ^<\ MAY 1 6 19by

SECRETARY ^ ^

DOCKET NO. 8776

This Respondent respectfully represents that under date of February 6, 1969, Arthur Murray Studio of Baltimore, Inc. entered into an agreement covering all operation's of the studio, and has not been engaged in the dancing instruction business, since that date.

2. In answer to Paragraph Two of the Complaint, this Respondent respectfully represents that none of the corporate Respondents are now, or for some time, have been engaged in the business of dance instruction, and that he as an individual is not now and was not engaged in the dancing business.

Further answering, this Respondent respectfully represents that he has not been actively connected with any of the Respondent corporations other than as a stockholder and officer of the corporations; and that he has had nothing to do with the active management of the companies, and has been retired for several years.

3 to 13. In answer to paragraphs Three to Thirteen inclusive, this Respondent respectfully represents that the corporate Respondents are not now and have not for some time been engaged in the business of dance instruction. Accordingly, the activities described in Paragraphs Three to Thirteen inclusive relate to no conduct now being carried on by the Respondents. This Respondent respectfully represents that he had ho active participation in any of the matters referred to in said Paragraphs and therefore, can neither admit nor deny the same.

14 to 16. In answer to Paragraphs Fourteen to Sixteen of the Complaint, this Respondent respectfully represents that since the corporate Respondents are now and for some time have been out of the dance instruction business, they are not in competition with corporations, firms or individuals and are carrying on no activities to the prejudice and injury of the public. -

Further answering, this Respondent says that he has not been actively engaged in the business for several ..years, has been retired, and has committed no acts or practices which have been injurious or prejudicial to the public or to competitors of the corporate Respondents; and this Respondent respectfully represents that no occasion exists for the issuance of any order or relief as far as the individual Respondent is concerned.

' -By his attorneys, \ *■ ■

4ÂA^-^Vl^V'

TRADE COVA,;^ RECEIVED J^

UNITED STATES OF AMERICA • BEFORE FEDERAL TRADE COMMISSION

In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ) ARTHUR MURRAY STUDIO OF BALTIMORE, ;INC., ) ARTHUR MURRAY STUDIO FO VIRGINIA, INC., ) ARTHUR MURRAY STUDIO OF BETHESDA, INC:, and ) ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., ) corporations, and • VICTOR F. HORST and \ EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers ) of said corporations.

DOCKET NO, 8776

ANSWER ON BEHALF OF EDWARD MARAJSIDOLA, a A/a EDWARD MARA

1. This Respondent respectfully represents that under date of September 12, 1968, the Respondent Arthur Murray Studio of Washington, Inc. sold and transferred all of its assets to P St P Enterprises, Inc., gave up its Arthur Murray franchise and is no longer engaged in business of any kind, said corporation now being wholly inactive.

This Respondent respectfully represents that under date of September 12, 1968, the Respondent Arthur Murray Studio of Silver Spring, Inc. sold and transferred all of its assets to P & P Enterprises, Inc., gave up its Arthur Murray franchise and is no longer engaged in business of any kind, said corporation now being wholly inactive.

This Respondent respectfully represents that in 1967 the Respondent Arthur Murray Studio of Virginia, Inc. ceased doing business, gave up its Arthur Murray Franchise and has been wholly inactive since that date.

This Respondent respectfully represents that in 1967 the Respondent Arthur Murray Studio of Bethesda, Inc. ceased doing business, gave up its Arthur Murray franchise and has been wholly inactive since that date.-

36

This Respondent respectfully represents that under date of February 6, 1969, Arthur Murray Studio of Baltimore, Inc. entered into an .agreement covering all operations of the studio, and has not been engaged in the dancing instruction business since that date.

2. In answer to Paragraph Two of the Complaint, this Respondent respectfully represents that none of the corporate Respondents are now, or for some time, have been engaged in the business of dance instruction; and that he has not been engaged in the dance business in the matters, referred to in the Complaint except as an officer of the corporate Respondents,

3 to 13. In answer to Paragraphs Three to Thirteen inclusive, this Respondent respectfully represents that the corporate Respondents are not now and have not for some time been engaged in the business of dance instruction. Accordingly, the activities described in Paragraphs Three to Thirteen in-c l u s i v e relate t o n o conduct now being carried on by the Respondents.

14 to 16. In answer to Paragraphs Fourteen to Sixteen of the Complaint, this Respondent respectfully represents that since the corporate Respondents are now and for some time have been out of the dance instruction business, they are not in competition with corporations, firms or individuals and are carrying on no activities to the prejudice and injury of the public.

By his attorneys,

. (^L^Yl 7^^^^

37

^ R A D E C o S f e . VT RECEIVED ^

UNITED STATES OP AMERICA BEFORE FEDERAL TRADE COMMISSION SECRETARY

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON,INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA,INC.,and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC, corporations, and


DOCKET NO. 8776 ORDER DESIGNATING HEARING EXAMINER

Pursuant to authority vested in the Federal Trade Commission and delegated to the Director, Hearing Examiners,

IT IS ORDERED that Eldon P. Schrup, a hearing examiner of this Commission, be, and he hereby is, designated and appointed to take testimony and receive evidence In this proceeding and to perform all other duties authorized by law.

Edward Creel 7 Director,, Hearing Examiners.

: ^RADTco i i ^ . i Sgy RECEIVED '<%


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,

corporations, and YICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, Individually and as officers

of said corporations

DOCKET NO. 8776

ORDER CANCELLING HEARING DATE SET IN THE NOTICE OF THE COMPLAINT . .

IT IS HEREBY ORDERED that the hearing date set in the Notice of the Complaint for 10:00 o'clocic A.M. May 20, 1969 at the Federal Trade Commission offices, 1101 Building, 11th & Pennsylvania Avenue, N. W., Washington, D.C., be, and the same hereby is, cancelled, subject to being reset following the due date for the filing of answers by the respective corporate and individual respondents named in the Complaint.

Eldon P. Schrup \l Hearing Examiner 1

May 12, 1969


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776

MOTION TO HOLD A PREHEARING CONFERENCE COME NOW, Counsel in support of the complaint

request that the Examiner convene a prehearing conference for the purpose of simplifying and clarifying issues in the above-captioned matter. It is further requested that said conference be convened on June 9. 1969. '

Respectfully submitted,

DwightdL Oglesby, O ^

Edward D. Steinman, Counsel in support of the Complaint.

>v-

38



corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers


ORDER SETTING PREHEARING CONFERENCE

Pursuant to motion by complaint counsel under Section 3.21 of the Commission's Rules of Practice for Adjudicative Proceedings,

IT IS ORDERED that a prehearing conference in the instant matter be set to commence at 10:00 A.M., June 9, 1969, in Room 7314, Federal Trade Commission offices, The 1101 Building, 11th Street and Pennsylvania Avenue, N.W., Washington, D.C.

All parties are directed to be prepared to act in accordance with the provisions set forth in said Section 3.21 of the Rules of Practice for Adjudicative Proceedings.

Eldon P. Schrup Hearing Examiner

J DOCKET NO. 8776

1

June 2, 1969


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC. ,


of said corporations.

DOCKET NO. 8776

MOTION TO CANCEL AND RESET PREHEARING CONFERENCE COME NOW, counsel in support of the complaint and

move that the Examiner cancel the prehearing conference scheduled to commence at 10:00 a.m., June 9, 1969 and reset such prehearing conference for 10:00 a.m., June 16, 1969, for the reason that respondents have engaged new counsel and such counsel requests additional time to prepare for the prehearing conference.


Dwight H. Oglesby,° V

C/lLuXkAjoL £ ) . jf4e2owasr~» Edward D. Steinman? Counsel in Support of the Complaint.

DATE: June 6, 1969

(



corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, Individually and as officers


"TRADE ^ R E C E I V E D

JJUN 1 1 1 9 6 9

SECRET^

DOCKET N O . 8 7 7 6

ORDER RESETTING PREHEARING CONFERENCE

Pursuant to motion by complaint counsel and for reasons therein stated,

IT IS ORDERED that the prehearing conference set for June 9, 1969 be cancelled and reset to commence at 10:00 A.M., June 16, 1969, in Room 7314» Federal Trade Commission offices, The 1101 Building, 11th Street and Pennsylvania Avenue, N.W., Washington, D.C.


June 9, 1969

^

41


RECEIVED

JUN 1 9 1969

SECRETARY

% "+\

In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON INC i ARTHUR MURRAY STUDIO OF BALTIMORE, 'iNC?',' ARTHUR MURRAY STUDIO OF BETHESDA, INC. 'and ARTHUR MURRAY STUDIO OF SILVER SPRING 'INC

corporat ions , and ornxm,, ±wu., VICTOR F. HORST and EDWARD MARANDOLA, a lso known as EDWARD MARA, ind iv idua l ly and as o f f i ce r s

or said corpora t ions .

DOCKET NO. 8776

TO: Victor F. Horst , Respondent.

REQUEST FOR ADMTSSTmy OF F A n T S

of P p S t l S f f o p 0 ^ ? ^ 0 1 1 * ? ' 3 1 o f t h e Commission's Rules oi rrac-cice for Adjudicative Proceedings eonncsoi *rT

was i n ; o r ^ ^ d ^ rJ

a S L f ^ ° 1 9 6 3 r a S h l n g t 0 n ' I n e -

Washington, Inc. on July 19, 1963.

inc. during the period of July 1963 through August 19^8.

D r e s i l k r . / i ^ S ; F* 5 2 r s t « h a s b e e n a t a11 times the

5. Victor P. Horst has been at all times the treasurer of Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

6. Victor F. Horst has been at all times a member of the Board of Directors of the Arthur Murray Studio of Washington, Inc., during the period of July 1963 through August 1968.

7. Victor F. Horst attended meetings of the Board of Directors of Arthur Murray Studio of Washington, Inc. held on the following dates: July 30, 1963; August 12, 1963; September 30, 1963; ^ a 3 T J5> 1964-; January 16, 196*1-: February 2*f, }2~> J u l y 27» 196î August 16, 1965; March 17, 1966; April 20, 1966; December 13, 1966;jand July 25,

8' V i c t o r F« Horst attended all meetings'of the Board of Directors of Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

9. Victor F. Horst participated in the making of corporate decisions during meetings of the Board of Directors of Arthur Murray Studio of Washington, Inc. held on the following dates: July 30, 1963: January 15, 196»fj January 16. 196^5 February 2»f, 196»f: July 27, 1964-: August 16, 1965; March 17, 1966; ' April 20, 1966; December 13, 1966; and July 25, 1967.

10. Victor F. Horst has participated in the making of all corporate decisions made by the Board of Directors of Arthur Murray Studio of Washington, 1968 g t h e P e r i o d o f J u ly 1963 through August

11. Victor F. Horst participated in the formulation of the sales policies of the Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

.. 1 2i Victor F. Horst participated in the formulation of the promotion and publicity policies of the Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

-2-

13. Victor F. Horst supervised and directed the general manager of the Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

I1!-. Victor F. Horst, in many instances, reviewed and edited advertising disseminated by the Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

15. Victor F. Horst periodically conferred with the general manager of the Arthur Murray Studio of Washington, Inc. during the years 1963 through 1966.

16. Victor F. Horst regularly visited the premises of the Arthur Murray Studio of Washington, Inc. at least once a month during the years 196*+ through 1966.

17. The Arthur Murray Studio of Washington, Inc. served as the central office for the operation of the Arthur Murray Dance Studios located in the Washington-Baltimore metropolitan area during the years said studios were actively engaged in the dance instruction business.

18. Victor F. Horst received a permanent franchise to operate Arthur Murray Studios in the Washington, D.C. area in August 1963.

19. Arthur Murray Studio of Baltimore, Inc. was incorporated on December 16, 1963.

20. Victor F. Horst participated in the organization of the Arthur Murray Studio of Baltimore, Inc. on December 16, 1963.

21. Victor F. Horst has been at all times the principal stockholder of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

22. Victor F. Horst has been at all times the president of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

23. Victor F. Horst has been at all times the treasurer of Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

2H-. Victor F. Horst has been at all times a member of the Board of Directors of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

25. Victor F. Horst attended meetings of the Board of Directors of Arthur Murray Studio of Baltimore, Inc. held on the following dates: December 18, 1963$ November 2, 196^: November 1, 1965; December 9, 1966, and February Hf, 1967.

?6"^ V i c t o r F- Horst attended all meetings of the Board of Directors of Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through February 1967.

27. Victor F. Horst participated in the making of corporate decisions during meetings of the Board of Directors of the Arthur Murray Studio of Baltimore, Inc.: held on the following dates: December 18, 1963; December 30, 1963; November 2, 196^; November 1 1965,' December 9, 1966 and February 1^, 1967.

28. Victor F. Horst participated in the making of all corporate decisions made by the Board of Directors of Arthur Murray of Baltimore, Inc. during the period of July 1963 through August 1968.

*. J:9" 7 i c t o r F- Horst participated in the formulation of the sales policies of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969. 30. Victor F. Horst participated in the formulation

of the promotion and publicity policies of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

31. Victor F. Horst supervised and directed the general manager of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963'through January 1969. 6

^ ^?!J. Y i c t o r F* Horst, in many instances, reviewed and edited advertising disseminated by the Arthur Murray ? i u d i ^ o f Baltimore, Inc. during the period of December 1963 through January 1969.

33. victor F. Horst periodically conferred with the general manager of the Arthur Murray Studio of Baltimore, Inc. during the years 1963 through 1966.

3^. Victor F. Horst received a permanent franchise to operate Arthur Murray Studio in Baltimore, Maryland in December 1963.

35. Victor F. Horst participated in the organization of Arthur Murray Studio of Silver Spring, Inc. in February 1961*.

36. Victor F. Horst has been at all times the principal stockholder of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196*f through August 1968.

37. Victor F. Horst has been at all times the president of Arthur Murray Studio of Silver Spring, Inc. during the period of February 1961* through August 1968.

38. Victor F. Horst has been at all times the treasurer of Arthur Murray Studio of Silver Spring, Inc. during the period of February 196*f through August i960.

39. Victor F. Horst has attended all meetings of the Board of Directors of the Arthur Murray Studio of Silver Spring, Inc. held during the period of February 196*f through August 1968.

^0. Victor F. Horst has participated in the making of all corporate decisions made by the Board of Directors of Arthur Murray Studio of Silver Spring,, Inc. during the period of February 196*f through August 1968.

hi, Victor F. Horst participated in the formulation' of the sales policies of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196^ through August 1968."

^2. Victor F. Horst participated in the formulation of the promotion and publicity policies of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196*f through August 1968.

^3. Victor F. Horst supervised and directed the general manager of the Arthur Murray Studio of Silver Au ust'l968* during the P e r i o d of February 196*f through

or^ ^ 4 - PSJ01, ?• H° r s t> ^ many instances, reviewed and edited the advertising disseminated by the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196^ through August 1968. h5. Victor F. Horst periodically conferred with the general manager of the Arthur Murray Studio of Silver Spring, Inc. during the years 196*f through 1966. k6. Arthur Murray Studio of Bethesda, Inc. was incorporated in October 1963. h?. Victor F. Horst participated in the organization of the Arthur Murray Studio of Bethesda, Inc. in October 1963. *

# *f8. Victor F. Horst has been at all times the principal stockholder of the Arthur Murray Studio of Bethesda, Inc. during the period of October 196 5 through December 1966. h-9. Victor F. Horst has been at all times the president of Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966. 50. Victor F. Horst has been at all times the treasurer of Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

^ JP" Victor p» Horst has been at all times a member of the Board of Directors of the Arthur Murray Studio of Bethesda, Inc. during the period of October 196^ through December 1966. 52. Victor F. Horst has attended all meetings of the Board of Directors of the Arthur Murray Studio of Bethesd Inc. during the period of October 1963 through December i960. 53. Victor F. Horst participated in the formulation of the sales policies of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

-6-

63. Victor F. Horst was paid approximately $38,000 by the Arthur Murray Studio of Washington, Inc. during 196^.

6h. Victor F. Horst was paid approximately $28,000 by the Arthur Murray Studio of Virginia, Inc. during 196^.

65. Edward. Marandola, also known as Edward Mara, was hired by Victor F. Horst.

66. The amount and method of compensation paid to Edward Marandola, also known as Edward Mara, was determined by Victor F. Horst.

67. From time to time Victor F. Horst gave instructions to Edward Marandola, also known as Edward Mara, regarding procedures to be followed in operating dance studios.

68. At times, Victor F. Horst discussed the sales methods put into effect by Edward Marandola, also known as Edward Mara, with dancing instructors who disagreed with such methods.

69. Victor F. Horst has been associated with the dance studio business since 1936.

70. Arthur Murray Studio of Washington, Inc., was the defendant in Civil Action No. 388-67 instituted in the U.S. District Court for the District of Columbia.

71. Arthur Murray Studio of Washington, Inc., was the defendant in Civil Action No. IO89-66 instituted in the U.S. District Court for the District of Columbia.

72. Arthur Murray Studio of Washington, Inc., the defendant in Civil Action No. 1090-66 instituted in the U.S. District Court for the District of Columbia.


7*K Arthur Murray Studio of Washington, Inc.. was the defendant in Civil Action No. 1092-66 instituted in the U.S. District Court for the District of Columbia.


76. Arthur Murray Studio of Washington, Inc. had gross sales of approximately $1**3,360 in 1963.

77- Arthur Murray Studio of Washington, Inc. had gross sales of approximately $535,7^4 i n 196^. 78. Arthur Murray Studio of Washington, Inc. had

gross sales of approximately $600,521 in 1965. 79. Arthur Murray Studio of Silver Spring, Inc. had

gross sales of approximately $9^,930 in 196^. 80. Arthur Murray Studio of Silver Spring, Inc. had

gross sales of approximately $86,000 in 1965. 81. Arthur Murray Studio of Bethesda, Inc/ had

gross sales of approximately $6*+,190 in 1966. 82. Arthur Murray Studio of Bethesda, Inc. had

gross sales of approximately $77,065 in 1966. 83. Arthur Murray Studio of Baltimore, Inc. had

gross sales of approximately $2^2 in 1963. 8k. Arthur Murray Studio of Baltimore, Inc. had

gross sales of approximately $201,^15 in 196M-. 85. Arthur Murray Studio of Baltimore, Inc. had

gross sales of approximately $182,025 in 1965.

Dwightll. Oglesby,<S> g)

Edward D. Steinman, Counsel in Support of the Complaint.

DATE: June 19, 1969

-9- 50


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC.. ARTHUR MURRAY STUDIO OF BALTIMORE, INC. ARTHUR,MURRAY STUDIO OF BETHESDA, INC. , and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC? corporations, and '


DOCKET NO. 8776

TO: Edward Marandola, also known as Edward Mara, Respondent.

REQUEST FOR ADMISSION OF FACTS

«* D P uf s u a nJ to Section 3-31 of the Commission's Rules of Practice for Adjudicative Proceedings /counsel in support of the complaint herewith servl uponêlnondents a written request for the admission of the truth ?n ?{£ matters of fact hereafter set forth. 6

1. Arthur Murray Studio of Washington. Inc was incorporated on July 19, 1963. '

n a r t i c i T ^ ^ M a r a n d o l a> a l S 0 k nown as Edw*rd Mara, StudiS n? wl£? *5e orfanization of the Arthur Murray studio of Washington, Inc. on July 19, 1963.

has J'alf T ^ J ^ r i U o ^ h f s ^ o ^ K S

i

51

,ac yZ* E d w a?; d Marandola, also known as Edward Mara, has been at all times the vice president of the Arthur J ^ T Q ^ 0 °f Washington Inc\ during ?ne plriod S July 1963 through August 1968. h

h»<i w « ■EJVa?? Marandola, also known as Edward Mara has been at all times a member of the Bdard of Directors of the Arthur Murray Studio of Washington, Inc., during the period of July 1963 through August 1 9 0 8 . ' auring

Q++. A'A E d w a ? d Marandola, also known as Edward Mara attended meetings of the Board of Directors of Arthur £ S F Sj£v°^f ^ S i n f °?' JnCSheld onIhf blowing

August 16, 1965:Wch ,17, 1966, AprilÔ, 1966- ?' 9 5 December 13, 1966; and July 25/1967. ' ' a++ VA Edward Marandola, also known as Edward Mara attended most of the meetings of the Board of Directors of Arthur Murray Studio of Washington, Inc durln* ?£» period of July 1963 through August 1^8. g he

8. Edward Marandola, also known as Edward Mara participated in the making of corporate decisions Surine n? w 1^- °l theTBoard of Directors of Arthur Murray^tSdio of Washington, Inc. held on the following dates! July30 1 9 & Ju?va2? ^lU96^ Ja?U?Sy 162 196^1 February § s 3 * * 7-? ~uly 2?J 196M-; August 16, 1965; March 17 1Q66-April 20, i960; December" 13, l$66; aAd July l}\ I967I

*«» 9. Edward Marandola, also known as Edward Mara iSS PartJoipated in the making of all corporate Sessions n? SQcLthJ B° a? d of Directors of Arthur Murray S?udio A ^ f ^ I s ? * ' InC' dUPing the period of J ^ 1963 though

10. Edward Marandola, also known as Edward Ma-r* S f ^ C l ? a ^ d *5 the foûlation of S e sales poliaiaS ±L^LfJhu5 ^ r a y ?tudio of Washington, In?? during the period of July 1963 through August 19&. a u r i ne

r, ^ 1; EdYafd Marandola, also known as Edward Mara S S ? t ^ ? ^ t e d ^ n / h e £«™aat ion of the promotion a^d publicity policies of the Arthur Murray Studio of August 196^ I n C* dUring the Peri?d of July 1963 through

21. Edward Marandola, also known as Edward Mara, • had authority to hire or dismiss the manager of the Arthur Murray Studio of Washington. Inc., during the period of July 1963 through August 1968. ,. j ??* Edward Marandola, also known as Edward Mara, had the authority to hire or dismiss any dance instructors of Arthur Murray Studio of Washington. Inc., during the period of July 1963 through August 1908.

23. Edward Marandola, also known as Edward Mara, had the authority to hire or dismiss any employee of Arthur Murray Studio" of Washington, Inc., during the period of July 1963 through August 1968.

2h. Edward Marandola, also known as Edward Mara, hired employees of Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

25. Edward Marandola, also known as Edward Mara, dismissed employees of Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

26. Edward Marandola, also known as Edward Mara, determined the amount of compensation received by the manager of the Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

27. Edward Marandola, also known as Edward Mara, had authority to sign checks drawn on the bank account of Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968.

28. Edward Marandola, also known as Edward Mara, signed checks drawn on the bank account of Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968. .

29. Edward Marandola, also known as1 Edward Mara, in many instances, intervened in disputes between students and employees of the Arthur Murray Studio of Washington, Inc. during the period of July 1963 through August 1968..

30. Edward Marandola, also known as Edward Mara, in many instances, determined the manner of satisfying complaints of students of the Arthur Murray Studio of Washington. Inc. during the period of July 1963 through

-h- 54

31. Edward Marandola,also known as Edward Mara, in some instances signed student dance instruction contracts on behalf of the Arthur Murray Studio of Washington. Inc. during the period of July 1963 through August 1968.

32. Arthur Murray Studio of Baltimore, Inc. was incorporated on December 16, 1963.

33. Edward Marandola, also known as Edward Mara, participated in the organization of the Arthur Murray Studio of Baltimore, Inc. on December 1963.

3*+. Edward Marandola, also known as Edward Mara, has at all times owned approximately 20$ of the stock ' of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

35. Edward Marandola, also known as Edward Mara, has been at all times the vice president of the. Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

36. Edward Marandola, also known as Edward Mara, has been at all times a member of the Board of Directors of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

37. Edward Marandola, also known as Edward Mara, attended meetings of the Board of Directors of Arthur Murray Studio of Baltimore, Inc. held on the following dates: December 18, 1963; November 2, 196 -: November 1, 1965; December 9, 1966; and February 1^, 1967.

38. Edward Marandola, also known as Edward Mara, attended all meetings of the Board of Directors of Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through February 1967.

39. Edward Marandola, also known as Edward Mara, participated in the making of corporate decisions during meetings of the Board of Directors of the Arthur Murray Studio of Baltimore, Inc. held on the following dates: December 18, 1963; November 2, 196if: November 1, 1965: December 9, 1966 and February ih, 1967.

M}. Edward Marandola, also known as Edward Mara participated in the making of all corporate decision of BaSimo^B0?rd °S K™°}°™ <* ArtC Murray ItuSto ?teough1A^stI?;68fUrinB *he PSrl0i 01 July 1963

J+l. Edward Marandola, also known as Edward Mara S f t ^ T ^ * *£ the formulation of the sales poliSeJ 1 t h e Arthur Murray Studio of Baltimore, Inc? durlS the period of December 1963 through January 19697 J+2. Edward Marandola. also known as Edward Mars

S 5 M ? M ? f t e d ^ n - t h e l o c a t i o n of S e promotion and' publicity policies of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969. xyv:>

*+3. Edward Marandola, also known as Rdwa-nri Ma1., B S S ? ; ? f l B a l t l S S a e t ? d tie« ™ - a ^ ™ " h f K u r ^ M u r r a y i*?tt£o2£1SSS!& i?69.during the per iod of DeceBter

has r e i i e w e r a n d ^ ^ ^ d v l r l L ^ i l L ^ ^ / f 3 ' £ j , W n f e T S t u d l ° °* B a i l S I r e ' l n ^ X f t h e period of December 1963 through January 1969? g

r.^m,^\ E d w a ? d Marandola, also known as Edward Mara M u f r t v r s L « ^ ? r R d

1 ^ t h t h%m a°ager of the Ar?hS * ' ttoough W o ? B a l t l m ° r e > m e . during the years 1963

„„_ ^6; Edward Marandola, also known as Edward Mara

the period of December 1963 through January 1969^ g

fv Jt?'*. j^Y*1 Maran<iola, also known as Edward Mara formulated the procedures utilized in training new ' employees of the Arthur Murray Studio of BaltimorT ûarH^!116 ^ °f . ^ ***?*££**' r e g u l ' a ^ Arthur Murray Studio of Baltimore, Inc. to rlview sales f&^^j^^^T^t6e period of ~«r

J+9. Edward Marandola, also known as Edward Mara, regularly held meetings with studio personnel of the Arthur Murray Studio of Baltimore, Inc., for the purpose of instituting new sales promotions or programs during the period of December 1963 through January 1969. w ^ v , E??ar? Marandola, also known as Edward Mara, ^ a l a U t S ° r i t y 1° h i r e or dj-smiss the manager of the Arthur Murray Studio of Baltimore, Inc., during the period of December 1963 through January 1969. v* A fi' Edward Marandola, also known as Edward Mara, had the authority to hire or dismiss any dance instructor* of Arthur Murray Studio of Baltimore, Inc?? duriSg the period of December 1963 through January 1909? g

v» A ll' Edward Marandola, also known as Edward Mara, Aad the authority to hire or dismiss any employee of Arthur Murray Studio of Baltimore, Inc., during the period of December 1963 through January 1969. . v,-„ V" Edward Marandola, also known as Edward Mara, hired employees of Arthur Murray Studio of Baltimore JanuarTi^? 1 6 P e r i ° d ° f DeCember 1 9 6 3 trough '

,,„ ?*• Edward Marandola. also known as Edward Mara, dismissed employees of Arthur Murray Studio of Baltimore 1969. g t h e P e r i ° d ° f D e c e m b e r 1963 through January '

55. Edward Marandola, also known as Edward Mara determined the amount of compensation received bv the manager of the Arthur Murray Studio of Baltimore^ Inc during the period of December 1963 through January 1969. n_ „ 6:, Edward Marandola, also known as Edward Mara had authority to sign checks drawn on the blnk account °*JTf% f***l StudJ° o f Baltimore? Inc. during 3 2 period of December 1963 through January 19697 0. 57' Edward Marandola, also known as Edward Mara, IJSfS ^ eS k?4- d r a W n °? the b a n k account of Arthur Murray SgfShSSl'SS^ ^9.d u r i n g the period of Decembe/

58. Edward Marandola, also known as Edward Mara, in many instances, intervened in disputes between students and employees of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.

59. Edward Marandola, also known as Edward Mara, in many instances, determined the manner of satisfying complaints of students of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969.'

60. Edward Marandola, also known as Edward Mara, in some instances signed student dance instruction contracts on behalf of the Arthur Murray Studio of Baltimore, Inc. during the period of December 1963 through January 1969,

61. Edward Marandola, also known as Edward Mara, participated in the organization of Arthur Murray Studio of Silver Spring, Inc. in February 196M-.

62. Edward Marandola, also known as Edward Mara, has been at all times a substantial stockholder of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196M- through August 1968.

63. Edward Marandola, also known as Edward Mara, has been at all times, the vice president of Arthur Murray Studio of Silver Spring, Inc. during the period of February 196M- through August 1968.

6*+. Edward Marandola, also known as Edward Mara, has attended most of the meetings of the Board of Directors of the Arthur Murray Studio of Silver Spring, Inc. held during the period of February 196*+ through August 1968.

65. Edward Marandola, also known as Edward Mara, has participated in the making of all corporate decisions made by the Board of Directors of Arthur Murray Studio of Silver Spring, Inc. during the period of February 196 -through August 1968.

66. Edward Marandola, also known as Edward Mara, participated in the formulation of the sales policies of the Arthur Murray Studio of Silver.Spring Inc. during the period of February 196^ through August 1968.

67. Edward Marandola, also known as Edward Mara, participated in the formulation of the promotion and publicity policies of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196*f through August 1968.

68. Edward Marandola, also known as Edward Mara, supervised and directed the manager of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196*f through August 1968.

69. Edward Marandola, also known as Edward Mara, has reviewed and edited the advertising disseminated by the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196^ through August 1968.

70. Edward Marandola, also known as Edward Mara, regularly conferred with the manager of the Arthur Murray Studio of Silver Spring, Inc. during the years 196^ through 1966.

71. Edward Marandola, also known as Edward Mara, supervised the instruction and training of new employees of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 1964 through August 1968.

72. Edward Marandola, also known as Edward Mara, formulated the procedures utilized in training new employees of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196*+ through August 1968.

73. Edward Marandola? also known as Edward Mara, regularly held meetings with studio employees of Arthur Murray Studio of Silver Spring, Inc. to review sales procedures of the studio during the period of February 1964 through August 1968.

74. Edward Marandola, also known as Edward Mara, regularly held meetings with studio personnel of the Arthur Murray Studio of Silver Spring, Inc., for the purpose of instituting new sales promotions or programs during the period of February 1964 through August 1968.

75. Edward Marandola, also known as Edward Mara, had authority to hire or dismiss the manager of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196M- through August 1968. 76. Edward Marandola, also known as Edward Mara,

had the authority to hire or dismiss any dance instructors of Arthur Murray Studio of Silver Spring, Inc., during the period of February 196M- through August 1968. 77. Edward Marandola, also known as Edward Mara, had the authority to hire or dismiss any employee of Arthur Murray Studio of Silver Spring, Inc., during the period of February 196M- through August 1968. 78. Edward Marandola, also known as Edward Mara, hired employees of Arthur Murray Studio of Silver Spring, Inc., during the period of February 196M- through August 1968. 79. Edward Marandola. also known as Edward Mara, dismissed employees of Arthur Murray Studio of Silver Spring, Inc. during the period of February 196^ through August 1968. 80. Edward Marandola, also known as Edward Mara, determined the amount of compensation received by the manager of the Arthur Murray Studio of Silver Spring, Inc. during the period of February. 196*+ through August 1968. 81. Edward Marandola, also known as Edward Mara, had authority to sign checks drawn on the bank account of Arthur Murray Studio of Silver Spring, Inc. during the period of February 196M- through August 1968. 82. Edward Marandola, also known as Edward Mara, signed checks drawn on the bank account of Arthur Murray Studio of Silver Spring, Inc. during the period of February 196M- through August 1968. 83. Edward Marandola, also known as Edward Mara, in many instances, intervened in disputes between students and employees of the Arthur Murray Studio Silver Spring, Inc. during the period of February 196M-through August 1968.

-10- 60

8*4-. Edward Marandola, also known as Edward Mara, in many instances, determined the manner of satisfying complaints of students of the Arthur Murray Studio of Silver Spring. Inc. during the period of February 196*+ through August 1968.

85. Edward Marandola, also known as Edward Mara, in some instances signed student dance instruction contracts on behalf of the Arthur Murray Studio of Silver Spring, Inc. during the period of February 196*f through August 1968.

86. Arthur Murray Studio of Bethesda, Inc. was incorporated in October 1963.

87. Edward Marandola, also known as Edward Mara, participated in the organization of the Arthur Murray-Studio of Bethesda, Inc. in October 1963.

88. Edward Marandola, also known as Edward-Mara, has been at all times a substantial stockholder of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

89. Edward Marandola, also known as Edward Mara, has been at all times the vice president of Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

90. Edward Marandola, also known as Edward Mara, has been at all times a member of the Board of Directors of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

91. Edward Marandola, also known as Edward Mara, has attended most of the meetings of the Board of Directors of the Arthur Murray Studio of.Bethesda, Inc. during the period of October 1963 throug^ December 1966.

92. Edward Marandola, also known as Edward Mara, participated in the formulation of the sales policies of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

-11- 61

93. Edward Marandola, also known as Edward Mara, participated in the formulation of the promotion and publicity policies of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

9*K Edward Marandola, also known as Edward Mara, supervised and directed the manager of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

95. Edward Marandola, also known as Edward Mara, has reviewed and edited the advertising disseminated by the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

96. Edward Marandola, also known as Edward Mara, regularly conferred with the manager of the Arthur Murray Studio of Bethesda, Inc. during the years 1963 through 1966.

97. Edward Marandola, also known as Edward Mara, supervised the instruction and training of new employees of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

98. Edward Marandola, also known as Edward Mara, formulated the procedures utilized in training new employees of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

99. Edward Marandola. also known as Edward Mara, regularly held meetings with studio employees of Arthur Murray Studio of Bethesda, Inc. to review sales procedures December 1966 g Period of October 1963 through

100. Edward Marandola. also known as Edward Mara, regularly held meetings with studio personnel of the Arthur Murray Studio of Bethesda, Inc. for the purpose of instituting new sales promotions or programs during the period of October 1963 through December 1966.

-12- 62

101. Edward Marandola, also known as Edward Mara, had authority- to hire or dismiss the manager of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

102. Edward Marandola, also known as Edward Mara, had the authority to hire or dismiss any dance instructors of Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

103. Edward Marandola, also known as Edward Mara, had the authority to hire or dismiss any employee of Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

10^. Edward Marandola, also known as Edward Mara, hired employees of Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

105. Edward Marandola, also known as Edward Mara, dismissed employees of Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966. ;

106. Edward Marandola, also known as Edward Mara, determined the amount of compensation received by the manager of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

107. Edward Marandola, also known as Edward Mara, had authority to sign checks drawn on the bank account of Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

108. Edward Marandola, also known as Edward Mara, signed checks drawn on the bank account of Arthur Murray Studio of Bethesda, Inc. during the peribd of October 1963 through December 1966. '

109. Edward Marandola, also known as Edward Mara, in many instances, intervened in disputes between students and employees of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

-13-

110. Edward Marandola, also known as Edward Mara, in many instances, determined the manner of satisfying complaints of students of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December 1966.

111. Edward Marandola, also known as Edward Mara, in some instances signed student dance instruction contracts on behalf of the Arthur Murray Studio of Bethesda, Inc. during the period of October 1963 through December i960.

112. Edward Marandola, also known as Edward Mara, was employed by Victor F. Horst to be the general manager of all the Arthur Murray Studios licensed by Victor F. Horst from Arthur Murray, Inc.

113. Edward Marandola. also known as Edward Mara, regularly visited at least twice a month each of the Arthur Murray Studios licensed by Victor F. Horst from Arthur Murray, Inc.

11^. Edward Marandola, also known as Edward Mara, regularly conferred with Victor F. Horst concerning the procedures to be followed by the Arthur Murray Studios licensed by Victor F. Horst.

115. Edward Marandola, also known as Edward Mara, regularly conferred with Victor F. Horst concerning the manner in which students' complaints against the studios would be resolved.

116. Edward Marandola, also known as Edward Mara, received approximately $2^,050 from the Arthur Murray Studio of Washington,'Inc. during I961*.

-Hf- 64

117. Edward Marandola, also known as Edward Mara, received approximately $13,321 from the Arthur Murray Studio of Virginia, Inc. during 196*+.

DATE: June 23, 1969-

Edward D. Steinman,

Dwiglit H. Oglesby, — Counsel in Support of

the Complaint.

-15-


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON , INC • i I

ARTHUR MURRAY STUDIO OF BALTIMORE, INC. i )

ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ) ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., )

corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also 1 «nown as EDWARD MARA, individually and as o fficers )


DOCKET 8776

JOINT MOTION TO SET PRE-HEARING CONFERENCE AND TO EXTEND TIME

TO: The Honorable Eldon P. Schrup, Hearing Examiner

By Order of October 9, 1969, the Commission has determined that this matter be returned to adjudication forthwith.

Counsel for the parties now jointly move that the next pre-hearing conference be set for Monday, October 27, 1969. An earlier date would be impracticable due to earlier commitments of counsel. In the case of counsel supporting the complaint, they will be in hearings in the Matter of Eastern Detective Academy, Inc., et al., Docket No. 8793, at least through October 23, and perhaps thereafter. Counsel for respondents has previous commitments which would similarly make an earlier pre-hearing date burdensome.

-2-

Counsel also jointly move, pursuant to §3.31(b) of the Commission's Rules of Practice, that respondents' time to answer Requests for Admission be extended indefinitely to a date to be set by the Hearing Examiner

Respectfully,

Tom M.^Schaumberg^

Counsel for Respondents

Donald L. Bachman

Edward D. Steinman

Counsel in Support of the Complaint

October 14, 1969


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., ) DOCKET NO. 8776



ORDER RECONVENING PREHEARINQ CONFERENCE

The Commission on October 9, 1969 Issued Its Order denying respondents' motion for reconsideration and directing that this matter be submitted to adjudication. Counsel by Joint motion filed October 14, 1969 and for reasons therein set forth request that the prehearlng conference be reconvened to commence on October 27, 1969.

Complaint counsel on June 19* 1969 filed two requests for Admission of Facts under Section 3.31 of the Rules of Practice, which requests for Admission of Facts were discussed at pages 67-70 of the prehearlng conference herein of June 27, 1969* The instant Joint motion filed October 14, 1969 asks that the time for respondents to answer these requests under Section 3*31(h) be extended indefinitely to a date to be set by the Hearing Examiner. In the light of the Commission's above Order of October 9, 1969, this extension will not be allowed and the time for answers by the respondents to the requests for Admission of Facts will be set for within ten (10) days after service of this order reconvening the prehearlng conference. Accordingly,

68

v.-,. 4 JT I S 0RDERED> that the prehearing conference herein be reconvened to commence at 10:00 A M unices, ine J.1Q1 Building, 11th Street and PennsvlvaniA Ayenue, N.W., Washington, D.C. The prehearingônfê will be stenographically reported. comerenee

Eldon P. Schrup, f Hearing Examiner.

October 20, 1969


********

DOCKET NO. 8776

IN THE MATTER OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC ' ARTHUR MURRAY STUDIO OF BETHESDA, INC. , ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


BRIEF OF COMPLAINT COUNSEL IN SUPPORT OF THE CONTESTED PROVISIONS OF THE ORDER

DONALD L. BACHMANr

EDWARD D. STEINMAN, COUNSEL SUPPORTING THE COMPLAINT

I N D E X Page

Statement of the Case 1 A. Preliminary Statement . . 1 B. The Facts 2

The Issues 2 Argument 3

A. The Examiner should issue the following order which has sufficient breadth and scope to cover other services that may he provided by respondents:

"IT IS ORDERED that respondents Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor P. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations,.,and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, or other services, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from." 3

B. The Examiner should issue the following order which prohibits respondents from continuing the unfair or deceptive acts and practices evidenced by the stipulation of facts by limiting the amount that any student at any one time may be obligated to pay respondents and by providing a seven day cooling-off period: "Entering into one or more contracts or written agreements for dance instruction or any other service provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500." "Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-polnt bold type:

"Notice: You may rescind (cancel) this contract, for any reason whatever, by submitting notice in writing of your intention to do so within seven (7) days from the date of making this agreement.

"if you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be promptly refunded."

Conclusion

ii

TABLE OP CASES CITED All-State Industries of North Carolina. Tm>.. et al., Docket No. 8738 {1969) . . . . . . . . . . . . . ; 9

American Home Improy. Inc. v. Mac Iver, 105 N.H. 435, 201 A 2d 88b (1964) ~ . . . . . 10

Benrus Watch Co. v. P.T.C, 352 F 2d 3l3 (8th Clr. 1965 cert, denied 384 U.S. 939 (1966) . 4

Central Budget Corp. v. Sanchez, 53 Mlsc 2d 620, 279 NYS 2d J91 U967) . 10

Prostlfresh Corporation v. Reynose. 274 NYS 2d 757 (1966) . . . . . . . . . . . 10

P.T.C. v. Colgate-Palmollve Co.. 380 U.S. 375 (1965). 4 P.T.C. v. National Lead Co.. 352 U.S. 419 (1957). . . 6 P.T.C. v. Ruberlod Co., 343 U.S. 470 (1952) 3 general Transmissions Corp. of Washington, et al., Docket No. 8713 (1968) . . . . . . . . . 4

Household Sewing Maehine Co., Inc.. et al., Docket No. 8761 (1969)—. . . . 9

Independent Directory Corp. et a l . v. P.T.C. 188 P 2d 468 ( i95 l ) " . . . . . . . . . . 6

Jacob Slegel Co. v . P . T . C 327 U.S. 608 (1946) . . . 4

Lefkowltz v. ITM, Inc. 52 Misc. 2d 39, 275 NYS 2d 303, (1966) 1 0

Leon A. Tashof. T/A New York Jewelry Company. Docket No. 8714 (1968) . . . . . . . . 11

Nlresk Industries, Inc. v. P . T . C , 278 P 2d 337 (8th Cir. 1$65), cert , denied"364 irnSTTB83 (i960)

People v. Arthur Murray. Inc . . 47 Col. Rptr. 700 (1965) 8

Thermochemieal Products. Inc . . e t a l . , Docket No. 8725 U969) . . . . . . 4

i l l 73

Williams v. Walker-Thomas Furni ture Co. , 121 App. D.C. 10 315, 350 F 2d 445 (1965). . . . ."".". . . . . . . .

STATUTES

Cal. Civ i l Code, T i t l e 2 .5 , §§ l8 l2 .80 - .97 ( l96 l ) . . 8 Cal; Civ i l Code, § l8 l2 .80 8

Cal . Civ i l Code, § 1812.86 8

i v

http://l8l2.80-.97


In the Matter of ARTHUR MURRAY STUDIO ARTHUR MURRAY STUDIO ARTHUR MURRAY STUDIO ARTHUR MURRAY STUDIO corporations, and


OF WASHINGTON, INC. , OF BALTIMORE, INC., OF BETHESDA, INC., OF SILVER SPRING, INC.,

DOCKET 8776

BRIEF OF COMPLAINT COUNSEL IN SUPPORT OF THE CONTESTED PROVISIONS OF THE ORDER I. STATEMENT OF THE CASE

A. PRELIMINARY STATEMENT The complaint in this proceeding was issued by

the Federal Trade Commission on April 3, 1969 and was duly served on all respondents. The complaint charges respondents with false, misleading and deceptive acts and practices in advertising, selling and teaching courses of dance instruction to members of the consuming public in violation of Section 5 of the Federal Trade Commission Act.

Respondents filed on May 19, 1969J separate answers that made certain admissions but generally denied any violation of law.

On July 10, 1969 the Examiner certified to the Commission a joint motion by trial counsel requesting the matter be withdrawn from adjudication and a settlement agreement with consent order be accepted. The

Commission issued an Order on August 6, 1969 contingently withdrawing the matter from adjudication providing that an agreed order be executed by the respondents containing a provision limiting the respondents1 contracts with students for dance instruction or any other services provided by respondents' dance studios to an amount not exceeding $1,500.

On September 5, 1969 respondents filed a motion for reconsideration of the Commission's order contingently withdrawing the matter from adjudication. This motion was denied by the Commission on October 9, 1969 and it ordered the matter be returned to adjudication for the commencement of hearings forthwith.

A prehearing conference was held on November 5, 1969 at which time trial counsel stipulated on the record that the material factual allegations of the complaint served upon the respondents were true and correct. Separate and apart from the stipulation of facts, trial counsel agreed in substance to all but two of the provisions of the proposed order attached to the complaint served upon the respondents. Trial counsel further agreed to a substituted provision for numbered paragraph ten and to minor changes to numbered paragraphs one and fourteen of the aforementioned proposed order.

B. FACTS. The record upon which the provisions of the

above-mentioned proposed order, and-the hereinafter discussed provisions to be included therein, are based consists of the facts stipulated by trial counsel during the prehearing conference of November 5,

II. ISSUES. Trial counsel agreed that only certain provisions

of the notice order would be contested. These contested provisions raise the following issues:

1. Whether the Commission can issue an order which encompasses respondents' dancing instruction as well as "other services" which respondents may provide.

2. Whether the Commission can issue an order which prohibits the respondents from entering into one or more contracts with students which will obligate such students to pay a total amount which at any one time exceeds $1,500 and which provides a seven day cooling-off period during which time the contract may be cancelled at the option of the student or prospective student.

III. ARGUMENT. A. The Examiner should issue the following

order which has sufficient breadth and scope to cover other services that may be provided by respondents :

"IT IS ORDERED that respondents Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents1 agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, or other services, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from." The purpose of a cease and desist order is to

prevent future illegal practices. However, the Commission in carrying out its mandate is not limited to prohibiting the illegal practice in the exact form found to exist, F.T.C. v. Ruberiod Co. . 3V5 U.S. V70, ^73 (1952).

It is a recognized legal principle that the Commission in exercising its authority pursuant to Section 5 of the Federal Trade Commission Act has wide discretion in determining the appropriate order applicable to the unfair practices that were found to exist. Jacob Siegel Co. v. F.T.C. 327 U.S. 608, 611 (19^6). In order to avoid and prevent possible evasion of the order, the Commission may issue an order of sufficient breadth and scope to ensure that a respondent will not evade an order by merely engaging in a new service or manufacturing a new product.

The United States Supreme Court held in 196? that the Commission has authority to prohibit a respondent from continuing various deceptive practices found to exist with regard to any product he may produce. The order contested in that case was not limited to the false and deceptive acts and practices of the respondent in connection with the products shown by the evidence of record, but also covered any other products which respondent might produce. F.T.C v. Colgate-Palmolive Co.. 380 U.S. 37*+, 39^-395 (1965). In connection with the Commission's authority to fashion an order encompassing other products or services it has been held that where deceptive practices have been utilized with regard to certain products such practices may be prohibited with respect to all products. Benrus Watch Co. v. F.T.C. 352 F2d 313, 32^ (8th Cir. 1965), cert, denied 38M- U.S. 939 (1966). It has been further held that the Commission may issue an order having sufficient scope to include the particular product or products with respect to which violations were found to exist as well as any other product which the manufacturer may later decide to produce. Niresk Industries. Inc. v. F.T.C, 278 F2d 337, 3^2-3*0 (7 th Cir. i960), cert, denied 36 - U.S. 883 (i960); Thermochemical Products. Inc.T et al. . Docket No. 8725 (1969TT

The question as to the Commission's authority to issue an order covering other products or services was before the Commission in the matter of General Transmissions Corp. of Washington, et al.. Docket No. 8713 (1968), where it was held:

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"In view of the ease with which respondents1 deceptive practices could be adapted to other fields and in view of the magnitude of the deceptive practices here found and their effect on consumers, we think respondents should be prevented from engaging in their deceptive and fraudulent practices in connection with the sale of any other product or services."

Counsel supporting the complaint contend that the holding in General Transmissions is applicable in the instant matter. It would be relatively easy for the respondents herein to utilize the deceptive practices set forth in the stipulation of facts in business entities similar to but not identical to the dance business. Respondents, for example, may very easily adapt their present form of business to involve such services as health clubs utilizing the stipulated practices and thereby be successful in evading an order limited to just dance instruction.

B. The Examiner should issue the following order which prohibits respondents from continuing the unfair or deceptive acts and practices evidenced by the stipulation of facts by limiting the amount that any student at any one time may be obligated to pay respondents and by providing a seven day cooling-off period:

"Entering into one or more contracts or written agreements for dance instruction or any other service provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500." "Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the

obligation incurred, shall bear the following notation in at least 10-point bold type:


"If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be promptly refunded." The Commission has broad discretion as to the

means which may be utilized in abating unfair or deceptive acts or practices. The United States Court of Appeals (Second Circuit) has held that the means chosen by the Commission will not be disturbed unless the Commission's discretion has been clearly abused. Independent Directory Corp. et ai. v. F.T.C.. 188 F2d if6b, M-70 U95D. Counsel in supporT~oT~the complaint contend that in the instant matter it is not an abuse of discretion for the above provisions to be included in an order against respondents for the purpose of abating respondents' practices reflected in Paragraph Thirteen, subparagraph four of the complaint which have been stipulated as a true and correct statements of facts.

In a matter which was before the Commission and was affirmed by the United States Supreme Court, the respondents contested a provision of an order which respondents contended was a restriction of a lawful competitive sales method, i.e. quoting or selling lead pigments at prices calculated pursuant to a zone delivered price system. F.T.C. v. National Lead go^, 352 U.S. 1*19 (1957). In response to this con-tention by the respondents, the United States Supreme Court stated: v

"Although the zone plan might be used for some lawful purposes, decrees often suppress a lawful device when it is used to carry out an unlawful purpose."

The Court further stated that in such instances the court should not only suppress the unlawful practices but take such reasonable action to preclude the revivial of the illegal practice. This decision is applicable to the instant matter.

In the instant matter, respondents are utilizing means as cited in Paragraph Thirteen, subparagraph four of the complaint, which have been stipulated to be true, to procure from students financial obligations varying up to and in excess of $1,500. To order the respondents to cease and desist from procuring obligations amounting to more than $1,500 is a means of suppressing a " lawful device when it is used to carry out an unlawful practice- . As stated in the above-mentioned Supreme Court decision at page *+31, the Commission has reserve jurisdiction-for any contingencies that may occur resulting from any order issued by the Commission. Should any inequitable contingencies actually occur which will adversely affect the respondents in this matter as a result of the issuance of an order containing the above-mentioned provision, these contingencies can be presented to the Commission. Section 3.72, Commission's Rules of Practice.

It has been held that when a Commission order is contested by a respondent, the court will only interfere if the order has no relationship to the unlawful practices Niresk Industries. Inc. v. F.T.C.. supra. Complaint counsel contend that the provisions of numbered paragraphs 9 and 10 of the attached order have a reasonable relation to the unfair practices conducted by the respondents as shown by the stipulated facts in Paragraph Thirteen, subparagraph four of the complaint.

The California legislature has enacted a statute which is designed to abate unfair acts and practices similar to the acts and practices of the respondents

in the instant matter. Cal. Civil Code, Title 2.5, §§ 1812.80-.97 (1961). Having declared that there exists in connection with health and dance studios sales practices and financial and financing methods which have worked a fraud, deceit, imposition and financial hardship on residents of California, the legislature enacted the California Dance Act to protect the public against such unfair acts and practices,Cal. Civil Code, §1812.80. By amendment in 1967, the California legislature imposed a prohibition on dance studios by prohibiting a dance studio from requiring payment by a person receiving services from or use of the studio of a total amount in excess of Si.500.Cal. Civil Code, §1812.86. Prior to 1967, the limitation was $500.

In an action filed by the State of California pursuant to the aforementioned Dance Act, the provision relating to payment limitation (§1812.86) was contested by the defendants on several grounds. People v. Arthur Murray. Inc., Uy Cal. Rptr. 700 (1965).

The first contention of the defendant was that the provision was unconstitutional. The Court found the defendants' argument to be unpersuasive in that prior to enactment of the contested legislation, there was no adequate remedy to correct the abuses alleged against the defendants, the problems and abuses arising in the field of dance studio services were peculiar to dance studios and the provisions of the legislation relating to contracts were necessary for the public welfare.

In response to the defendants' contention that the Dance Act was imposing a regulation greater than necessary, the Court held that the contention was without merit in that the legislature was called upon to balance the risk of fraud and dissipation of advance payments against the practical business needs of a dance studio operator for sufficient advance payments in order to firm contracts for staff and facilities. This balance should be also considered by the Commission.

In response to the contention of price fixing, the Court stated that the purpose and only application of the provision relating to payment limitation is a part of the overall scheme of the legislature of limiting the number of lessons which a studio may give under any one contract.

It is noted that the defendants also made the argument that the California statute was preempted byyFederal legislation, i.e., Section 5 of the Federal Trade Commission Act. This exemplifies that the Commission has jurisdiction over such matters and thus can fashion an adequate remedy.

As stated in All-State Industries of North Carolina. Inc., et al., Docket No. 8738 (1969), the Commission should not only proceed against practices that have been previously forbidden by statute or otherwise, but should also create a new body of law relating to unfair practices by proceeding against practices not previously considered unlawful. Complaint counsel contend that placing a limitation on the amount of payment required of a student for dance lessons offered by respondents should be a part of the Commission's responsiveness to the "changing characteristics of the American marketplace". This proposed remedy is an adequate one and bears a reasonable relationship to the unfair and deceptive acts and practices of the respondents.

On the basis that a limitation on the amount of payment required by a student in circumstances above-mentioned is not of itself an adequate remedy, complaint counsel contend that a cooling-off period be afforded to the student in which to reconsider the nature of the contract and services provided thereunder by respondents and any other relevant factors. The Commission has issued an order containing such a provision in the matter of Household Sewing Machine Co.. Inc.. et al. , Docket No. 8761 (1969).

In further support of the contention that the Examiner issue an order limiting respondents' ability to create contractual obligations in excess of $1,500, complaint counsel urge that respondents' practice of

obligating students to one or more contracts having a total amount in excess of $1,500 is in itself an unfair trade practice violative of Section 5 of the Federal Trade Commission Act. The stipulated facts reveal that respondents have utilized numerous deceptive practices to induce prospective students to respondents' place of business where through intense, emotional, and unrelenting sales pressure respondents have persuaded such prospective students to obligate themselves to dance instruction in excess of $1,500. It is contended that, in view of the permeation of respondents' business operation with the unfair and deceptive practices reflected in the stipulated facts, any contract or contracts which obligate a party to an amount in excess of $1,500 are patently unfair and unconscionable in nature.

An unconscionable contract has been defined as consisting of two elements: an absence of a meaningful choice by one of the parties to the contract; and the terms of the contract being unreasonably favorable to the other party. Williams v. Walker-Thomas Furniture Co. 121 App. D.C. 315, 350 F2d hk$ (1965). In deter-mining whether a meaningful choice exists, all the circumstances surrounding the transaction are to be considered. When there is a finding that no meaningful choice exists, then the terms of the contract are to be examined in light of the circumstances existing when the contract was made. If the terms of the contract are "so extreme as to appear unconscionable according to the mores and business practices of the time and place", then the contract should be found unenforceable. Williams v. Walker-Thomas, supra.

Courts have applied the rationale set forth above in determining contracts unenforceable in cases involving the sale of goods whose prices were deemed excessive when considered in light of the fair value of such goods. American Home Inmrov. Inc. v. Mac Iver 105 N.H. M-35, 201 A2d 8«6 (1964); Frostifresh Corporation v. Reynose 2?^ NYS 2d 757 (1966K (remanded for trial to determine damages 281 NYS 2d 965 (1967)); Central Budget Corp. v. Sanchez. 53 Misc 2d 620, 279 NYS 2d 391 (1967)7 In State bv ' Lefkowitz v. ITM. Inc. (1966) 52 Misc. 2d 39, 275 NYS 2d 303, the court held that the circumstances of fraudulent business practices together

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with excessive pricing was the basis for finding of unconscionability where the prices were not per se unconscionable.

The Commission, by dicta, has indicated that unconscionable selling prices can be per se violations of Section 5 of the Federal Trade Commission Act. Leon A. Tashof. T/A New York Jewelry Company. Docket No. 871M- (1968). Although the Commission did not hold that excessive prices are unconscionable, it is clear that in a given set of facts the Commission would apply the doctrine of unconscionable contracts in carrying out its mandate of protecting the consuming public from unfair or deceptive trade practices.

While it is conceded that the facts herein do not involve a traditional situation for applying the principle of unconscionable contracts, complaint counsel urge that the Examiner find that the deceptive practices which permeated the environment of the execution of the contract together with contractual provisions obligating prospective students to amounts exceeding $1,500 for dance instruction provide a sufficient basis for deeming such contracts unconscionable and thereby violative of the Federal Trade Commission Act.

IV. CONCLUSION Based on the foregoing complaint counsel contend

,that the contested provisions of the order are appropriate in relation to the stipulated facts. It is therefore recommended that the Examiner make a finding that the order} hereto attached as Appendix A, be issued.

Jtfully submitted,

Donald L. Bachman,

Edward D. Steinman, Counsel Supporting the Complaint.

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APPENDIX A Proposed Order

IT IS ORDERED that respondents Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, or other services, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Advertising or otherwise offering or conducting any quiz, contest, or other device which purports to base the selection of the winner upon skills or abilities of the contestants or upon chance, unless such are the facts.


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Representing, directly or by implication, by means of social security number contests, "special selection offers", "Can You Spell" contests, or any other promotion offer or contest or any certificates relating thereto, or by any other method or means, that a course of dancing instruction or a specified number of dancing lessons, or any other service or thing of value will be furnished free of charge, at a reduced price, or for any price, unless the entire period or periods of bona fide dancing instruction or other service or thing of value is in fact furnished in every instance as represented. Representing on any postal cards sent through the United States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of: (a) The nature of the gift the

recipient is to receive, and (b) The full name and address of

the offeror of the gift, and (c) The manner in which such

recipient has been selected. Representing, directly or by implication, that the Party Time Club or the Holiday Club, or any other club, group or organization offers members a program of activities such as daily or

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weekly social events or gala night club parties, or any other activities, unless there is clear and conspicuous disclosure in connection with each offer that such activities are available only upon the purchase of a substantial amount of dancing lessons and the total cost of such lessons is disclosed.

6. Using "dance analysis" tests or any other device purportedly designed to evaluate dancing ability, progress, or proficiency when such test or device is not so designed and so used; or misrepresenting in any manner a student's or prospective student's dancing ability, or the progress made or proficiency achieved by a student during the course of or as a result of taking respondents' courses of instruction.

7- Representing, directly or by implication, that upon completion of a given course of instruction in one specific dance, a specified standard of proficiency will be achieved when, before the specified course is completed or the given standard has been achieved, the student is or will be subjected to sales efforts to induce the purchase of additional dance instruction.

8. Using in any single day "relay salesmanship", that is, consecutive sales talks or efforts of more than one representative to induce the purchase of dancing instruction.

9. Entering into one or more contracts or written agreements for dance instruction or any other service

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provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500.

Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-point bold type:


"If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be promptly refunded." Contracting with a student or prospective student for a specific course of dancing instruction and thereafter, prior to the completion of the given course, subjecting such student or prospective student to sales effort toward the purchase of additional dance lessons, unless: (a) Any additional contract for

lessons shall expressly state therein that such contract is subject to cancellation by such student or prospective student, with or without cause, at any

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time up to and including one week after the completion of the units of dancing instruction previously contracted for, without cost or obligation, except that a charge may he made for not in excess of two additional lessons furnished during such week; and

(b) Any additional contract for lessons shall expressly state that any moneys or other consideration, except as exempted in subparagraph (a) hereof, tendered to the respondents for additional dance lessons will be promptly returned when such contract is cancelled within the time period specified in subparagraph (a) hereof; and

(c) Any additional contract for lessons shall expressly state that all such units of dance lessons previously contracted for shall be used or completed prior to the commencement of the additional lessons; and

(d) Any additional contract for lessons shall expressly state the number of lesson hours remaining under the existing contract.

Failing to deliver to each party a copy of every contract entered into by such party providing for dancing instruction or other services. Failing to deliver a copy of this order to cease and desist to all present and future employees, instructors, or other persons engaged

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in the sale of respondentp! ser^ r.._. vices, and failing to secure frpmrr; each employee or other person a' signed statement acknowledging receipt of said order. Failing to post in a prominent place in each studio a copy of this cease and desist order, with the notice that any student or prospective student may receive a copy on demand. Failing, after the acceptance of the initial report of compliance, to submit a report to the Commission once every year during the next three years describing all complaints of which respondents have notice respecting unauthorized representations, all complaints which respondents have notice respecting representations by salesmen which are claimed to have been deceptive, the facts uncovered by respondents in their investigation thereof and the action taken by such respondents with respect to each such complaint.

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********

DOCKET NO. 8776

IN THE MATTER OF

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC." ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,

corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations.

BRIEF OF COUNSEL FOR RESPONDENTS

TOM M. SCHAUMBERG COUNSEL FOR RESPONDENTS

DECEMBER 8, 1969

92

INDEX

Page COUNTERSTATEMENT OF THE CASE 1 ISSUES

ARGUMENT I. THE COMMISSION'S CEASE AND DESIST ORDER

SHOULD NOT BE EXTENDED TO ENCOMPASS "OTHER SERVICES"

2

A. The Complaint As Well As the Stipulated Facts Relate Only to Dance Instruction

B. Recent Appellate Decisions Have Narrowed the Scope of Commission Orders

C. As Applied to the Indivdual Respondents, the Proposed Order Runs Counter to Established Law

II. THERE IS NO SUPPORT IN THIS RECORD FOR A CONTRACTUAL LIMITATION WHICH IS IN ANY EVENT MORE PROPERLY THE SUBJECT FOR A RULE-MAKING PROCEEDING 9

A. There Is No Allegation in the Complaint Which Supports a Contractual Limitation in the Order 9

B. The Courts Will Not Enforce Restraints on Lawful Actions 10

C. The California Dance Act Lends No Support to a $1,500 Contractual Limitation 13

D. The Principle of Unconscionable Contracts Is Inapplicable 14

i

Page E. The Commission Has Available its Trade

Regulation Rule-MaTcing Authority to Establish Novel Unlawful Trade. Practices jo

CONCLUSION 2 1

APPENDIX A A - 1

ii

TABLE OF AUTHORITIES

CASES: Page American Home Improvement, I n c . v . Maclver , 105

N.H. 435, 201 A.2d 886 (1964) 14,15 i

American Home Products Corporation v. F.T.C., 402 F.2d 232 (6th Cir. 1968) 4

Arthur Murray, Inc., 57 FTC 306 16

Bascom Doyle v. F.T.C., 356 F.2d 381 {5th Cir. 1966) 6-7,9

Central Budget Corp. v. Sanchez, 53 Misc. 2d 620, 279 N.Y.S. 2d 391 (1967) 15

F.T.C. v. Henry Broch and Company, 368 U.S. 360 (1962) 8

F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374 (1965) 3

F.T.C. v. National Lead, 352 U.S. 419 (1957) . . . 11,12

Fred Meyer, Inc. v. F.T.C, 359 F.2d 351 (9th Cir. 1966), modified on other grounds, 390 U.S. 341 (1968) 8

Frostifresh Corp. v. Reynoso, 52 Misc. 2d 26, 274 N.Y.S. 2d 757 (1966) 15

General Transmissions Corporation of Washington, Docket No. 8713 (Issued February 23, 1968)... 8

Grove Laboratories v. F.T.C., —F.2d— (5th Cir., No. 25126, Decided October 14, 1969). 4

Household Sewing Machine Co., Inc., Docket No. 8761 (Issued August 6, 1969). 17,18

Joseph A. Kaplan & Sons, Inc. v. F.T.C., 347 F.2d 785 (D.C. Cir. 1965) 7-8,9

iii

Page

Joseph L. Portwood v. F.T.C., —F.2d— (10th Cir., No. 9983, Filed November 14, 1969) 14

Lester S. Cotherman v. F.T.C., —F.2d— (5th Cir., No. 26031, Decided October 3, 1969) . . . . 12,13

National Dairy Products Corporation v. F.T.C., 412 F.2d 605 (7th Cir. 1969) 4

Swanee Paper Corporation v. F.T.C., 291 F.2d 833 (2d Cir. 1961) 3,4

Virginia Excelsior Mills, Inc. v. F.T.C., 256 F.2d 538 (4th Cir. 1958) 12

Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) 14,15,16,18

STATUTES, CODES AND RULES

Cal. C iv i l Code. T i t l e 2.4 §§1812.50-1812.68

(1969) 13

Cal. Civil Code, §1812.53(a) 14

Cal. Civil Code, §1812.86 (1967) 14

Federal Trade Commission Rules of Practice 19

Uniform Commercial Code §2-302(2) 15

MISCELLANEOUS

"FTC Statement of Basis and Purpose of Trade Regulation Rule for the Prevention of Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking," (June 22, 1964) 19,20-21 Permissible Scope of Cease and Desist Orders; Legislation and Adjudication by the FTC, 29 U. of Chic. L. Rev. 706 (1962) 19

iv


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC. corporat ions, and


DOCKET 8776

BRIEF OF COUNSEL FOR RESPONDENTS

COUNTERSTATEMENT OF THE CASE

The Commission issued its complaint in this matter oh April 3, 1969, and respondents filed separate answers on May 19, 1969.

Respondents initiated efforts to settle this case even after it reached the adjudicatory stage. Agreement as to a proper form of order was reached with staff counsel, and, on July 10, 1969, the Hearing Examiner certified to the Commission a joint motion seeking withdrawal of the matter from adjudication.

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By order of August 6, 1969, the Commission determined that the consent order agreed to by counsel supporting the complaint and counsel for respondents did not afford an adequate basis for settlement. In addition, the Commission indicated what form of order it would consider acceptable.

In a further effort to arrive at a settlement acceptable both to respondents and to the Commission, respondents filed a motion for reconsideration on September 5, 1969. In an answer filed on September 11, 1969, Commission counsel supported respondents' motion for reconsideration.

On October 9, 1969, the Commission again denied respondents' settlement offer and ordered that the matter be returned to adjudication.

At a prehearing conference held on November 5, 1969, the parties agreed that a trial of this matter would be unnecessary. Counsel stipulated that, for the purposes of this proceeding, the material factual allegations of the complaint were true and correct. Respondents further consented to all but two provisions of the proposed order.

ISSUES

1. May the Commission's cease and desist order properly encompass "other services" when the allegations of the complaint as well as the stipulated facts relate exclusively to dancing instruction?

2. May the Commission's cease and desist order properly prohibit contracts in excess of $1,500 when there is no evidence in the record to support such a prohibition?

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ARGUMENT

I

THE COMMISSION'S CEASE AND DESIST ORDER SHOULD NOT BE EXTENDED TO ENCOMPASS "OTHER SERVICES."

A. The Complaint As Well As the Stipulated Facts Relate Only to Dance Instruction.

The complaint issued by the Commission alleges false and deceptive acts and practices in relation to dance instruction. The stipulated facts which are derived from the complaint and which constitute the framework for this proceeding also refer only to dance instruction. Nonetheless, the Commission now seeks the entry of an order to cease and desist which would include any "other services."

To move from so limited a violation to such a broad order as is proposed here is clearly unjustified and unsupported by case law. While recognizing that the Federal Trade Commission is an expert body that has been accorded wide discretion in fashioning an appropriate remedy to a proven violation of law, there is, nevertheless, some limit to the Commission's authority. As has been stated by one court, "there must be some relation between the facts found and the breadth of the order." Swanee Paper Corporation v. F.T.C., 291 F.2d 833, 837 (2d Cir. 1961).

In their brief, complaint counsel have cited several cases for the proposition that the Commission has authority to prohibit a respondent from continuing various deceptive practices found to exist not only in the product shown by the evidence of record but also in other products which the respondent might produce. (Br. 4). F.T.C. v. Colgate-Pa lmo live Co.. 380 U.S. 374 (1965) is perhaps the leading case in support of that position. It should be noted, however, that the Supreme Court was careful to limit the

order covering "any product" to the facts of that particular case. It said:

The propriety of a broad order depends upon the specific circumstances of the case, but

' the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist. [Footnote omitted.] In this case the respondents produced three different commercials which employed the same deceptive practice. This we believe gave the Commission a sufficient basis for believing that the respondents would be inclined to use similar commercials with respect to the other products they advertise. 380 U.S. at 394-395.

B. Recent Appellate Decisions Have Narrowed the Scope of Commission Orders.

Three recent appellate court decisions in three different circuits have ordered the Federal Trade Commission to modify orders which went beyond the evidence in the case. In two instances it was determined that, where the proceedings related only to products for the treatment of hemorrhoids, it was improper for the Commission to enter an order encompassing "any drug." American Home Products Corporation v. F.T.C., 402 F.2d 232 (6th Cir. 1968) and Grove Laboratories v. F.T.C, —F.2d— (5th Cir., No. 25126, Decided October 14, 1969). The third case involved a Commission order relating to jellies, preserves and "any other food product." The court held that the order was too broad and should have been limited to jellies and preserves. 1/ National Dairy Products v. F.T.C., 412 F.2d 605, 623-624 (7th Cir. 1969).

1/ The fact that the Commission had dismissed the Robinson-Patman Act charge as to marshmallow topping further demonstrates the injustice that would have resulted from an order encompassing "any other food product."

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C. As Applied to the Individual Respondents, the Proposed Order Runs Counter to Established Law. The order to which respondents have already consented

assures the public effective relief in this case. In fact, insignificant language changes aside, the agreed-to paragraphs are identical to the form of order attached to the complaint, with the exception of the two provisions now in controversy. They represent the most comprehensive set of prohibitions that could be devised in light of the allegations of the complaint, which it should be remembered, deal only with dancing instruction. Nonetheless, the preamble of the order seeks to apply each and every paragraph of that order to dancing instruction and "other services." Regardless of the fact that there is no definition, or even mention of the word "service" anywhere else in the order, in the complaint or in the stipulated facts of the case, this broad order to which respondents have agreed is sought to be stretched to the point where it will include any service which respondents may ever undertake to enter. 2/

The injustice of this broad order is even more glaring when it is recognized that, although this proceeding was instituted against four corporate and two individual respondents, it has been stipulated that all the corporate respondents were "formerly doing business." (Tr. 102). Thus, these proceedings, and therefore the order in issue, are directed exclusively to the individual respondents.

2/ Assuming, arguendo, that the examiner holds for the Commission on this point and also imposes the $1,500 contractual limitation, discussed below, it could be argued that the order would prevent respondents from entering into any contracts which exceed $1,500 regardless of the service business which they may decide to enter. This would be an outrageous result, particularly when one considers that contracts which exceed $1,500 are commonplace in such .service industries as consulting, public relations and advertising.

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The only specific references in the stipulated facts to the two individual respondents indicate that they are officers of the corporate respondents, that they formulated, directed, and controlled the acts and practices of the corporate respondents, and that they are now and for some time have been engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public. (Tr. 102-103). It is clear, therefore, that the individual respondents, just as the corporate respondents, can be found to have violated the law in only one line of business, dance instruction.

The unjust burden under which these individuals will henceforth have to make their livelihood because of the breadth of this order is vividly described in Bascom Doyle v. F.T.C., 356 F.2d 381 (5th Cir. 1966). The issue there was whether the Commission's cease and desist order should apply to petitioner in his individual capacity. The court stated:

While there is some merit in the Commission's statement that by not applying the order to Doyle he is free to go to another molasses company and execute the same kind of unlawful orders, the punishing effect of this type of usage of cease and desist orders far outweighs any remedial effects to be gained. In effect, Doyle would need to retain personal anti-trust counsel to advise him prior to his executing any orders given by his superior officers in a new company. In fact Doyle would probably find it very difficult indeed securing employment in the molasses industry with a cease and desist order around his neck in albatross fashion. This order would be a brand for life, with violation of it subjecting petitioner to a fine of $5,000 for each day of disobedience. [Footnote omitted.]

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And to force him to seek employment outside his field of experience, the molasses industry, would be harsh economic punishment indeed. 356 F.2d at 385 (emphasis added).

It is easy to see how the order in this case will have an even harsher effect.

Another case which accurately describes the dilemma of a respondent placed under an unnecessarily broad cease and desist order is Joseph A. Kaplan & Sons, Inc. v. F.T.C., 347 F.2d 785 (D.C. Cir. 1965). Kaplan was found to have violated §2(e) of the Robinson-Patman Act in only one way, namely, by permitting some customers to return merchandise for credit. Recognizing this as only one of many activities prohibited by that section, the hearing examiner limited his order to forbidding only the practice found. The Commission, however, expanded the order so that it prohibited all that that section of the statute itself forbids. On appeal, the Commission was reversed and the court found that:

Kaplan can, of course, seek to take advantage of the Commission's procedure for advising a respondent as to whether its proposed conduct violates the terms of its order. But this procedure might well prove a wholly inadequate means for clarifying language as broad as that contained in Paragraph 3. Kaplan will be then in the position of inquiring whether its proposals violate the Commission's order, not whether they violate the antitrust laws. If it should. honestly and in good faith disagree with the Commission's interpretation and implement them notwithstanding the Commission's disapproval, it risks incurring the substantial penalties for violation of a final order, not simply a proceeding before the Commission, accompanied by a full hearing and resulting, at worst, in ,

I f

i

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an order to cease and desist. And if the Commission determines to pursue the matter, Kaplan will come before the contempt court with a record of having ignored the Commission* s advice. In order to avoid this possibility, it may be impelled to forego altogether whatever advantages the procedure affords. All of these, of course, are problems that any convicted violator of the antitrust laws encounters. But when an order is as broad as Paragraph 3 of the Commission's order in this case, honest disagreements as to its scope and meaning will be considerably more frequent than otherwise might, or need, be the case. A respondent forced to operate thereunder must either expose his major business decisions to a Commission veto, or remain in the dark regarding their legal consequences, with the risk, in either event, of incurring the substantial penalties now provided for by statute. 347 F.2d at 790-791.

See also Fred Meyer, Inc. v. F.T.C., 359 F.2d 351, 368-370 (9th Cir. 1966), modified on other grounds. 390 U.S. 341 (1968) and F.T.C. v. Henry Broch and Company. 368 U.S. 360, 367-368 (1962).

Counsel is well aware, as is the examiner, of the Commission's decision in General Transmissions Corporation of Washington. Docket No. 8713 (Issued February 23, 1968). As is stated in that opinion (p. 11), the Commission entered a broad order because of "fear" that respondents might switch from one business to a related one. It is submitted, however, that visceral reaction is hardly a basis for subjecting any respondent to the severe penalties now available under the Finality Act in fields in which he has never operated or shown to be capable of operating. In their brief, counsel

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state that, "It would be relatively easy for the respondents herein to utilize the deceptive practices set forth in the stipulation of facts in business entities similar to but not identical to the dance business." (Br. 5). That is exactly the problem to which the courts in Bascom Doyle and Joseph A. Kaplan, supra, addressed themselves. It is precisely because of the all-inclusive nature of a cease and desist order encompassing "other services" that it would be an easy matter for the Commission to claim that its order has been violated regardless of the field of endeavor on which respondents may embark. While this may ease the burden of the Commission, it is manifestly unjust to these individual respondents, for what business does not involve "service?" As the court said in Bascom Doyle, supra, at 385, the order would be a "brand for life."

II

THERE IS NO SUPPORT IN THIS RECORD FOR A CONTRACTUAL LIMITATION WHICH IS IN ANY EVENT MORE PROPERLY THE SUBJECT FOR A RULE-MAKING PROCEEDING.

A. There Is No Allegation in the Complaint Which Supports a Contractual Limitation in the Order.

Paragraph 9 of the order proposed by complaint counsel would require respondents to cease and desist from:

Entering into one or more contracts or written agreements for dance instruction or any other service provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500.

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This paragraph contains no qualifications, no requirement that the contract be somehow illegally arrived at, nothing that militates against it being a total and absolute ban against contracts in excess of $1,500. Such a prohibition is not supported by the record of this adjudicatory proceeding and, assuming it is not totally beyond the scope of this agency's authority, such an unprecedented prohibition is more properly the subject for a rule-making proceeding.

One of the subparagraphs of the complaint which has been stipulated as fact recites that respondents have used various sales techniques including:

The use of intense, emotional, and unrelenting sales pressure to persuade a prospect or student to sign a contract obligating such person to pay for a substantial number of dancing lessons at substantial cost without affording such person a reasonable opportunity to consider and comprehend the scope and extent of the contractual obligations involved. Such contracts often

, provide for more than 100 hours of dancing instruction with a cost to the prospect or student in excess of $1,500, and such person is insistently urged, cajoled, and coerced to sign such a contract hurriedly and precipitately through the use of persistent and emotionally forceful sales presentations which are often of several hours duration. (Tr. 112).

The practices complained of in that paragraph are pressure sales tactics combined with a lack of time for the student to consider the contractual obligations involved. There is no allegation made here or in any other paragraph of the complaint that it is the contract itself which is illegal.

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B. The Courts Will Not Enforce Restraints on Lawful Actions.

Counsel supporting the complaint have admitted that a blanket prohibition against contracts in excess of $1,500 is a prohibition against a perfectly lawful device. (Br. 7). 3/ The only case on which they rely to support this unique provision is F.T.C. v. National Lead. 352 U.S. 419 (1957), but, as will be shown, that reliance is completely misplaced.

The Supreme Court there stated:

The sole question involved in this proceeding under §5 of the Federal Trade Commission Act concerns the power of the Commission in framing an order pursuant to its finding that respondents had conspired to adopt and use a zone delivered pricing system in their sale of lead pigments. In its general cease and desist order prohibiting concert of action among respondents in the further use of such system, the Commission inserted a provision directing each respondent individually to cease and desist from adopting the same or a similar system of pricing for the purpose or with the effect of "matching" the prices of competitors. 352 U.S. at 420-421 (footnotes omitted)(emphasis added).

Therefore, as the Commission itself recognized, this broad prohibition was necessary to prevent the effects of the illegal conspiracy from being recreated. 352 U.S. at 424. It was found that "delivered zone pricing violates the order only when two conditions are present: (1) identical

3/ The relevant sentence in the brief is:

To order the respondents to cease and desist from procuring obligations amounting to more than $1,500 is a means of suppressing a lawful device when it is used to carry out an unlawful practice.

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prices with competitors and (2) resulting from zone delivered pricing." 352 U.S. at 426. Recognizing that the Commission's order must have a, reasonable relation to the unlawful practice found to exist, the Court determined that it did because:

... First, the simplicity of operation of the plan lends itself to unlawful manipulation; second, it had been used in the industry for almost a quarter of a century? and, third, its originator and chief beneficiary had been previously adjudged a violator of the antitrust laws. 352 U.S. at 429.

It is in the light of this background that the single sentence selected by counsel and quoted in their brief (p. 7) must be understood. So read, National Lead hardly lends support to the general proposition that the Commission has authority to outlaw otherwise lawful contracts. Accord, Virginia Excelsior Mills, Inc. v. F.T.C., 256 F.2d 538, 541 (4th Cir. 1958).

A recent circuit court opinion has once again made it clear that a Commission order which seeks to prohibit lawful practices will be struck down by the courts. Lester S. Cotherman v. F.T.C., —F.2d— (5th Cir., No. 26031, Decided October 3, 1969). Respondents had engaged in deceptive advertising and unfair lending practices in violation of §5 of the Federal Trade Commission Act. Specifically, they had advertised the availability of cash on terms which were not available to most applicants. The Commission's order required respondents, among other things, to cease and desist from representing that loans are: (1) made at a six percent rate of interest and (2) repayable over a fifteen-year period.

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The court held (p. 21):

These sections are too broad because they forbid Cotherman and Sullivan from ever representing that they would lend on these terms, even if they did in fact lend on these terms. The evil the Commission intended to do away with its [sic] misrepresentation of lending terms. If Cotherman and Sullivan should represent that they would lend at six percent for fifteen years and then in fact lend at eleven percent for five years they would be covered by a cease and desist order. This order covers the case where the petitioners represent that they will lend at six percent for fifteen years and in fact lend on these terms. There is nothing illegal or deceptive about such a representation. The order should not be drawn so broadly that it will cover legitimate practices. (emphasis added).

This ruling has direct bearing on the instant proceedings. There is nothing inherently illegal or deceptive about a contract for dancing instruction for an amount in excess of $1,500, and, if the contract is arrived at by legitimate means, it cannot be deemed to be illegal, nor should it be prohibited.

C. The California Dance Act Lends No Support to a $1,500 Contractual Limitation.

In an effort to find some support for the $1,500 figure, the Commission's brief makes reference'to the California Dance Act. Cal. Civil Code, Title 2.4 §§1812.50-1812.68 (1969). 4/ That Act, however, as a

4/ This citation does not conform to that used in the Commission's brief, because the 1961 Act cited there was revised by Assembly Bill No. 2239, approved by the Governor on September 4, 1969, and filed with the Secretary of State on September 6, 1969.

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result of recent amendments, permits contracts for dancing instruction with a value of up to $2,500. Cal. Civil Code, §1812.53{a). Having first adopted a $500 limitation, the California legislature, as recently as 1967, raised that amount to $1,500. Cal. Civil Code, §1812.86 (1967). Now, only two years later, that amount has once again been raised—this time to $2,500. If anything, therefore, the California experience demonstrates the arbitrariness of dollar limitations. 5/

D. The Principle of Unconscionable Contracts Is Inapplicable.

We agree with complaint counsel when they concede at the conclusion of their argument that:

...the facts herein do not involve a traditional situation for applying the principle of unconscionable contracts... (Br. 11).

The courts have been very reluctant to apply the theory of unconscionability, and in the very few instances where it has been applied, 6/ the courts have carefully looked at the facts of each individual case and have heard evidence from both sides as to the commercial setting, the bargaining power of both parties and the terms of the contract. The courts have declared contracts unconscionable only when "the terms are 'so extreme as to appear unconscionable according to the mores and business practices of the time and place.'" Williams, supra note 6, at 450.

5/ Moreover, having demonstrated that only one of fifty states has adopted legislation of this nature, state law can hardly be said to settle the question. See Joseph L. Portwood v. F.T.C., —F.2d—, slip opinion at 9 (10th Cir., No. 9983, Filed November 14, 1969).

6/ See e.g., Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) and American Home Improvement. Inc. v. Maclyer, 105 N.H. 435, 201 A.2d -J/ 886 (1964). -»

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While a few courts have struck down individual contracts on their facts, no court has seen fit prospectively to impinge upon an individual's freedom to contract by declaring that henceforth a contract clause or a contract price would be considered unconscionable. The courts have recognized that each contract is an individual agreement that must be viewed separately from all past contracts due to the changing commercial setting.

Cases cited by complaint counsel 7/ apply section 2-302 of the Uniform Commercial Code, the so-called un-conscionability section, to strike down the individual contracts under consideration. While the UCC permits such action, subsection 2-302{2) calls for the presentation of evidence in court by both parties on the commercial setting and terms of the contract, as follows:

When it is claimed or appears to the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination.

The Hearing Examiner has nothing before him which would give him an objective view of the commercial setting of dance contracts in general and respondents' contracts in particular. Yet, he is being called upon by complaint counsel to declare any contract in excess of $1,500 henceforth made by respondents to be unconscionable.

7/ See Williams, supra note 6; Central Budget Corp. v. Sanchez,53 Misc. 2d 620, 279 N.Y.S. 2d 391 (1967); Frostifresh Corp. v. Reynoso, 52 Misc. 2d 26, 274 N.Y.S. 2d 757 (1966); and American Home Improvement, Inc., supra note 6.

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A finding of unconscionability requires that extensive evidence be available to the finder of fact. It has been stated that:

Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction. ...

In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in light of the circumstances existing when the contract was made. ... The terms are to be considered "in the light of the general commercial background and the commercial needs of the particular trade or case." Williams, supra note 6, at 449-450 (emphasis added)(footnotes omitted).

With regard to any possibility of future unconscionability, Paragraph 8 of the stipulated order places an absolute ban on relay salesmanship, that is, the use of consecutive sales talks or sales efforts in a single day. Perhaps even more significantly, respondents have voluntarily agreed to a "cooling-off" provision. 8/ Paragraph 10 of the order requires respondents' contracts to state in at least 10-point bold type that, regardless of the

8/ Counsel supporting the complaint seem to suggest in their brief that this provision has not been stipulated when in fact it has. (Tr. 119). Moreover, it should be recognized that having agreed to this provision as well as to the others, respondents here have already consented to a more restrictive order than was entered in Arthur Murray, Inc., 57 FTC 306.

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obligation incurred, a contract may be rescinded "for any reason whatever" within seven days from the date the agreement is made. 9/

To the best of counsel's knowledge, this is the first time that any respondent has voluntarily agreed to such a provision and in only one prior instance has the Commission unilaterally imposed such a cooling-off period. 10/ As was stated by the Commission in that case (p. 10):

An order limited merely to a prohibition against repetition of deceptive advertisements or a generalized ban against bait and switch tactics is not adequate protection for the consumer. What is required is an order that will dissipate the effects of deceptive invasions of the privacy of the home where high-pressure tactics may result in the ill-advised purchase of expensive merchandise which would not be bought upon careful reflection. The most effective protection is that which the consumer can provide for herself by talcing a second look at the product to reconsider whether she can really afford it, or to discuss the purchase with her husband, all free from the influence of deceptive sales techniques.

Accordingly, the order will require respondents to allow a three-day period of grace during which all contracts negotiated in the consumer's home may be rescinded by the purchaser. This will serve as a cooling-off period during which any consumer, who may be subjected to the unfair pressures resulting from the deceptions we have discussed or similar deceits, may reevaluate and cancel her purchase. (emphasis added).

9/ This provision is actually extended indefinitely by paragraph 11(a) when a contract is entered into while a prior course of dancing instruction has not yet been completed.

10/ Household Sewing Machine, Co. Inc., Docket No. 81761 (Issued August 6, 1969).

1

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The above-quoted language makes it clear that a cooling-off provision is the "most effective protection" the consumer can have against precipitate action resulting from deceptive sales techniques. 11/ It will allow a contracting party time enough to consider all the ramifications of the terms of the contract.

The court in Williams also stressed the importance of equality of bargaining power, as follows:

In many cases the meaningfulness of the choice is negated by a gross inequality of bargaining power. The manner in which the contract was entered is also relevant to this consideration. Did each party to the contract, considering his obvious education or lack of it, have a reasonable opportunity to understand the terms of the contract, or were the important terms hidden in a maze of fine print and minimized by deceptive sales practices? Williams, supra note 6, at 449 (footnote omitted).

When the cooling-off provision is viewed together with the other paragraphs of the stipulated order, it is clear that any inequality of bargaining power that may have existed has been eliminated. By thus further assuring a meaningful choice, no claim of unconscionability can be made.

E. The Commission Has Available its Trade Regulation Rule-Making Authority to Establish Novel Unlawful Trade Practices.

The unavailability of support on this record for a $1,500 contractual limitation on dancing instruction is

11/ It should be noted that whereas the Household Sewing Machine order provides for a three-day cooling-off period, respondents herein have agreed to a seven-day period.

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perhaps not a total bar to Commission action in this field. 12/ The Commission has available its rule making authority whereby it can promulgate trade regulation rules which "express the experience and judgment of the Commission, based on facts of which it has knowledge derived from studies, reports, investigations, hearings, and other proceedings, or written official notice, concerning the substantive requirements of the statutes which it administers." §1.12(a) Federal Trade Commission Rules of Practice. It has been stated that the purpose of a rule-making proceeding "is to determine for the future whether certain business practices, if followed by the members of an industry, would be unlawful." 13/

A determination that contracts for dancing instruction which exceed $1,500 should be prohibited is just as much rule-making whether the Commission makes that determination at the conclusion of an adjudicatory proceeding 14/ or a rule-making proceeding. Therefore, a complete record is critical in either instance. "If the courts may and do make

12/ On the other hand it might be since imposition of such a limitation might be viewed as rate making as to which the Commission has been granted no power.

13/ This is a statement of the Chairman of the Commission quoted in "FTC Statement of Basis and Purpose of Trade Regulation Rule for the Prevention of Unfair or Deceptive Advertising and Labeling of Cigarettes in Relation to the Health Hazards of Smoking," p. 128 (June 22, 1964) (hereinafter cited as "FTC Statement").

14/ See the discussion of "selective enforcement" in Permissible Scope of Cease and Desist Orders; Legislation and Adjudication by the FTC, 29 U. of Chic. L. Rev. 706, 723 (1962).

1

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rules in the course of adjudicating, a fortiori the Commission may-and is under a positive obligation to—engage in substantive rule-making in its adjudications." 15/

The FTC Statement explains that "there may be serious disadvantages, both to the agency and to the persons subject to its jurisdiction, where substantive rule-making is conducted exclusively as a by-product of adjudication." (PP. 131-132). some of these disadvantages, according to the FTC Statement, are as follows:

(2)

(3)

(4)

... procedures designed for determining individual liability are not necessarily well-adapted to the ascertainment of such "non-adjudicative" matters of fact, policy and discretion upon which rules of general' application are based. (footnotes omitted).

... adherence to the adjudicative method of rule-making precludes the agency from utilizing those methods of gathering and assessing facts that are peculiarly appropriate to the needs and conditions of rule-making. ... congress does not rely upon trial-type proceedings in order to formulate the content of legislation.

In an adjudicative proceeding, the agency is precluded by the separation-of-functions provision of the Administrative Procedure Act (§5(c)) from consulting those members of its staff ... who have firsthand familiarity with the relevant facts

15/ FTC Statement at 130.

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(6) ... The focus in adjudication is on settling a dispute over past practices, and while a rule may be announced in the process, it tends to be done incidentally and without sufficient concern for laying down clear guidelines for the future.

(7) if the tribunal in an adjudicative proceeding is too intent upon fashioning rules for future guidance, the task of rendering a fair result on the record before it may be slighted. 16/

As a consequence, in the absence of any record as to the propriety or impropriety under §5 of the Federal Trade Commission Act of contracts for dancing instruction which exceed $1,500, the Hearing Examiner should exclude this very questionable provision from the order against these respondents.

CONCLUSION

The Commission has the important responsibility of protecting the public against unfair or deceptive acts or practices. At the same time, however, the Commission has an obligation to use the extensive power with which it is vested in a manner that is fair and equitable.

Respondents in this case, realizing that an extended trial was neither in their interest nor in the interest of the public, have agreed to each and every factual allegation in the complaint. Furthermore, they have freely consented to those provisions of the Commission's proposed order which they felt were directly related to the alleged violations of law.

16/ The foregoing appear at pp. 132-136 of the FTC Statement.

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Recognizing that the allegations of the complaint and therefore the stipulations of fact relate only to dancing instruction, it is difficult to find any basis for applying the very extensive order agreed to by respondents to "other services" as well. This is not justified by any of the facts of this case and can certainly not be countenanced under the " rubric of "fencing in."

Perhaps even more extreme is the Commission's effort to outlaw any future contracts for dance instruction which exceed $1,500. Not only would this be an unprecedented interference with respondents' freedom of contract, but, again, it is unjustified by anything in this record.

The seven-day cooling-off provision to which respondents have agreed, when viewed in conjunction with the other paragraphs of the agreed-to order, provides the public with adequate protection against recurrence of the violations alleged. Anything more would be strictly punitive.


Tom M. Schaumberg (fl Counsel for Respondents

December 8, 1969

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A-l

APPENDIX A

Proposed Order

IT IS ORDERED that respondents Arthur Murray Studio of Washington, inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, inc.; corporations, and their officers, and respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:



A-2

Representing, directly or by implication, by means of social security number contests, "special selection offers", "Can You Spell" contests, or any other promotion offer or contest or any certificates relating thereto, or by any other method or means, that a course of dancing instruction or a specified number of dancing lessons, or any other service or thing of value will be furnished free of charge, at a reduced price, or for any price, unless the entire period or periods of bona fide dancing instruction or other service or thing of value is in fact furnished in every instance as represented.

Representing on any postal cards sent through the United States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of:


(b) The full name and address of the of-feror of the gift, and


Representing, directly or by implication, that the Party Time Club or the Holiday club, or any other club, group or organization offers members a program of activities such as daily or

A-3

weekly social events or gala night club parties, or any other activities, unless there is clear and conspicuous disclosure in connection with each offer that such activities are available only upon the pur-chace of a substantial amount of dancing lessons and the total cost of such lessons is disclosed.


7. Representing, directly or by implication, that upon completion of a given course of instruction in one specific dance, a specified standard of proficiency will be achieved when, before the specified course is completed or the given standard has been achieved, the student is or will be subjected to sales efforts to induce the purchase of additional dance instruction.

8. Using in any single day "relay salesmanship", that is, consecutive' sales talks or efforts of more than one representative to induce the purchase of dancing instruction.

9. Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-point bold type:

A-4


"If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be promptly refunded."

Contracting with a student or prospective student for a specific course of dancing instruction and thereafter, prior to the completion of the given course, subjecting such student or prospective student to sales effort toward the purchase of additional dance lessons, unless:

(a) Any additional contract for lessons shall expressly state therein that such contract is subject to cancellation by such student or prospective student, with or without cause, at any time up to and including one week after the completion of the units of dancing instruction previously contracted for, without cost or obligation, except that a charge may be made for not in excess of two additional lessons furnished during such week; and

(b) Any additional contract for lessons shall expressly state that any moneys or other consideration, except as exempted in sub-paragraph (a) hereof, tendered to the respondents for additional dance lessons will be promptly returned when such contract is cancelled within the time period specified in subparagraph (a) hereof; and

A-5



Failing to deliver to each party a copy of every contract entered into by such party providing for dancing instruction or other services.

Failing to deliver a copy of this order to cease and desist to all present and future employees, instructors, or other persons engaged in the sale of respondents' services, and failing to secure from each employee or other person a signed statement acknowledging receipt of said order.

Failing to post in a prominent place in each studio a copy of this cease and desist order, with the notice that any student or prospective student may receive a copy on demand.

Failing, after the acceptance of the initial report of compliance, to submit a report to the Commission once every year during the next three years describing all complaints of which respondents have notice respecting unauthorized representations, all complaints which respondents have notice respecting representations by salesmen which are claimed to have been deceptive, the facts uncovered by respondents in their investigation thereof and the action taken by such respondents with respect to each such complaint.

W


In the Matter of ) ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ) ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ) ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ) DOCKET NO. 8776 ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,) corporations, and )

VICTOR F. HORST and j EDWARD MARANDOLA, also known as j EDWARD MARA, individually and as officers j of said corporations. )

Motion To Reopen Record TO: The Honorable Eldon P. Schrup, Hearing Examiner..

Pursuant to Section 3.51(d) of the Rules, counsel in support of the complaint move that the Examiner reopen the record for the reception of further evidence to support the prohibition in the proposed order that respondents be prohibited from entering into one or more contracts with students or prospective students of respondents' dance studios when said students are indebted to respondents in excess of $1500. This motion is based on the following reasons.

1. The Examiner erred in refusing to grant the motion by complaint counsel to introduce additional evidence supplementing the facts contained in the stipulation appearing on pages 102-113 of the transcript. (Tr. 219)

Prior to close of the record, complaint counsel requested that the Examiner allow the introduction of further evidence. Although no reason was given for rejecting the motion for introduction of further evidence, it would appear that the Examiner was influenced by said stipulation. It became obvious during the course

of oral argument that the Examiner was of the opinion that the evidentiary record lacked sufficient material facts upon which the Examiner could base findings to support issuance of an order containing the $1500 contractual provision (Tr. 166, 186-188, 191, 200-202, 213).

Pretrial stipulations in administrative matters have no greater sanctity than stipulations approved by a judge. Certainly the Examiner could have sua sponte required the introduction of further evidence to supplement the facts shown by the stipulations. In P. Lorillard v. FTCT 186 F.2d 52, 5 FTCS&D 210 (1950), the Court upheld the Commission's remand of a matter for further evidence after the Commission had initially accepted stipulations of facts. It has been held in numerous cases that the public interest will not suffer by mistake or inadvertence on the part of the public body empowered to act in the public interest. FCC v. Pottsville Broadcasting Co. T 309 U.S. 13!*, ikf (19^0): NLBB v. Baltimore Transit Co. , lM-0 F.2d 5l, ^ (l9kh) • cert, denied 321 U.S. 795 (19Mf); Elmo Company v. FTC*. 389 F.2d 550, 552 (1967). '

2. Complaint counsel will introduce evidence through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts in excess of $1500. Evidence will be adduced from members of the dance industry to show that $1500 is a" fair balance between the practical business need of an operator of a dance studio and an equitable and fair amount which a person should be indebted for dance instruction.

Wherefore, complaint counsel request that the Examiner reopen the record for the limited purpose of introducing evidence on the $1500 contractual provision. By this motion complaint counsel are not withdrawing the stipulations of facts, but merely requesting the right to present evidence to supplement the stipulation of facts.


Edward D v Steinman,

Tfonald L. Bachman, Counsel in Support of the Complaint.

DATE: January 5, 1970.

0 .


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776

OPPOSITION TO MOTION TO REOPEN RECORD

The Hearing Examiner should deny complaint counsels' Motion to Reopen the Record. The record in these proceedings is complete; briefs have been filed; and the Hearing Examiner is in a position to render an Initial Decision.

In their motion, counsel allege that the Examiner erred by refusing to grant their oral motion to introduce additional evidence. They further observe that, although no reason was given for the rejection, the Examiner was apparently "influenced" by the stipulation of facts entered into by counsel. There is no question that the stipulated facts constitute a proper record upon which this case should be decided and, as will be discussed below, the Hearing Examiner should rely on that stipulation and other statements made in the final prehearing conference in denying the instant motion.

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By order of October 9, 1969, the Commission, in denying respondents' motion for reconsideration of a proposed settlement, ordered that this matter be returned to adjudication and directed the Examiner to commence hearings forthwith. Accordingly, a prehearing conference was held on November 5, 1969.

At that time, pursuant to §3.21(a)(3) of the Rules of Practice, the parties entered into stipulations of fact, and respondents agreed to certain provisions of the proposed order. More specifically, respondents, in an effort to expedite the proceedings and to save both themselves 1/ and the public the expense of protracted litigation, agreed to each and every allegation of fact contained in the Commission's complaint. Moreover, respondents consented to a majority of the provisions of the proposed order. This action on the part of -respondents was intended to limit the area of controversy and focus attention on those provisions of the proposed order as to which there was the most serious dispute. As a result, it was possible to narrow the issue to two provisions of the proposed order.

Staff counsels' motion is not only contrary to the spirit in which the foregoing agreements were reached, but it makes a mockery of the undertakings of counsel as reflected by the record.2/

1/ It should be noted that the corporate respondents are no longer doing business (Tr. 102); thus, the entire burden of the costs of this litigation falls on the individual respondents.

2/ See generally In the Matter of Knoll Associates, Inc., Docket No. 8549 (Issued August 2, 1966)(Dissenting Opinion by Commissioner Elman), rev'd, 397 F.2d 53Q (7th Cir. 1968) .

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After counsel for respondents agreed that for purposes of this proceeding paragraphs 1 through 15 are true and correct statements of fact, the following colloquy took place (Tr. 99-100)(emphasis added):

HEARING EXAMINER SCHRUP: . . .

As I understand it, you are going to agree on most of the portions of the order you will propose to me, and there will be a conflict on probably only one section of this order, and that you wish to argue before me as to what should be done on that portion of the order, based on the stipulation of facts.

Right, Mr. Schaumberg?

MR. SCHAUMBERG: That is correct.

HEARING EXAMINER SCHRUP: Do you understand that?

MR. STEINMAN: Yes, sir.



HEARING EXAMINER SCHRUP: Mr. Bachman?

MR. BACHMAN: Yes.

There can be no question that all concerned understood clearly that any dispute as to an appropriate form of order would be resolved solely on the basis of the stipulated record.

This contention is reinforced by the following statement which appears later in the record (Tr. 120-121):

MR. STEINMAN: Well, your Honor, just one little minor point we would like to have clarified. I take it, then, that the parties are going to be bound, at least to the stipulations, as to the order that we have agreed —

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the provisions of the order that we have agreed to today, so that when we give you our form of order that you have just enunciated, that there won't be any surprises to either of us.

We are going to abide by what we have already stipulated to, so Mr. Schaumberg won't be surprised and complaint counsel won't be surprised.

It is also quite clear that the Hearing Examiner understood the extent to which the remainder of the proceedings would be limited. He recognized that, as a result of the extensive stipulations entered into by counsel, all that remained for each of the parties was the filing of a proposed order and a brief on the contested points in that order. (Tr. 123). This was confirmed by counsel, including counsel supporting the complaint. (Tr. 123-124).

In their motion, complaint counsel state that, "Pretrial stipulations in administrative matters have no greater sanctity than stipulations approved by a judge." While this statement may in itself be true, it lends no support to the instant motion. Both Rule 16 of the Federal Rules of Civil Procedure and §3.21(d) of the Commission's Rules provide that a prehearing order can be modified only to prevent "manifest injustice." As indicated in both the rule and the section, a prehearing order recites the results of the prehearing conference. While no written order was filed in this case, 3/ the Hearing Examiner was quite explicit

3/ The fact that no formal order was filed is in itself an indication that the Hearing Examiner, rather than contemplating any hearings in this case, had determined from the stipulations and representations of counsel that the matter would be ready for decision after the filing of briefs and, perhaps, oral argument. (Tr. 123).

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in summarizing the positions of counsel at the conclusion of the final prehearing conference (Tr. 123-124)(emphasis added):


So that the record will be perfectly clear, it is the understanding of the hearing examiner that the facts that have been stipulated in this case are Paragraphs 1 through 15 of the complaint, as copied into the record.

You gentlemen have agreed to most of a proposed order. The only thing left in this order to be contested are the words "or other services," and the contents of Paragraph Nine of the proposed order in the notice to the complaint.

I understand that both sides are waiving the findings of fact in this matter, and intend only to file the proposed order and a brief on the contested points, but that you are reserving all rights of appeal from the Hearing Examiner's initial decision.

Is that a correct summation?

MR. STEINMAN: Yes, your Honor.

MR. BACHMAN: Yes.

HEARING EXAMINER SCHRUP: Mr. Schaumberg?

MR. SCHAUMBERG: That sounds correct, your Honor.

HEARING EXAMINER SCHRUP: All right. All three counsel agree.

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It is submitted that this summary had the same purpose and effect, as an "order" and should therefore be modified only to prevent manifest injustice.4/

Counsel have stated in their motion that they "will introduce evidence through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts in excess of $1,500." The introduction of such evidence, at this time, would not only change the nature of this proceeding, but would impose a great hardship on the individual respondents.

In the brief submitted in support of the Commission's proposed form of order, it was stated that:

The stipulated facts reveal that respondents have utilized numerous deceptive practices to induce prospective students to respondents' place of business where through intense, emotional, and unrelenting sales pressure respondents have persuaded such prospective students to obligate themselves to dance instruction in excess of $1,500. It is contended that, in view of the permeation of respondents' business operation with the unfair and deceptive practices reflected in the stipulated facts, any contract or contracts which obligate a party to an amount in excess of $1,500 are patently unfair and unconscionable in nature.

* * * *

4/ As has been stated elsewhere: There certainly would be a question here whether manifest injustice was being prevented or allowed by not following the pre-trial order. Pacific Molasses Co. v. F.T.C., 356 F.2d 386, 390 n. 11 (5th Cir. 1966).

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While it is conceded that the facts herein do not involve a traditional situation for applying the principle of unconscionable contracts, complaint counsel urge that the Examiner find that the deceptive practices which permeated the environment of the execution of the contract together with contractual provisions obligating prospective students to amounts exceeding $1,500 for dance instruction provide a sufficient basis for deeming such contracts unconscionable and thereby violative of the Federal Trade Commission Act. (Br. 10-11).

On the one hand, it appears to be the position of complaint counsel that while this is not a traditional situation for applying the principle of unconscionable contracts, there are nonetheless sufficient facts in the record to warrant a determination that contracts for dance instruction which exceed $1,500 are unconscionable in nature. On the other hand, the instant motion reflects counsels' concern that the record does not support this newly introduced theory of unconscionability.

As issued, the complaint alleged that certain false, misleading and deceptive acts and practices constitute a violation of §5 of the Federal Trade Commission Act. Unconscionability was raised for the first time in counsels' brief and now, seemingly, is becoming the central issue in the case. There is no precedent for such unusual procedures.

While there is perhaps no impropriety in coming forth, even at this late date, with a new theory, it is indeed improper to reopen the record because there are not sufficient facts to support that theory. As has been stated previously, respondents have stipulated each and

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every allegation in the complaint as a statement of fact. Now, however, by this motion, complaint counsel are seeking the opportunity to reprove those very same allegations which have already been stipulated. The only difference, it appears, is that now those allegations will be used to support a theory of unconscionability. Counsel made this clear in oral argument:

HEARING EXAMINER SCHRUP: You are hanging your hat now on what you call an unconscionable amount absent any of these attendant practices? MR. STEINMAN: That is correct, Your Honor. But when you make your determination as to whether the amount is unconscionable, you have to look at all the surrounding circumstances, where again, you would bring in the various practices. (Tr. 138-139)(emphasis added).

In plain English, counsel is saying that one must look at all of respondents' practices in order to demonstrate the unconscionability of certain contracts. Since those practices have already been stipulated as fact, a trial concerning those facts is superfluous and would impose an undue burden on respondents.

As a final matter, it should be pointed out that the cases cited by complaint counsel lend no support to their motion. The situation in P. Lorillard Co. v. F.T.C., 186 F.2d 52 (4th Cir. 1950) was significantly different from the instant proceedings.^/ In that case the Commission rescinded a fact stipulation when it discovered that facts

5/ The other cases cited are irrelevant, since they do not relate to the issue of the propriety of reopening the record.

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relating to perhaps the most important charge in the complaint had been omitted. The Commission stated that it had approved the stipulation under the erroneous impression that, with the exception of two charges, the stipulation covered all the material issues raised by the complaint. The Commission recognized that if this mistake of fact were not corrected it would result in the abandonment of perhaps the most important charge in the complaint.

There has been no mistake of fact in this case. There is no charge in the complaint which is not covered by the stipulation. There is no need for the Commission to abandon any of the charges in its complaint.

All we have in this case is a suspicion on the part of complaint counsel that the allegations of the complaint, now stipulated- as fact, do not support their new theory of unconscionability. While this may well be the case, this does not warrant a reopening of the record to the detriment of respondents.

For the foregoing reasons, the Hearing Examiner is urged to deny the instant motion.


Tom M.

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January 16, 1970

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In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, JCNC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,



DOCKET NO. 8776

ORDER REOPENING RECORD FOR THE RECEPTION OF CERTAIN EVIDENCE

Complaint counsel on January 5, 1970 filed a motion to r e f i n e record for the reception of evidence closed YZ fh/hearlne examiner on December 19, 19&9. m e recora « L e L s l a ^ J e c T t o the making of such a motion follow-inl ai extensivf oral argument between the parties on a s?lpSation of facts and certain disputed Provisions of II ShSiiae aereed to order to cease and desist to be e£tered™n Ihfbtsis of She said stipulation. Counsel ISr relpondents on January 16, 1970 filed opposition to said motion to reopen the record for the adduction of further evidence.

The instant dispute between counsel on reopening the reôrfcenters on subparagraph 4 of Paragraph Thirteen

^visions of the proposed order. Subparagraph 4 of p a r S w S TnLtetnofthe stipulation of facts reads:

4. The use of intense, emotional, and unrelenting sales pressure to persuade a prospect or student to sign a contract obligating such person to pay for a substantial number of dancing lessons at substantial cost without affording such person a reasonable opportunity to consider and comprehend the scope and extent of the contractual obligations involved. Such contracts often provide for more than 100 hours of dancing instruction with a cost to the prospect or student in excess of $1500, and such person is insistently urged, cajoled, and coerced to sign such a contract hurriedly and precipitately through the use of persistent and emotionally forceful sales presentations which are often of several hours duration.

Paragraph 9 of the proposed order to cease and desist by complaint courisel reads:

9. Entering into one or more contracts or written agreements for dance Instruction or any other service provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500. 2/

The motion to reopen the record by complaint counsel states, in part, that:

It became obvious during the course of oral argument that the Examiner was of the opinion that the evidentiary record lacked sufficient material facts upon which the Examiner could base findings to support issuance of an order containing the $1500 contractual provision.

E Xt is to be observed that the Commission order of gust 6, 1969 contingently withdrawing this matter from

adjudication required respondents to accept the identical provision. Failure to meet this provision resulted in the Commission order of October 9» 1969 returning this matter to adjudication.

* * *

Complaint counsel will introduce evidence through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts in excess of $1500. Evidence will be adduced from members of the dance Industry to show that $1500 is a fair balance between the practical business need of an operator of a dance studio and an equitable and fair amount which a person should be indebted for dance instruction.

Wherefore, complaint counsel request that the Examiner reopen the record for the limited purpose of introducing evidence on the $1500 contractual provision. By this motion complaint counsel are not withdrawing the stipulations of facts, but merely requesting the tfight to present evidence to supplement the stipulation of facts. The stipulation of facts entered into in this

proceeding is not between private litigants, but is one to which the Government is a party. As stated, in part, in the motion by complaint counsel to reopen the record:

It has been held in numerous cases that the public interest will not suffer by mistake or inadvertence on the part of the public body empowered to act in the public interest. (Cases cited) Accordingly, IT IS ORDERED that the record for the reception of

evidence in this proceeding be, and the same hereby is, reopened for the limited purpose requested in the aforesaid motion by complaint counsel.

IT IS FURTHER ORDERED that complaint counsel furnish to counsel for the respondents, with copies to the hearing examiner, within ten (10) days following service of this order the names, addresses and occupations of all witnesses intended to be called, together with a summary statement of their expected testimony and a copy or description of any exhibits intended to be offered into evidence. A

further order setting the time and place of a hearing for the reception of evidence, limited as aforesaid, will later be entered.

2^™ Eldon P. Schrup Hearing Examiner

January 19* 1970

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38


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC.,' ARTHUR MURRAY STUDIO OF BETHESDA, INC.]' ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,


DOCKET 8776

REQUEST FOR PERMISSION TO FILE INTERLOCUTORY APPEAL

Request is made hereby, pursuant to §3.23(a) of the Commission's Rules, for permission to file an interlocutory appeal from the Hearing Examiner's Order Reopening Record for the Reception of Certain Evidence. In the interests of justice, it is essential that a determination of the correctness of the Examiner's order be made prior to the conclusion of the hearing, because the order as issued involves substantial rights and will materially affect the final decision in this case.

As will be shown in the attached Memorandum, the order complained of violates the Hearing Examiner's prehearing order, vitiates the Commission's rules and serves to condone questionable tactics on the part of Commission counsel. The effect of the order, if permitted to stand, will be to force respondents to take part in what will undoubtedly be a lengthy trial on an issue which respondents have already conceded through a stipulation of facts.


Tom M. Schaumberg January 26, 1970

13'

MEMORANDUM IN SUPPORT OF REQUEST FOR PERMISSION TO FILE INTERLOCUTORY APPEAL

I. BACKGROUND

The Commission issued its complaint in this matter on April 3, 1969, and respondents filed separate answers on May 19, 1969. Respondents initiated efforts to settle this case even after it reached the adjudicatory stage. Agreement as to a proper form of order was reached with staff counsel, and, on July 10, 1969, the Hearing Examiner certified to the Commission a joint motion seeking withdrawal of the matter from adjudication.

By order of August 6, 1969, the Commission determined that the consent order agreed to by counsel supporting the complaint and counsel for respondents did not afford an adequate basis for settlement. m addition, the Commission indicated what form of order it would consider acceptable.

In a further effort to arrive at a settlement acceptable both to respondents and to the Commission, respondents filed a motion for reconsideration on September 5, 1969. in an answer filed on September 11, 1969, Commission counsel supported respondents' motion for reconsideration.

On October 9, 1969, the Commission again denied respondents' settlement offer and ordered that the matter be returned to adjudication.

Thereupon, a final prehearing conference was convened on November 5, 1969. At that time, pursuant to §3.21(a)(3) of the Commission's Rules, the parties entered into stipulations of fact, and respondents agreed to certain provisions of the proposed order. More specifically, respondents, in an effort to expedite the proceedings and to save both themselves 1/ and the public the expense of protracted litigation, agreed to each and every allegation of fact contained in the Commission's complaint. Respondents furthermore consented' to a majority of the provisions of the proposed order. As

1/ It should be noted that the corporate respondents are no longer doing business (Tr. 102); thus, this litigation is directed solely to the individual respondents who must bear the entire cost.

140

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a result, it was possible to narrow the area of controversy to two provisions of the proposed order.2/ Briefs were filed, and oral argument was heard on December 19, 1969.

Complaint counsel first made a motion to introduce further evidence during the course of oral argument. (Tr. 204). This motion was denied, the record was closed, and the Hearing Examiner afforded complaint counsel 10 days to make a motion to reopen the record. (Tr. 219) .

Such a motion was in fact made by complaint counsel and opposed by respondents. This request for permission to file an interlocutory appeal results from the Hearing Examiner's order to reopen the record.

II. THE ORDER IS CONTRARY TO THE PREHEARING ORDER AND THUS VIOLATES THE COMMISSION'S RULES

At the final prehearing conference on November 5, 1969, counsel entered into an agreement as to the facts which would constitute the record for this proceeding. In addition, respondents agreed to every provision of the proposed order except the two presently in issue. Accordingly, the Hearing Examiner accurately summarized the positions of counsel as follows (Tr. 123-124)(emphasis added):


So that the record will be perfectly clear, it is the understanding of the hearing examiner that the facts that have been stipulated in this case are Paragraphs 1 through 15 of the complaint, as copied into the record.

You gentlemen have agreed to most of a proposed order. The only thing left in this order to be contested are the words "or

2/ The issues raised by these provisions of the proposed order are: a) Whether the Commission's cease and desist order may

properly encompass all "other services" when the allegations, of the complaint as well as the stipulated facts related only to dancing instruction; and

b) whether the Commission's cease and desist order may properly prohibit contracts for dancing instruction which exceed $1,500.

1.41

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other services," and the contents of Paragraph Nine of the proposed order in the notice to the complaint. I understand that both sides are waiving the findings of fact in this matter, and intend only to file the proposed order and a brief on the contested points, but that you are reserving all rights of appeal from the Hearing Examiner's initial decision.

Is that a correct summation?

MR. STEINMAN: Yes, your Honor.

MR. BACHMAN: Yes.

HEARING EXAMINER SCHRUP: Mr. Schaumberg?

MR. SCHAUMBERG: That sounds correct, your Honor.

HEARING EXAMINER SCHRUP: All right. All three counsel agree.

Now, the remaining part of the prehearing conference that we have to consider is the timing of the filing of these proposed orders and brief....

The Commission's Rules provide in §3.21(d) that, "The hearing examiner shall enter in the record an order which recites the results of the [prehearing] conference." The word "shall" makes it clear that this is mandatory and not a matter of discretion.

While no written order was entered by the Hearing Examiner, the above-quoted summary statement had the same purpose and effect as an order. As is stated in the rule, the order controls the subsequent course of the proceeding, and this was the intent of the Examiner's summary. The only other matters subsequently discussed at the final prehearing conference also related to the subsequent course of the proceeding, the dates for the submission of briefs and for oral argument, if necessary. (Tr. 124-127).

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The order reopening the record which the Examiner has now entered is completely contrary to his earlier order. Such a drastic modification of a prehearing order is permitted only "to prevent manifest injustice," according to §3.21(d) of the Commission's Rules.

The Examiner's order to reopen the record, however, does not even make a pretense at complying with this rule. The only apparent justification given for reopening the record is a quotation from complaint counsels' brief:

It has been held in numerous cases that the public interest will not suffer by mistake or inadvertence on the part of the public body empowered to act in the public interest. (Cases cited).

That statement, however, is not supported by the three cases cited.

In F.C.C. v. Pottsville Broadcasting Company, 309 U.S. 134 (1940), the issue was whether the F.C.C. had properly applied the standard of "public convenience, interest or necessity" prescribed by the Communications Act. The Court of Appeals found it had not because of an erroneous view held by the Commission regarding state law. The Supreme Court then held that this error of law bestowed no special privilege on the party to whose detriment that error was committed, since the Commission still has a duty to determine an application on the basis of public convenience, interest or necessity.

N.L.R.B. v. Baltimore Transit Co., 140 F.2d 51 (4th Cir. 1944), cert, denied, 321 U.S. 795 (1944), is equally remote and beside the point. The court there held that merely because an administrative determination was once made not to pursue an unfair labor practice because of lack of jurisdiction, that does not estop the Board from later taking action with regard to an entirely different labor matter.

Finally, Elmo Company, Inc. v. F.T.C., 389 F.2d 550 (1967), is simply not in point. The issue there was what showing of public interest is necessary to reopen a final order where such reopening is expressly authorized by statute.

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In sum, none of the cases cited by counsel has anything to do with mistake or inadvertence. They certainly have nothing to do with mistake or inadvertence on the part of government counsel, which appears to be the issue here.

The case cited earliel^ in complaint counsels' Motion to Reopen Record, P. Lorillard Co. v. F.T.C., 186 F.2d 52 (4th Cir. 1950), was significantly different from the instant proceeding. In that case the Commission rescinded a fact stipulation when it discovered that facts relating to perhaps the most important charge in the complaint had been omitted. The Commission stated that it had approved the stipulation under the erroneous impression that, with the exceptiori of two charges, the stipulation covered all the material issues raised by the complaint. The Commission recognized that if this mistake of fact were not corrected it would result in the abandonment of perhaps the most important charge in the complaint.

There has been no mistake of fact in this case. There is no charge in the complaint which is not covered by the stipulation. There is no need for the Commission to abandon any of the charges in its complaint.

Even assuming, arquendo, that mistake or inadvertence on the part of Commission counsel rises to the status of "manifest injustice," one must still ask what mistake or what inadvertence has been committed.3/ The only clue we have from the Hearing Examiner is the statement in the order that:

The instant dispute between counsel on reopening the record centers on subparagraph 4 of paragraph Thirteen of the stipulation of facts 1/ and paragraph 9 of the proposed order to cease and desist contained in Appendix A of the brief of complaint counsel in support of the contested provisions of the proposed order. 1/ Tr. 112, prehearing conference of November 5,

1969.

3/ As has been stated elsewhere: There certainly would be a question here whether manifest injustice was being prevented or allowed by not following the pre-trial order. Pacific Molasses Co. v. F.T.C, 356 F.2d 386, 390 n. 11 (5th Cir. 1966).

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It is submitted that this cannot be the dispute as to which there has been some mistake or inadvertence. Manifestly, there is no dispute at all with regard to subparagraph 4 of paragraph 13. It has been stipulated as fact.

While there is of course a dispute as to paragraph 9 of the proposed order, counsel assumes that it was included in the proposed order neither by mistake nor by inadvertence.

Since there has been no showing of manifest injustice, reopening of the record at this time is contrary to the Examiner's order and the Commission's Rules and will materially prejudice respondents' right to rely on that order and on those Rules.

III. THE ORDER VITIATES THE COMMISSION'S RULES

As has been repeatedly pointed out, respondents have stipulated that each and every allegation of the complaint is a statement of fact for purposes of this proceeding. (Tr. 98). Although no admission answer was filed, the effect of this stipulation, because it encompasses every factual allegation in the complaint, is identical to an admission answer. In this regard, §3.12{b)(2) of the Commission's Rules provides:

If the respondent elects not to contest the allegations of fact set forth in the complaint, his answer shall consist of a statement that he admits all of the material allegations to be true. Such an answer shall constitute a waiver of hearings as to the facts alleged in the complaint, and together with the complaint will provide a record basis on which the hearing examiner shall file an initial decision containing appropriate findings and conclusions and an appropriate order disposing of the proceeding....

The Hearing Examiner's order to reopen the record for the reception of evidence regarding subparagraph 4 of paragraph 13 or of any other paragraph in the complaint is directly contrary to the above-quoted rule.

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The public must be able to rely on the integrity of the Commission and its rules. As has been stated in a case involving this Commission:,

When an administrative agency promulgates rules to govern its proceedings, these rules must be scrupulously observed. See Service v. Dulles (1957), 354 U.S. 363, 77 S.Ct. 1152, 1 L.Ed.2d 1403. This is so even when the defined procedures are "*** generous beyond the requirements that bind such agency ***.!' Vitarelli v. Seaton, (1959), 359 U.S. 535, 547, 79 S.Ct. 968, 3 L.Ed.2d 1012 (Justice Frankfurter dissenting). For once an agency exercises its discretion and creates the procedural rules under which it desires to have its actions judged, it denies itself the right to violate these rules. United States ex rel. Accardi v. Shaughnessy (1954), 347 U.S. 260, 74 S.Ct. 499, 98 L.Ed. 681. If an agency in its proceedings violates its rules and prejudice results, any action taken as a result of the proceedings cannot stand. Sangamon Valley Television Corp. v. United States, 106 U.S.App.D.C. 30, 269 F.2d 221 (D.C. Cir. 1959), cert, denied (1964) 376 U.S. 915, 84 S.Ct. 665, 11 L.Ed.2d . 611. Pacific Molasses Company v. F.T.C., supra note 3, at 389-390.

This language applies with equal force to the previous argument regarding the Examiner's prehearing order. In its present posture, this proceeding represents a gross intrusion on respondents' right to rely on the Commission's rules and on a prehearing order. As will now be discussed, respondents have not even been able to rely on the undertakings of Commission counsel.

IV. THE ORDER CONDONES QUESTIONABLE TACTICS BY COMMISSION COUNSEL

It is quite clear from the transcript of the final prehearing conference that all the attorneys in the case agreed that any dispute as to the scope of the Commission's order would be resolved on the basis of the stipulated record. This is clear from the following (Tr. 99 -100) (emphasis added):

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HEARING EXAMINER SCHRUP: . . . As X understand it, you are going to agree on most of the portions of the order you will propose to me, and there will be a conflict on probably only one section of this order, and that you wish to argue before me as to what should be done on that portion of the order, based on the stipulation of facts.

Right, Mr. Schaumberg?

MR. SCHAUMBERG: That is correct.



HEARING EXAMINER SCHRUP: Mr. Bachman?

MR. BACHMAN: Yes. This contention is reinforced by the following statement which appears later in the record (Tr. 120-121)(emphasis added):

MR. STEINMAN: Well, your Honor, just one little minor point we would like to have clarified. I take it, then, that the parties are going to be bound, at least to the stipulations, as to the order that we have agreed — the provisions of the order that we have agreed to today, so that when we give you our form of order that you have just enunciated, that there won't be any surprises to either of us.

We are going to abide by what we have already stipulated to, so Mr. Schaumberg won't be surprised and complaint counsel won't be surprised.

These undertakings by complaint counsel were clearly violated by their motion to reopen the record. Furthermore, the evidence sought to be introduced would only serve to prove matters which have already been stipulated.

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Counsel made their motion to reopen the record in connection with nothing more than an attempt to switch horses in mid-stream. At the time of the prehearing conference on November 5, 1969, complaint counsel were quite satisfied to have respondents capitulate with regard to all of the allegations of. the complaint and 90% of the proposed order. All that remained in dispute were two aspects of the proposed order, which were issues to be briefed for determination by the Hearing Examiner.

It is now quite clear from the brief submitted by complaint counsel, from their oral argument and from their motion to reopen that they were ill-prepared to argue in favor of the provision that would restrict respondents from entering into any contract for dance instruction, no matter what the circumstances, for an amount in excess of $1,500. Recognizing the weakness of their case, they fastened upon unconscionability as an argument in support of the proposed order. They were forced to state, however:

While it is conceded that the facts herein do not involve a traditional situation for applying the principle of unconscionable contracts, complaint counsel urge that the Examiner find that the deceptive practices which permeated the environment of the execution of the contract together with contractual provisions obligating prospective students to amounts exceeding $1,500 for dance instruction provide a sufficient basis for deeming such contracts unconscionable and thereby violative of the Federal Trade Commission Act.4/

This line of argument was pursued all the way through oral argument. Quite understandably, in the words of complaint counsel, "It became obvious during the course of oral argument that the Examiner was of the opinion that the evidentiary record lacked sufficient material facts upon which the Examiner could base findings to support issuance of an order containing the $1,500 contractual provision.... "j>/

4/ Brief of Complaint Counsel In Support of the Contested Provisions of the Order, p. 11.

5/ Motion to Reopen Record, p. 2.

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The introduction of a new theory into the case, even at this late date, is perhaps not improper. However, it is improper for counsel to seek to have the record reopened because, in their opinion, the facts as stipulated are not sufficient to support their new theory. This is particularly so, since complaint counsel agreed that the outstanding issues in the case would be decided on the basis of facts which they themselves framed as the allegations of the complaint. The Examiner's order appears to condone this practice.

V. SUMMARY

This proceeding, which was on an orderly route to initial decision has, because of complaint counsels' motion and because of the Examiner's order, been transformed into a contest over the Commission's Rules and its attorneys' tactics. By granting this request for interlocutory appeal and thereupon reversing the Examiner's order, the Commission can remove the element of unfairness and grave injustice that has been injected into this case. Respondents entered into a complete stipulation of facts and agreed to almost all of the provisions of the proposed order in reliance on the fact that the remaining issues would be determined on the stipulated record. The order complained of does a grave injustice to respondents, the Commission's Rules, and to the Commission itself.

For the foregoing reasons, the Commission is requested to grant permission to file an interlocutory appeal.


Tom M. Schaumberg

January 26, 1970




DOCKET NO. 8776

LIST OF WITNESSES AND DESCRIPTION OF EXHIBITS

TO: The Honorable Eldon P. Schrup, Hearing Examiner, Pursuant to the Examiner's order dated

January 19, 1970, complaint counsel submit herein a list of tenative witnesses to be called and exhibits to be introduced into evidence at a subsequent hearing on the matters discussed in the aforesaid Order of the Examiner.

The following consumer witnesses will be called to describe the circumstances surrounding their execution of dance instruction contracts in excess of $1?00. Testimony will also be adduced from such witnesses concerning the harsh and inequitable effect of having hundreds of hours of dance instruction owed them by respondents and the corresponding effect of having expended thousands of dollars for unused dance lessons.

Vera M. Carroll, 2808 Naylor Road, S.E. Washington, D.C. M?,s- Barbara j. Gibson, 11^16 Sherrie Lane, ' Wheaton, Maryland.

5?5* Y i? i f r e d H- Grant, 2326 Ashmead Place, N.W., Washington, D.C. '

RonYS^!1,1118 L" Oilman, 800 4th Street, S.W. , ' Washington, D.C. Mrs. Ross Hunter, 7211 Fairfax Road, Bethesda, Maryland. Grace Moore, 4117 Davis Place, N.W. , Washington, D.C. ' M r ? . Dorothy L. Mummery, 120 Channel Terrace, Falls Church, Virginia. Gertrude M. Stambough 3900 Connecticut Avenue, N.W Washington, D.C. ' *' ?nm nS r £ e e Templeman, 3001 N. Pollard Street, Arlington, Virginia. George Wiseman, £425 Connecticut Avenue, Washington, D.C. ' Miss Margaret Campion, ^15 Connecticut Avenue, N W Washington, D.C. 20015

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Miss Nellie C. Elloitt, Box 230, Dahlgren, Virginia. 22448 Miss Winifred Lapin, 2121 Virginia Avenue, N.W., Washington, D.C. 20037 Miss Minnie L. Little, 730 24th Street, N.W. Washington, D.C. 20037

Complaint counsel will also call the following witnesses who will testify as to they nature of thl a T a n c f S S . ^ " r e l & t e S t 0 the L s t °f ° P « X

Mr. Victor Daumit, Vic Daumit Dance Studios, 3333 Connecticut Avenue, N.W. , Washington, D.C. ' Mr. William Graham, International Dance Studios, 2461 Wisconsin Avenue, N.W. Washington, D.C. ' Mr. William Shelton, Mr. Terry Greggory, Feather & Toree Dance Studio, 2433-A North Harrison Street, Arlington, Virginia. Mr. Michael Shaw, Continental Dance Club, 502 13th Street, N.W., Washington, D.C. Mr. Robert Rucker, 4 4th Street, S.E., Washington, D.C.

-3-

Mr. David Crocco, c/o Fidelity & Deposit Company of Maryland,

1^0 William Street, New York, New York. Mr. Donald Morse, 3519 Gallows, Falls Church, Virginia. Mr. Victor F. Horst, c/o Racquet Club, 7930 East Drive, Harbour Island, Miami Beach, Florida. Mr. Edward Marandola, 393 Boylston Street, Boston, Massachusetts. Mrs. Ethel M. Fistere, 3508 Hamlet Place, Chevy Chase, Maryland. The undersigned will introduce into evidence

the contractual agreements between the consumer witnesses and respondents. Copies of such documents have been previously submitted to respondents' counsel.

This witness list is tenative in nature and should not be considered as a restriction or limitation on the right of complaint counsel to excuse or call additional witnesses upon proper notification to all parties.


Donald L. Bachman, +^£4?

Edward D. Steinman, Counselîrt.Support of

the CoiB^lalnt. DATE: February 2, 1970.

</

- ^ -


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., ) DOCKET 8776 corporations, and )

VICTOR F. HORST and ) EDWARD MARANDOLA, also known as ) EDWARD MARA, individually and as officers ) of said corporations. )

OPPOSITION TO RESPONDENTS' REQUEST TO FILE INTERLOCUTORY APPEAL

Complaint counsel oppose respondents' Request For Permission To File Interlocutory Appeal in that said request is without merit for the following reasons hereinafter set forth.

1. Respondents do not and cannot show how they are prejudiced from the reopening of the record. The reasons for reopening the record are obviously clear. As reflected in complaint counsel's Motion To Reopen the Record, the Examiner, during the course of the oral argument, was of the thought that the record lacked sufficient facts upon which he could base findings to support issuance of an order containing a $1500 contractual limitation provision (tr. 166, 186-188, 191, 200-202, 213). The record of the prehearing conference of December 19, 1969 contains several references of statements of the Examiner as to the absence of facts in the record, i.e., nothing in the record to show that: a $1500 individual obligation strikes an economic balance which will satify the business activities of respondents (tr. 166); the mechanics of how the respondents' contracts are negotiated as to monetary amounts required of students (tr. 188); the susceptibility and incredulity of the students (tr. 191); and, the number of contracts involved and their dollar amounts (tr. 196).

Pursuant to the Examiner's order reopening the record, complaint counsel will introduce evidence, through consumer and expert witnesses, that will replete the record of the facts alluded to by the Examiner as being necessary to base any findings as to the $1500 contractual provision. As indicated by the Examiner's order to reopen, the proceeding pursuant to said order will be limited to introducing evidence in reference to, and support of, the $1500 contractual provision of complaint counsels' proposed order. Respondents can not be prejudiced, as indicated by respondents1 counsel statement at the prehearing conference of December 19, 1969 that there can be no evidence in the world to substantiate such a provision (tr. 213).

2. Respondents have improperly characterized the prehearing conference of November 5, 1969 as the final prehearing conference of this instant matter (petition,p. 3). As revealed on page 127 of the prehearing conference of November 5, 1969, the prehearing conference was to continue and reconvene for purpose of oral argument. It is clear that the conference of December 19, 1969 was but a continuation of the earlier conference of November 5, 1969.

The record should not have been closed in that there had been a motion properly made to introduce evidence in addition to the stipulation of facts (tr. 204). Assuming, that respondents' characterization of the Examiner's remarks (quoted on pp. 2-3 of respondents' Request For Permission To Pile Interlocutory Appeal) amount to a prehearing order, the respondents have failed to show how they have been prejudiced by a deviation from that order. The case, Pacific Molassess Company v. F.T.C.. cited by respondents is inapplicable to the instant matter. The creteria used by the Court were procedural error and prejudice. On page 39 of the decision, the Court, holding that the Commission violated its Rules of practices, stated:

Our sole question, therefore, is whether petitioners1 cause was prejudiced by this 'regrettable' oversight of the pre-trial order.

No prejudice has incurred to the respondents in this matter.

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3. Respondents are in error to characterize the stipulation as an admission answer, thus §3.12 (b)(2) of the Commission's Rules does not apply. As has been previously noted, a stipulation, even in the instance as to all the material allegations of a complaint, does not preclude the introducing of further evidence. Respondents had an opportunity to file an admission answer but chose to enter into a stipulation of facts. Thus, they should not now be heard to characterize the stipulation as an admission answer in order to prevent the record from reflecting sufficient facts upon which the Examiner can determine the propriety of the $1500 contractual limitation provision.

4. While respondents' counsel chooses to question and characterize tactics of complaint counsel, such an argument is without any merit to support respondents' petition for ah interlocutory appeal. The lack of merit in this argument is as such conceded by respondents' counsel (p. 10 of respondents' petition).

As previously noted, the stipulated facts were apparently considered by the Examiner to be insufficient to sustain an order containing a $1500 contractual limitation provision. There is no irregularity in introducing further evidence in addition to the stipulation. The case of P. Lorillard v. F.T.C., 186 P. 2d 52 (1950), demonstrates that, in order>to protect the public interest, stipulations are not to be all encompassing as to prevent the introduction of further evidence. The stipulation in the instant matter has not been withdrawn by either counsel. Complaint counsel are offering to supplement the stipulation by introducing limited additional evidence. In the case of Carnation Company v. F.T.C., 52 P.T.C. 998 (1956), the Commission permitted an agreement between counsel to be modified. The reasoning given by the Commission was that the aim of an administrative hearing is to get all the necessary facts and to not permit modification of the agreement would result in the failure of the Commission to discharge its duty to protect the public interest. This case is applicable to the instant matter.

Based on the foregoing, it has been demonstrated that the Examiner's reopening of the record is consistent with the Commission's Rules and established precedent. It is also evident that respondents failed to show that their substantial rights would be affected by permitting the

introduction of further evidence to-supplement the>'v stipulation.. Respondents should not be-/opposed / to having the record contain sufficient information upon which the Examiner can make a proper determination on the propriety of the $1500 contractual provision.

Wherefore, complaint counsel move that the Commission deny respondents' request for permission to file an interlocutory appeal.


Donald L. Bachman,


DATE: February kt 1970

-k-

157

£


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporat ions, and


DOCKET NO. 8776

REQUEST TO SUSPEND HEARINGS

To: The Honorable Eldon P. Schrup, Hearing Examiner

Request is made hereby, pursuant to §3.23(b) of the Commission's Rules, that the hearings in this matter be suspended until after the Commission has either denied Respondents' Request for Permission to File Interlocutory Appeal or has granted such request and ruled on the merits of said interlocutory appeal.

By order of January 19, 1970, the Hearing Examiner ordered that the record for the reception of evidence in this proceeding be reopened.

On January 26, 1970, respondents filed with the Commission a Request for Permission to File Interlocutory Appeal from the Examiner's order.

158

On February 2, 1970, in accordance with the Examiner's order of January 19, 1970, complaint counsel filed a List of Witnesses and Description of Exhibits. From the fact that said list of witnesses includes 24 names, it is apparent that the hearings envisaged by complaint counsel will be quite lengthy and extensive in nature.

It would impose an undue financial hardship on respondents to participate in such hearings if in fact the Commission determines that the Hearing Examiner's initial decision and order should properly be based solely on the record presently before him and that further hearings are therefore unnecessary.

For the foregoing reasons, it is requested that the hearings be suspended.


Tom M. C*"«"h a n m V k a r r r

February 5, 1970




DOCKET NO. 8776

OPPOSITION TO MOTION TO SUSPEND HEARINGS

TO: The Honorable Eldon P. Schrup, Hearing Examiner. Counsel in support of the complaint oppose respon

dents1 motion to suspend subsequent hearings pending determination by the Commission of respondents' request to file on interlocutory appeal.

The sole basis of respondents' motion is that a financial hardship will be incurred by respondents if the Commission determines that the record should not be reopened. By order dated October 9, 1969, the Commission ruled that respondents' motion for reconsideration be denied, determined that the matter be returned to adjudication, and directed the Examiner to commence hearings forthwith.

In view of the Commission's aforesaid order, and that any subsequent hearings will most likely be heid in Washington, D.C., it would appear that respondents are not unduly burdened by proceeding with the matter during the Commission's period of determination. Further, complaint counsel do not anticipate that they will be ready

J60

Tic'

c to commence hearings on the instant matter within V thirty days. Within this period of time, the C'6m-(' r mission will have ruled on respondents' request to file an interlocutory appeal; thereby, rendering respondents' motion moot.

Wherefore, complaint counsel move that the Examiner deny respondents' motion to suspend further hearings.


Tfr ro'T

Donald L. Bachman,

Ca Edward D. Steinman, Counsel in Support of the Complaint.

DATE: February 9, 1970

-2- 161

e UNITED STATES OP AMERICA

BEFORE.FEDERAL TRADE.COMMISSION




ORDER DENYING REQUEST TO SUSPEND HEARING Counsel for respondents on February 5, 1970 filed

a request under Section 3.23(b) of the Rules of Practice to suspend the hearing in this matter pending Commission action on respondent's motion of January 26, 1976 for permission to file an interlocutory appeal from the hearing examiner's order of January 20, 1970 reopening the record herein for the reception of cdrtain evidence. Complaint counsel on February 4, 1970 filed opposition to respondents' request to file an Interlocutory appeal and on February 9, 1970 complaint counsel further filed opposition to respondents' request to suspend the hearing. Upon due consideration of the foregoing and a review of the chronological history of this proceeding,

IT IS ORDERED that the request of counsel for the respondents to suspend the hearing in this matter be, and the same hereby is, denied. Complaint counsel are directed to both promptly contact counsel for respondents as to a feasible hearing date and to submit applications for such subpoenas as will be required relative to the list of proposed witnesses and exhibits furnished to counsel for respondents under date of Februarys, 1970 pursuant to the hearing examiner's order herein of January 20, 1970.


February 11, 1970

162

^ v RECEIVED ' -< > FEB 1 1 1970

SECRETARY

DOCKET NO. 8776


COMMISSIONERS:

Caspar W. Weinberger, Chairman Paul Rand Dixon Philip Elman Everette Maclntyre Mary Gardiner Jones

In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC, ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and

VICTOR F. HORST, and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations

The Commission having considered the respondents' Application for Permission to Appeal from the hearing examiner's order of January 19, 1970, reopening the record in this proceeding; and

It appearing that the order reopening the record was entered pursuant to the provision of § 3.51(d) of the Commission's Rules of Practice, for the purpose of receiving additional evidence concerning the nature and scope of the order to be entered in disposition of the proceeding; and

DOCKET 8776 ORDER DENYING APPLICATION FOR PERMISSION TO FILE INTERLOCUTORY APPEAL

"i

D. 8776

It further appearing that the nature and scope of the order in disposition of the proceeding can be reviewed later

/ upon appeal to the Commission under § 3.52 of the Rules of Practice; and

The Commission being of the opinion that the respondents have not shown that the ruling complained of involves substantial rights and will materially affect the final decision, as required by § 3.23(a) of the Rules of Practice: Accordingly,

IT IS ORDERED that the Application for Permission to Appeal be, and it hereby is, denied.

By direction of the Commission, without the concurrence of Commissioner Maclntyre.

f f Secretary ISSUED: February 17,1*4/0

^J

U.-;.ii,;fV

164 -2-



corporations, and ) DOCKET NO. S776 VICTOR F. HORST and EDWARD MARANDOLA, also Known as EDWARD MARA, Individually and as officers


ORDER RECONVENING PREHEARING CONFERENCE AND SETTING HEARING DATE

Under date of February 11, 1970 complaint counsel were directed to contact counsel for respondents as to a feasible hearing date and to submit applications for such subpoenas as will be required relative to the list of proposed witnesses and exhibits furnished to counsel for respondents under date of February 2, 1970 pursuant to the hearing examiner's order herein of January 20, 1970.

By Joint agreement respective counsel have today verbally requested that the prehearlng conference be reconvened herein on March 2, 1970 prior to the agreed hearing date of March 23, 1970 hereinafter set. Accordingly,

IT IS ORDERED that the prehearlng conference be reconvened herein to commence at 10:00 A.M., Monday, March 2, 1970, In Room 7314, Federal Trade Commission offices, The 1101 Building, 11th Street and Pennsylvania Avenue, N.W., Washington, D.C.

IT IS FURTHER ORDERED that the hearing In this matter be set to commence at 10:00 A.M., Monday, March 23, 1970, In Room 7314, Federal Trade Commission offices, The 1101 Building, 11th Street and Pennsylvania Avenue, N.W., Washington, D.C.

Eldon P. Sehrup Hearing Examiner

February 20, 1970

& ' RECEIVED


EEB 2 41970

SECRETARY ^

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC. , corporations, and


DOCKET NO. 8776

APPLICATION FOR AN ORDER REQUIRING ACCESS

TO: The Honorable Eldon P. Schrup, Hearing Examiner. Application is hereby made under the provisions

of §3.32 of the Commission's Rules of Practice for Ad.iudicative Proceedings for an order requiring respondents in this matter to grant counsel in support of the complaint access to the files of Arthur Murray Studio of Washington, Inc. for the purpose of examining and copying the following class of documents:

1. All contracts for the sale of dance instruction between said corporate respondent and students for the period January 1, 1965 to December 31, 1965.

2. Records showing the income derived from operating said corporate respondent for the calendar years 196^, 196? and 1966.

3. Records showing expenditures from the operation of said corporate respondent for the calendar years 196*f, 1965 and 1966. .

These records are necessary to establish the practical business needs of the respondents as operators of dance studios. Complaint counsel must necessarily examine the documents prior to hearings in order to facilitate the orderly presentation of evidence. The documents sought must be carefully examined and compared prior to their tender in evidence. For these reasons, it is necessary to examine these documents prior to hearings and it would not be practical to adduce this evidence through subpoena duces tecum during hearings. In addition, a subpoena duces tecum may prove to be too burdensome upon respondents in view of the nature of the documents to be examined.

WHEREFORE, complaint counsel request that the Examiner grant access to the files of Arthur Murray Studio of Washington, Inc., for the purpose of examining and copying the classes of documentation here-inabove set forth. It is further requested that the order requiring access be granted forthwith.


DATE: February 2h, 1970.

*

UNITED STATES OF AMERICA BEFORE.FEDERAL TRADE COMMISSION

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO ©F BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,

corporations, and \ DOCKET NO. 8776 VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers


ORDER GRANTING ACCESS

On January 19, 1970 the record in this matter was ordered reopened for the reception of certain evidence pursuant to motion by complaint counsel filed January 5> 1970. Request by respondents for permission to appeal the reopening of the record for such purpose was denied by Commission order dated February 17* 1970. Complaint counsel on February 2, 1970 filed a list of tentative witnesses and proposed exhibits to be called and offered at the hearing to be set herein. By joint agreement and verbal request of respective counsel for the parties on February 20, 1970, the prehearing conference was ordered to be reconvened on March 2, 1970 and a hearing date was ordered set for March 23, 1970.

Complaint counsel on February 24, 197© filed application under Section 3.32 of the Rules of Practice for an order requiring respondent Arthur Murray Studio of Washington, Inc. to grant complaint counsel access to its files for the purpose of examining and copying the following documents:

1. All contracts for the sale of dance Instruction between said corporate respondent and students for the period January 1, 1965 to December 31* 1965.

2. Records showing the Income derived from operating said corporate respondent for the calendar years 1964, 1965 and 1966.

3. Records showing expenditures from the operation of said corporate respondent for the calendar years 1964, 1965 and 1966. Complaint counsel In their motion of January 5>

1970 to reopen the record stated in pertinent part: Complaint counsel will introduce evidence

through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts In excess of $1500. Evidence will be adduced from members of the dance Industry to show that $1500 is a fair balance between the practical business need of an operator of a dance studio and an equitable and fair amount which a person should be Indebted for dance Instruction.

wherefore, complaint counsel request that the Examiner reopen the reeord for the limited purpose of introducing evidence on the $1500 contractual provision. 3y this motion complaint counsel are not withdrawing the stipulations of facts, but merely requesting the right to present evidence to supplement the stipulation of facts. The instant application of complaint counsel does

not appear to place any undue or unreasonable burden on respondent Arthur Hurray Studio of Washington, Inc. and deals with the proposed development of the alleged necessary and relevant evidence concerned In the order herein of January 19, 1970 reopening the record for the reception of certain evidence. Said application by complaint counsel is further consonant with the Commission opinion of March 28, 1968 in Docket No. 8754, In the Matter of Mario Furniture Company and cases therein cited. Accordingly,

IT IS ORDERED that the aforesaid application by complaint counsel.be, and the same hereby Is, granted to become effective on March 3, 1970, subject to any (~ motion to limit or quash the same which is filed on

or before March 2, 1970 or made on the record of the prehearing conference being held on said date.


February 25, 1970

- 3 -

http://counsel.be

MAR 2 - 1970 UNITED STATES OP AMERICA K oprRFTARY BEFORE FEDERAL TRADE COMMISSION ^ ^ ntlw

In the Matter of ARTHUR MURRAY STUDIO OP WASHINGTON, INC., ARTHUR MURRAY STUDIO OP BALTIMORE, INC., ARTHUR MURRAY STUDIO OP BETHESDA, INC., and ARTHUR MURRAY STUDIO OP SILVER SPRING, INC., corporations, and

VICTOR P. HORST and ) DOCKET NO. EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations.

SUPPLEMENTAL LIST OP WITNESSES TO BE CALLED BY COUNSEL IN SUPPORT OF THE COMPLAINT

TO: Honorable Eldon P. Schrup, Hearing Examiner. The following is a supplemental list of witnesses

who will be called to give testimony at the hearing scheduled to convene on March 23, 1970:

1. Mr. John Angelino, also known as Mr. John Angelini, John Jay and Bernie Jay, 1028 Connecticut Avenue, N.W. Washington, D.C. 20036

2. Mrs. Edna A. Gue, 115 Mathis Avenue, Manassas, Virginia. 22110

3. Mrs. Dorothy M. Leichtman, 20001 N. Adams Street, Apt. 19 Arlington, Virginia. 22201

U. Miss Selma Conlon, 1500 Massachusetts Avenue, N.W., Washington, D.C. 20005

5. Miss Elsie McKee, 3601 Connecticut Avenue, N.W., Washington, D.C. 20008

6. Dr. Nina Moore, 2801 Adams Mill Road, Apt. 402 Washington, D.C. 20009

7. Mrs. Beatrice Hoiton Riddle, 3800 Andover Place, S.E., Washington, D.C. 20023

8. Joseph J. Koman, Jr. Esquire, Federal Trade Commission, Washington, D.C, 20580

9. George T. O'Brien, Jr., Esquire, Federal Trade Commission, Washington, D.C. 20580

Mr. Angelino is a former manager of Arthur Murray-Studio of Washington, Inc. He will provide testimony as to the circumstances surrounding the execution of dance instruction contracts and the financial demands associated with operating a dance studio.

Messrs. Koman and O'Brien are Commission Attorneys who will provide testimony as to the operation of respondents' dance studios.

The remaining prospective witnesses are students who will give testimony as to the unconscionable nature of the dance instruction contracts.


Edward D. Steinman,

Donald L. Bachman, Counsel in Support of the Complaint.

172

^_TRADE C<%>^ ^ V M RECEIVED '^'Cfys


-> j

MAR 1 3 J970

SECRETARY,




DOCKET NO. 8776

ORDER

A prehearlng conference was held in this matter on June 16, June 27, July 3, November 5, December 19, 1969 and March 2, 1970. Subsequent to the prehearlng conference of July 3, 1969 a joint motion by counsel that the matter be withdrawn from adjudication and a settlement agreement with consent order be accepted was certified to the Commission on July 11, 1969.

The matter was contingently withdrawn from adjudication by Commission order of August 11, 1969 which stated an acceptable order for settlement purposes would require respondents to cease and desist from:

9. Entering into one or more contracts or written agreements for dance instruction or any other service provided by respondents ' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500.

On October 9, 1969 respondents' motion for Commission reconsideration of the above settlement basis was denied and the matter was ordered to be returned to adjudication.

The prehearing conference was reconvened on November 5, 1969 and a stipulation of facts between the parties encompassing Paragraphs One through Fifteen of the complaint was entered on the record. The form of an order to cease and desist was jointly agreed upon by counsel except for the inclusion of the words "or other services" in the preamble and the $1500 indebtedness limitation contained in Paragraph 9 of the order being proposed by complaint counsel. Legal briefs were later filed by counsel, oral argument was held thereon and the record closed for the reception of evidence at the prehearing conference of December 19, 1969.

Complaint counsel on January 5, 1970 moved to reopen the record for the reception of further evidence in support of and confined to the Paragraph 9 $1500 indebtedness limitation on dance studio obligations owing the respondents by any party at any one time. Said motion by complaint counsel stated in part:

Complaint counsel will Introduce evidence through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts in excess of $1500. Evidence will be adduced from members of the dance industry to show that $1500 is a fair balance between the practical business need of an operator of a dance studio and an equitable and fair amount which a person should be Indebted for dance instruction. Respondents' application for permission to file

an appeal from the order reopening the record for such limited purpose was denied by Commission order of February 17, 1970. On February 20, 1970 the prehearing conference was ordered reconvened on March 2, 1970 and the hearing was set for March 23, 1970.

Complaint counsel on February 24, 1970 filed application for an order requiring access to the files of respondent Arthur Murray Studio of Washington, Inc. which was granted subject to a motion to limit or quash filed by March 2, 1970 or made on the record

of the prehearing conference being held on said date. At the prehearing conference of March 2, 1970 a motion to quash with supporting documents tendered by counsel for respondents was ordered copied into the record and said motion was denied on the record.

It was agreed between counsel that the location of the dance contracts, corporate books and records to which the access order was directed would shortly be ascertained and the same made available to complaint counsel. The content of any such materials intended of being offered into evidence was to be promptly specified and counsel for respondents was further to be notified as to which of a large number of proposed exhibits previously supplied by complaint counsel were also to be offered into evidence.

The *hature- and extent of other described proposed exhibits not at hand but expected to be further obtained by complaint counsel from certain of the previously named witnesses and intended of being offered into evidence, were to be identified and information as to their content was to be supplied to counsel for the respondents as promptly as possible. In turn the request by counsel for respondents of additional time until March 30, 1970 to prepare for the hearing was unopposed and granted on the record. Accordingly,

IT IS ORDERED that a hearing is set to commence at 10:00 A.M., March 30, 1970, in Room 7316, The 1101 Building, 11th Street and Pennsylvania Avenue, N.W., Washington, D. C.


March 13, 1970

r < > ^


Vs^ In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR'MURRAY STUDIO OF BBTHESDA, INC., and ^T^lBURRAY STUDIO OF SILVER.SPRING, ING.,

. corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA., Individually and as officers


ORDER CLOSING RECORD FOR THE RECEPTION OF EVIDENCE AND SETTING DATES FOR PROPOSED FINDINGS OF FACT, CONCLUSIONS AND BRIEFS AND REPLIES TO THE.SAME

The defense In this matter was closed by counsel for respondents on April 23, 1970 and the hearing was adjourned until April 27, 1970 to afford complaint counsel the opportunity of intended rebuttal. Counsel for the respondents and the hearing examiner have today been verbally notified by complaint counsel that they do not Intend to present any rebuttal testimony or evidence. Accordingly,

IT IS ORDERED that the record for the reception of evidence in this matter be and the same hereby is closed. Proposed findings, conclusions and briefs by the parties are to be filed on or before June 1, 1970. Replies to the same by the parties are to be filed on or before June 15* 1970.


April 27, 1970

^ R E C E I V E D \

IPR 2 71970

DOCKET NO. 8776

1

u"*-«-XtX>

176


<® c RECEIVED ^

MAY 2 51970

SECRETARY >^r

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OP BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,



DOCKET NO. 8776

ORDER EXTENDING TIME

Pursuant to request of complaint counsel and an agreed upon understanding between the parties,

IT IS ORDERED that the time for the filing of proposed findings of fact, conclusions and briefs by respective counsel be extended to and including June 8, 1970. Replies thereto are to be filed on or before June 17, 1970.

Eldon P. Schrup lf~"^ Hearing Examiner *•

May 25, 1970 Q3J1AM

1

.77


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., AND ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


COMPLAINT COUNSELS' REPLY TO RESPONDENTS' PROPOSED FINDINGS OF

FACT AND BRIEF To: The Honorable Eldon P. Schrup, Hearing Examiner.

Pursuant to the Examiner's order of May 25, 1970, the following is in reply to respondents' proposed findings of fact and brief filed on June 8, 1970.

Respondents* proposed findings of fact and brief do not constitute an adequate basis to warrant rejection of a provision of complaint counsels" proposed order which limits the obligation a student may have with respondents at any one time to $1,500. Respondents' proposed findings of fact are void of any substance and are replete with errors and irrelevant matter. Respondents ' brief contains many of the arguments previous made by respondents and does not contain any new or novel arguments that would show the inadequacy or inappropriate-ness of the aforesaid provision of complaint counsels' proposed order. A. Respondents' Proposed Findings

In proposed finding eleven, respondents have attempted through self-serving testimony of Frank Reagan, an Arthur Murray dance consultant, Ward Thomas Chapman,

DOCKET NO. 8776

an Arthur Murray franchisee and John Saionz, an owner and operator of Fred Astaire Dance Studios, that students of national chains benefit from obligating themselves to long term contracts for dance instruction. It would appear that respondents through such testimony are attempting to draw an inference as to the possible beneficial effects of students1 purchasing long term contracts from respondents. This attempt fails for the following reasons: first, even if there was a showing that long term contracts with chain studios were advantageous, there is no evidence to connect the dance instruction available at respondents' dance studios with the dance instruction available at other studios; and second, there is an abundance of testimony that the manner of payment adopted by the student is not related to the ability of the school to instruct the student.

The first sentence of respondents' proposed finding numbered 11 is based on testimony of Frank Reagan wherein he was describing the attributes of instruction associated with the Arthur Murray's "Bronze Intermediate and Bronze Medal Standard" (RX 1-A - 1-H). When that standard was shown to Mr. Graham, a former employee of respondents, he testified that the chart was not used during his period of employment with respondents, September 1967 to September 1968. There is some doubt as to whether this chart was ever used at respondents' dance studio in view of the 1967 copyright date appearing on the chart (RX 1-b). Thus, respondents have failed to demonstrate through reliable testimony the type of dance instruction programs available at respondents' dance studios other than programs created to assist respondents in extracting money from students, e.g., Mrs. Mummery's purchase of a non-existent "special teaching" program at a cost of $6,377 (Tr. 591* CX 21, 29-A).

Through the testimony of expert dance instructors, it was shown that the manner of payment used by the student will not affect the instructor's ability to effectively teach the student (Tr. 1136, 1139, 1184, 1539-15^0, 1893). Further, the teaching program is only as good as the instructors utilizing such programs. There is no question that respondents have been unable to provide adequate instruction on a consistent basis at their studios (See complaint counsels' proposed findings numbered 27, 29, 31

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and 33). It is also clear that respondents' purpose for operating the dance studios was to generate the highest cash sale possible and not to provide satisfactory instruction (See complaint counsels" proposed finding 31).

Respondents' 12th proposed finding is without validity or merit. If the first statement in this finding, which is ambiguous, is construed to mean that respondents cannot operate with a $1,500 contract limit, then the statements that follow this assertion do not support it. These statements are based mostly on testimony of a single dance studio operator (See respondents' citation to the transcript of the Hearing) as to what may occur if he were required to operate his studio under a $1,500 contract limitation.

On the other hand, if the first statement is construed to mean a dance studio similar in operation to respondents cannot operate with a $1,500 contract limitation, then there has been no showing that the studio is or was in fact similar in operation to respondents. If there can be made such a showing, such evidence would be wholly irrelevant and incompetent to show that respondents cannot operate under a $1,500 contract limitation. Even if there can be made a showing that respondents cannot operate under a $1,500 contract limitation as set forth in paragraph 9 of the complaint counsels' proposed order, such a showing is not a proper defense or argument that an order which is proper in all other regards, is improper because of the adverse economic position in which it would place the respondents.

Respondents' proposed findings thirteen through fifteen bear no relevancy to the issues in the instant proceeding. There has not been, and cannot be, made a showing of how the "California experience" (as it has been characterized by respondents' counsel ) supports the effect a $1,500 contract limitation will have on respondents. Further, if the "experience" could show an effect, this does not constitute an acceptable argument that a $1,500 contract limitation is improper solely because of the harsh effect it may have on the respondents.

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In addition to being irrelevant, the effects of the California $1,500 contract limitation cited in respondents' proposed finding sixteen are not supported factually by any evidence in the record and are speculative at best.

Respondents in proposed finding numbered 17 have attempted to equate dance instruction contracts with capital assets. Here again, respondents have in the main tried to attribute characteristics to respondents' contracts from contracts available at other studios.

While it would appear that in some instances respondents have honored hours from contracts procured by other Arthur Murray franchised studios, respondents have failed to honor such outstanding hours in every instance (Tr. 2136). Student witnesses cited by respondents who have transferred hours of instruction within the Arthur Murray system, excluding the successor franchise in the Washington area, have all gone from one studio in the Horst-Mara chain to another. When students have gone outside the Horst-Mara chain, such as to the successor franchisee, some students have not been allowed to use their existing hours without additional substantial payment. Such is the case of Mrs. McKee. She was forced to convert her private hours to group hours by respondents (Tr. 650). Upon transfer to P & P Enterprises, Inc., the present Arthur Murray franchisee, her existing group hours were not honored and in order to receive instruction she was required to reconvert the group hours to private instruction at a cost of $1,601.20. (Tr. 651-652). Mrs. McKee estimates that as result of her forced reconversion to private hours she lost $3^16.20 (Tr. 652). In response to the Examiner's inquiry as to whether respondents reimbursed Mrs. McKee for the additional payment, she replied in the negative (Tr. 652).

Respondents' repeated use of generalizations rather than finite factual evidence to demonstrate beneficial attributes of respondents' contracts leads to a conclusion that such beneficial characteristics are a rarity..; Certainly, the record is replete with evidence establishing that respondents' contracts have contained nonexistent dance programs, advance instruction for which there were no qualified instructors and hours of dance

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instruction which were not honored by a successor Arthur Murray franchisee (See Complaint Counsels' proposed findings numbered 29 and 31).

Respondents' proposed finding eighteen contains errors and misleading statements. While it is true that one of complaint counsels' witnesses was married, she was neither married at the time she attended respondents' studios (Tr. 1226) nor was she earning between $5*000 and $8,000 (Tr. 1226) during her attendance.; Again, while it is true thai the incomes of the complaint witnesses ranged from between $5>000 and $6,000 to between $10,000 and $12,000, only one witness testified that her income was in excess of $10,000 (Tr. 6ll).

In proposed finding numbered 20, respondents attempted to demonstrate the effectiveness of cancellation provisions (paragraphs 9 and 10 of respondents' proposed order) through the use of a Statistical Table (Appendix A of Respondents' findings). The Table prepared by respondents is misleading at best. As pointed out in our proposed finding numbered 28, respondents have on many occasions absorbed existing contracts when subsequent contracts were executed. For example, respondents claim that Mrs. Templeman would have 76 weeks to cancel her $3*172 contract (CX 4). Nothing could be further from the truth. Respondents have failed to consider that Mrs. Templeman's subsequent contracts absorbed prior contracts; CX 3 absorbed CX 2 and CX 4 absorbed CX 3 (Tr. 402-403). Thus, when she executed the $3*172 contract, there were no prior contracts outstanding and the cancellation provision if applied to her would be a nullity.

It is precisely the result of evidence showing respondents' propensity to absorb prior contracts that complaint counsel have returned to the provision originally proposed by the Commission in Paragraph 10 with an added provision permitting cancellation of the subsequent contract up and until the existing contract hours have been used.

Respondents' 21st proposed finding, as are the instances of several respondents' other proposed findings, is totally irrelevant. what constitutes a luxury item

would require more than a mere statement by two dance studio operators. Again, whether $5*000 to $6,000 is middle class income is a fact which requires more proof than a mere assertion by respondents' counsel. The assertions by respondents that dance lessons are a luxury item and dance studios are patronized by intelligent, well-educated, middle income persons do not detract from reasons why an order should not be entered against the respondents in the instant matter.

It is evident by respondents' proposed finding numbered 23 that respondents have completely ignored the wealth of testimony establishing the numerous instances of financial hardship resulting from contracts in excess of $1,500 or the unfair or inequitable nature of such contracts (See complaint counsels' proposed findings numbered 24, 25 and 36). From such testimony, it has been proven conclusively that respondents have entered into inequitable contracts in excess of $1,500 which have resulted in financial as well as physical hardship on students.

To say as respondents have in their proposed finding twenty-four that a $1,500 contract limitation will unqualifiedly impose material disadvantages on respondents' students is to make a statement contrary to the evidence in the record regarding to respondents' past contracts. While complaint counsel will concede that certain students have been able to obtain a cheaper per hour rate for lessons by purchasing contracts in excess of $1,500, certainly the abundance of adverse effects of such contracts is sufficient to counter balance any possible monetary advantage. The Commission in carrying out its duty to protect all classes of consumers may well impose a restriction on the rights of certain consumers when the overall effect of such restriction is to benefit or prevent proven harm to another class of consumers. The lost of monetary savings from long term contracts is inconsequential when compared with the established harm to respondents' students from executing contracts in excess of $1,500.

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In support of their twenty-fifth proposed finding, respondents rely on other findings i.e., 11, 16 "and 17. These findings relate activities of other studios. It is obvious that the acts, conduct or behavior of others cannot.be attributed to be the acts, conduct or behavior of respondents (res inter alios actus). Therefore, respondents twenty-fifth proposed finding is without merit.

Several of respondents' proposed findings of fact to which complaint council have not directly replied are either mixed conclusions of law and fact or statements of the procedural aspect of the instant case (respondents' proposed findings 1, 2, 3, 4, 26). Complaint counsels' reply to respondents' brief encompasses a reply to several of these findings. B. Respondents' Brief

In support of the $1500 contractual limitation, complaint counsel have set forth three theories which adequately provide a legal basis for imposing such a monetary limitation on respondents. First, contracts in excess of $1500 have been shown to be used by respondents as a means to achieve an unlawful end. It has been established that respondents have attempted to extract as much money as possible from their students without any regard for the quality or quantity of services to be provided for such sums. There can be no doubt that such contracts as used by respondents were means and ends in and f themselves.

The second theory adopted by complaint counsel is that respondents have entered into agreements in excess of $1500 in which the circumstances surrounding such contracts as well the contracts themselves lead to the conclusion that the contracts were unconscionable. Further, to avoid repetition of the execution of unconscionable contracts in the future, a contractual limitation of $1500 on respondents is both appropriate and necessary.

In addition to the above theories, complaint counsel have stated that the $1500 contractual limitation is a necessary safeguard which must be imposed on respondents in order to dissipate the effects of the unfair and/or deceptive practices contained in the record.

-7-315

http://cannot.be

The principle criterion in determining the legality of the scope of an order issued by the Commission is the existence of a reasonable relationship to the practices found to exist. F.T.C. y. Ruberiod, 343 U.S. 470 (1962). Once a reasonable relationship has been demonstrated, the Commission has wide discretion in choosing an appropriate remedy deemed adequate to cope with the unlawful practice disclosed by the evidence. Jacob Siegel Co. v. F.T.C, 327 U.S. 608 (1946).

In applying the rationale of F.T.C. v. National Lead, Co., 352 U.S. 419 (1957), complaint counsel have stated that the Commission has authority to prohibit a lawful practice when such practice is utilized as a means to achieve an unlawful end. Respondents have argued that the contracts themselves are separate and apart from the alleged unfair and/or deceptive acts and practices and that a bar on contracts would have "no impact" on such practices (respondents' brief, page 22). Such a conclusion is completely erroneous and ignores a wealth of evidence establishing a relationship between respondents' contracts and the unfair and/or deceptive practices shown to be an integral part of respondents' business.

As vividly described in complaint counsels' proposed findings, respondents have utilized numerous sales procedures in an effort to obtain executed contracts from students. These contracts were merely the formal basis by which respondents legitimized their efforts to extract as much cash sales from the students as possible. Respondents made very little effort to provide the services contained in the agreements once the students paid for such services.

In view of respondents' almost blatant disregard for the quality or quantity of services to be provided pursuant to their contracts, and considering the mul'titude of evidence establishing the existence of constant sales pressure placed on students to sign contracts, complaint counsel are impressed that the $1500 monetary limitation is necessary to protect the public interest.

Applying the standards set forth in Williams v. Walker-Thomas Furniture Co., 350 F. 2d 445 (D.C. Cir. 19^5)3 f°r unconscionable contracts, there is ample

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evidence to support the conclusion that respondents have procured unconscionable contracts from their students (See complaint counsels' proposed findings numbered 19-29, 31* 33-39)- The circumstances surrounding the contracts as well as the contracts themselves adequately support such a conclusion. Based on respondents' practice of procuring unconscionable contracts, the Commission is surely justified in the public interest to seek a remedy which will protect consumers from repetition of such practices.

Respondents' conclusions as to the failure to show an inequality of bargaining power or a lack capacity to comprehend the terms of the agreement (Respondents' brief, page 29) are completely contrary to the record in this matter. The existence of numerous situations where students were placed in emotional climates under which they could not rationally comprehend the terms of the contracts can not be refuted (See complaint counsels' proposed findings numbered 35 and 37). Equally non-refutable is the existence of contracts that were so patently unfair and inequitable that a showing of an absence of meaningful choice could be established without looking at the circumstances surrounding the contracts (e.g., Mrs. Mummery's $6,377 contract for a non-existent dance instruction program).

To further justify application of the $1500 contractual limitation on respondents, the record contains numerous instances of economic hardship created by students' executing contracts in excess of $1500 (See complaint counsels' proposed findings numbered 24, 25 and 36). Respondents' claim that students of respondents have confortable income levels is absurd and contrary to the facts. Certainly individuals with annual incomes less than $8000 can not hope to spend in excess of $1500 for dance instruction without adversely effecting their economic stability.

Based on the entire record it is evident that due to the gross nature of the acts and practices engaged in by respondents, an order limited to prohibiting specific practices would be insufficient to protect the public interest. Respondents have demonstrated a proclivity for using a myriad of sales procedures essentially for the purpose of extracting inequitable sums of money for dance instruction without regard for the quality or quantity of dance instruction or other services provided by respondents. In an endeavor to protect students from the detrimental effect of executing long term personal service contracts with respondents, the Commission has the duty as well as the authority to impose the $1500 contractual limitation on respondents. Placement of encumbrances on respondents' contractual rights is not a new and novel remedial action by the Commission. The Commission has required respondents to permit their customers to cancel contracts (Household Sewing Machine Co., Inc. et al., Docket No. 67bl, August b, 1909); forbidden respondents from enforcing contracts or obtaining judgments thereon when there have been misrepresentations of the nature or the terms of the contracts (Examiner's initial decision, Eastern Detective Academy, Inc., et al., Docket No. 8793^ May 13, 19/0); restricted respondents from placing contracts in the hands of collection agencies when the contracts have been procured through means prohibited in cease and desist order (Eastern Detective Academy, Inc. et al., Supra); imposed limitations on the respond-ents' rights arxsmg from the holder in due course doctrine (Thermochemical Products, Inc., et al., Docket No. 0 7 ^ , July 25, !9o9j Richard J. Raspanti, t/a Stateswide Aluminum Company, Docket No. C-1433, October 4, 1968). K —

If respondents' argument as to the Commission's not having authority to impose a monetary contractual limitation is carried out to its consistent but illogical end, the Commission would never have the authority to react to acts and practices not previously considered unlawful. The area of trade law would be stagnate and would soon lose any relation to the contemporary practices of unscrupulous businessmen.

-10-

Respondents' argument that the failure of Section 5 of the Federal Trade Commission Act prior to the Wheeler-Lea Amendment and after its renactment in 1938 to contain precise statutory language regulating "contract quantum" form a basis to conclude the Commission has no authority to place a $1500 contractual limitation on respondents is completely meritless. It would be contrary to the rational of enabling statutes to require such statutes to precisely proscribe the various activities which would be deemed unlawful. Further, such an argument is contrary to the legislative history of Section 5 of the Federal Trade Commission Act. As stated by Senator Saulsbury,

"[c]ourts have always recognized the customs of merchants, and it is my impression that under this act the Commission and the courts will be called upon to consider and recognize the fair and unfair customs of merchants, manufacturers and traders, and probably prohibit many practices and methods which have not heretofore been clearly recognized as unlawful." 51 Cong. Rec. 11593 (1914).

The courts have recognized the Commission's authority in the field of consumer protection as shown by Judge Learned Hand in F.T.C. v. Standard Education Society, 86 F. 2d 692, 69b (2d Cir. 193b), reversed on other grounds, 302'U.S. 112 (1937):

"[t] he Commission has a wide latitude in such matters; its powers are not confined to such practices as would be unlawful before it acted; they are more than procedural; its duty in part at any rate, is to discover and make explicit those unexpressed standards of fair dealing which the conscience of the community may progressively develop."

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From such a background, the Commission has stated that in meeting its statutory responsibilities it

"is expected to proceed not only against practices forbidden by statute or common law, but also against practices not previously considered unlawful, and thus to create a new body of law--a law of unfair trade practices adapted to the diverse and changing needs of a complex and evolving competitive system.

All-State Industries of North Carolina, Inc., et al., Docket No. 8738> April.1, 1909, at page 11.

Although the Commission has not previously placed a limitation on the sizes of contracts, there can be no doubt that authority exists for such remedial action. Restricting the contractual rights of a respondent is not a new remedy. Depending on the nature of the practices shown in the record, the Commission can formulate an order which has a reasonable relationship to such practices. The Commission, as stated previously, has placed restrictions and limitations on contractual rights. In view of numerous changes in the market place, contractual limitations are necessary measures to impose if the Commission is to provide adequate protection for consumers.

To further demonstrate the Commission's lack of power to invoke the $1500 contractual limitation, respondents rely on dicta in F.T.C. v. Bunte Bros, Inc., 312 U.S. 3^9 (19^1), to support the proposition that failure to place a limitation on the sizes of contracts demonstrates the Commission's lack of authority to impose such a limitation. Certainly, respondents recognize as stated by Justice Franfurter that: "[a]uthority actually granted by Congress of course cannot evaporate through lack of administrative'exercise" (F.T.C. v. Bunte Bros., Inc., supra at 352). The precise holding of

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Bunte is limited to the Supreme Court stating that to say that Section 5 of the Federal Trade Commission Act applies to acts and practices affecting commerce requires a "much clearer manifestation of intention than Congress has furnished" (F.T.C. v. Bunte Bros., Inc., supra at page 355)• It is noted that Congress is presently considering several bills which will amend Section 5 so that it will apply to conduct affecting interstate commerce (See for example S. 3201, Section 101).

It is evident that failure to exercise authority in the past cannot be construed as prohibiting the Commission from carrying out its authority under Section 5 of the Federal Trade Commission Act. First, the Commission has demonstrated that it believes that authority exists for imposing limitations on contracts. Secondly, complaint counsel are impressed with the cogent dissent by Justice Douglas in Bunte;

"it would not be relevant if this power did lay dorm ant for years. Mere nonuse does not substract from power that has been granted. The host of practical reasons which may defer exhaustion of administrative powers lies in the realm of policy. From that delay we can hardly infer that the need did not or does not exist". (F.T.C. v. Bunte Bros. Inc., Supra, at page 359)•

Because of the nature of the ever changing methods of enterprising businessmen, the Commission in an attempt to react to such changes will impose monetary limitations on contracts when necessary to protect the public from the effect of the unfair or deceptive practices shown to evalue from such practices.

Without the need for detailed discussion on the propriety of the application of the order appended to . complaint counsels' proposed findings to "other services" which respondents may provide to the public, complaint counsel feel constrained to point out the falacies present in respondents' argument on this issue.

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As stated in General Transmissions Corp. of Washington, et al., Docket No 0719 (February 23, 1968), the criteria to be used in determing whether the order should follow the respondents in other services are 1) the ease in which the practices shown by the record could be adapted to other fields, 2) the magnitude of such practices and 3) the effect of such practices on consumers. Complaint counsel have already explained to the Examiner how the above criteria are applicable to this proceeding (Tr. 134-135)•

At this late date, respondents now claim that the stipulation as to individual responsibility (Tr. 102-103) was made for the sole "purpose of entering into a consent order" (Respondents' brief, page 64). Based on the record, such a position is intenable. The stipulation contains an agreement between counsel that for the purposes of this proceeding the allegations of the complaint^ with the exception of Paragraph 16, are true and correct statements of fact. (Tr. 98). There is nothing in the record to indicate that the stipulation of facts is based on the separate agreement concerning the provisions of the order that respondents would not contest. Further, the record is replete with numerous references to the individual respondents' participation in the unfair or deceptive acts and practices. The exists ample precedent as well as evidence of record to support the Examiner issuing an order applicable to ""other services".

C. Proposed Order The proposed order filed with complaint counsels•

proposed findings of fact contains provisions that heretofore had not been a part of complaint counsels' proposed order, i.e., paragraphs 10, 11, 12, 13, 14, 15 and 18. The evidence resulting from the hearings compel the necessity of these provisions. The respondents have ample opportunity to contest these modified and additional provisions, Carter Products, Inc. v. F.T.C., 323 F2d 523 (5th Cir. 19b3), Colgate-Palmolive Company v. F.T.C., 380 U.S. 374 (1964J:

-14-

Paragraph 10 of complaint counsels' proposed order is only slightly different from pargraph 9 of respondents' proposed order in that it: (1) requires respondents to orally advise the party to the contract as to the notations set out in the contractj (2) requires 14 days instead of 7 from the date of executing the agreement in which the agreement may be rescinded by the student along with an alternative time period in which the student may rescind the agreement; and (3) contains a time period within which the refundable moneys are to be refunded to a student who rescinds a contract.

The rationale and necessity of the aforementioned paragraph can be seen in circumstances where students may not actually attend the studio until a few days after executing a contract which will practically nullify the effect of the provision in paragraph 10 of respondents' proposed order, principally because students in such circumstances would not know the quality of the services to be provided. The requiring of respondents to.make any refund due to be paid within five days is for the purpose of informing the student of a time certain in which he can expect to receive his or her refund; otherwise, the respondents would have an indefinite time in which to actually effect any refund.

Paragraph 11 is a slight modification of paragraph 10 of respondents' proposed order in that it (1) prohibits respondents from entering into contract with a student who has an existing contract until that student has less than 15 hours of dance lessons remaining under the existing contract and (2) the addition of a 5 day time period within which the respondents must refund any moneys or other considerations due a student. These modifications will give further assurance against reccurrence of the practices that have been found to exist.

Because it is a common occurrence that an interest is usually owed and paid on money borrowed or use, paragraph 12 of complaint counsels' proposed order merely makes this applicable to the respondents. The evidence adduced during the hearing reflects the need for such a provision.

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Without paragraph 13 of complaint counsels' proposed order, paragraphs 10, 11 and 12 would be of little or no effect. If students or prospective students of respondents are to receive any ot the protections accorded by these paragraphs (10-12), then paragraph 13 is a necessity to insure that these protections will be viable. In many instances, respondents were civilly sued because of some of the practices that were alleged in the Commission's complaint and proved during the hearing (see complaint counsels' proposed finding 26 and page 29 of respondents' proposed findings and brief).

These added and modified provisions require affirmative acts and disclosures by the respondents, and are similar to provisions in Windsor Distributing Company, Docket No. 8775, March 6, 1970. -For affirmative disclosures, see also, All-State Industries of North Carolina, Inc. v. F.T.C., F.2d (4th Cir., No. 13,5btf, decided March 19, 1970)» Waltham Watch Company v. F.T.C., 327 F.2d 427 (7th Cir. 1964), cert, denied 377 U.S. 992, rehearing denied 379 U.S. 872 (19oTp

Paragraph>14 of complaint counsels' proposed order limits the time in which respondents are to perform under a contract with a student for dance instructions or other services provided by respondents' studios. Such a provision alleviates the disadvantages and ill effects of long term contracts as were revealed by the evidence produced during the hearing (see complaint counsels' proposed finding 35)•

Paragraph 15 of complaint counsels' proposed order requires the respondents to orally, and in writing, disclose to students who contract with respondents for trips that the students are obliged to pay, in addition to their own expenses, expenses incurred by studio personnel accompanying such students. Complaint counsels' proposed -finding 30 shows the necessity of this paragraph of the proposed order.

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Paragraph 18 of complaint counsels' proposed order requires the respondents to disclose that respondents are subject to a Commission cease and desist order. Such notice and disclosure will adequately inform that portion of the public most affected by the order so as to enable them to protect themselves from further recurrences of. the unfair and deceptive practices that have been*' found1 to exist (See Commission's opinion in Campbell Soup Company, et al.a Docket No. C-17^1* May 25, 1970).


£ Donald L. Bachman,


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>Si>'





&* RADECO/fev

^ v RECEIVED ° ^ \

AUG 2 71970

SECRETARY ^

DOCKET NO. 8776

MOTION TO EXTEND TIME

Pursuant to Section 3.22(d) of the Commission's Rules, respondents respectfully request an extension of time to September 25, 1970, to file their brief on appeal from the hearing examiner's initial decision. This request for additional time is necessitated by the fact that counsel for respondents has been unable, due to vacation schedules and the pressures of other work, to complete said brief within the time permitted by Section 3.52(b) of the Commission's Rules.


Tom M. Schaumberg Counsel for respondents

No objection:

XjL^<zJik. }f. >CU^lt^^^ Donald L. Bachman

Edward D. Steinman •*«*-<£-Counsel Supporting the Complaint

426

UNITED STATES 0FF AMERICA" I■■< i'

BEFORE FEDERAL TRADE COMMISSioW ":- irr:<-

COMMISSIONERS: Miles W. Kirkpatrick, Chairman Paul Rand Dixon Philip Elman Everette Maclntyre Mary Gardiner Jones

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,


DOCKET NO. 8776 ORDER EXTENDING

TIME

Upon consideration of respondents' request filed August 27, 1970, for an extension of time within which to file their brief on appeal from the hearing examiner's initial decision,

IT IS ORDERED that the time within which respondents may file their appeal brief be, and it hereby is, 'extended to and including October 23, 1970.

By the Commission.

ISSUED: September 2h, 19

UNITED STATES OF AMERICA BEFORE FEDERAL TRADE COMMISSION, - SS:

In the matter of: Arthur Murray Studio of Washington, Inc., et al '

NOTICE OF ORAL ARGUMENT

DOCKET NO. 8776

You wi l l please take notice tha t the time and place

for oral argument upon t h e appea l of compla in t counsel

from the i n i t i a l d e c i s i o n of t h e h e a r i n g examiner

has been set for Thursday, December 17 , 1970, a t 2 :00 p . m . ,

in the Hearing Room, Federal Trade Commission Building,

Washington, D. C.

Each side will be allotted not to exceed forty-five minutes.

You may appear and be heard i f you so desire.

By direction of the Commission.

T O : i C ^ Q 1 i ' Q ? ) r d ? 1 > S o 1 ^ ^ Re inde l & Ohl, 1819 H S t r e e t , N.W., ' Washington, D. c . 20006

7s?y&o^pi?^tfrlln' 3 ^ e i r ftps*-&. • Beaton, Mass. o2io8 2 & t £ S £ & . ' I & 4 Tom M. Schaumberg, 1700 Pennsylvania Avenue, N. W., Washington, D. C. 20006

Dated: October 5, 1970 4 4 9

L-238 Rev.


^ R E C E I V E D ^

OCT 211970

SECRETARY

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR- MURRAY STUDIO OF BETHESDA, INC., and

A'A^HUR-MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776


Pursuant to Section 3.22(d) of the Commission's Rules, respondents respectfully request an extension of time to November 23, 1970, to file an answering brief to the Appeal Brief of Counsel in Support of the Complaint.

This motion is necessitated by the fact that respondents' time to file their appeal brief was extended by order of the Commission of September 24, 1970, to October 23, 1970.

In order, therefore, for the time for the filing of answering briefs by both parties to be concurrent, it is necessary that the instant motion be granted.


Tom M. Schaumberg " Counsel for Respondents

No objection:

Donald L. Bachman -*-*<£. Counsel Supporting the Complaint

f l r ' . UNITED STATES OF AMERICA ,: BEFORE FEDERAL TRADE COMMISSION COMMISSIONERS

Miles W. Kirkpatrick, Chairman Paul Rand Dixon Everette Maclntyre Mary Gardiner Jones David S. Dennison, Jr.

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC. , ARTHUR MURRAY STUDIO OF BALTIMORE, INC. , ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776 ORDER

EXTENDING TIME TO FILE

ANSWERING BRIEF

Upon consideration of respondents' motion for an extension of time to November 23, ,1970 in which to file their answering brief, the Commission has determined that the request should be granted in order that respondents and complaint counsel may file their answering briefs concurrently. Accordingly,

IT IS ORDERED that the time for the filing of respondents' answering brief be, and it hereby is, extended to and including November 23, 1970.

By the Commission.

ISSUED: October 23, 1970

f ^ RECEIVED ° ^

V 241970

r - I ' " , :'■■<--::'. 10L- . t i n UNITED STATES OF AMERICA r,-_ . , ...

BEFORE FEDERAL TRADE COMMISSION ■I " : " { - , . .

In the Matter of ARTHUR MURRAY OF WASHINGTON, INC., j DOCKET NO. 8776 a corporation, et al.


To: Commission Pursuant to Section 3-22(d) of the Commission's

Rules, complaint counsel respectfully request an extension of time to December 1, 1970, to file their answer to respondents' brief on appeal from the hearing examiner's initial decision. Because of unanticipated involvement in matters which required full and immediate attention, complaint counsel were delayed in preparing an answer to the above-mentioned appeal brief.

Respondents' counsel finds no objection to this request.


Donald L. Bachman, Edward D. Steinman, Counsel Supporting the Complaint.

November 24, 1970

510

UNITED STATES OF AMERICA r -r BEFORE FEDERAL TRADE COMMISSION COMMISSIONERS

Miles W. Kirkpatrick, Chairman Paul Rand Dixon Everette Maclntyre Mary Gardiner Jones David S. Dennison, Jr.

In the Matter of ARTHUR MURRAY OF WASHINGTON, INC., a corporation, et al.

DOCKET NO. 8776 ORDER

EXTENDING TIME

Upon consideration of the motion of complaint counsel filed November 24, 1970,

IT IS ORDERED that complaint counsel be, and they hereby are, granted an extension of time to file their answer to respondents' brief on appeal from the hearing examiner's initial decision up to and including December 1, 1970.

By the Commission.

ISSUED:November 27, 197

r;


^ RECEIVED ^ JUNK-1970

SECRETAHliffflT

^'



DOCKET NO. 8776 PROPOSED FINDINGS AS TO THE FACTS, CONCLUSIONS AND ORDER.

TO: The Honorable Eldon P. Schrup, Hearing Examiner.

Pursuant to Section 3.46 of the Rules of Practice for Adjudicative Proceedings of the Federal Trade Commission, Donald L. Bachman and Edward D. Steinman, counsel in support of the complaint in the above-captioned proceeding submit to the Examiner their Proposed Findings as to the Facts, Conclusions of Law, and Order, together with reasons in support thereof.

PRELIMINARY STATEMENT The Federal Trade Commission issued its com

plaint in this matter on April 3, 1969 and said complaint was duly served on all respondents. Named as respondents were Arthur Murray Studio of Washington, Inc., Arthur Murray Studio of Baltimore, Inc., Arthur Murray Studio of Bethesda, Inc., and Arthur Murray Studio of Silver Spring, Inc., corporations and Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of the corporate respondents. The complaint alleged that

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respondents through such inducements as contests, offers of valuable and unconditional gifts and availability of adult social clubs have unfairly and deceptively lured prospective students to the premises of respondents where such persons were subject to the following unfair practices: sham "dance analysis tests", coercive sales efforts prior to completion of courses of dance instruction, unrelenting sales efforts by a number of respondents' sales personnel in a single day and intense, emotional sales pressure for the purpose of urging, cajolling and coercing prospective students or students to execute contracts, often in excess of $1500.

Respondents filed on May 19, 19^9> separate answers that contained certain admissions but generally denied any violation of law. A request for admissions of facts was served upon both individual respondents in June 1969• Said request for admissions of facts was subsequently withdrawn by complaint counsel (Tr. 121-122).

On July 10, 1969J "the Examiner certified to the Commission a joint motion of complaint counsel and respondents' counsel requesting that the matter be withdrawn from adjudication and that a settlement agreement with a consent order be accepted. The Commission issued an Order on August 6, 1969 contingently withdrawing the matter from adjudication providing that respondents accept an agreed order containing a provision limiting the contracts of respondents with students for dance instruction or any other services provided by respondents' dance studios to an amount not in excess of $1500.

On September 5* 19^9 respondents filed a motion for reconsideration of the Commission's order contingently withdrawing the matter from adjudication. This motion was denied by the Commission on October 9, 1969 and the matter was returned to adjudication for the commencement of hearings forthwith.

A prehearing conference was held on November 5J 1969 at which time complaint counsel and respondents' counsel stipulated on the record that the material factual allegations of the complaint served on the respondents were true and correct (Tr. 98-113)• Separate and apart from the stipulations of facts, counsel supporting the complaint and counsel for respondents agreed in substance to many of the prohibitions contained in the proposed order attached to the complaint issued by the Commission (Tr. 113, 115-119)•

On December 19, 19^9> a prehearing conference was convened for the purpose of the presentation of oral argument by complaint counsel and respondents' counsel with regard to the propriety of a prohibition in the order limiting the contracts of respondents with students for dance instruction or any other service provided by respondents' dance studios to an amount not exceeding $1500 and regarding whether the order should apply to services provided by respondents other than dance studio services. During said conference it became apparent that the stipulations of facts contained insufficient facts upon which the Examiner could make a proper evaluation of the merits of this proceeding. Complaint counsel requested at said prehearing conference that they be allowed to introduce additional evidence to amplify the stipulated facts (Tr. 219). The Examiner denied the request and closed the record. By motion dated January 5> 1970, complaint counsel requested that the record be reopened to present additional evidence on the propriety of the $1500 contractual provision. The Examiner by order dated January 19, 1970 reopened the record for the reception of further evidence. Upon review of a request by respondents* counsel to file an interlocutory appeal, the Commission on February 17, 1970 denied the request.

A prehearing conference was held on March 2, 1970 at which time the Examiner overruled respondents counsel's motion to quash an order of access to the

files of Arthur Murray Studio of Washington, Inc. In addition, complaint counsel agreed to provide respondents' counsel with a list of witnesses to be called to testify and agreed to indicate the identity of exhibits which would be offered into evidence.

Evidentiary hearings were held in Washington, D.C. during the period of March 30 through April 23, 1970. Complaint counsel during their case-in-chief presented the testimony of l4 witnesses and offered 300 exhibits into evidence. In their defense, respondents' counsel presented testimony of eight witnesses and offered 33 exhibits into evidence. Upon the close of the record, the Examiner directed that the parties file their proposed findings as to facts, conclusions of law, and order and their briefs in support thereof on or before June 1, 1970. The time period was extended to June 8, 1970. First Proposed Finding:

Arthur Murray Studio of Washington, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the District of Columbia, with its principal office and place of business formerly located at 724 l4th Street, Northwest, in the City of Washington, District of Columbia.

Reasons for Proposed Finding: Admitted in stipulations of facts

(Tr. 102). Second Proposed Finding:

Respondent Arthur Murray Studio of Baltimore, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 217 North Charles Street, in the City of Baltimore, State of Maryland.

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(Tr. 102). Third Proposed Finding:

Respondent Arthur Murray Studio of Bethesda, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal -office and place of business formerly located at 4923 Elmo Drive, Bethesda, Maryland.


(Tr. 102). Fourth Proposed Finding:

Respondent Arthur Murray Studio of Silver Spring, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 93^ Ellsworth Drive, Silver Spring, Maryland.


(Tr. 102). Fifth Proposed Finding:

Respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, are individuals and are officers of all the corporate respondents. They formulated, directed, and controlled the acts and practices of the corporate respondents, including the acts and practices hereinafter set forth. Respondent Victor F. Horst's

business address is the Racket Club, 7930 East Drive, Harbour Island, Miami Beach, Florida. Respondent Edward Marandola, also known as Edward Mara, maintains his business address at 9 West Washington, Chicago, Illinois.


(Tr. 102-103). Sixth Proposed Finding:

Respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, are now, and for some time last past have been engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public. The corporate respondents for some time last past have been, engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public.


(Tr. 103). Seventh Proposed Finding:

In the course and conduct of their business as aforesaid, respondents for some time last past have caused, their advertising matter to be published in newspapers of interstate circulation and their promotional materials to be sent or otherwise conveyed to various prospective customers residing in the States of Maryland and Virginia and the City of the District of Columbia. Advertising matter, contracts, letters, checks or other written instruments and communications have been received between the respondents at their former

places of business located in Washington, D.C., and in various other States of the United States. In addition, written communications and instruments, including payroll records, contracts, payment records and other documents, have been passed between the aforesaid studios and a bookkeeping firm located in the State of Florida, owned by the individual respondents. As a result of said interstate advertising and promotion and as a result of said transmission and receipt of said written instruments and communications, respondents have maintained a substantial course of trade in said courses of dancing instruction in commerce, as "commerce" is defined in the Federal Trade Commission Act.


(Tr. 103-104). Eighth Proposed Finding:

In the course and conduct of their aforesaid business, respondents have made certain representations in newspaper advertisements, and by other means, including social security number contests, "special selection" offers, and "Can You Spell" contests, in which the winner is awarded a gift certificate entitling him or her to a specified number of Arthur Murray lessons purportedly worth from $35-$65« The representations made in newspaper advertisements have included those which relate to special or introductory offers purporting to furnish the first lesson of a course of dance instruction or a short course in dancing either at a reduced price or free of charge.


"CAN YOU SPELL WIN A $65.00 DANCE COURSE IF YOU CAN FIND THE MISSPELLED WORDS

■x- * * * * * * * * *

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Arthur Murray's is making this amazing offer to show some lucky winners the fun and good times to be had with them. The winners will receive a $65.00 Dance Course at the exciting Arthur Murray Studio

* * * * * * * * * *

WIN PRIZES WORTH $300 $250 $200 $150 $100 $75

PLAY THE EXCITING NEW SOCIAL SECURITY GAME


Every week there will be WINNERS in each prize category. The winning number will be selected from among social security numbers sent to us . Reasons for Proposed Finding: Admitted in stipulations of facts

(Tr. 104-105). Ninth Proposed Finding:

By and through the use of the statements and representations set forth in the eighth proposed finding, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by implication, that said contests are based on abilities and skills of the contestants or upon chance and that a winner will be chosen on one of these bases.


(Tr. 106).

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Tenth Proposed Finding: By and through the use of the aforesaid state

ments and representations set forth in the eighth proposed finding, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by implication that the winner of said contests will receive a gift certificate worth a stated amount or, either without charge or at a reduced price, a bona fide course of dancing instruction or a specified number of bona fide dancing lessons.


(Tr. 106). Eleventh Proposed Finding:

In truth and in fact, said contests are not based on skills or abilities of the contestants or upon chance, nor are winners chosen on any of these bases. The purported contests are so simple of solution or the winning thereof so easy, as to remove them from the categories of competition, skill, or special selection, and are such that substantially everyone, if not all, can qualify and win. Rather the purported quizzes, puzzles, and contests are designed to attract members of the purchasing public for the purpose of obtaining leads to prospective purchasers of dance instruction.


(Tr. 106-107). Twelfth Proposed Finding:

In truth and in fact, the winners of said contests do not receive a gift certificate worth the stated amount, or a bona fide course of dancing

instruction or a specified number of bona fide dancing lessons. Although they receive some dance instruction in the beginning of the specified time, the balance of the course is devoted to sales talk designed to induce the purchase of further dancing lessons or the signing of a long term dancing instruction contract.


(Tr. 107). Thirteenth Proposed Finding:

In the course and conduct of their aforesaid business, respondents have made certain representations on postal cards sent through the United States mail.

Typical and illustrative, but not all inclusive, of such representations is the following:

"Your Telephone Number was selected today, and this entitles any adult to a Wonderful Gift, fully paid for by our Advertising Department ... No obligation or charge to you. Please call 783-0880 between 3:00 p.m. and 9:00 p.m., Monday through Friday, to tell us the name and address of the person entitled to the gift."


(Tr. 107-108).

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Fourteenth Proposed Finding: By and through the use of the statements

and representations set forth in the thirteenth proposed finding, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by implication, that the recipient has been selected to receive a valuable and unconditional gift.

Reasons for Proposed Finding: Admitted in stipulations of facts (Tr. 108).

Fifteenth Proposed Finding: In truth and in fact the recipient has not

been selected to receive and will not receive a valuable or unconditional gift. After dividing the local telephone directory into certain sections, respondents' representatives send cards to each name listed therein, for the purpose of obtaining leads to prospective purchasers of dancing instruction. The recipient of respondents' "gift" is lured into one of respondents' studios under the guise of receiving a "dance certificate" supposedly entitling him to a number of free dancing lessons. Instead, he is thereupon subjected to a sales talk to induce the purchase of a course of dancing instruction.

Reasons for Proposed Finding: Admitted in stipulations of facts (Tr. 108-109).

Sixteenth Proposed Finding: In the course and conduct of their business,

respondents have made representations concerning adult social clubs in newspaper advertisements appearing in the Washington, D.C. area.

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(Tr. 109). Seventeenth Proposed Finding:

By and through the use of the representations referred to in the sixteenth proposed finding, respondents have represented, directly or by implication , that the Party Time Club and the Holiday Club were bona fide adult social clubs offering members a program of activities such as daily and weekly social events and gala night club parties.


(Tr. 109). Eighteenth Proposed Finding:

In truth and in fact, the Party Time Club and the Holiday Club were not bona fide adult social clubs offering members a program of activities such as daily and weekly social events and gala night club parties. These clubs were devices used as a means of obtaining the names of prospective students and of luring prospects into the studios where the sales presentation for dancing instruction purchases may be made. Unless a member contracted to purchase a substantial amount of dance instruction, usually between $450-$5*000, there were no activities in which he might participate irrespective of any club registration which he may have paid.


(Tr. 109-HO).

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Nineteenth Proposed Finding: Respondents have been successful in attracting to

their studios middle-aged prospective students who were either unmarried, divorced, widowed or were experiencing marital difficulties.

Reasons for Proposed Finding: Through the dissemination of adver

tisements in newspapers concerning the availability of adult social clubs (see proposed finding numbered Sixteen) and due to the social relationships associated with dancing, respondents have successfully solicited persons who did hot have spouses. Many of such persons who have been drawn to respondents' studios were widows or widowers (Tr. 610, 661, 719, 2201, 2132). Another significant class of persons who have attended respondents' dance studios were individuals having marital difficulties or were divorced from their respective spouses (Tr. 348, 464, 847, 2063, 2091).

It is clear from the record that large segment of the student body consisted of students over 45 years of age (Templeman -57, Tr. 378; Mummery - 47, Tr. 512; McKee - 74, Tr. 610; Hailman - 64, Tr. 66l; Stambaugh - 76, Tr. 768; Riddle - 45, Tr. 1226; Shane - 52, Tr. 1705, Leary - 57, Tr. 2193; Trout - 48, Tr. 2050).

Twentieth Proposed Finding: New students to respondents' dance studios were required to have a dance analysis.

Reasons for Proposed Finding: The uncontroverted testimony of

respondents' past employees discloses in graphic detail the sales procedure utilized by respondents to obtain contracts for dance instruction and other studio services.

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Persons responding to the various promotional devices disseminated by respondents or prospective students coming to the studio not in response to such promotional material were directed to studio personnel known as "analysts'* (Tr. 820, 826, 918) . The function of the analysts was to give the prospect a test allegedly for the purpose of evaluating the prospect's initial dancing capability (Tr. 826-827). In reality, the analyst would be reciting from an elaborate script from which the analyst was required to memorize quotations to be used on each and every prospective student (Tr. 820; CX 58-A-58-B).

After approximately one half hour of purportedly evaluating the prospect's dancing ability, the analyst would introduce the prospect to a dance studio employee known as a supervisor (Tr. 827). The function of the supervisor was to sell the prospect a moderately expensive dance instruction program (Tr. 896). Once the prospect purchased a dance instruction program, the new student would be assigned to an interviewer or junior who would schedule the student for the four hour junioring procedure (Tr. 828; cx 59-A-59-H).

Twenty-first Proposed Finding: The four hour "junior procedure" and other interviewing

procedures employed by respondents were designed and utilized by respondents to elicit information regarding the students' personal background to assist respondents in monetarily capitalizing on the students' personal problems.

Reasons for Proposed Finding: Upon being assigned to a prospect, the

interviewer would attempt to schedule the first four instruction hours in the shortest

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possible time (Tr. 828). This schedule was adhered to religiously in order to maximize the prospect's enthusiasm for learning into a strong emotional desire to purchase additional dance instruction (Tr. 829).

During the four hour junior procedure, the interviewer would attempt to find out personal background information which would form the basis of an emotional appeal to sell instruction (Tr. 839). Mr. David G. Crocco, an interviewer at respondents' studio in Baltimore, Maryland, testified that he was able to discover the prospect's background by responses to questions posed to the prospect concerning her "social life", "contacts1', "attitudes toward people" and "attitudes toward dancing" (Tr. 838). This fact finding was facilitated by personal examining by the interviewer and by having the prospect fill out a background questionnaire (Tr. 847, 855).

The instructional material provided new employees of respondents quite vividly describes the purpose of these interviewing techniques:

"In almost all cases there is a logical reason for people taking dancing, such as keeping up with modern trends, curiosity, wanting to learn a popular new dance, preparing for a Caribbean Cruise, etc. However, if we probe a bit deeper, we will find in every case a much stronger emotional reason for coming to the school" (emphasis added, CX 59-A). The uncontradicted testimony of Mr. Crocco and

Miss Katherine Bare, an instructor at respondents' Washington, D.C. dance studio and a review of

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respondents' instructional material clearly demonstrates that studio personnel utilized various techniques to determine an emotional lacking in the student and then attempted to convince the student that a bronze medal dance instruction program, having a price in excess of $7,200, was "the answer for any problem that the prospective student may have had" (Tr. 844, 1361, 1370, 1404-1405; CX 5Q-A-59-B, 75-C, 76, 77-C-77-D, 78-D-78-F, 84-A-84-Z-14).

Testimony of students establishes the degree of success of respondents' employees in extracting this personal background information. Mrs. Templeman, who had recently been divorced from an alcholic husband prior to attending respondents' dance studio, testified that:

"[a] number of times [the manager of the studio] called me into his office to have informal chats with me and drew me out in regard to what my problems had been and gradually got all of the information of my financial problems, and the nervous strain that I had undergone, and used these in persuasion to take more and more lessons and things the studio could offer" (emphasis added, Tr. 346). With regard to Mrs. Templeman, this tech

nique was obviously extremely successful for she purchased approximately $11,000 worth of dance instruction and other studio services from respondents (Tr. 388).

Another student, Mrs. Mummery, testified that the same studio manager had questioned her "so skillfully that...he knew...everything about [her] financial situation..." (Tr. 5H) • The purpose

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of such questioning was related by Mrs. Mummery as "he would lead one into talking about what would be useful to him later". Mrs. Mummery expended approximately $13*000 for dance instruction and other studio services (Tr. 46°,).

The intent and philosophy of respondents' dance studios were aptly disclosed in the following slogans used by the respondents to inspire their employees:

"The name of the game is cash" (Tr. 871, 13^8); and "cash is the key to successi and the more cash the better" (Tr. 1348).

Respondents emphasis on cash sales was further demonstrated by distribution of list of the relative standings of all employees in respondents' dance studios and the amount of cash sales such employees were able to generate (CX 80-A, 81-A-81-D, 82-A-82-C; 83-A-83-C).

Certainly, it is abundantly clear from a review of the numerous instructional manuals received in evidence and the testimony of respondents' employees that new students were put through a sales procedure designed to ascertain their emotional weaknesses which would be cultivated into the highest possible cash transaction of dance lessons or services.

Twenty-second Proposed Finding: The four hour "junior procedure" was utilized by

respondents to discover the student's "X-factor" which was that element of a student's personality that made the student most emotionally sensitive and irrational.

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1.94

Reasons for Proposed Finding: As set forth in proposed finding

numbered Twenty-one, respondents used the four hour junior procedure to ascertain sufficient background information about the student to determine an emotional lacking which would be converted into executed dance instruction contracts. This emotional need is the student's psychological, or personal attributes which makes the student particularly susceptible to emotional selling. This element of an individual's personality is known as the "X-factor" (Tr. 834, 1351, 1353).

Once the interviewer has successfully determined the "X-factor" of the student, this circumstance in the student's past is utilized to create an emotional sales appeal known as the "past is black" formula (Tr. 836, CX 59-H). Simply, the student is reminded of this emotional circumstance or lacking and advised that a dance instruction program prepared by the interviewer during the four hour junior procedure will satisfy this void in the student's personality and ensure a bright future.

The past is black procedure was put into effect during the fourth hour of the junior procedure. During the first three hours, the interviewer concentrated in developing information which revealed the student's "X-factor", prepared a plan of instruction for the individual and introduced the student to a number of dance steps which had to be mastered and demonstrated to the satisfaction of the supervisor prior to approval of the dance instruction program (Tr. 847-849, 853-862). The approval test was allegedly given to determine whether the student could achieve the planned dance standard within the hours set forth by the

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interviewer. However, the actual purpose of the test was to create an emotional climate in which the student was no longer capable of thinking rationally. The interviewer in the presence of the student and supervisor recited the unhappy experience in the student's past and described how the student would benefit from purchasing the planned dance instruction program (Tr. 971, 1368-1369). When asked the reaction of students to the "past is black" formula, Mr. Crocco testified that the students would openly cry and one student "dropped down on one knee and asked the studio manager to please let her enroll" (Tr. 866, 867, 972, 975).

Upon being advised of passing the approval test which occurred after the rendition of the past is black formula, the student would be taken into the "closing room", a small office in the studio, to secure an executed contract. Mr. Crocco described the physical and mental appearance of the students at closing as follows:

"Most of them were emotionally drained at that time. I had built up the test to such an importance in the prospect's mind that they often told me it had assumed the importance of an appearance before a judge and jury" (Tr. 869).

At this high emotional state, the student was persuaded to purchase dance instruction. The amount of the contract would depend on the finances of the student which were ascertained during the junior procedure. The aim of the studio was to sell the student the largest possible program (Tr. 874).

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Twenty-third Proposed Finding: Prospective students or students of respondents

dancy studios have entered into contractual obligations with respondents in excess of $1500.

Reasons for Proposed Finding: Mrs. Templeman executed two individual con

tracts (CX 4, 6) for $3,172 and $6,443 respectively. During Mrs. Templeman attendance at respondents1 studio, she had paid a continuing obligation in excess of $1500 from March, 1964 until the time she ceased attending the studio (CX 4-8).

Mrs. Mummery entered into two individual contracts (CX 20, 26) for $1,803, and $6,377 respectively. From August, 1964 until the time she ceased attending the respondents' studios, Mrs. Mummery had continually made obligations in excess of $1500 (CX 18-26).

Mrs. McKee executed three individual contracts in excess of $1500 (CX 34, 36, 37) as well as contracts when combined reflect respondents' obligating her to pay well in excess of $1500 (CX 38, 39).

Mrs. Hailman executed five contracts each of which was in excess of $1500 (CX 42, 43, 45, 47, 48).

Other exhibits and witnesses' testimony reflect that contracts in excess of $1500 were procured by respondents (Lapin, CX 50; Stambaugh, CX 53; Riddle, CX 65; Shane, Tr. 1691-94; Leary, Tr. 2195-2201; Carr, RX 25, 30; Trout, RX 20, 21).

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Twenty-fourth Proposed Finding; In many instances students who executed dance instruc

tion contracts in amounts exceeding $1500 had to liquidate all or part of financial reserves in order to pay for respondents* dance instruction.

Reasons for Proposed Finding: Mrs. Templeman who spent more than $10,000

taking dancing lessons from respondents utilized moneys from the sale of stock and a reserve account which was to be used for the publication of her books (Tr. 4l4-4l6). Mrs. Templeman had no intention of selling her stock (Tr. 4l6) which was conservative stock and which she intended to rely upon during her old age (Tr. 446).

Mrs. McKee, a retiree, sold one fifth of her stock holdings to pay for a contract of an amount in excess of $8,000 (CX 34, Tr. 624-25). Approximately a month after executing this contract, Mrs. McKee entered into another contract with respondents for an amount in excess of $1,000 (CX 35) for which she sold additional stock to pay the contractual amount (Tr. 630-631).

Mrs. Hailman had to borrow money to pay for a contract in excess of $2,500 (CX 47) after she had taken money from her saving account to pay for a contract in excess of $4,000 (CX 45, Tr. 679-80). Mrs. Hailman was in the process of becoming further financially involved with respondents for a contract of $7.,740 (CX 48)but could not convince her son of the wisdom of her action in selling stock jointly owned by her and her son to pay for the contract (Tr. 685-86).

Mrs. Riddle amply described her financial difficulties resulting from entering into contracts with respondents in stating:

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"I was robbing Peter to pay Paul, to repay the loans and it vras quite a hardship on me"(Tr. 1270).

Mrs. Riddle entered into two contracts with respondents totaling more than $6,000 (CX 65, 66).

Mrs. Mummery, a part time librarian, sold stocks and utilized the money from the sale of her home to pay for her dance lessons (Tr. 510, 513-514).which cost her in excess of $12,000 over approximately a one year period {Tr. 469). Mrs. Mummery's financial status became so acute that her brothers and sisters had to pay her rent {Tr. 514).

There is added testimony in the record of others who experienced financial difficulties resulting from entering into contracts in excess of $1500 with respondents (Lapin, Tr. 707i Trout, Tr. 2055. 2059).

Twenty-fifth Proposed Finding: As a result of eliminating their reserve capital

to pay for dancing lessons from respondents, many students of respondents' studios have incurred substantial financial hardship.

Reasons for Proposed Finding: There is a preponderance of testimony

reflecting financial hardship on the part of student resulting from their elimination of their capital to pay for dancing lessons from respondents (See reasons for proposed findings 24 and 36).

Twenty-sixth Proposed Finding: Students of respondents' dance studios have attempted unsuccessfully to obtain refunds for untaught hours of instruction.

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1

Reasons for Proposed Finding: In view of the inadequacies in providing

dance studio services and considering the sales tactics used by respondents, many students have attempted to gain refunds from respondents for untaught hours of instruction arising from outstanding contracts. Mrs. Beatrice Riddle with approximately 200 unused hours of instruction had numerous conversations with respondents' staff and transmitted five letters in an effort to obtain a refund (Tr. 1272-1275, 1283-1284, 1292; CX 68, 69, 71, 72, 7*0. All such efforts were in vain (Tr. 1275, 1278). Because of respondents' refusal to grant refunds for untaught hours of instructions, students were forced to engage legal counsel to institute suits (Tr. 563, 596, 690, 712). Mrs. Mummery obtained two judgments against respondents, but according to her testimony she "received not one penny" from the judgments (Tr. 596).

Based on respondents' history of failure to voluntarily refund money to students, the efficacy of a provision in a cease and desist order requiring such refunds is placed in doubt. Further, it would appear from such recalcitrance on the part of respondents that such remedies are dubious at best.

Twenty-seventh Proposed Finding: Due to investments in excess of $1500 for dance in

struction, students of respondents1 studios have had to continue to attend the studios although the level of dance instruction and other studio services were unsatisfactory or nonexistent.

Reasons for Proposed Finding: As a result of respondents vigorous and

repeated attempts to obtain from students the largest possible contracts for dance instruction

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sco

and services, many students would over a period of time have substantial amounts of money invested in respondents' studios (Tr. 388, 468-469, 618, 630, 632, 669-670, 700, 786, 789, 1237-1238). There is no doubt that having in some instances amounts in excess of $10,000 invested in dance • instruction, students considered such amounts as a proprietory interest in the studio.

Testimony elicited from students reveals that the primary reason for continuing to attend respondents' dance studios when respondents could not provide adequate instruction or engaged in offensive selling practices was to protect sums expended for long term dance or service contracts (Tr. 419, 558-559. 571-572, 655-657, 798, 1268-1269). In instances when students could no longer benefit from a continuation of dance instruction at respondentsr' dance studios due to abrasive sales practices, there can be no question that the only reason such students would continue to attend the studios was to salvage at least a partial return from their investments.

Twenty-eighth Proposed Finding: Respondents have regularly and systematically obtained

dance instruction contracts from students who had outstanding contracts with untaught hours of dance instruction.

Reasons for Proposed Finding: The environment of respondents' dance studios

was permeated with an atmosphere of numerous promotions to sell dance instruction (Tr. 708-709* 1268). As a result of efforts by respondents to create new sales (due in part to the fact that most employees received their remuneration in part based on a commission of sales [Tr. 850-851, 893-894, 929])3 many students purchased additional dance instruction while having in

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some instances very substantial hours of outstanding instruction (Tr. 384-385, 470 6l8, 629, 633, 672, 775). Two such students who had outstanding hours of instruction were Mrs. McKee who had 467 unused hours from outstanding contracts when she purchased an additional 150 hours at a cost of $2,734.10 and Mrs. Mummery who testified she had "hundreds" of hours outstanding when she purchased an additional 352 hours for $6,372 (Tr. 505-506, 632-633; CX 26).

In many instances where respondents have been successful in securing additional contracts from students with outstanding hours of instruction, such subsequent contracts absorbed the untaught hours remaining from the outstanding contracts (Tr. 402-403, 63I-632, 788-789, 2054, 2059). It is blatantly obvious that by merging outstanding contracts into newly executed agreements a provision similar to Paragraph 8 of the cease and desist order in the matter of Arthur Murray, Inc., et al, Docket No. 7845, 57 F.T.C. 30b, would in effect be a nullity.

Twenty-ninth Proposed Finding; Many students of respondents' dance studios were

unable to obtain a level of instruction equivalent to their level of dancing proficiency.

Reasons for Proposed Finding: Testimony adduced from students at respond

ents ' dance studios demonstrates that on numerous occasions there were no instructors possessing sufficient training to teach the students at a level equivalent to their dancing ability or proficiency. As with learning any subject, an integral aspect of dance instruction is the opportunity to have a continuity of instruction. However, the lack of instructors

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who could provide training equivalent to the student's dancing proficiency seriously inhibited respondents' students ability to progress (Tr. 453-454).

Mrs. Templeman testified that for a period of one year she could not receive any instruction (Tr. 4l9). During this period, Mrs. Templeman further testified that she was told that an instructor was available for her, but upon going to the studio she was advised that the instructor "never had ballroom dancing" (Tr. 421). Testimony from other students corroborates the latter experience as not being atypical. Mrs. Winifred Lapin, who achieved a gold medal prior to attending respondents' dance studio, was forced to stop attending the studio within one year after obligating herself for approximately $4,300 worth of dance instruction because the studio had "a scarcety of teachers and no teachers that could really teach the advanced standard of dancing" (Tr. 708). The inavailability of instructors caused Mrs. Gertrude M. Stambaugh, a gold bar student, to state that during 19^7 and 1968 she had eleven instructors, "some very inexperienced", who had to ask her "what to do next" (Tr. 798). Due to what she described as "losing the benefit of the instruction I had and the standard of instruction was so poor that I was making no progress whatsoever", Mrs. Stambaugh had no recourse other than to attend another studio while still having outstanding lesson hours with respondents (Tr. 802).

Thirtieth Proposed Finding: Students who take advantage of trips provided by

respondents incur expenses other than expenses for their own travel and lodging.

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Reasons.for Proposed Finding: One of the services provided by respondents

is giving the opportunity to students to travel to cities outside the locale of their respective dance studios. Such trips were to permit students to engage in "dance o' rarnas", a type of dance exhibition in which the student does not compete against other students (Tr. 1405 > 1407)J> and to allow students to visit resort cities (Tr. 440-444, 620, 625). The uncontradicted testimony of students who have taken such trips reveals that the student was obligated to pay the cost of the instructor's expenses as well as their own (Tr. 556, 629-630, 674, 791, 1295). In addition to paying for the instructor's expenses, many students were required to purchase dance instruction even though they already had substantial hours of instruction outstanding (Tr. 556, 633, 639, 1295). The fact that the student was paying for the expenses of the instructor was not revealed to the student in every instance (Tr.1295).

Thirty-first Proposed Finding: Respondents dance studios have been unable to employ

sufficient dance instructors who are qualified to teach students in advance courses of instruction.

Reasons for Proposed Finding: The instructor in the dance studio is the

most important factor in determining the efficacy of the dance instruction at the studio (Tr. 655). Due to the personal relationships which arise between teacher and pupil, many students' main source of motivation to achieve increasingly higher dance standards is provided by the dance instructor (Tr. 578).

-27-

As shown by uncontradicted testimony of respondents' employees, the object of the studio was to generate as much cash sales from the students as possible, not provide high level dance instruction. Mr. Crocco. testified he was giving dance analysis tests after eight days of training (Tr. 917). After only three weeks of training, Miss Bare was teaching students who had advanced dance instruction programs (Tr. 13^6).

From the testimony of students who had purchased substantial programs, advanced instructors were either unavailable or not interested in providing capable instruction unless the student was willing to purchase additional instruction (Tr. 419, 558-559* 628, 647-648, 708, 721, 798-800).

Thirty-second Proposed Finding: In the course and conduct of their business, respond

ents have utilized sham "dance analysis tests" allegedly for the purpose of evaluating a student's ability, progress or proficiency in dancing, when in fact, individuals taking such tests are given similar test results regardless of their dancing ability, aptitude or proficiency.

Reasons for Proposed Finding: Respondents had their students take

'dance analysis tests" at various times throughout their enrollment at the dance studios. The first dance analysis occurred during the students' first occasion to attend the studio. A discussion of the absence of any validity in such tests is contained in proposed finding numbered twenty.

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The second dance analysis a student was likely to undertake arose during the fourth hour of the junior procedure. As shown in proposed finding numbered twenty-two, the only purpose of such tests is to assist in the creation of a highly emotional state in the mind of the student, not to evaluate the student's dancing skills or proficiency.

Students were given dance analysis tests at other times during the course of instruction, such as prior to an extension of an existing dance instruction program or as a prerequisite to qualifying to be a member of the respondents' "500 Club" or "Tiffany Club" (Tr. 373, 375 > 378, 395, 437, 471-472, 500, 506, 658, 703, 853, 1124, 1235). Messrs Crocco and Perry S. Greggory, both employees of respondents' dance studios,described such tests as a "sham" and "of no importance" (Tr. 853, 1124). Mr. Marandola advised his employees that "nobody flunks" the tests (Tr. 1126).

Certainly, there is sufficient evidence of record to demonstrate that respondents used dance analysis tests not as a means to evaluate a student's dancing ability, but as one of many methods used to create an emotional response in the student which was translated into purchase of dance instruction.

Thirty-third Proposed Finding: Respondents' studios were operated with the expressed

design of obtaining the maximum amount of money from students without regard to the quality or quantity of services to be provided to the students.

Reasons for Proposed Finding,: The intent and philosophy of the opera

tions of respondents' studios was graphically disclosed by the uncontradicted testimony of employees of respondents' studios. -The

-29-

consensus of such individuals was that respondents operated their studio with the emphasis on generating sales, preferably in cash (Tr. 871, 895, 1155, 1175, 1370, 1370,-1411). Once the sale had been finalized, the next object was to either have the sale initially paid for in cash or convert the credit transaction into cash as quickly as possible (Tr. 892-893)• With emphasis on sales techniques geared to create cash sales, it is obvious that the quality of dance instruction and other services provided by respondents was not considered (Tr. 1155, 1175). Mr. Marandola's philosophy in operating the studio was described as "selling and getting the cash, and he did not care what happened after that" (Tr. 1155).

The success of such philosophy is shown by the following students and their obligations to respondents and period of time it took to accumulate such obligations: Mrs. Templeman -$11,000 in 21 months; Mrs. Mummery - $13,000 in 16 months; Mrs. McKee - $14,000 in 12 months; Mrs. Hailman - $11,700 in 12 months (Tr. 404-405, 468-469, 613, 618, 632-634, 646; ex 49G). With regard to the services to be provided commensurate with the sums invested, it would appear that respondents failed to meet their obligations to provide dance instruction and services (see proposed findings numbered 29 and 31 )•

Thirty-fourth Proposed Finding: Many students who have purchased substantial hours

of dance instruction, which would take several years to use, have been unable to complete their hours of instruction due to the peculiar nature of long term personal service contracts.

Reasons for Proposed Finding: When respondents' studio closed in

Arlington, Virginia, Mrs. Mummery had 397 hours of untaught lessons outstanding (Tr. 518).

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During Mrs. Mummery's attendance at the studio, she went several months without private lessons Tr. 558) and a long time without any dancing Tr. 558). One of the reasons given by

Mrs. Mummery for her continually attending the studio and being subjected to many of the offensive practices of the respondents was because of the unused hours for which she had contracted and paid (Tr. 571).

Prom March 4, 1964 to August, 1965 Mrs. Mummery contracted for 696 hours of dancing lessons (Tr. 469, 568). The record reveals Mrs. Mummery took approximately two hours of dancing instructions per week (Tr. 568). A computation of these figures will reflect the extraordinary length of time for the respondents to performed under these contracts. Attending the studio for two hours of lessons per week with 696 hours of lessons owed and due to Mrs. Mummery, the respondents would be obligated under the contracts for approximately,348 weeks (Tr. 568).

The inequity of such long term obligations is typically reflected in the instance with Mrs. Mummery where not only was she not able to get continuous and competent instructions and service but has sustained neurological damage that has affected her legs, thus further rendering her incapable of receiving what she had contracted for from the respondents (Tr. 597).

At the time Mrs. Templeman ceased attending respondents' studio, she had over 300 hours of untaught lessons outstanding (Tr. 46o). As in the instance with Mrs. Mummery, Mrs. Templeman's attendance at respondents' studios was punctured with unavailability of dance instructions and the closing of the Arlington studio (Tr. 46l). A back injury now precludes Mrs. Templeman from further dancing (Tr. 46l).

-31-

Mrs. McKee had over 350 hours of untaught lessons outstanding when respondents ceased doing business in the Washington area (Tr. 649). When the franchise succeeding the respondent began operating, Mrs. McKee was forced to convert a number of those hours at a cost of $1,660, which in essence had already-been paid for to respondents (Tr. 653).

When Mrs. Riddle ceased attending the respondents' studio, she had over 200 hours of untaught lessons outstanding (Tr. 126Q, 1273).

The foregoing amply demonstrates the harsh effect of the long term contracts executed by students with respondents for dance lessons.

Thirty-fifth Proposed Finding: Students or prospective students in many instances as

a result of respondents' unrelenting and emotional sales pressures have executed contracts of amounts in excess of $1500 without comprehending the terms of the contracts with respondents.

Reasons for Proposed Finding: There is considerable uncontradicted

testimony that students who attended respondent studios executed contracts without comprehending the terms of the respective contracts. Every "sizeable" contract entered into by Mrs. Mummery was entered into under extreme pressure (Tr. 5*1-7). In giving testimony regarding the circumstances surrounding the execution of a contract for $6,377 (CX 26), Mrs. Mummery testified descriptively: she was interviewed by three salesmen and "...together, two at a time, three at a time one at a time, would take me in relays and batter and pressure me. I was confused, I was confounded, I was beset. I was frantic, I didn't want it, I couldn't get out of it..."(Tr. 506).

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On cross examination, Mrs. Mummery was as equally descriptive in testifying as to her mental state at the time she entered into certain contracts when she stated: '1 think there was nothing that I could have assumed reasonably about anything at that time. I was incapable of it" (Tr. 587, see also Tr. 588, 608-09).

Mrs. Templeman.'s narrative of her experience in joining the 500 Club {Tr. 375-381) and its culminating effect was vividly characterized by her:

"And so the complete physical nervous, emotional exhaustion of all that I had gone through that day and the emotional strain and nervous strain...I capitulated and signed the contract" (Tr. 381)

The contract executed by Mrs. Templeman to join the 500 Club was for an amount of $6,443 (CX 6). Again, Mrs. Templeman's testimony was equally descriptive on cross-examination (Tr. 430, 458).

Uncontradicted testimony of other witnesses is as revealing: McKee ( Super salesman,Tr. 620-622); Hailman ( kind of hypnotized Tr. 678); Stambaugh ( constant pressure to buy , Tr. 792); Riddle ( nervous and confused , Tr. 1235-36); Lapin ( upset, nervous, frightened, felt hemmed in , Tr. 706). In addition, a witness who was employed as an instructor with respondents testified as to the psychological pressure students were under to sign contracts (Tr. 1365-66).

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Thirty-sixth Proposed Finding: Dance instruction contracts and contracts for other

services emanating from respondents' dance studios in excess of $1500 have in many instances been patently unfair and grossly inequitable with regard to the obligations incurred by students in return for services to be performed by respondents.

Reasons for Proposed Finding: Most students who contracted for dance

lessons contracted for individual or private instructions (see Commission exhibits of students' contracts). However, many of the students were subsequently required to convert their private or individual hours into class or group lessons (Mummery, Tr. 521; McKee, Tr. 650; Stambaugh, Tr. 799).

The testimony of Mrs. McKee is graphic in revealing the inequitable nature of respondents contracts. At the time Mrs. McKee entered into a contract for more than $8,000 (CX 34) she was recovering from a "malignant operation" and asked that the contract contain a clause for the hours to be willed in case of death (Tr. 621). $6,033-50 of the contractual amount was for dance lessons.

The record reveals that students went long periods without the benefit of any instructors (Tr. 420, 521, 523, 647, 558, 708)j and in many instances where available, the instructors were less than competent (Tr. 421, 596-97, 708, 798: see also reasons for proposed findings 34, 37, 40).

Thirty-seventh Proposed Finding: As a result of extreme emotional sales presentations,

often of several hours duration, respondents have so confused, confounded and altered the rational judgment

-34-

of their prospective students and students that said individuals could not properly evaluate the nature of the contractual obligations arising from contracts with respondents.

Reasons for Proposed Finding: The ordeal experienced by Mrs. Templeman

in joining the respondents' 500 Club is typically illustrative of the extreme emotional and lengthy sales presentations of respondents (Tr. 379-82). This ordeal of Mrs. Templeman covered the period of an entire day (Tr. 379-380^32).

In characterizing her state of mind at the time she signed a contract for $6,377 (CX 26), Mrs. Mummery testified:

"I was freezing cold, I had goose bumps all over me, I was in a state of pure frenzy. I don't think I was in a appalling state. Certainly appalling. I think there was nothing that I could have assumed reasonably about anything at that time" (emphasis added). (Tr. 537) After having taking various "tests",

Mrs. Riddle was taken into a room and pressured by three persons for more than 1 1/2 hours to execute a contract in excess of $5>000 (CX 65) to beat the 6 o'clock deadline which she did "by a minute or two". (Tr. 1235-36). If Mrs. Riddle had been given time to think, she would not have signed that contract (Tr. 1300).

Other witnesses gave testimony as to the lengths of time during which they were subjected to extreme sales pressure: McKee, Tr. 64l; Mummery, Tr. 501-504; Hailman, Tr. 687.

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212

Mr. Crocco's testimony is filled with instances where respondents used and emphasized the use of lengthy and emotional sales pressure with the design of altering the judgment of students or prospective students (Tr. 863, 867, 869, 889-890, 932-933, 939, 94o, 961-962, 973, 974, 984).

The entire record is replete with various types of emotional sale presentations employed by respondents (See reasons for proposed findings 22, 35,.39).

Thirty-eighth Proposed Finding: Respondents used "relay salesmanship", involving suc

cessive efforts of a number of different Arthur Murray representatives who, in a single day by force of number and unrelenting sales talks, and aided occasionally by hidden listening devices monitoring conversation with the prospect or student, attempt to persuade and do persuade a lone prospect or student to sign a contract for dancing instruction.

Reasons for Proposed Finding: Hidden listening devices were utilized

by respondents to assist in persuading students or prospective students- to execute contracts {Tr. 861-62, 888, 1357). "Relay salesmanship" was a common device used by respondents to procure contracts from students (Tr. 379-82; 506, 897-98, 1235-36).

Thirty-nineth Proposed Finding: Respondents have used excessive flattery and atten

tion as a means of creating an emotional reaction in students so to enable respondents to persuade such individuals to purchase substantial hours of instruction from respondents.

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213

Reasons for Proposed Finding: A portrayal of respondents' devoting

excessive flattery and attention to students or prospective students was vividly characterized by Mrs. Templeman:

"Queen bee until the money is paid and then the forgotten woman while someone else is made Queen bee, until a contract is signed" (Tr. 377, see also Tr. 400, 419) •

Again Mrs. McKee gave testimony as to the flattery and attention of her "super salesman" (Tr. 627-628).

Mrs. Hailman,who was 64 years of age at the time she attended respondents'studios, gave testimony as to the desirability expressed by a manager of one of the studios to look at her legs (Tr. 683-84). Commission exhibit 54 indicates the £ype of flattery directed to Mrs. Stambaugh.

Fortieth Proposed Finding; Respondents represent to students or prospective

students that upon completion of a given course of dancing instruction the student will have achieved a specified standard of proficienty, whereas, in fact, before the given course of dance instruction is completed and before the specified standard of proficiency has been achieved, the prospect or student is subjected to further coercive sales efforts toward the purchase of additional instruction in dancing.

Reasons for Proposed Finding: Between February and May of 19°^,

Mrs. Templeman executed six contracts for more than 500 hours of dance lessons (CX 1-6, Tr. 405).

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On September 2, 1965, Mrs. Templeman executed two contracts for more than 200 hours of dance lessons (CX 7, 8). Attending respondents' studio on the average of once a week (Tr. 4-55 .> Mrs. Templeman was subjected to numerous coercive sales by respondents who had no design for any program or standard of achievement (Tr. 373, 375, 395, 397).

At the time Mrs. Mummery executed a contract for 427 hours of dancing lessons (CX 26), she had over 200 hours of lessons outstanding (Tr. 509). The program of dance lessons under that contract was alleged to be an "Amalgamating Teaching" program (Tr. 506). The program was never subsequently devised for Mrs. Mummery; and in fact, it was non-existent (CX 29, Tr. 564)

Mr. Lapin had achieved the Gold Medal and had approximately 80 hours of untaught lessons outstanding at the time she entered into a contract for 250 hours of additional lessons (CX 50, Tr. 702-03). Because Mrs. Lapin had a sufficient number of outstanding hours to achieved the standard on which she was working at the time she entered into this contract (CX 50), respondents attempted to devise an additional dance standard for her by placing the steps of an existing program backward (Tr. 1131). This is vividly demonstrative of respondents1 disregard for any standard of dance proficiency that students were seeking to or did achieve (see also Tr. 892-93)•

Forty-first Proposed Finding: In the course and conduct of their aforesaid business,

and at all times mentioned herein, respondents have been in substantial competition, in commerce, with corporations, firms and individuals in the sale of dancing lessons of the same general kind and nature as those sold by respondents

Reasons for Proposed Finding: Admitted in stipulations of facts (Tr. 112-

113).

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Forty-second Proposed Finding: 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 mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were true and into the purchase of substantial quantities of dancing instruction by reason of said erroneous and mistaken belief.


Tr. 113). Forty-third Proposed Finding:

The aforesaid acts and practices of respondents, as herein alleged, were all to the prejudice and injury of the public and of respondents' competitors and constituted, and now constitute, unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

Reasons for Proposed Finding: The record and all the proposed findings contained herein.

Points of Law In the presentation of their case-in-chief, complaint

counsel introduced the testimony of seven student-witnesses in order to amplify the stipulations of facts. The Examiner ruled that the introduction of further student-witnesses would be cumulative (Tr. 1325). Respondents introduced the testimony of four student-witnesses in the presentation of their defense. A review of applicable precedent establishes

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that the testimony of students of respondents' dance studios who were not subject to the acts and practices shown to exist by students called by complaint counsel is clearly not relevant to the issue of whether or not the alleged practices did in fact occur. Basic Books, Inc. v. F.T.C, 276 P. 2d 718 (i960): Independent Directory Corp. v. F.T.C, 188 F. 2d 4b« (1951); Western Radio v. F.T.C, 339 F. 2d 937 (1964), Cert, denied, 3M1 U.S. «3o" (19b5). As stated by the court in Basic Books, Inc.," [.tjhata person or corporation ... may have made correct statements in one instance has no bearing on the fact that they made misrepresentations in other instances". Such cases demonstrate that the "numbers game" is inappropriate to determine the existence of an alleged act or practice;

By means of cross-examination of complaint counsels' student-witnesses, respondents have attempted to show that certain individuals are more susceptable to respondents' sales practices than others. There can be no question that the Commission is empowered to protect "the trusting as well as the suspicious, the casual as well as the vigilant, the naive as well as the sophisticated". In the matter of Colgate-Palmolive Company et al., Docket No. 7736, 59 F.T.C. 1452 (I90I). The Federal Trade Commission Act was not enacted to protect "experts, but for the public—that vast multitude which includes the ignorant, the unthinking and the credulous". (emphasis added) Charles of the Ritz Dist. Corp v. Federal Trade Commission, 143 P. 2d bjb (1944); F.T.C. v. Standard Education Society, 302 U.S. 112 (1937).

In an effort to present an "economic defense", respondents over the objection of complaint counsel, were initially permitted to introduce the testimony of members of the dance industry to establish respondents' cost of doing business. Such testimony is clearly irrelevant for two reasons: first, evidence of practices conducted by members of the dance industry has no probative weight to the issue of the legality of the practices of the respondents; and secondly, the Commission's authority to prevent deceptive or unfair practices may be exercised although the effected business could not successfully continue without the use of such practices. Moog Industries v. F.T.C, 355 U.S. 411 (1958); S. Dean Slough v.

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217

F/j\C., 396 F. 2d 870 (1968), cert, denied. 393 U.S. 980 (19b«h Luna Brothers & Co. v. F.T.C.. ^8Q P. 2d 847 (1968), cert, denied, 393 U.S. &J9 (1368)

As shown in the proposed findings, the evidence of record graphically reveals a methodology of business by respondents in contravention of Section 5 of the Federal Trade Commission Act. Respondents have been successful in extracting from students contracts which come within the classification of unconscionable contracts. The proposed findings clearly document instances of students executing contracts when there were absences of meaningful choices on the part of such students. The record vividly describes the sales procedures utilized by respondents to induce an emotional state of being in students which rendered the students incapable of rationally comprehending the nature of the obligations arising from the contracts. Further, in view of respondents repeated failure to perform the services provided by the contracts, there can be no doubt that respondents have procured contracts which meet the tests for unconscionability set forth in Williams v. Walker-Thomas Furniture Co., 350 F. 2d 445 (1965)^ in addition, the pro-posed findings are replete with evidence establishing that to obtain from students in excess of $1500 for respondents studio services in the future would tender such contracts unconscionable.

^. J?afe2 ° n t h e Proposed findings, complaint counsel have modified the appended proposed order to more precisely prohibit the continuation of the unfair and deceptive acts and practices disclosed by the record in this case. The modifications are a result of evidence placed in the record with regard to the allegations contained in Paragraph 13 of the complaint. It is noted that the Examiner, although not ruling on respondents' withdrawal of the stipulations concerning Paragraph 13 advised complaint counsel that they could not rely on the stipulations of facts in proving said Paragraph.

Respectfully submit

Donald L." Bachman,


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APPENDIX

PROPOSED ORDER IT IS ORDERED that respondents Arthur Murray Studio

of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, or other services, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

1. Advertising or otherwise offering or conducting any quiz, contest, or other device which purports to base the selection of the winner upon skills or abilities of the contestants or upon chance.


A-l

Representing, directly or by implication, by means of social security number contests, "special selection offers", "Can You Spell" contests, or any other promotion offer or contest or any certificates relating thereto, or by any other method or means, that a course of dancing instruction or a specified number of dancing lessons, or any other service or thing of value will be furnished free of charge, at a reduced price, or for any price, unless the entire period or periods of bona fide dancing instruction or other service or thing of value is in fact furnished in every instance as represented. Representing on any postal cards sent through the United States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of:


(b) The full name and address of the offeror of the gift, and


Representing, directly or by implication, that the Party Time Club or the Holiday Club, or any other club, group or organization offers members a program of activities such as daily or weekly social events or gala night club parties, or any other activities, unless there is clear and conspicous disclosure in connection with' each

A-2

offer that such activities are available only upon the purchase of a substantial amount of dancing lessons and the total cost of such lessons is disclosed. Using "dance analysis" tests or any other device purportedly designed to evaluate dancing ability, progress, or proficiency when such test or device is not so designed and so used; or misrepresenting in any manner a student's or prospective student's dancing ability, or the progress made or proficiency achieved by a student during the course of or as a result of taking respondents' courses of instruction. Representing, directly or by implication, that upon completion of a given course of instruction in one specific dance, a specified standard of proficiency will be achieved when, before the specified course is completed or the given standard has been achieved, the student is or will be subjected to sales efforts to induce the purchase of additional dance instruction. Using in any single day "relay salesmanship", that is, consecutive sales talks or efforts of more than one representative to induce the purchase of dancing instruction. Entering into one or more contracts or written agreements for dance instruction or any other service provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1500.

A-3

Entering into any contract or written agreement for dance instruction or any-other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-point bold type:

"Notice: You may rescind (cancel) this contract, for any reason whatever, by submitting notice in writing of your intention to do so within fourteen (l4) days from the date of making this agreement or within seven (7) days from the date of receiving services provided by this agreement, which ever period of time is longer.

If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be refunded, within five (5) days of cancellation of this contract".

At the time of signing of any contract or written agreement, respondents shall also communicate orally to each party the terms of the above notice. Entering into a contract with a student who is already under a contract with respondents that provides for dancing instruction, until fewer than 15 lesson hours remain under the existing contract. Any contract entered into under such circumstances shall state the number of lesson hours remaining under the existing contract, shall provide that all dancing instruction previously contracted for shall be used or completed prior to the commencement of the additional lessons

A-4

and shall state that such contract is subject to cancellation, without cost or obligation except for a fair charge for any lessons or services actually furnished prior to caneeHation} at any time up to and including one week after the completion of the units of dance instruction due pursuant to the previous contract. Such contract shall also state that all moneys or other consideration tendered to respondents for additional dance instruction will be refunded within five (5) days of cancellation of said contract. Failing to pay to students who have con-celled contracts pursuant to Paragraphs 10 and 11 hereof an interest charge of 1.5$ per month (18$ per year) on all moneys or consideration that is not refunded to such students within five (5) days of cancellation of such contracts. Failing to establish and maintain for each of respondents' dance studios a bond issued by a surety company having as a principal sum an amount not less than $10,000 or an amount equal to 25$ of each said studio's gross income from its business operations during its last .fiscal year, which ever amount is larger. The bond required for each studio shall be in the favor of all prospective students and/or students of each said studio who are injuried as a result of respondents' engaging in unfair or deceptive acts or practices. The bond for each studio shall remain in effect for two years after each respective studio ceases business operations. Entering into a contract or written agreement for dance instruction or any other services provided by respondents" dance studios when

A-5

the terms of such contracts or written agreements provide that the services to be render to a student of respondents' dance studios extend over a period of one year from the date of execution of said contract.

L5. Failing to orally disclose prior to consummation of a sale of trips in which respondents provide chaprone services or provide in any manner escorts for students taking such trips, and in writing on any contract or written agreement pursuant to which such services are to be provided and with such clarity as is likely to be observed and read by such students, that:

Students taking trips under the auspices of respondents are obliged to pay their own expenses for such trips as well as paying for the expenses incurred by studio personnel accompanying such students.

16 Failing to deliver to each party a copy of every contract entered into by such party providing for dancing instruction or other services.

17 Failing to deliver a copy of this order to cease and desist to all present and future employees, instructors, or other persons^ engaged in the sale of respondents' services, and failing to secure from each employee or other person a signed statement acknowledging receipt of said order.

18 Failing to orally disclose to students prior to consummation of the sale of dance instruction or any other service provided by respondents' dance studio that respondents are subject to this cease and desist order and failing to advise such students of the location where in a prominent place in the studio a

A-6

copy of said order is posted, with notice - . ■< that any student or prospective student may receive a copy of the order on demand.

19. Failing, after the acceptance of initial report of compliance, to submit a report to the Commission once every year, during the next three years, describing: (1) all complaints received from prospective students and/or students respecting sales practices utilized by respondents, their agents, representatives or employees; (2) the facts un uncovered by respondents in connection with any investigation thereof; (3) the action taken by respondents with respect to each such complaint.

A-7

^ RECEIVED 0 / ^ >

JUN 8 " WO X

UNITED STATES OF AMERICA \^_ SECRETMN BEFORE FEDERAL TRADE COMMISSION

DOCKET NO. 8776

IN THE MATTER OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC


•,

PROPOSED FINDINGS OF FACT AND BRIEF SUBMITTED BY RESPONDENTS

Paul F. Hannah Tom M. Schaumberg

Gadsby & Hannah 1700 Pennsylvania Avenue, N.W. Washington, D. C. 20006

June 8, 1970 Counsel for Respondents

2 2 6 <T

INDEX Page

ISSUES 1 POSITION OF RESPONDENTS 2

PROPOSED FINDINGS OF FACT 3

ARGUMENT I. THE COMMISSION'S CEASE AND DESIST ORDER SHOULD

NOT INCLUDE A $1,500, OR ANY, LIMITATION ON CONTRACT AMOUNT 17

A. The Evidence Does Not Show Either That (i) Respondents' Dance Contracts In Excess of $1,500 Were Or Would Be Unfair In Fact Or Contrary To The Public Interest Or (ii) Were Tools By Means Of Which Illegal Acts Were Accomplished. It Does Show (iii) That Less Drastic But Adequate Enforcement Remedies Are Included In The Proposed Order 19

1. The staff's burden is to show that the making of a contract in excess of $1,500 with respondents is illegal or that such contracts are a tool or means by which illegal practices are accomplished 19

2. The staff has failed to show that contracts in excess of $1,500 are unfair in fact or that the public interest requires their bar 27

3. The staff has not proved that the contracts were or could be the means for the conduct of illegal practices 34

Page 4. The evidence is uncontroverted

that the provisions already contained in the stipulated order are adequate 35

B. The Commission Has No Power To Bar As A Per Se Section 5 Violation Contracts In Excess Of A Certain Amount 37

1. The power to impose a contract ceiling was not granted by the Congress. 38

2. The absence of Commission power to fix contract size is further shown by the fact that the Commission never claimed or asserted such a power .' • 40 a. The Commission has never

barred contracts above a specified amount in an adjudication. ■ 43

b. The Commission has never imposed a bar on contract amounts through trade practice rules 44

The fact of no FTC attempts to regulate contract size demonstrates its lack of power to do so 49 The reenactment of Section 5 in 1938 without expansion of the definition of unfairness to include regulation of contract quantum shows that Congress did not intend such regulation ♦• 53

ii

Page

3. Section 5 does not authorize the per se contract size rule sought here. . . 55 a. The circumstances under

which contracts are made, and not their size, determines "unconscionability" 56

C. Conclusion As To Limitation On Contract Amount 60

II. THE COMMISSION'S CEASE AND DESIST ORDER SHOULD NOT BE EXTENDED TO ENCOMPASS "OTHER SERVICES" RENDERED BY THE INDIVIDUAL RESPONDENTS 62

APPENDIX A A-l

APPENDIX B B-l

ill


CASES: Page Bascom Dovle v . F . T . C , 356 F.2d 381 (5th C i r .

1966) 65

Benrus Watch Company v. F.T.C., 352 F.2d 313 (8th Cir. 1965) 63

Brown v. Wright, 137 F.2d 484 (4th Cir. 1943) . . . . 39

Campbell Soup Co. v. Wentz, 172 F.2d 80 (3rd Cir. 1948) 57, 58

Carter v. Bowles, 56 F. Supp. 278 (W.D.S.C. 1944) 39

Chapman v. El Paso Natural Gas Co., 204 F.2d 46 (D.C. Cir. 1953) 49, 51

Corn Products Refining Co. v. C.I.R., 350 U.S. 46 (1955) 55

Cotherman v. F.T.C, 417 F.2d 587 (5th Cir. 1969) 19, 20

Dorfman v. F.T.C, 144 F.2d 737 (8th Cir. 1944) 43

F.P.C. v. Panhandle Eastern Pipeline, 337 U.S. 498 (1949) 49, 51

F.T.C. v. Bunte Bros., Inc., 312 U.S. 349 (1941) 49, 50

F.T.C. v. Colgate-Palmolive Co.. 380 U.S. 374 (1965) 6 3

F . T . C v . N a t i o n a l T.eari r.n. . 352 U . S . 419 (1957) 2 1 , 2 2 , 23

F.T.C v. R. F. Keppel & Brother. Inc.. 291 U.S. 304 (1934) 42

iv

CASES, cont'd.: Page F.T.C. v. Royal Milling Co., 288 U.S.

212 (1933) 26

Fresh Grown Preserve Corp. v. F.T.C., 125 F.2d 917 (2d Cir. 1942) 53

Frostifresh Corporation v. Reynoso, 54 Misc. 2d 26, 274 N.Y.S. 2d 757 (1966) . . 29, 33, 57

General Transmissions Corp. of Washington, et_al., 3 Trade Reg. Rep. 518,254, at 20,650 (1968) 63, 64, 65

Helvering v. Winmill, 305 U.S. 79 (1938) 55

Henningsen v. Bloomfield Motors, inc., 32 N.J. 358, 161 A.2d 69 (1960) 57

Holland Furnace Co. v. F.T.C, 55 FTC 55 (1958), aff'd, 295 F.2d 302 (7th Cir. 1961) 43

Household Sewing Machine Co., Inc., 3 Trade Reg. Rep. 518,882, at 21,214 (1969) 36, 37

I n d i a n a p o l i s Morr i s Plan Corpora t ion v . Sparks , 132 m d . App. 145, 172 N.E. 2d (1961) 57

Jacob Siegel Co. v. F.T.C, 327 U.S. 608 (1946) 23, 25, 26 43 FTC 256 (1946) 26

Leon A. Tashof, t/a New York Jewelry Co., 3 Trade Reg. Rep. 518,606, at 20,941 (1968) 27, 28, 29

33, 43, 44 Luria Brothers and Company v. F.T.C.

389 F.2d 847 (3rd Cir. 1968) 24, 25 Marco Sales Co., et al., 3 Trade Reg. Rep.

518,839, at 21,172 (1969) 42

v

CASES, cont'd.: Page Modernistic Candies v. F.T.C. 145 F.2d 454

(7th Cir. 1944) 25

N. Flueqelman & Co., Inc. v. F.T.C., 37 F.2d 59 (2d Cir. 1930) 19, 20

Niresk industries. Inc. v. F.T.C., 278 F.2d 337 (7th Cir. 1960) 23, 63

Scientific Mfg. Co. v. F.T.C, 124 F.2d 640 (3rd Cir. 1941) 41, 53

Sutson, Inc., et al., 53 FTC 446 (1956) 43

Tampa Electric Company v. Nashville Coal Co., 365 U.S. 320 (1961) 56

The Lovable Company, et al., [1965-1967 Transfer Binder] Trade Reg. Rep. 517,282, at 22,386 (1965) 64

Thermochemical Products, Inc., et al., 3 Trade Reg. Rep. 1118,862, at 21,194 (1969) 63, 64, 65

U.S. v. Randall, 140 F.2d 70 (2d Cir. 1944) 39

Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) 29, 33

38, 59 Wolf v. F.T.C, 135 F.2d 564 (7th Cir.

1943) 41, 53 Yakus v. U.S., 321 U.S. 414 (1944) 39

STATUTES: Agricultural Adjustment Act:

7 U.S.C §608(a) (1964) 39 7 U.S.C. §624(b) (1964) 39

16 C.F.R. 17 (January 1, 1970) 45

vi

STATUTES, cont'd.: 16 C.F.R. (January 1, 1970):

§18 45 §23 •. . 45 §25 45, 46 §35 45, 47 §56 45 §57 45 §116 45, 47, 48 §124 45 §150 45 §157 45 §158 45 §173 45 §186 45 §197 45 §202 45 §214 45 §215 45 §216 45 §221 45

Federal Power Act: 16 U.S.C. §824(e) (1960) 40

Interstate Commerce Act: 49 U.S.C. §15 (1959) 40

Section 5 of the Federal Trade Commission Act: 15 U.S.C. §45 (1963) 19, 40

45, 46 50, 52

55 15 U.S.C. §45(a)(1) (1963) 40 15 U.S.C. §45(b) (1963) 40 15 U.S.C. §45(1) (1963) 35

Section 6 of the Federal Trade Commission Act: 15 U.S.C. §46 (g) (1963) 40

Second War Powers Act of 1942: Title III, 50 U.S.C. App. §633 (1942) 39

U.C.C. §2-302 57, 58 Section (1) 58 Section (2) 58

vii

STATUTES, cont'd.: Page Wheeler-Lea Amendment, 52 Stat. Ill,

(March 31, 1938) 40, 41, 53

LEGISLATIVE MATERIALS: Congressional Record, 75th Cong. 1st Sess.,

p. 551 (remarks of Congressman Wolverton) 54 Congressional Record, 75th Cong. 3rd Sess.,

p. 393 (remarks of Congressman Mapes) 54

H.R. Rep. No. 1613, 75th Cong. 1st Sess. (1937) . . . . 54

Letter on behalf of the Federal Trade Commission by Acting Chairman Ferguson to Senator Wheeler, Chairman of the Senate Committee on Interstate Commerce, printed in report of Hearings on S. 3744, p. 6 54

S. Rep. No. 221, 75th Cong., 1st Sess. (1937) 41

MISCELLANEOUS: Advisory Opinion Digest No. 399,

3 Trade Reg. Rep. f19,070, at 21,328 (1970) 42

Bargaining Power and Unconscionability: A Suggested Approach to UCC Section 2-302, 114 U. Pa. L. Rev. 998 (1966) 57

1 Corbin, Contracts §128 (1963) 57

FTC Rules of Practice for Adjudicative Proceedings (July 1, 1967): Section 3.43(a) 19 Section 2.3 59

Note - Unconscionable Contracts; The Uniform Commercial Code, 45 Iowa L. Rev. 843 (1960) 57

viii

MISCELLANEOUS, cont'd *: Page 4 Pomeroy, Equity Jurisprudence §1405(a)

(5th ed. 1941) 57 11 Williston, Contracts §1425 (3rd ed. 1968) . . . . .57

ix

235


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776

BRIEF OF RESPONDENTS

THE ISSUES

All of the issues raised by the Complaint have been

settled by stipulation, except two. These are:

1. May the Commission's cease and desist order

properly encompass "other services" when the allegations of

the Complaint as well as the stipulated facts relate exclu

sively to dancing instruction?

236

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properly prohibit consumers from entering into contracts

with respondents in excess of $1,500?

POSITION OF RESPONDENTS

1. The proposed $1,500 limitation on the amount

of dance lesson contracts which any individual may have

outstanding at any one time is

(a) not warranted by the evidence.

The evidence does not show that

the making of such contracts is

illegal, or unfair in fact to the

dance studio public, or constitutes

means of committing illegal practices;

(b) not necessary to prevent the acts

which respondents have voluntarily

agreed not to commit. The provisions

of the order respondents are accepting

are adequate for this purpose; and

(c) beyond the powers of the Commission

to impose.

-3-

2. The proposed extension of the order to "other

services" is too broad, as applied to the individual re

spondents (the corporate respondents having ceased

operations).

PROPOSED FINDINGS OF FACT

1. The Commission issued its complaint in this

matter on April 3, 1969. The allegations of fact therein

contained were stipulated by respondents, but only for the

purposes of this proceeding (TR 98-99). The stipulation

as to the allegations of unfair and deceptive sales

practices was withdrawn when the staff introduced evidence

to support such allegations (TR 358; 374; 474; 529).

2. Respondents have consented to all provisions

of the proposed order except those which would make the

order applicable to services rendered by respondents other

than dance instruction, and the prohibition against enter

ing into contracts which obligate a customer to pay, in

the aggregate, in excess of $1,500 (TR 114-120).!/

1/ For simplicity, the provision is referred to herein as one barring the making of contracts in excess of $1,500.

-4-

3. The corporate respondents are no longer in

business (TR 102).

4. After the case had already been submitted to

the Hearing Examiner, staff counsel sought the reopening of

the record to demonstrate the necessity for imposing a $1,500

contractual limit on respondents. They proposed to justify

such a limitation by showing the unconscionable nature of

respondents* contracts in excess thereof and by showing,

through members of the dance industry, "that $1,500 is a

fair balance between the practical business need of an

operator of a dance studio and an equitable and fair amount

which a person should be indebted for dance instruction."

(Motion to Reopen Record, p. 2). Based on the request,

the Hearing Examiner, on January 20, 1970, ordered the

reopening.

5. The evidence shows different sizes and types of

dance studios teaching different "schools" of dancing in

different ways.

6. One type, represented by the Feather and Three (presented by the Commission staff), was small (TR 1207-1208), with two partners and four part-time teachers (TR 1212).

239

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All non-teaching activities (management, dance directorship,

bookkeeping and receptionist) were carried out by the owners

(TR 1216-1217; 1220). The school was not designed to make

a profit (TR 1214), but to provide income to the partners

from lessons they themselves gave (TR 1189). In fact, the

school has never made a profit in over six years of operation

(TR 1189; 1214). It catered to group lessons (TR 1208), the

objectives of which were to enable the students to learn

enough about dancing to go out once in a while and enjoy

themselves (TR 1209). Those who took private lessons regarded

dancing as a hobby: "that is why they stay with it so long

actually" (TR 1210).

7. Another type, the International Dance Studios, Inc.

(also presented by the Commission staff), concentrated on

teaching international style dancing. It was also small,

with but 65 to 70 active students (TR 1540), and annual

gross receipts of about $42,500 (CX 296). In addition to

the owner and his wife, there were three other full-time

teachers and one part-time teacher (TR 1598). The owner not

only taught but also acted as bookkeeper, manager and dance

director (TR 1599-1600).

j

9i0

8. A third type, represented by corporate respondents,

by the Arthur Murray Studio of Kansas City and by the Fred

Astaire studios, taught American and Latin style dances

through large organizations concentrating on private in

struction (TR 1804-1812). The respondent Arthur Murray

Studio of Washington, Inc., in 1966 had at least 19 staff

members (CX 80a), and in 1967, at least 26 such employees

(CX 81b-d). There were approximately 200 active students

(TR 1196). Gross receipts in each of the years 1964 and

1965 were in excess of $525,000 (CX 86-190). The Arthur

Murray Studio of Kansas City, Inc., had approximately 288

active students and had sales of $488,000 in its most recent

year (RX 16e) . The company had a profit-sharing plan which

included 19 of the staff members (TR 1981). The Fred Astaire

Studio of New York City had about 750 students (TR 1858) and

50 employees (TR 1864). Sales in the most recent year were

approximately $750,000 (TR 1864).

9. Contracts in excess of $1,500 represented an

important share of the business for all studios except the

Feather and Three, which had never made a profit (TR 1214).

Better than 10% of the 65 to 70 students at the International

-7-

Dance Studio had such contracts (TR 1540; 1542-1543; 1592),

which represented about one-fifth of the studio's gross

sales (1593-1594). The Fred Astaire Studio depended on

contracts in excess of $1,500 for about 40% of its sales

(TR 1799). For respondent Arthur Murray Studio of Washington,

Inc., sales from contracts of more than $1,500, as a percent

of gross receipts in 1964 and 1965, were respectively 33%

and 44% (TR 2312). The comparable figure for the Inter

national Dance Studio, Inc. for the fiscal year ended

October 18, 1969, was 34.1%. [This figure was arrived at

by dividing into the average of Mr. Graham's estimated sales

of contracts in excess of $1,500 ($14,500; TR 1593) the

studio's gross receipts for the year (CX 296).] In the case

of the Kansas City Arthur Murray Studio, while the number

of such contracts was at about the 10% level (TR 2004), they

constituted about half the dollar volume (TR 1941). As

Mr. Chapman testified (TR 2005):

" . . . Ten percent of the students that come in purchase 50 percent of the dollar volume. The other 50 percent, which is just [as] responsible for keeping the school open, comes from the other 90 percent. The 90 can't do without the 10 and [the] 10 can't do without the 90."

-8-

10. All studios (again with the exception of the

Feather and Three) sold "programs" designed to take the

student through a particular level of dancing skill (TR 1592;

1793; 1934-1937).

11. There are significant savings in time and money

to the student in embarking on a complete program (TR 1014-

1015). Programs are structured differently for the attain

ment of different levels; and, if a student originally

sought and contracted for a low level, then later changed

his mind, and desired to achieve a higher level, the aggre

gate number of hours and dollars he would spend would be

increased by approximately 18 percent. Conversely, a

student who elected initially, say, a 300-hour course

(about $6,000) would save $1,100 over one who reached the

same level of proficiency by a series of contracts of 50

hours each (TR 1935-1937). Moreover, superior course

planning and teaching methods are available to students

committed to an entire program (TR 1888; 1936-1937).

12. Operations with a $1,500 contract limit in

dance studios, such as were operated by respondents, would

be economically impossible. There could be little adverti

sing (TR 1957). It would be impossible to maintain the

payroll and therefore the level or quality of instructors

-9-

(TR 1803; 1949; 1957). The resulting reduction in service

would lead to refunds which would lead to futher deterioration

in the quality of operat ions (TR 1959). There would be no

profit left for the operator and therefore no reason to re

main in business (TR 1956). To prevent such a result, the

average size of contracts would have to increase toward

the $1,500 level (TR 1957; 1960-1961; 1801-1802) and the

price of lessons to the consumer would have to go up (TR 1956).

13. The imposition of a dollar limitation by the

California legislature in 1961 through the Dance Act

(Title 2.5, §1812.80 of the Civil Code) was an important

factor in the decline in dance studio operations in California

which followed the passage of the Act. While prior to the

enactment of the statute, no Arthur Murray Studio had ever

closed in the state (TR 2030), 32 out of its 62 schools

closed within a short period after the limitation on contract

size went into effect (TR 2023-2026). The number of students

taking lessons in the Arthur Murray organization dropped

from about 10,000 to 1,000 within three years (TR 2034).

The entire Velos and Yolanda chain went into bankruptcy

(TR 2026). Every Fred Astaire Studio in the state closed

(TR 2026). The independent studios dropped approximately

-10-

25% in number (TR 2027). The reason so many studios were

forced to close is that they were geared to operate at a

certain volume of business (TR 2030). Approximately 50%

of that business was cut out because it was in contracts

in excess of $500 (TR 2030). Since expenses were fixed,

many schools had to go out of business as their income

dropped (TR 2030-2031).

14. In addition to the direct effects on all studios

of the contract price restriction imposed in California,

the decline in the income of the Arthur Murray studios

resulting from the passage of the Dance Act had a secondary

impact on the independents. Most of the small dance studios

in California lived off the Arthur Murray organization

(TR 2032-2033). For instance, they were almost entirely

staffed by ex-Arthur Murray people (TR 2033). The tele

vision and newspaper advertising of the Arthur Murray

organization had created a desire for people to take dance

lessons and to enjoy other activities of the dance studios

(TR 2033). Many of the persons attracted by the advertising

had not gone to an Arthur Murray studio but had gone to one

of the independent studios (TR 2033). When Arthur Murray's

advertising budget had to be cut, new students came in at

-11-

a trickle (TR 2031). Even the so-called English schools

were hurt because they were teaching their particular style

to students who were also taking lessons at Arthur Murray's

(TR 2033) .

15. As a result of the imposition of the dollar

limitation, many dance students were hurt (TR 2032). Many

of the more experienced teachers left the business, thus

lowering the quality of instruction (TR 2032). To meet

fixed overhead in a declining market, the studios had to

increase the price of lessons (TR 2035). They also had

to curtail the parties and other entertainment offered

(TR 2034). The reduced numbers of students made the in

struction less enjoyable and the quarters designed for

large numbers lacking in appeal (TR 2034).

16. In addition to the adverse effect on the dance

studio public from the California dollar limitation (Pro

posed Findings 13-15), there were and are other adverse

effects from such a limitation. For instance, by not being

able to purchase an entire "bronze medal" program, costing

well over $1,500, a student is prohibited from buying a

service that he deems advantageous (TR 2097). Due to in

creases over the years in costs and rates, substantial

-12-

economies, through cash discounts and otherwise, are achieved

by customers in contracting for complete programs at one

time (TR 1937). More than that, they lose the benefits of

the better teaching techniques that have been developed for

persons who have embarked on a complete course of instruction

(TR 1888; 1936-1937). Students are also deprived of the

right to purchase an asset which can appreciate over time.

One student had purchased lessons in 1956 at a maximum rate

of $8.57 per hour (1,000 hours at $8,570 is $8.57 per hour)

(CX 52). Those hours were still being honored in 1963

(TR 778-779) at a time when the price of lessons was $18.60

per hour, an increase of $10 per hour (215 hours at $4,000

is $18.60 per hour)(CX 53). Inasmuch as there were still

285 hours, purchased at $8.57 per hour, on the books in 1963

(TR 778), the 1956 contract had appreciated at least $2,850

in value. Thus, much as any other futures contract, a long-

term contract for dance instruction is a hedge against

inflation and normal increases in price (TR 2308) which

would not be available were there a $1,500 limitation or

some other form of quantity fixing (TR 2293-2294).

17. Contracts for dance instruction, constituting appreciable assets, are transferable and saleable and may be willed (TR 1826; 1967). Furthermore, Arthur Murray contracts are honored throughout the Arthur Murray system

247

-13-

(TR 1707; 1967; 2010; 2083; CX 70b), and by the Fred

Astaire studios, whose contracts are similarly honored

(TR 1814). If ownership of a studio is transferred, un

taught hours are required to be honored by the new owners

(RX 23b) and in fact have been in each instance (TR 778-779;

800; 1750; 1765; 2072).

18. Complaint counsel called seven consumer witnesses.

Two were persons with at least a high school education

(TR 349; 1226); three had taken college-level courses

(TR 465; 698; 770) and two were college graduates (TR 612;

664). All of the witnesses called by the staff held, or

had held in recent years, responsible jobs requiring the

exercise of judgment and mental capacity; they included an

author (TR 348), a librarian (TR 464), a teacher (TR 612),

a nurse (TR 664), a translator (TR 698), a management

analyst (TR 770) and a secretary (TR 1225). One of com

plaint counsels' witnesses was married, and her income

ranged between $5,000 and $8,000 (TR 1225). The remaining

witnesses were single and had incomes ranging from between

$5,000 and $6,000 (TR 349) to between $10,000 and $12,000

(TR 611); those with incomes below $9,000 owned securities

(TR 349; 513; 662; 770). In all but one instance, the value

-14-

of those securities was such that dividends alone accounted

for a significant portion of total income (TR 349; 513; 662-663).

19. One of the staff's witnesses claimed that

respondents charged too much per hour (TR 553). However,

she offered no substantiation for her opinion. In fact,

the prices charged by respondents (CX 300c) have been in

line with those charged by other members of the industry

(TR 1570; 1794; 1964).

20. The two cancellation provisions in the already-

agreed-to order provide that all contracts are unconditionally

cancelable for 7 days (Par. 9) and that any contract entered

into while another contract is still in force is uncondition

ally cancelable until one week after the expiration of the

earlier contract (Par. 10(a)). Applying these provisions

to the first contract in excess of $1,500 entered into by

each of the Commission's witnesses, each such person would

have had a minimum of 20 weeks and as many as 76 weeks to

reconsider her decision and cancel such contract (Appendix A).

21. Dance lessons are a luxury item (TR 1796; 2293).

The public patronizing dance studios is in the main an

intelligent, well-educated group with middle-class incomes,

and with good capital resources (Proposed Finding 18). The

protection required is against undue pressures and other

-15-

unfair methods of sale, not against the quantum of services

permitted to be purchased or sold.

22. The agreed-to provisions of the order will

adequately protect the public against the acts and practices

cited in the complaint.

23. While from time to time there might be circum

stances under which contracts in excess of $1,500 in amount

or contracts with outstanding balances in excess of $1,500

would present an individual hardship, there has been no

showing that such circumstances are general or that such

contracts are inherently unfair.

24. A dollar limitation will impose material dis

advantages on respondents' actual and potential customers

(Proposed Findings 9 through 17). The restriction on con

tract amount sought by the staff would deprive those desiring

dance lessons from respondents of securing discounts, hedging

against inflation, obtaining integrated and complete pro

grams of instruction, and effecting savings in costs of

instruction (Proposed Finding 16). It would deprive those

wishing it the right to acquire a transferable asset which

has in the past increased in value with time (Proposed

Findings 16 and 17).

-16-

25. The restriction would further tend to reduce

the quality and variety of instruction which studios operated

by respondents could offer the public and make services more

costly and less valuable to the public (Proposed Findings 11,

16 and 17).

26. An order prohibiting the public from making

contracts in excess of $1,500 with respondents is not in

the public interest.

251

-17-

ARGUMENT

I. THE COMMISSION'S CEASE AMD DESIST ORDER SHOULD NOT INCLUDE A $1,500, OR ANY, LIMITATION ON CONTRACT AMOUNT.

Staff counsel have vacillated from theory to theory

in an attempt to justify the $1,500 contract price limita

tion they contend should be included in the cease and

desist order.

In its Motion to Reopen the Record dated January 5,

1970, the staff offered to prove "the unconscionable nature

of respondents' contracts in excess of $1,500" and "to show

that $1,500 is a fair balance between the practical business

need of an operator of a dance studio and an equitable and

fair amount which a person should be indebted for dance

instruction." During the hearings, staff counsel several

times discussed the proposed $1,500 contract limitation as

a "platform" to be imposed even if none of the complained

of practices were ever repeated (TR 1775; 1839; 1841; 1851-

1852). In short, counsels' position appeared to be that

respondents' contracts for dance lessons over $1,500 were

per se "unconscionable" and in violation of Section 5.

-18-

Arguing for that position, the staff, in the Brief

of Complaint Counsel in Support of the Contested Provisions

of the Order (hereinafter "Brief in Support"), filed

November 18, 1969, conceded that "the facts herein do not

involve a traditional situation for applying the principle

of unconscionable contracts. . ." (p. 11). It further

admitted that the making of contracts over $1,500 is "a

lawful device" (Brief in Support, p. 7). It, however,

called for the Commission to "create a new body of law

relating to unfair practices by proceeding against practices

not previously considered unlawful." (Brief in Support,

P. 9).

In many other instances, staff counsel argued that

the $1,500 ceiling was required solely to prevent repetition

by respondents of the alleged unfair acts which respondents

had voluntarily agreed not to practice (TR 1777-1779; 1851).

In other words, their position was that an agreement from

respondents was insufficient and that the ceiling was a

necessary rein on respondents to prevent them from again

doing what the Complaint had charged them with doing in the

past.

-19-

Whichever is the stance the staff finally takes, it

has not shown and cannot show that the limitation should be

ordered.

A. The Evidence Does Not Show Either That (i) Respondents' Dance Contracts In Excess of $1,500 Were Or Would Be Unfair In Fact Or Contrary To The Public Interest Or (ii) Were Tools By Means Of Which Illegal Acts Were Accomplished. It Does Show (iii) That Less Drastic But Adequate Enforcement Remedies Are Included In The Proposed Order. 1. The staff's burden is to

show that the making of a contract in excess of $1,500 with respondents is illegal or that such contracts are a tool or means by which illegal practices are accomplished.

The staff has the burden of proving to the Commission

by a preponderance of the evidence that the contract limita

tion it has proposed is justified (§3.43(a), FTC Rules of

Practice). To show justification, it must prove that the

practice or act it seeks to bar is itself unlawful under

Section 5 of the Federal Trade Commission Act. Cotherman v.

F.T.C., 417 F.2d 587 (5th Cir. 1969); N. Fluegelman & Co.,

Inc. v. F.T.C, 37 F.2d 59 (2d Cir. 1930).

-20-

In Cotherman, the issue was whether the Commission

could bar respondents from representing that they will make

loans at six percent repayable over fifteen years. The

evidence showed they had so represented, but few applicants

ever qualified for such loan, and few had been made.

Judge Wisdom, speaking for the Court said (417 F.2d at 596):

"This order covers the case where the petitioners represent that they will lend at six percent for fifteen years and in fact lend on these terms. There is nothing illegal or deceptive about such a representation. The order should not be drawn so broadly that it will cover legitimate practices." (Emphasis added).

In N. Fluegelman & Co., Inc., the Commission ordered

respondents to cease using the trademark "Satinmaid" although

the trademark fully disclosed the material content of the

product. The Court held the trademark not deceptive and

said (37 F.2d at 61):

"An order which would forbid such merchandising prohibits that which is lawful, and the order to cease and desist entered upon such a basis cannot stand."

As has been pointed out above, the staff has conceded that the making of contracts in excess of $1,500 is lawful. It said (Brief in Support, p. 7)t

255

-21-

"To order the respondents to cease and desist from procuring obligations amounting to more than $1,500 is a means of suppressing a lawful device when it is used to carry out an unlawful practice."

Nonetheless, it still seeks to prohibit all such contracts

and relies on F.T.C. v. National Lead Co., 352 U.S. 419

(1957). This reliance, however, is misplaced.

In the first place, National Lead involved respondents

"representing practically the entire economic power in the

industry" (352 U.S. at 424). Secondly, the prohibition

there involved did not bar all zone pricing, but only where

it had the purpose or effect (352 U.S. at 423):

"'of systematically matching the delivered price quotations or the delivered prices of other sellers of lead pigments and thereby preventing purchasers from finding any advantage in price in dealing with one or more sellers as against another.'"

Thirdly, the order was temporary, lasting only until

(352 U.S. at 425):

"independent pricing might be established without the hang-over of the long-existing pattern of collusion."

Fourthly, while the Supreme Court had not previously ruled

zone pricing to be invalid, it specifically declared in National Lead that it had not decided the validity of the zone pricing plan used there (352 U.S. at 425).

-22-

Finally, and most important, in National Lead and

the cases therein cited, the lawful practice suppressed was

'"the very cornerstone of the . . . conspiracy'" (352 U.S.

at 425). Furthermore, "* it was the adherence by each of

them [respondents] to this system of pricing that made the

combination work'" (352 U.S. at 424).

Here, contract quantum is not a means of achieving

any illegal result. The practices sought to be condemned

are not dependent for accomplishment upon the making of

contracts of a particular size. In National Lead, by

barring the zone price system when certain purposes were

present, an effective tool of competitive restraint was

destroyed, and the illegal practices made more difficult,

if not impossible, to achieve. Here, however, a bar on

contract size would make no impact on the alleged unfair

and deceptive acts. They would be as easy or hard to

accomplish, irrespective of contract amount.

In National Lead no per se prohibition was attempted.

Here, every contract over $1,500, whether with a millionaire

or a pauper, and irrespective of the circumstances of its

making, is to be condemned.

-23-

The staff argues that a court will interfere with the

Commission's order only if it has no relationship to the

unlawful practices (Brief in Support, p. 7) .

First, this is not the law. An order must bear a

reasonable relationship to the practices. F.T.C. V.

National Lead Co., supra, 352 U.S. at 429? Jacob Siegel

Co. v. F.T.C, 327 U.S. 608, 613 (1946); Niresk Industries,

Inc. v. F.T.C, 278 F.2d 337, 343 (7th Cir. 1960).

Secondly, the staff is not the Commission. The staff

has the burden of proving to the Commission by a preponderance

of the evidence that such a reasonable relationship exists.

This it has utterly failed to do. See Proposed Findings,

particularly Nos. 18, 21, 23, 24. As we show below, there

is no evidence whatsoever in the record that the making of

contracts, whether $50, $500, or $5,000, aid, assist or

enable respondents to engage in the practices they have

voluntarily agreed to avoid (p. 34).

Thirdly, neither the Hearing Examiner nor the Commission is bound, as would be a court, by a determination of reasonable relationship, even if it did exist. The Examiner, viewing the substantial disadvantages of the contract limitation to dance studio patrons as a class (Proposed

258

-24-

Findings 9 through 17), should, in the exercise of an expertise to which a court does not pretend, refuse the staff's request.

A case similar to National Lead and distinguishable

from the situation here on the same grounds is Luria

Brothers and Company v. F.T.C., 389 F.2d 847 (3rd Cir.

1968). In this case, Luria had entered into agreements

with a number of respondent steel companies restraining

trade and tending to create a monopoly in the scrap metal

market. The Commission's order prohibited the respondent

mills from buying "more than 50 percent of their scrap

from Luria except to the extent that scrap, adequate in

quantity and quality, is not available from other suppliers

on terms which are substantially similar and competitive .

(389 F.2d at 852).

The challenge to this portion of the order by some

of the smaller respondent mills who claimed that their

purchases were lawful was rejected on the ground that "All

contributed to the unlawful result and all should share in

the consequences." (389 F.2d at 863).

The Third Circuit Court in Luria recognized that the

Commission had power to prohibit lawful actions only when

-25-

they directly aided and abetted illegal actions. This is

shown by the case on which the Court relied (389 F.2d at 863),

Modernistic Candies v. F.T.C., 145 F.2d at 454 (7th Cir. 1944).

In Modernistic Candies, the prohibition of distribution of

ballgum boards which were used as gambling devices was

sustained because (145 F.2d at 455):

" . . . Those who aid and abet such a method of merchandising, those participes crirainis with gamblers and their schemes, are likewise engaged in unfair trade practices contrary to public policy."

It would labor the obvious to reiterate that contracts

which are the products of sales efforts, whether proper or

improper, are the product and not the means of the sales

efforts. The dance lesson contracts themselves, irrespective

of size, are not tools, means, aids or abettors. Their size

bears no reasonable relationship to the practices condemned.

Another difference makes Luria not applicable here.

In Luria, there was no absolute ban because respondent mills

could still order half of their requirements from Luria.

Moreover, if they could not get scrap elsewhere on competi

tive terms, they could buy 100% from Luria.

Not only must orders bear a reasonable relationship

"to the unlawful practices found to exist," Jacob Siegel

-26-

Co. v. F.T.C., supra, 327 U.S. at 613, but if less drastic

alternative remedies are available, they should be used.

In both the Siegel case and F.T.C. v. Royal Milling Co.,

288 U.S. 212 (1933), the Commission had ordered what

amounted to a suppression of trade names which constituted

a valuable asset. The Supreme Court, in overturning the

Royal Milling Co. order and sending the case back to the

Commission to find a better approach, said (288 U.S. at

217) that the destruction of the trade names " . . . would be highly injurious and should not be ordered if less drastic means will accomplish the same result. The orders should go no further than is reasonably necessary to correct the evil and preserve the rights of competitors and the public; . . . "

In Siegel, the Commission after remand, allowed the use of

the trade name "Alpacuna," requiring only conspicuous adja

cent designation of the constituent materials of the garments

carrying the name. 43 FTC 256 (1946).

When the foregoing principles are applied, it is

clear that the staff has not proved its entitlement to the

limitation it seeks.

-27-

2. The staff has failed to show that contracts in excess of $1,500 are unfair in fact or that the public interest requires their bar.

We shall show below (pp. 37 to 60) that the Commission

has no power to bar as a per se violation of Section 5 con

tracts in excess of $1,500. We now show that the staff has

failed to carry its burden of showing such contracts are un

fair in fact.

As we have pointed out, except for one unsubstanti

ated complaint, even the Commission's witnesses did not

claim excessive prices or overcharging, and the evidence is

uncontradicted that respondents' charges were in line with

those of other dance studios (Proposed Finding 19). This

is in sharp contrast to the facts found in Leon A. Tashof,

t/a New York Jewelry Company, 3 Trade Reg. Rep. 518,606, at

20,941 (1968). The Commission in this case stated (518,606

at 20,954) that:

"The record indicates that respondent consistently followed a pricing practice of inflating its ticketed retail prices of a substantial number of lines of its merchandise substantially above the trade area prices for such merchandise."

-28-

Respondents' customers, and dance studio patrons

generally, were competent, well educated, and, for the

most part, experienced in business. They were persons with

good income and capital resources (Proposed Finding 18).

However, the customers in Tashof were described as (518,606

at 20,943 n.2) :

"Those who do not usually qualify for credit in stores outside these [low-income market] areas; who often have just recently emigrated to the city from rural areas or from the South; who are from a low status of life, immobile economically, educationally and socially; and who require some kind of personalized service or treatment in their relationship with the merchants with whom they deal."

Nonetheless, the Commission stated in Tashof (518,606

at 20,958):

"We did not find that respondent's prices were 'unconscionably high' in an absolute sense that would, without more, violate §5 of the Federal Trade Commission Act. Additionally, we did not find that the practice of recouping in the markup on 'cash' prices a portion of the expenses of extending credit was, by itself, an unfair or deceptive act or practice. Rather, we believe that these practices are deceptive because of respondent's misrepresentations of 'easy credit' through which it has lured low-income customers into exceedingly harsh contractual obligations and that the order provision with respect to these easy credit misrepresentations will cure the deceptions found here."

-29-

Unlike the situation found to have existed in

Tashof, here, except for the alleged sales pressures that

are to be barred by the stipulated order, no inequality of

bargaining power or lack of capacity to understand the terms

of agreements was shown to be present. Far different was

the situation in Tashof and in Williams v. Walker-Thomas

Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) and Frosti-

fresh Corporation v. Reynoso, 52 Misc. 2d 26, 274 N.Y.S.

2d 757 (1966).

Not only were the dance studio patrons educated and

of a comfortable income level, but, of the witnesses intro

duced by the staff, four had sued respondents, and several

had obtained judgments (See the records in the United States

District Court for the District of Columbia for Hailman,

#261-68? Lapin, #1093-66? and Holton fRiddle], #438-67. For

Mrs. Lockhart-Mummery, see Fairfax County Circuit Court case

#17249). Furthermore, the staff's witnesses did not find the

size of the contracts to be, in the main, objectionable. For

instance, one of the Commission's witnesses described on

direct examination the benefits of a $4,000 contract (CX 53)

into which she had entered (TR 783-784):

-30-

Q "I believe you have stated that you had approximately 285 hours of instruction outstanding at the time you signed this agreement. Can you tell us what you expected to obtain from this agreement that you could not obtain from the hours of instruction you had outstanding?

A "Well, I think I just explained that. I felt that I would have the membership in this club which would entitle me to these four parties a year for three years, for participation in the Olympics '63. The Olympics '63 was a dance contest between various Arthur Murray studios of at least the eastern half of the country. And I was to have the class instruction once a week for three years.

"In addition to these advantages, I felt that it would be a great deal of pleasure, give me a great deal of pleasure to be associated with the other students and the members of the staff.

Q "Mrs. Stambaugh, I am a little confused. Maybe you can enlighten me and enlighten the Examiner. You have previously stated that there were certain benefits that came forth from the lifetime contract. I believe you stated that there were parties. Now, I would like to know what you obtained out of the 500 Club that you did not have entitled to you under the lifetime contract?

A "They were additional to the parties and privileges of the lifetime contract."

Another witness called by the staff did not object to the size of the contracts but rather to the pressure to which

she was subjected (TR 430; 440):

-31-

"This is what I find objectionable to that, not that they sold me the bill of goods first and then the price, but that from the time that the price was quoted I was so pressured that I believed what was told me, that I would never have another opportunity to take these advantages, including that Acapulco trip and so forth, if I did not give my reply in time for them to notify the New York office before midnight. It was the pressure that was put on me when I was exhausted physically, emotionally, and nervously."

* * * * * *

"What I resented was the fact they could not wait 24 hours for me to ponder this large expenditure at a time when I was under this multiple strain."

At no point in the record was the significance of

the $1,500 figure explained. Perhaps the following colloquy

occurring after close of the case in chief best demonstrates

that not only was there no evidence on this point but not

even counsel supporting the complaint could give a rational

explanation for the amount (TR 1851-1852):

"HEARING EXAMINER SCHRUP: . . .

"Can you give me a specific answer as to why in the order it settles for the flat sum of $1,500? What is the reason behind it?

"MR. STEINMAN: Based on our case in chief, that record will show certain methods of operation and show certain adverse effects on students as to longevity of contract, as to ability to go to other studios.

-32-

"We feel based on that record that a $1500 limit is appropriate, that students shouldn't be obligated to pay any more than $1500 in order to take dance instruction or to enjoy trips which respondents provide.

"Because of the nature of their operation anything beyond $1500 would be excessive and unconscionable.

"HEARING EXAMINER SCHRUP: The thing I am trying to get through my mind, I am trying to balance this up against something else.

"I see a few things that it might be balanced against. Then I come back to the question, why $1500; why not 2,000 or why not 1,000. Why 1500. What is the test of $1500 to be balanced against.

"MR. STEINMAN: Your Honor, we feel that $1500 is a fair and equitable amount in which a student should be obligated to pay for dancing lessons. This witness has testified —

"HEARING EXAMINER SCHRUP: Tell me why? . Does it have a relation to a specific number of hours or anything of that nature?

"MR. STEINMAN: No, your Honor. Just because respondents provide, as we showed in our case in chief, other services that couldn't be considered in terms of hours.

"HEARING EXAMINER SCHRUP: Well, I think we are getting no place here on our discussion back and forth and it seems the witness here, as I said, has finished direct."

-33-

The reason for the staff's inability to justify a

dollar limitation either through argument or evidence is

perhaps best explained by Mr. Trout, one of respondents'

witnesses (TR 2078):

"I don't think the size [of the contract] is too important. I think it is the rate at which you spend it is important. As long as you know this is what you want to do over a period of time the size isn't too important, really. However, the real important thing is to pay for it, you know, within the means that you have allocated for. If you decided you want to spend $100 or $150 a month for this form of recreation, that is the way to do it, however many years you want to spread it over."

In the Tashof, Williams and Frostifresh Corporation

cases, there were no such balancing advantages to the

customers arising from the banned acts as are clearly

present in the instant case (Proposed Findings 9 through

19, 21, 24 and 25). The imposition of a dollar limitation

here would frustrate the desires of those consumers who

have been satisfied with respondents' services. They look

upon dancing as a form of recreation, a hobby and a form

of exercise. As was pointed out (TR 1699): "Yes. Many, many people have hobbies

like golf, tennis, going to various health clubs, photography, anything which is an engrossing hobby and which would take you out of your home or out of your particular environment on which you would be spending a comparable amount of money."

-34-

The results of the ban would be, among others, a

loss of the savings in time and money achieved by embarking

on a complete program of instruction (Proposed Finding 11).

There would be the loss of contract values enhanced by in

flation and normal increases in price (Proposed Finding 16).

Furthermore, students taking lessons from respondents will

lose the benefits of the better teaching techniques which

have been developed for those who have committed themselves

to a complete course (Proposed Finding 16). 3. The staff has not proved

that the contracts were or could be the means for the conduct of illegal practices.

No evidence was introduced to show that contracts in

excess of $1,500 are the means or devices by which illegal

practices were made possible, or by which they were aided

or abetted. The complaints of the staff's witnesses were

that the contracts resulted from unfair practices, that

they were the product of overly aggressive sales practices

(see, for example, TR 430) — all of which acts or tactics

respondents have agreed to eschew. No witnesses made any

showing that the size of the contracts they entered into

abetted, helped or made possible the applications of the

pressures they felt. See the discussion of National Lead,

supra, p. 22. The staff has failed in an essential element

of its proof. H

-35-

4. The evidence is uncontroverted that the provisions already contained in the stipulated order are adequate.

No facts were presented to show how, or why, the

practices respondents have promised to forego, with penalties

of $5,000 a day for violation (FTC Act, §5(1)), would creep

back if contracts over $1,500 were not prohibited. Nor was

it shown — and it cannot be shown — that the limitations

already contained in the agreed-to order are not adequate

to accomplish the desired protection much more effectively

than the harmful contract bar.

The order prohibits all the practices alleged in the

complaint as unfair. Perhaps even more significantly,

respondents have voluntarily agreed to two "cooling-off"

provisions. Paragraph 9 of the order (Appendix B) requires

respondents' contracts to state in at least 10-point bold type

that, regardless of obligation incurred, a contract may be re

scinded "for any reason whatever" within seven days from the

date the agreement is made. Furthermore, Paragraph 10(a) of the

order provides that any contract entered into while another con

tract is still in force is unconditionally cancelable until one

week after the expiration of the earlier contract.

270

-36-

To the best of counsels' knowledge, this is the

first time that any respondent has voluntarily agreed to

such provisions. In only one prior instance has the Com

mission unilaterally imposed a cooling-off period. House

hold Sewing Machine Co., Inc., 3 Trade Reg. Rep. 518,882,

at 21,214 (1969) .2/ As was stated by the Commission in

that case (518,882 at 21,218):

"An order limited merely to a prohibition against repetition of deceptive advertisements or a generalized ban against bait and switch tactics is not adequate protection for the consumer. What is required is an order that will dissipate the effects of deceptive invasions of the privacy of the home where high-pressure tactics may result in the ill-advised purchase of expensive merchandise which would not be bought upon careful reflection. The most effective protection is that which the consumer can provide for herself by taking a second look at the product to reconsider whether she can really afford it, or to discuss the purchase with her husband, all free from the influence of deceptive sales techniques.

"Accordingly, the order will require respondents to allow a three-day period of grace during which all contracts negotiated in the consumer's home may be rescinded by the purchaser. This will serve as a cooling-off period during which any consumer, who may


-37-

be subjected to the unfair pressures resulting from the deceptions we have discussed or similar deceits, may re-evaluate and cancel her purchase." (Emphasis added).

The above-quoted language makes it clear that a

cooling-off provision is the "most effective protection"

the consumer can have against precipitate action resulting

from deceptive sales techniques. It will allow a con

tracting party time enough to consider all the ramifications

of the terms of the contract.

Applying Paragraph 9 and 10(a) of the stipulated

order to the first sales contract in excess of $1,500

entered into by each of the Commission's witnesses, each

such person would have had a minimum of 20 weeks and as

many as 76 weeks to reconsider her decision and cancel

such contract (Proposed Finding 20).

These provisions are adequate protection to the

public. The drastic, never before used, unrelated, unlaw

ful and public-harming contract ban proposed by the staff

has not been shown to be required.

B. The Commission Has No Power To Bar As A Per Se Section 5 Violation Contracts In Excess Of A Certain Amount.

-38-

1. The power to impose a contract ceiling was not granted by the Congress.

To put a limitation on the quantity of service or

goods which a member of the public may contract for at

any one time would be to establish a far-reaching precedent.

It would be flying in the face of the warning given by

Judge Skelly Wright in Williams v. Walker-Thomas Furniture

Co., supra, 350 F.2d at 450, that the test of the fairness

or reasonableness of contract terms is not simple and cannot

be mechanically applied, but must be made in the "light of

the circumstances existing when the contract was made." It

would also be failing to recognize that which was pointed

out in Judge Danaher's dissenting opinion (350 F.2d at 450):

"There are many aspects of public policy here involved. What is a luxury to some may seem an outright necessity to others."

Furthermore, it would bring the Commission into an entirely

new field of regulation, akin to that of price control,

quota assignments and rate regulation. Entry into this new

field should not be made without express Congressional

authorization.

There have been few restrictions placed by the

federal government on the quantity of goods or services

-39-

which could be obtained by any purchaser. In each of

the few cases there has been a specific Congressional

enactment. Most of these, too, have been necessitated

by national policy considerations, such as supply of

critical goods during a war, national defense and pro

tection of domestic industry.

For example, during World War II, Congress authorized

the rationing of commodities as necessary to the war effort.

Second War Powers Act of 1942, Title III, 56 Stat. 178,

50 U.S.C. App. §633 (1942). When the courts passed on

this legislation, they sustained it on the basis of the war

powers vested in Congress. U.S. v. Randall, 140 F.2d 70

(2d Cir. 1944); Carter v. Bowles, 56 F. Supp. 278 (W.D.S.C.

1944); Cf. Yakus v. U.S., 321 U.S. 414 (1944); Brown v.

Wright, 137 F.2d 484 (4th Cir. 1943). The protection of

domestic industries through the imposition of quotas on

the amount of goods that may be imported into the country

has been the result of specific legislation. See, for

example, the Agricultural Adjustment Act, Limitation on

imports; authority of President, 7 U.S.C. §624(b) (1964);

Sugar quotas, 7 U.S.C. §608(a) (1964).

-40-

No rate regulation has ever been attempted without

direct legislative authority. See, for example, Federal

Power Act, Power of Commission to fix rates and charges,

16 U.S.C. §824(e)(1960); Interstate Commerce Act, Determina

tion of rates, 49 U.S.C. §15 (1959).

The Commission has been given no Congressional

mandate to regulate the size of contracts dance studio

customers may enter into. It therefore may not' do so.

2. The absence of Commission power to fix contract size is further shown by the fact that the Commission never claimed or asserted such a power.

The Commission has authority to bar acts or practices

which are unfair or deceptive, and methods of competition

which are unfair. FTC Act §5(a)(1).

The Congress elected not to list the proscribed

practices but to give the Commission the power to determine

them both on a case-by-case basis (FTC Act §5(b)) and by

rule making (FTC Act §6(g)). It made clear, however, both

at the time of the original enactment of Section 5, in 1914,

and at the time of amendment in 1938 (52 Stat. Ill, March 31,

1938), that it sought primarily to protect the public against

-41-

fraud and deception. As Senate Report No. 221, 75th Cong.,

1st Sess., p. 2, stated:

"The committee is of the opinion that the Commission should have jurisdiction to restrain unfair or deceptive acts and practices which deceive and defraud the public generally without being put to the necessity of proving that the competitors of the offender have suffered monetary damage." (Emphasis added).

The Commission, both before and after the Wheeler-

Lea Amendment, has mainly provided the public with pro

tection against fraud and deception. Scientific Mfg. Co. v

F.T.C., 124 F.2d 640, 643 (3rd Cir. 1941); Wolf v. F.T.C..

135 F.2d 564, 567 (7th Cir. 1943).

A thorough review of the Commission's Section 5

decisions since 1914 discloses only two types of situations

in which the actions which it proscribed were not acts of

deception or fraud.

The Commission has been sustained in barring the

use of lotteries in sales or trade programs, but on the

ground that lotteries were against public policy. The

use of lotteries has been condemned by the Commission,

even when the public receives a thing of value for the

-42-

lottery contribution, because lotteries appeal to the

public's gambling instincts. Advisory Opinion Digest

No. 399, 3 Trade Reg. Rep. 519,070, at 21,328 (1970);

Marco Sales Co., et al., 3 Trade Reg. Rep. 518,839, at

21,172 (1969).

In F.T.C. v. R. F. Keppel & Brother, Inc., 291

U.S. 304 (1934), the Supreme Court affirmed the Commission's

order prohibiting a candy manufacturer from selling to

dealers candy packed and assembled for resale to consumers

by lottery, and from furnishing to dealers display cards

describing the proposed method of lottery. The Court

stated (291 U.S. at 313):

"It is true that the statute does not authorize regulation which has no purpose other than that of relieving merchants from troublesome competition or of censoring morals of business men. . . . It [the lottery] employs a device whereby the amount of return they [the consumers] receive from the expending of money is made to depend upon chance. Such devices have met with condemnation throughout the community. . . . it is clear that the practice is of the sort which the common law and criminal statutes have long deemed contrary to public policy."

Upon this basis, the Court held that the method was "unfair."

-43-

The second type of situation not involving deception

and acted on by the Commission was that where coercion and

intimidation had been employed. For example, the Commission

has prohibited threats of suits to collect payment for

merchandise which had not been ordered. Sutson, Inc. et al.,

53 FTC 446 (1956). See, for example, Dorf man v. F.T.C.,

144 F.2d 737 (8th Cir. 1944).

Akin to the prohibition of coercive methods has

been that of scare tactics to induce prospective customers

to buy. Holland Furnace Co. v. F.T.C, 55 FTC 55 (1958),

aff'd., 295 F.2d 302 (7th Cir. 1961).

a. The Commission has never barred contracts above a specified amount in an adjudication.

Never in the 56 years of the Commission's history

has the Commission, in an adjudicative proceeding, attempted

to put an unconditional quota on the services a respondent

could sell, or a customer could buy.

The closest the Commission has come to price or con

tract regulation — and this was not close — was in

Leon A. Tashof, t/a New York Jewelry Company, supra. In

this case, discussed above at pp. 27-29, the Commission,

in obiter dicta, thought the use of unconscionable selling

-44-

prices could, by itself, constitute a Section 5 violation

(518,606 at 20,955). However, it did not have to decide

the question, and its order did not bar respondent's

pricing practices, but only his deceptive advertisement

of "easy credit" (1118,606 at 20,958-20,959).

The FTC staff's charge in Tashof as to prices was

that they were far above prevailing prices and represented

unconscionable mark-ups (518,606 at 20,954). No such

charge is involved here. The evidence here is that re

spondents* prices were in line with those of competitors

(Proposed Finding 19) . There was no link alleged or proved

between contracts above the $1,500 figure and any of the

complained of practices (supra, p. 34), while in Tashof,

the link between mark-up and "easy credit" representation

was close and plain (518,606, at 20,958).

b. The Commission has never imposed a bar on contract amounts through trade practice rules.

Not only has the Commission never in an adjudicative

proceeding attempted to ration or put quotas on services;

it has never tried to do so, so far as we have been able

to determine, in establishing trade practice rules.

-45-

Trade practice rules fall in two groups. Group I

becomes mandatory on the affected industry, and violations

may be treated as violations of Section 5, and proceeded

against as such. Adherence to Group II rules is to be

encouraged as conducive to sound business methods, but non-

observance does not constitute per se violation of law.

16 CFR 17 (January 1, 1970).

An examination of Trade Practice Rules issued for

the 19 industries mentioned below 3/ shows no limitations

in either Group I or Group II rules as to the quantity of

goods or services that could be sold or purchased. They

barred (with respect to Section 5) only false, fraudulent

and deceptive acts; false advertising; misrepresentation as

to opportunities; fictitious prices; deceptive "money back"

agreements; and practices which deceive and defraud the

3/ Commercial Dental Laboratory (16 CFR 18); Jewelry (16 CFR 23); Combination Storm Window & Door (16 CFR 25); Wall Coverings (16 CFR 35); Boat (Pleasure) (16 CFR 56); Residential Aluminum Siding (16 CFR 57); Private Home Study Schools (16 CFR 116); Toilet Brush Manufacturing (16 CFR 124); Subscription & Mail Order Book Publishing (16 CFR 150); Catalog Jewelry & Giftware (16 CFR 157); Musical Instrument & Accessories (16 CFR 158); Doll and Stuffed Toy (16 CFR 173); Candy Manufacturing (16 CFR 186); Motor Vehicles Sale and Financing (16 CFR 197); Sun Glass (16 CFR 202); Hearing Aid (16 CFR 214); Portrait Photographic (16 CFR 215); Millinery (16 CFR 216); and Cosmetic & Toilet Preparations (16 CFR 221). (All citations refer to CFR Revision of January 1, 1970.)

-46-

public generally. Typical of the areas covered are the

Group I rules under Section 5 established for the Combina

tion Storm Window and Door Industry, the Wall Coverings

Industry, and the Private Home Study Schools:

16 CFR 25 Combination Storm Window and Door Industry

§25.1 Deception (general). §25.2 Bait advertising. §25.3 Deceptive pricing. §25.4 Guarantees, warranties, etc. §25.5 Use of the word "free." §25.6 Deceptive testimonials or depictions. §25.7 Misrepresenting products as con

forming to standard. §25.8 Deceptive use of seals. §25.9 Misrepresentation as to character

of business. §25.10 Deceptive use of trade or corporate

names, trade-marks, etc. §25.11 Substitution of products. §25.12 Misuse of terms "custom built,"

"made-to-order," etc. §25.13 Defamation of competitors or false

disparagement of their products. §25.14 Imitation of trade-marks, trade

names, etc. §25.15 Coercing purchase of one product

as a pre-requisite to the purchase of other products.

§25.16 Procurement of competitors' confidential information

§25.17 Unfair threats of infringement suits. §25.18 Inducing breach of contract. §25.19 Commercial bribery. §25.20 Prohibited forms of trade restraints

(unlawful price fixing, etc.) §25.21 Exclusive deals. §25.22 Prohibited discrimination.

•t>

-47-

Wall Coverings Industry Misrepresentation as to character of business.

Misrepresenting products as conforming to standards.

Guarantees, warranties, etc. Imperfects, irregulars, etc. Deceptive use or imitation or

simulation of trade or corporate names, trade-marks, etc.

Commercial bribery. False invoicing Substitution of products. Defamation of competitors or

false disparagement of their products.

Unfair threats of infringement suits. Tie-in sales. Deception (general). Misuse of terms "jobs," "close-outs,"

"discontinued lines," "special bargains," etc.

Use of the word "free." Deceptive pricing. Disclosure of foreign origin. Prohibited forms of trade restraints

(unlawful price fixing, etc.) Prohibited discrimination. Aiding or abetting use of unfair trade practices.

CFR 116 Private Home Study Schools

§116.1 False advertising, etc. §116.2 False representations as to

earnings. §116.3 Misrepresentation as to oppor

tunities. §116.4 False representations as to

student employment or school's connection with United States Government.

CFR 35

§ 3 5 . 1

§ 3 5 . 2

§ 3 5 . 3 § 3 5 . 4 § 3 5 . 5

§ 3 5 . 6 § 3 5 . ,7 § 3 5 . ,8 § 3 5 . ,9

§ 3 5 . .10 §35 . . 1 1 §35 . . 12 §35 , . 1 3

§35, . 1 4 §35, . 1 5 §35, . 16 § 3 5 . 1 7

§ 3 5 . 1 8 § 3 5 . 1 9

-49-

The non-enforceable Group II rules relate basically

to disclosure requirements, the training of salesmen, and

selling methods. Each of these Group II rules was designed

to minimize the possibilities of deception.

One has to conclude that if the Commission believed

it possessed the power to regulate the quantity of a service

or a product which could be contracted for at one time, it

would have found, in the 56 years of its existence, an

opportunity to use it. c. The fact of no FTC attempts

to regulate contract size demonstrates its lack of power to do so.

The fact that the Commission has never tried to

establish a quota or to bar contracts in any amount goes

far to establish that it does not possess such power.

F.T.C. v. Bunte Bros., Inc., 312 U.S. 349 (1941). See

FPC v. Panhandle Eastern Pipeline Co., 337 U.S. 498 (1949);

Chapman v. El Paso Natural Gas Co., 204 F.2d 46 (D.C.

Cir. 1953). In F.T.C. v. Bunte Bros., Inc., the Supreme Court

was asked to determine the limits of the Federal Trade Commission's powers of regulation with respect to intrastate

-50-

commerce. The Court held that the Commission was without

authority under Section 5 of the Federal Trade Commission

Act to prevent a candy manufacturer within a state from

selling, wholly within that state, candy in so-called

"break and take" assortments. In argument before the

Court, the Commission urged that its powers were not so

restricted and that it could also proscribe unfair methods

used in intrastate sales when these result in a handicap

to interstate competition. After a discussion of Section 5,

Mr. Justice Franfurter pointed out in his opinion that the

Commission has to prove the use of an unfair method in

interstate commerce (312 U.S. at 351-352):

"That for a quarter century the Commission has made no such claim is a powerful indication that effective enforcement of the Trade Commission Act is not dependent on control over intrastate transactions. Authority actually granted by Congress of course cannot evaporate through lack of administrative exercise. But just as established practice may shed light on the extent of power conveyed by general statutory language, so the want of assertion of power by those who presumably would be alert to exercise it, is equally significant in determining whether such power was actually conferred."

-51-

The historical non-exercise of an asserted power

has frequently been treated as proof of its non-conveyance

by the Supreme Court. In FPC v. Panhandle Eastern Pipeline

Co., supra, the Supreme Court said (337 U.S. at 513-514):

"Thus for over ten years the [Federal Power] Commission has never claimed the right to regulate dealings in gas acreage. Failure to use such an important power for so long a time indicates to us that the Commission did not believe the power existed. In the light of that history we should not by an extravagant, even if abstractly, possible, mode of interpretation push powers granted over transportation and rates so as to include production."

The same rationale was employed when the Court

of Appeals for the District of Columbia decided, in

Chapman v. El Paso Natural Gas Co., supra, that the Sec

retary of the Interior did not have the power to impose

conditions on grants of licenses in the nature of specific

and detailed regulations and conditions for operation of

pipe lines as common carriers. The Court said (204 F.2d

at 51):

"It is significant, also, that for thirty-one years the Secretary of the Interior has made no such extensive effort at regulation, thus leaving at least a question that he did not consider the authority to exist."

-52-

We are emphatically not saying, by the above

argument, that the Commission's hands are tied from

barring new abuses or preventing new unfair or deceptive

or false acts simply because those abuses and acts did

not previously require Commission action. Congress did

not catalogue the acts the Commission should prevent

because investigators saw that new practices would spring

up which should be controlled (such as deceptively shaving

sandpaper on television). But Congress knew, both in 1914

and in 1938, and the FTC has always known, that every day,

everywhere, there are persons who have made or will make

contracts which some third party (such as a Commission

staff attorney) might think were improvident in amount, or

who have ordered or will order more goods or services than

such third party would judge frugal. Both the Congress

and the Commission have, over more than half a century,

deemed it beyond the purview of sound governmental action,

as called out by Section 5, to try to regulate such matters

or dictate such third-party views.

Nothing has occurred since 1914 to make it less

impossible for someone in Washington to decide what

quantities of any commodity or service each of 200,000,000

-53-

people might wisely buy. Nothing has happened to make

what was deemed not unfair over the past five decades,

unfair now. d. The reenactment of Section 5

in 1938 without expansion of the definition of unfairness to include regulation of contract quantum shows that Congress did not intend such regulation.

There is another compelling reason to believe that

the Commission does not have the power its staff here seeks

to exercise. As stated above, prior to the Wheeler-Lea

Amendment, the Commission had never attempted to control

contract size. Congress, in adopting this amendment, did

not seek to enlarge the types of practices the Commission

could bar, but solely to remove the requirement of injury

to competition. See Wolf v. F.T.C., supra, 135 F.2d at

567; Fresh Grown Preserve Corp. v. F.T.C., 125 F.2d 917,

919 (2d Cir. 1942).

As was stated in Scientific Mfg. Co. v. F.T.C,

supra, 124 F.2d at 643:

"The public interest to be served is no different under the amendment than it was under the original Act."

288

-54-

The truth of this statement is demonstrated by the legisla

tive history of the Wheeler-Lea Amendment. See Report of

Committee on Interstate and Foreign Commerce, 75th Cong.

1st Sess., House Reports 1613, p. 1; letter on behalf of

the Federal Trade Commission by Acting Chairman Ferguson

to Senator Wheeler, Chairman of the Senate Committee on

Interstate Commerce, printed in report of hearings on

S. 3744, p. 6; and explanation of the amendment by Congress

man Wolverton, Congressional Record, 75th Cong. 1st Sess.,

p. 551.

That the Wheeler-Lea Amendment was only procedural

in nature is shown by a statement of Congressman Mapes on

the floor of the House that the change in Section 5 was a

"procedural amendment about which there is no controversy."

Vol. 83, Part 1, Cong. Rec. 75th Cong. 3rd Sess., p. 393,

Jan. 12, 1938.

Congress will be presumed, when it reconveys the same

powers, not to have enlarged them beyond their use under

the previous grant. For example, where a statute has been

administered in a particular manner over a period of many

years, and Congress has made no change in the statute which

it reenacted on subsequent occasions, the courts have viewed

-55-

the circumstance as bespeaking Congressional approval of

the interpretation given to the statute in its administra

tion. Corn Products Refining Co. v. C.I.R., 350 U.S. 46

at 53 (1955); Helverinq v. Winmill, 305 U.S. 79 at 83 (1938).

Thus, when Congress amended Section 5 in 1938 solely

to eliminate the necessity of showing harm to competition,

it accepted in all other respects the scope of the Section

as applied by the Federal Trade Commission. The fact that

Congress in 1938 endorsed the Commission's interpretation

of the scope of Section 5 is competent evidence that the

power to regulate contract size never existed and was not

granted to the Commission by the enactment of the Wheeler-

Lea amendment.

3. Section 5 does not authorize the per se contract size rule sought here.

In order to rule that the making of contracts between

respondents and any member of the public with an outstanding

balance of more than $1,500 at any one time constitutes a

Section 5 violation, staff counsel must show the act to

be an unfair or deceptive practice or an unfair method of

competition. This they have not done. There was no charge

-56-

here, or evidence introduced, that there is anything

deceptive about a $1,500 contract — and such a charge

would be patently ridiculous.

Similarly, there has been no claim or evidence that

the making of such contracts constitutes an unfair method

of competition. One has always been permitted to exclude

a competitor by contracting to provide services the com

petitor might otherwise provide, if the contract did not

bar the use of the competitor's services. Tampa Electric

Company v. Nashville Coal Co., 365 U.S. 320 (1961).

Left, then, is the question of unfair practice — a

question never raised by the complaint. What is an unfair

practice? The Commission staff, admitting that it is

trying to make new law (Brief in Support, p. 9), endeavors

to equate unfairness with unconscionability (Brief in

Support, p. 10). But "unconscionability" is not a per se

matter.

a. The circumstances under which contracts are made, and not their size, de-termines "unconscionability."

Unconscionable contracts have meant to courts of

equity contracts which, considering the circumstances under

-57-

which they were made, were so unfair as to forbid their

enforcement or to require their reformation. Campbell

Soup Co. v. Wentz, 172 F.2d 80 (3rd Cir. 1948); Indianapolis

Morris Plan Corporation v. Sparks, 132 ind. App. 145,

172 N.E. 2d 899 (1961); Henningsen v. Bloomfield Motors,

Inc., 32 N.J. 358, 161 A.2d 69, 84-96 (1960); 1 Corbin,

Contracts §128 (1963); 4 Pomeroy Equity Jurisprudence

§1405(a) (5th ed. 1941); 11 Williston, Contracts §1425

(3rd ed. 1968).

Fundamental to a demonstration of unconscionability

has been proof of oppression and unfair surprise. U.C.C.

§2-302, Comment 1; Frostifresh Corp. v. Reynoso, supra,

274 N.Y.S. 2d at 759; Bargaining Power and Unconscionability:

A Suggested Approach to UCC Section 2-302, 114 U. Pa. L. Rev.

998 (1966); Note - Unconscionable Contracts: The Uniform

Commercial Code, 45 Iowa L. Rev. 843, 849 (1960). No pre-

U.C.C. or post-U.C.C. case has been found where a contract

was held to be unconscionable solely because, and only on

the basis, of the quantity of services to be provided or

the price to be paid therefor.

-58-

U.C.C. §2-302, Comment 1, reads in part as follows: "This section is intended to make it

possible for the courts to police explicitly against the contracts or clauses which they find to be unconscionable. In the past such policing has been accomplished by adverse construction of language, by manipulation of the rules of offer and acceptance or by determinations that the clause is contrary to public policy or to the dominant purpose of the contract. This section is intended to allow the court to pass directly on the unconscionability of the contract or particular clause therein and to make a conclusion of law as to its unconscionability. The principle is one of the prevention of oppression and unfair surprise (Cf. Campbell Soup Co. v. Wentz, 172 F.2d 80, 3rd Cir. 1948) and not of disturbance of allocation of risks because of superior bargaining power. "

The Code frames unconscionability in terms of the

circumstances of the individual case. U.C.C. §2-302(2)

reads as follows: "When it is claimed or appears to

the court that the contract or any clause thereof may be unconscionable the parties shall be afforded a reasonable opportunity to present evidence as to its commercial setting, purpose and effect to aid the court in making the determination."

This provision, as well as §2-302(1), has been considered declarative in effect of the common law of the District of

-59-

Columbia. Williams v. Walker-Thomas Furniture Co., supra,

350 P.2d at 448-449. As was said in the Williams case

(350 F.2d at 449): "Unconscionability has generally

been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. Whether a meaningful choice is present in a particular case can only be determined by consideration of all the circumstances surrounding the transaction." (Emphasis added).

Again, the Court of Appeals said (350 F.2d at 450):

"In determining reasonableness or fairness, the primary concern must be with the terms of the contract considered in the light of the circumstances existing when the contract was made. The test is not simple, nor can it be mechanically applied." (Emphasis added).

The Court held that the one-sided contract in

Williams could not, without more, be declared unconscionable.

After establishing what factual aspects the lower court

should consider, it sent the case back to it to make the

necessary determinations (350 F.2d at 45*0). The Commission recognizes in its own rules that it

cannot and should not act on or decide private controversies (§2.3 FTC Rules of Practice). It can act only where the

-60-

public interest requires a rule of universal application.

Unconscionability is not, under either the common law or

the Code, a per se doctrine. There are no contracts which

are per se unconscionable, in amount or otherwise. Each is

unconscionable, if at all, only in relation to the peculiar

facts and circumstances of its making. As complaint counsel

have recognized (Brief in Support, p. 11) :

" . . . the facts herein do not involve a traditional situation for applying the principle of unconscionable con-

To enact a prohibition that would apply to each and

every dance studio customer, irrespective of his finances

and preferences as to use of his money, and in derogation

of his freedom of contract, would be to pervert the concept

of unconscionability.

C. Conclusion As To Limitation On Contract Amount.

By proposing a limitation on the size of respondents' contracts, staff counsel are asking the Commission to strike down a practice they recognize as lawful and to claim a power which was neither expressly sanctioned by Congress nor ever previously asserted.

-61-

The staff has failed to prove that it is unfair in

fact to respondents' customers as a class, or contrary to

the public interest, to hold contracts with respondents

with outstanding aggregate balances of $1,500 or more

(supra, pp. 27-34). Neither has it proved that such con

tracts have been the means or tools for illegal practices

or are necessary for the prevention of such practices in

the future (supra, pp. 34-37). It has not met respondents'

evidence as to the economic disaster such a rule would

create for respondents and the advantages it would take

away from respondents' customers (supra, pp. 33-34). It

has failed to demonstrate wherein the accepted provisions

of the proposed consent order will not adequately protect

the public against acts the order will prohibit (supra,

pp. 35-37).

Imposition of a dollar limitation on respondents

would require the Commission to enter a field of regulation

never heretofore invaded by a federal administrative body

without an express Congressional mandate (supra, pp. 38-40).

That the Commission is not empowered to control contract

size is demonstrated by its refraining over half a century

from doing so (supra, pp. 40-53) and by the Congressional

-62-

confirmation in 1938 of its previously asserted juris

diction (supra, pp. 53-55). Furthermore, the making of

contracts above a certain size does not, as a matter of

law, constitute a per se violation of Section 5, and there

are no circumstances generally or universally applicable

to dance studio patrons which make such contracts per se

.unfair (supra, pp. 55-60).

The Hearing Examiner should reject the staff's

request.

II. THE COMMISSION'S CEASE AND DESIST ORDER SHOULD NOT BE EXTENDED TO ENCOMPASS "OTHER SERVICES" RENDERED BY THE INDIVIDUAL RESPONDENTS.

The other exception respondents have taken to the

proposed order is to the provision which would make its

restrictions applicable to "other services" which may

hereafter be rendered by the individual respondents.

The impropriety and injustice of such an imposition

has been shown in our December 8, 1969 Brief. This showing

need not here be repeated. Only one point need be stressed. None of the Court decisions cited by the staff

(Brief in Support, p. 4), in which orders encompassing other products were sustained, involved the individual respondents

-63-

in other than the activities of the corporate respondents.

In F.T.C. v. Colqate-Palmolive Co., 380 U.S. 374 (1965),

the company was at the time selling other products adver

tised through the same channels (380 U.S. at 395), and

furthermore, there were no individual respondents involved.

In Benrus Watch Company v. F.T.C, 352 F.2d 313 (8th Cir.

1965) the order applied to individual respondents but

embraced only Benrus products (352 F.2d at 324). If those

respondents left Benrus, the order would no longer affect

them. The affirmance of an order encompassing "any other

products" in Niresk Industries, Inc. v. F.T.C, supra,

seems to have been based on the fact that "Petitioners

market a large number of products in commerce." 278 F.2d

at 343. The respondents here have not been shown to be

involved in any other service business than dance instruction.

It is recognized that the Commission in Thermochemical

Products, Inc. et al., 3 Trade Reg. Rep., 518,862, at 21,194

(1969), and General Transmissions Corp. of Washington, et al.,

3 Trade Reg. Rep., 518,254, at 20,650 (1968) entered orders

applicable to "other services." In Thermochemical, however,

such an order was prompted by the fact that certain of the

individual respondents had been involved in prior Commission

-64-

proceedings involving deceptive practices (518,862, at

21,201 n.25). In General Transmissions there was ample

evidence that the individual respondent, Dlutz, was deeply

involved in the corporation's business (518,254, at 20,657-

20,658).

The individual respondents here have stipulated

solely for the purpose of entering into a consent order

that they formulated, directed and controlled the acts and

practices of the respondent corporations. Consequently,

the statement by the Commission in The Lovable Company,

et al., [1965-1967 Transfer Binder] Trade Reg. Rep.,

517,282, at 22,386, 22387 (1965) is equally applicable

here:

"There is no warrant in the record for finding that they [the individual respondents] do any of these things except in their capacities as officers. To justify naming an officer as an individual there must be something in the record suggesting that he would be likely to engage in these practices in the future as an individual."

In order to reach a settlement, the individual respondents declined to seek exclusion from the order in their individual capacities as they would have been fully justified

299

-65-

in seeking. They certainly are justified in insisting

that the order not be made to apply to other businesses

they, as individuals, may elect to enter. Neither Thermo-

chemical Products, Inc. nor General Transmissions Corpora

tion of Washington serves as precedent for such a sweeping

order. See Bascom Doyle v. F.T.C., 356 F.2d 381 (5th Cir.

1966).

For the foregoing reasons, and for the reasons

stated in our Brief of December 8, 1969, the words "other

services" should not be included in the preamble to the

order.


Paul F. Hannah

Tom M. Schaumberg Counsel for Respondents

June 8, 1970

r^V

APPENDIX A

MCKEE

HAILMAN

LAP IN

STAMBAUGH

RIDDLE ( n e e HOLTON)

EFFECT OF STIPULATED CANCELLATION PRIVILEGE

AMOUNT OF TIME CONTRACT CONTRACT NO. OF UNUSED HOURS UNTIL CONTRACT

NAME DATE AMOUNT (?) CX NO. HOURS PURCHASED

REMAINING AT CONTRACT DATE 1 /

BECOMES UN-CANCELABLE 2 /

(weeks)

1 / 1 6 / 6 4 10 1 4 0 1 TEMPLEMAN 2 / 1 / 6 4 2 2 3 2 20 0 1

2 / 1 3 / 6 4 798 • 3 6 0 18 3 / 19 3 / 7 / 6 4 3 , 1 7 2 4 240 75 76

3 / 4 / 6 4 10 15 4 0 1 3 / 1 4 / 6 4 798 17 • 65 0 1

MUMMERY 8 / 8 / 6 4 8 4 8 18 6 5 1 7 . 5 4 / 8 9 / 1 9 / 6 4 1 , 3 3 2 . 80 19 50 7 1 . 2 5 2 9 . 5 1 0 / 2 2 / 6 4 1 , 8 0 3 20 120 110 45

1 2 / 2 8 / 6 4 12 /29 /64

55 33 8,033.50 5 / 34

3 350 102 6 /

1 /11/67 1 /27/67 3 / 7 / 6 7

15 3 2 6 . 5 4

1 , 5 7 0 . 3 1

40 41 42

5 8 / 67 8 / 93

0 0

10 /15 /63 4 , 3 0 0 1 0 / 50 254 80 1 1 /

9 /20 /63 4 , 0 0 0 1 3 / 53 215 285 1 4 /

1 /4 /65 1 /9 /65

438 5 , 1 8 8 . 1 8

64 65

50 292

0 47 1 6 /

Footnotes f o l l o w on pages A-2 and A-3 CO O

1 52 7 /

1 1

21 9 /

33 1 2 /

72 .25 1 5 /

1 20 1 7 /

FOOTNOTES

I

1/ This column is calculated by subtracting from the total hours purchased the number of hours used weekly according to the witness' testimony.

2/ This column is calculated by dividing the number of hours used weekly into the total unused hours and then adding one week in accordance with paragraph 10(a) of the stipulated order. Where there are no unused hours, paragraph 9 of the stipulated order provides a one-week cancellation period.

3/ She was taking a maximum of one hour per week. (Tr. 455) .

4/ She was taking two or three hours of instruction per week. (Tr. 501). For purposes of calculation, 2.5 hours per week was used.

5/ $2,000 of this amount was for a trip to Hawaii. (Tr. 620). She was an Arthur Murray student since 1953 (Tr. 617) and had taken 1,420 hours of instruction. (Tr. 622).

6/ Tr. 618.

7/ She was taking two hours of instruction per week. (Tr. 620-21) .

8/ This figure includes studio parties specifically provided for in the contract.

9/ Calculated on basis of number of weeks remaining in Holiday Dance Club membership.

10/ She was an Arthur Murray student since 1950 and had taken 1,500 hours of instruction between 1950 and 1963. (Tr. 714).

11/ Tr. 702.


13/ She was an Arthur Murray student since 1953. (Tr. 771).

o to

14/ Tr. 776.

15/ She was taking four hours of instruction per week. (Tr. 792) . 16/ She had three lessons the first week. (Tr. 1233) .


> i CO

CO o CO

B-l

APPENDIX B

Proposed Order

IT IS ORDERED that respondents Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:



B-2


Representing on any postal cards sent through the United States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of:


(b) The full name and address of the offer or of the gift, and


Representing, directly or by implication, that the Party Time Club or the Holiday Club, or any other club, group or organization offers members a program of activities such as daily or

B-3





9. Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-point bold type:

B-4




(a) Any additional contract for lessons shall expressly state therein that such contract is subject to cancellation by such student or prospective student, with or without cause, at any time up to and including one week after the completion of the units of dancing instruction previously contracted for, without cost or obligation, except that a charge may be made for not in excess of two additional lessons furnished during such week; and

(b) Any additional contract for lessons shall expressly state that any moneys or other consideration, except as exempted in sub-paragraph (a) hereof, tendered to the respondents for additional dance lessons will be promptly returned when such contract is cancelled within the time period specified in subparagraph (a) hereof; and

B-5



Failing to deliver to each party a copy of every contract entered into by such party providing for dancing instruction or other services.

Failing to deliver a copy of this order to cease and desist to all present and future employees, instructors, or other persons engaged in the sale of respondents' services, and failing to secure from each employee or other person a signed statement acknowledging receipt of said order.

Failing to post in a prominent place in each studio a copy of this cease and desist order, with the notice that any student or prospective student may receive a copy on demand.

Failing, after the acceptance of the initial report of compliance, to submit a report to the Commission once every year during the next three years describing all complaints of which respondents have notice respecting unauthorized representations, all complaints which respondents have notice respecting representations by salesmen which are claimed to have been deceptive, the facts uncovered by respondents in their investigation thereof and the action taken by such respondents with respect to each such complaint.


^ r RECEIVED ^

JUN 1 91970

SECRETARV

DOCKET NO. 8776

IN THE MATTER OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and

VICTOR F. HORST and. EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations.

REPLY OF RESPONDENTS TO THE STAFF'S PROPOSED FINDINGS AND ORDER


Gadsby & Hannah 1700■Pennsylvania Avenue, N.W. Washington, D. C. 20006

June 19, 1970 Counsel for Respondents 326

INDEX

THE PROPOSED ORDER GOES BEYOND THE PROPER SCOPE OF THE HEARINGS AND THE STAFF HAS FAILED TO SUSTAIN ITS BURDEN ON THE SINGLE MATTER IN ISSUE 1 A. The Order Now Proposed By The Staff

Is In Flagrant Disregard Of Its Own Prior Undertakings, Its Agreements With Counsel For Respondents And The Scope Of The Hearings As Framed By The Hearing Examiner 1

B. The Staff Has Failed To Show Either That Respondents' Dance Contracts In Excess Of $1500 (1) Are Illegal Per Se Or (2) Are Tools Whereby Illegal Acts Are Accomplished 6 1. The staff's proposed findings

do not support the $1500 limitation and those findings which were not stipulated are not supported by a preponderance of the evidence 11

PROPOSED FINDINGS

19 11

21 16

22 16

24 20

25 20

26 22

27 32

Page PROPOSED FINDINGS, cont'd.

28 ,. . . . 24

29 32

30 30

31 . . . ■ 32

32 14

33 32

34 42

35 26

36 32

37 . . . 26

38 14

40 . . . . 14 43 47

II. CONCLUSION - 47 Appendix A A - l

ln r

i i

328


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776

REPLY OF RESPONDENTS TO THE STAFF'S PROPOSED FINDINGS AND ORDER

THE PROPOSED ORDER GOES BEYOND THE PROPER SCOPE OF THE HEARINGS AND THE STAFF HAS FAILED TO SUSTAIN ITS BURDEN ON THE SINGLE MATTER IN ISSUE.

The Order Now Proposed By The Staff Is In Flagrant Disregard Of Its Own Prior Undertakings, Its Agreements With Counsel For Respondents And The Scope Of The Hearings As Framed By The Hearing Examiner.

-2-

The commission staff, without amendment of the

complaint, without prior notice to respondents' counsel,

without the taking of any. evidence on the issues, and in

disregard both of its agreements with counsel and the order

of the Hearing Examiner reopening the record, is trying

at this late date to impose additional, more restrictive

and unprecedented sanctions on respondents. Paragraphs 1,

10, 11, 12, 13, 14, 15, 18 and 19 of the staff's proposed

order have been revised. Among others, these deviations

from the agreed-to order increase the contract cancellation

period from the agreed upon seven to fourteen days? require

refunds on canceled contracts to be made in five days with

interest to be paid to the customer at 18% per annum;

bar absolutely the making of contracts with a student with

more than fifteen untaught lesson hours; place a one-year

time limit on all contracts; impose a bond equal to 25%

of the previous year's gross business conditional on the

occurrence of unfair and deceptive practices, whether or

not embraced by the order in this case; and require re

spondents orally to inform every student of the order.

Such proposals at this stage of the proceedings, are the prod

uct of unparalleled effrontery on the part of staff counsel.

-3-

The agreement between the parties as to the exact

form of the Order, as to the one issue on which testimony

was to be taken, and as to the two issues that were to be

briefed, was complete, unequivocal and clear.

The parties have been in agreement since November

1969 that the only contested matters in this proceeding

are: 1) the words "or other services" in the preamble of

the proposed order and 2) that paragraph of the proposed

order which would place a $1500 limitation on respondents'

contracts for dance instruction (TR 123). As has been

fully discussed elsewhere, it was respondents' further

understanding that these issues would be resolved strictly

on the stipulated facts and on briefs to be submitted by

counsel. (See Opposition to Motion to Reopen Record and

Request for Permission to File Interlocutory Appeal.)

Staff counsel succeeded, however, in having the

record reopened for the reception of evidence. They

moved (Motion to Reopen Record, p. 1):

"that the Examiner reopen the record for the reception of further evidence to support the prohibition in the proposed order that respondents be prohibited from entering into one or more contracts with students or prospective students of respondent dance studios when said students are indebted to respondents in excess of $1500."

-4-

The concluding paragraph of that motion stated plainly,

clearly and unequivocally (p. 2):

"complaint counsel request that the Examiner reopen the record for the limited purpose of introducing evidence on the $1500 contractual provision." (Emphasis added).

The order of the Examiner reopening the record, dated

January 19, 1970, was just as explicit (p. 3):

"IT IS ORDERED that the record for the reception of evidence in this proceeding be, and the same hereby is, reopened for the limited purpose requested in the aforesaid motion by complaint counsel." (Emphasis added).

On March 13, 1970, the Hearing Examiner

further order wherein he stated the background

with great precision and detail. This was the

entered before hearings commenced on March 30,

that order the Examiner reiterated, as follows "Complaint counsel on January 5,

1970 moved to reopen the record for the reception of further evidence in support of and confined to the Paragraph 9 $1500 indebtedness limitation on dance studio obligations owing the respondents by any party at any one time."

entered a

of the case

final order

1970. In

(p. 2):

-5-

Beginning in November 1969, throughout the pre-

trial period and during the four weeks of hearings,

everyone concerned with this proceeding was in clear

agreement as to the limited nature of the issues. There

was never even a suggestion that complaint counsel would

seek, at the last minute, so grossly to alter the scope

of the hearings.

in Carnation Co., 52 FTC 998, 999 (1956), the

Commission stated: "Agreements between counsel should

not be entered into lightly and when entered should be observed to the letter. They should be withdrawn or abrogated by the Commission only under conditions which would permit no other course." {Emphasis added).

There have been cases, as in P. Lorillard Co. v.

FTC, 186 F.2d 52 (4th Cir. 1950), where the Commission

found "no other course." Such cases have been few; but

never has the Commission authorized the staff, sua sponte,

without notice and without affording respondents an oppor

tunity to make a record, to abrogate its agreements as to

the issues involved in an adjudicative proceeding. Further

more, the conditions have not been shown to be such as

permitting "no other course." No reasons have been given,

-6-

nor necessity shown for the change in the agreed-to posture

of this case.

Many of the Commission's substantial achievements

in the public interest result from stipulations and consent

orders. These enable it to handle the great case load it

annually disposes of; without them, its results would be

far less. The atmosphere of confidence and respect that

has developed over the years between the Commission and

the private bar will quickly disappear if the staff cannot

be counted on to keep the agreements it makes.

We must insist that the Hearing Examiner disregard

the staff's newest proposals and limit his consideration

to the issues framed by the agreements of counsel as re

flected by the Examiner's orders.

B. The Staff Has Failed To Show Either That Respondents' Dance Contracts In Excess Of $1500 (1) Are Illegal Per Se Or (2) Are Tools Whereby Illegal Acts Are Accomplished.

After 16 days of hearings where 23 witnesses presented testimony, complaint counsel have submitted proposed findings and a brief wherein they at no point explain the significance of the $1500 provision. To anyone reading the staff's proposed findings and brief, it would appear that

-7-

they are attempting to prove a Section 5 violation requiring

the imposition of a standard cease and desist order. There

is nothing in these findings and certainly nothing in

counsels' three-page brief that would justify the extra

ordinary and unprecedented remedy that is being sought.

Before placing a monetary limitation on consumers

desiring to do business with respondents, the staff should

be required to prove first, that the Commission has such

powers, and secondly, that, absent such a limitation, con

sumers will continue to be subjected to the unfair acts

and practices alleged in the complaint. Alternatively, it

would have to be shown that any contract in excess of that

dollar limitation is in itself an unfair act or practice

which the Commission must stop in the public interest.

Neither the staff's findings nor its brief attempts to show

that either of these is the case. They at no point make

the necessary connection between the nature of the practices

and the dollar amount of the contracts involved. While it

has been alleged that respondents' customers have entered

into contracts for amounts in excess of $1500, neither the

record nor these findings demonstrates how such contracts

differ in any regard from contracts of a lesser amount.

-8-

Complaint counsel undertook to prove (Motion to

Reopen Record, p. 2):

"the unconscionable nature of respondents' contracts in excess of $1500"

and that "$1500 is a fair balance between the practical business need of an operator of a dance studio and an equitable and fair amount which a person should be indebted for dance instruction."

The proposed findings do not point to a conclusion

that any contract of more than $1500 is unconscionable.

Furthermore, as we show below, proposed findings crucial

to the conclusions the staff would have the Examiner

draw are based on unreasonable inferences, unsupported

and unsubstantiated conclusions of witnesses, and con

clusions of counsel that lack evidentiary support or

distort the record.

During the hearings complaint counsel failed

altogether to show that $1500 is an appropriate balance

between their concept of what is fair to the consumer and

the business needs of the studio operator. Even their

own expert witness, Mr. Graham, testified that there are

economies to the student in purchasing a complete program

-9-

(TR 1568) and that his studio sells contracts in excess of

$1500 when that is required to take a student through a

particular program (TR 1591-1592).

The weakness of the staff's case is further demon

strated by their failure to present any statistical data

with regard to the operation of respondents' studios. In

that connection, complaint counsel made an application for

access to certain records of respondents. Among these

were contracts for the sale of dance instruction and records

showing income and expenditures. It was explained in this

application, dated February 24, 1970, that (p. 2):

"These records are necessary to establish the practical business needs of the respondents as operators of dance studios. Complaint counsel must necessarily examine the documents prior to hearings in order to facilitate the orderly presentation of evidence. The documents sought must be carefully examined and compared prior to their tender in evidence."

It was apparently the intent of complaint counsel to demonstrate through respondents' records that a dance studio could be operated profitably under the $1500 limitation. In this regard, complaint counsel also stated their

-10-

intent to call the individual respondents in order to

question them about their operations, expenses and income

(TR 296). For reasons best known to them, complaint counsel

did not call respondents. Moreover, while they did offer

respondents' royalty reports into evidence (CX 86-294), no

use whatever has been made of them by the staff. It is

certainly a fair inference that the staff could find no

basis in fact that "$1500 is a fair balance between the

practical business need of an operator of a dance studio

and an equitable and fair amount which a person should be

indebted for dance instruction."

Rather than addressing themselves to the question

of relief, what complaint counsel have sought to do is to

show the magnitude of the Section 5 violation, thereby

hoping through emotional response to obtain the extra

ordinary and unnecessary relief sought. They have failed

to make the rational, legal arguments necessary to show

that, without the $1500 provision, the order already agreed

to by the parties will not have the desired effect of in

hibiting all of the practices described; nor have they

made the more difficult argument that contracts above a

certain dollar amount are in and of themselves illegal.

-11-

1. The staff's proposed findings do not support the $1500 limitation and those findings which were not stipulated are not supported by a preponderance of the evidence.

PROPOSED FINDING 19

Respondents have been successful in attracting to their studios middle-aged prospective students who were either unmarried, divorced, widowed or were experiencing marital difficulties.

This proposed finding implies that respondents have

been successful only in attracting middle-aged students

who were either unmarried, divorced, widowed or were

experiencing marital difficulties. The record shows that

the witnesses appearing in this case were not intended to

and do not in fact comprise a representative sample of

respondents' student body.

Mrs. Shane, when asked about the age group of

the people who attended social functions at respondents'

studios, answered that they were "anywhere from the age

of 19 to 80" (TR 1705). Mrs. Mummery testified that she

had brought her daugher, who was "17 or 18 years old at

that time" (TR 549), to the studio to take an introductory

course. Not only do these two facts of record indicate

-12-

that the witnesses in this case were not at all represen

tative of respondents' students, but there is nothing in

the record which shows that they are or were intended to

be representative.

A finding that students having the characteristics

ascribed to them by complaint counsel attended respondents'

studios because they derived pleasure from their attendance

can indeed be supported by the evidence in this case.

Mrs. Templeman testified that dancing helped her to

get her mind off her problems (TR 363) , and that she had

the opportunity to fulfill a lifelong desire to travel

(TR 380). Dancing also permitted her to get exercise and

to get out of her home and mix with people (TR 406-407) .

Mrs. Mummery said that she enjoyed dancing (TR 542)

and that it was beneficial physically and aesthetically

(TR 543-544).

Mrs. McKee made a most interesting comment con

cerning a trip she was considering taking (TR 622): "And I didn't know whether I was

equal to going on the trip or not, but since he was a super salesman and convinced me that I could — and I found that I was equal to the trip, so far as that was concerned, it was all

-13-

right. But it was something I wanted — and I also wanted to dance. It was just a question that I had to be talked into a lot of it in order to do it." (Emphasis added).

She also said that dancing was her only form of recreation

and that it was therapy for her (TR 656).

For Mrs. Lapin, dancing is a way of life (TR 714),

a hobby, a sport, and an art form (TR 715); while for

Mrs. Shane, dancing is a form of recreation and exercise

(TR 1699).

Mr. Trout went to respondents' studios to make

"social contacts" and to meet people (TR 2050). "It was

a form of social activity that really attracted me first"

(TR 2080) .

Mrs. Carr stated frankly that "I didn't want pity

but I am a widow and I have very few chances to go out

and dance . . . ." "I was in an all-women's world, and

this seemed to me to be a wholesome type of activity . . .

and I am completely enthusiastic with what is occurring

and the pleasures I receive . . . " (TR 2131). Along

similar lines, Mrs. Leary testified that dancing was a

nice form of recreation, good socially, and particularly

good for women who are either widowed or without an

escort" (TR 2197).

-14-

Thus, the record shows that respondents were indeed

successful in attracting and satisfying students having the

characteristics of the witnesses.

PROPOSED FINDINGS 32, 38 and 40 32. In the course and conduct of their business,

respondents have utilized sham "dance analysis tests" allegedly for the purpose of evaluating a student's ability, progress or proficiency in dancing, when in fact, individuals taking such tests are given similar test results regardless of their dancing ability, aptitude or proficiency.

38. Respondents used "relay salesmanship," involving successive efforts of a number of different Arthur Murray representatives who, in a single day by force of number and unrelenting sales talks, and aided occasionally by hidden listening devices monitoring conversation with the prospect or student, attempt to persuade and do persuade a lone prospect or student to sign a contract for dancing instruction.

40. Respondents represent to students or prospective students that upon completion of a given course of dancing instruction the student will have achieved a specified standard of proficiency, whereas, in fact, before the given course of dance instruction is completed and achieved, the prospect or student is subjected to further coercive sales efforts toward the purchase of additional instruction in dancing.

These proposed findings are the same, respectively, as paragraphs 13(1), 13(3) and 13(2) of the Complaint to which respondents have stipulated (TR 98). However, counsel for respondents withdrew these stipulations when it became

-15-

. apparent that, despite agreement that these acts had

occurred, evidence was being introduced to prove them

(TR 373-374; 474-475; 530-532). This was done only for

purposes of the hearing on the $1500 issue so that cross-

examination could be conducted without the ethical restraint

of a prior stipulation (TR 532).

The only justification for introducing additional

evidence as to these stipulated paragraphs would have been

that such evidence would help to support the $1500 con

tractual limitation sought by the staff. We find, however,

that complaint counsel have not demonstrated any correla

tion between these subparagraphs of the complaint and the

$1500 provision.

The fact of the matter is that respondents have

already stipulated that they will cease and desist from

all of the practices alleged in these proposed findings

(TR 115, paragraphs 6, 7 and 8 of the proposed order issued

with the complaint). No new evidence has been introduced

by complaint counsel that would cast any doubt on the

efficacy of these provisions in the agreed-to order to

stop the practices alleged in proposed findings 32, 38 and

40.

-16-

PROPOSED FINDINGS 21 and 22 21. The four hour "junior procedure" and other

interviewing procedures employed by respondents were designed and utilized by respondents to elicit information regarding the students' personal background to assist respondents in monetarily capitalizing on the students' personal problems.

22. The four hour "junior procedure" was utilized by respondents to discover the student's "X-factor" which was that element of a student's personality that made the student most emotionally sensitive and irrational.

Complaint counsel, in part through their witness

Crocco, have twisted respondents' prescribed method of

sale so as to make it appear quite sinister. This has

been accomplished by frequent reference during the pro

ceedings to the "junior procedure" and to the "X-factor,"

a term which appears nowhere in any of respondents'

instructional materials.

First of all, there is nothing magic about the four

hour junior procedure (CX 59a): "The [principle] of this procedure

lies solely on the fact that the student's height of interest and excitement towards dancing will be reached between the 3rd and 4th hrs."

Similarly, there are no dark secrets surrounding the X-factor. As was explained by Mr. Chapman (TR 1925):

-17-

"Originally the X-factor came from a very prominent man's book, Elmer Wheeler. An X-factor is simply the reason why somebody buys something. Your reason or your reason or your reason. That is what we mean. Why do you want to buy what you are buying?

"It can be used, for instance, in the advertising for Dodge. They have got this good looking chick sitting over in the corner and saying, 'I understand you want a Charger,' or something like that, and it appeals to certain X-factors and people."

As the Examiner pointed out, the issue is not whether

the X-factor was used but whether it was misused (TR 1925-1926).

There is no question that it was misused by the witness

Crocco. As he himself acknowledged, he was a man of little

conscience (TR 963) who abused the sales techniques that

he had been taught. On the witness stand, he seemed to

relish telling the story of how he was able to sell dancing

lessons to a woman who had suffered at the hands of the Nazis

(TR 835). The only question perhaps is who was worse, the

people who persecuted her or the man who took full advantage

of her sorry past.

Mr. Crocco's clinical observations speak for them

selves (TR 836):

-18-

"I remember all of the things that I learned about Miss Stuerckow, because she was an interesting student and because she had such an interesting background, and because there was a factor in it which brought me halfway home to a big sale."

At another point, Mr. Crocco characterized this

student's past as "beautiful" for his purposes (TR 839):

"To get back to my 'Past is Black' formula, with respect to this particular student, Brunhilde Stuerckow, the ingredients were ready made of a beautiful 'Past is Black.' She had a very unhappy existence from 1939-1945. She did not know from one day to the next whether she was going to eat. Interned at the end of the war, most of her relatives, I understand, were killed in one way or another."

Significantly, when asked to give less "extreme" examples,

this witness was unable to do so (TR 840). It is submitted that Mr. Crocco's testimony is

entitled to very little weight. At no point was it shown

that his approach was dictated by respondents. He worked

for respondents only 18 weeks (TR 916), in part as a

messenger boy (TR 942-943). His weekly salary was somewhere

between $50 and $75 (TR 927). Such a level of achievement

when viewed in combination with his sadistic performance hardly qualifies this witness as a spokesman for respondents

or respondents' acts and practices.

-19-

Miss Bare viewed her job quite differently. She

was there to help people. As she put it (TR 1420): "I was trying through teaching and

through the enjoyment that [the students] were getting to help them, if not to overcome [the X-factor], at least to forget it, so that they would eventually perhaps overcome it."

The difference between Miss Bare's approach and Mr. Crocco's

is that while Mr. Crocco used the X-factor against the

student, Miss Bare saw the X-factor as something that the

student could "overcome" through dancing (TR 1422-1423).

Complaint counsel offered CX-299 into evidence.

That document, which is an Arthur Murray, Inc. training

manual, was offered because (TR 1624):

"there should be a comparison made between what AMI, the franchisor, provided to the studios as [an] instructional manual and what, in fact, Horst and Mara used in the operation of the studio."

That comparison should indeed be made. It will show that CX 59, 77, 78 and 84, used to support proposed findings 21 and 22, are all based on CX 299. There is nothing improper in any of these documents, and complaint counsel have not shown otherwise. What they have shown is that one individual, witness Crocco, twisted the nature and intent of

these materials.

-20-

PROPOSED FINDINGS 24 and 25 24. In many instances students who executed dance

instruction contracts in amounts exceeding $1500 had to liquidate all or part of financial reserves in order to pay for respondents' dance instruction.

25. As a result of eliminating their reserve capital to pay for dancing lessons from respondents, many students of respondents' studios have incurred substantial financial hardship.

It is suggested in these proposed findings that

students who purchased dance contracts in excess of $1500

had to liquidate all or part of their financial reserves

to do so and consequently incurred substantial financial

hardship. The facts do not support this.

Mrs. Templeman testified that "most" of her yearly

income of five or six thousand dollars was from interest

on securities (TR 415). Assuming that only $4,000 of that

amount was received in interest and that the average in

terest earned was five percent, this would indicate that

Mrs. Templeman had securities valued at $80,000. In

addition, she owned her own home (TR 415).

Mrs. McKee was no stranger to dancing. She had

already taken 1420 hours of instruction and had achieved

the gold bar standard when she signed the contracts re

ferred to in complaint counsels' brief (TR 622-623). Her

-21-

income at that time was $10,000 (TR 624). Nowhere in the

record does Mrs. McKee complain about the money she spent

on dancing and trips. In fact, she recognized it as her

only form of recreation {TR 656). Complaint counsels'

inference of hardship is totally unwarranted.

The same is true for Mrs. Hailman. She was a woman

of substantial means. In fact, her concept of "borrowing"

was taking money out of her savings account and putting it

into her checking account (TR 679)! She had a trust fund

containing securities from which she realized monthly in

come of between $250 and $400 (TR 662-663). Taking $300

as an average of her monthly income from the trust fund,

this would amount to $3,600 annually. If the trust fund

was earning at the rate of five percent, this would indicate

a portfolio worth at least $72,000.

Mrs. Riddle's quoted testimony in no way supports

either proposed finding 24 or 25. The facts do not show

that she liquidated any financial reserves to pay for her

lessons or that she incurred "substantial financial hardship.

Mrs. Mummery was careful to point out on two separate

occasions that her purchases of dance contracts were only

contributing factors to her financial situation, inflation

-22-

being another such factor (TR 514; 583). Her income at

the time she was taking lessons was between $5,000 and

$6,000 (TR 510). Half of this was dividend income (TR 513).

Assuming a seven-percent return (TR 580), this would indi

cate a portfolio valued at between $35,000 and $42,000.

The amount of principal she spent on dance lessons resulted

in an $8 per week reduction in income (TR 581).

The record shows that the students patronizing

respondents' dance studios were persons with middle-class

incomes and solid net worths (Respondents* Proposed Finding

18) .

PROPOSED FINDING 26 Students of respondents' dance studios have attempted

unsuccessfully to obtain refunds for untaught hours of instruction.

There is no support in the record for the proposi

tion that refunds were refused where a student was entitled

to one, and none of complaint counsels' citations is to the

contrary. Their attempt to demonstrate Mrs. Riddle's entitle

ment to a refund is astounding inasmuch as the record clearly shows that Mrs. Riddle contrived with her former

-23-

dance instructor to stamp a cancellation provision on her

contract at least eleven months after that contract was

written (TR 1244; 1267). There can be no doubt that

Mrs. Riddle's credibility is in question (TR 1288).

When Mrs. Riddle requested the refund to which she

was not entitled in any case, she expressed no dissatis

faction whatever with the services she was receiving. The

only reason she gave the studio was the following (CX 68):

"In light of the recent bad publicity and the adverse affect [sic] that it has had on me, both at work and at home, I hereby respectfully request a refund on the unused portion of my program."

Respondents were certainly under no legal responsibility

to give a refund under such circumstances.

The fact of the matter is that on another occasion,

when Mrs. Riddle had signed up for a trip to Puerto Rico,

the studio canceled the contract at her request. She said

she could not afford it and the contract, as written, pro

vided that it was cancellable (TR 1257-1258). Counsels'

insinuation that respondents will not abide by the cancella

tion provision in the order is unfounded and fatuous.

-24-

Counsels' transcript references to the testimony

of Mrs. Mummery, Mrs. Hailman and Mrs. Lap in are mis

leading. Not one of those citations shows that any of

those witnesses ever requested a refund from respondents

before filing suit.

PROPOSED FINDING 28

Respondents have regularly and systematically obtained dance instruction contracts from students who had outstanding contracts with untaught hours of dance instruction.

While respondents have obtained contracts from

students who had contracts outstanding, the agreed-to

order makes such further contracts unconditionally cancelable.

Complaint counsels' statement that it is "blatently obvious"

that the merging of outstanding contracts will frustrate

this provision is not only incorrect as a matter of law

but is unfounded in this record.

Paragraph 8 of the cease and desist order in

Arthur Murray, Inc. et al., 57 FTC 306 (1960) formed the

basis for the cancellation provision already agreed to by

the staff (Brief of Complaint Counsel in Support of the

Contested Provisions of the Order, pp. 15-16, 511(a)).

-25-

This paragraph provides that any contract entered into

while another is in effect is subject to cancellation "at

any time up to and including one week after the completion

of the units of dancing instruction previously contracted

for." To argue that the merging of an outstanding contract

into a new one would make a "nullity" of this provision is

a shallow attempt to discredit an agreement reached between

counsel. (See attached letter of August 29, 1969, from

Mr. Steinman which formed the basis for the statement on

p. 6 of Respondents' Memorandum in Support of Motion for

Reconsideration of Order Contingently Withdrawing Matter

from Adjudication dated September 5, 1969, and the state

ment on p. 2 of Answer to Respondents' Motion for Recon

sideration dated September 11, 1969.)

Not only have counsel been in agreement with regard

to this provision since September 1969, but it effectively

protects the public against multiple contracts even when

one is merged into another. For example, assume a student

has purchased 25 hours of instruction. After 15 hours he

decides to extend this into a 50-hour contract and executes

a new agreement. Whether the new agreement is only for the

additional 25 hours or whether the new agreement is for 50

-26-

hours, thereby superseding the old agreement, the student

has the privilege to cancel the final 25 hours "at any

time up to and including one week after the completion of

the units of dancing instruction previously contracted for."

Since the student still had ten units of dancing instruction

outstanding from the previous contract, there can be no

reasonable doubt that this provision is applicable.

PROPOSED FINDINGS 35 and 37 35. Students or prospective students in many

instances as a result of respondents' unrelenting and emotional sales pressures have executed contract of amounts in excess of $1500 without comprehending the terms of the contracts with respondents.

37. As a result of extreme emotional sales presentations, often of several hours duration, respondents have so confused, confounded and altered the rational judgment of their prospective students and students that said individuals could not properly evaluate the nature of the contractual obligations arising from contracts with respondents.

These proposed findings suggest that the uncon-

tradicted testimony of respondents' students shows they

executed large contracts without comprehending the terms

of the contracts. The record shows that this is not the

case; statements by students show they did, in fact, under

stand the terms of the contracts they negotiated with

respondents.

-27-

Mrs. Templeman, in testifying with regard to her

$6,443 500 Club contract (CX 6), stated: "And if I

joined the 500 Club they would include at no extra expense

a trip to Acapulco" (TR 380). Also, "this is a three-

year thing of the 500 Club, which entitled me to quarterly

dinner dances at the best hotels and restaurants, which

would last for three years" (TR 381). She further stated

that this contract "was for a trip to the so-called Olympics

held in New York, which was included . . . " (TR 408).

The record shows that Mrs. Mummery understood the

terms of both a $1,332.80 contract (CX 19) and a $1,803

contract (CX 20). As to the first, she stated: "Also,

along with it there will be a trip to the World Fair, . . .

with dinner . . . and the Roseland Ballroom dancing . . . "

(TR 482). As to the second, Mrs. Mummery knew the number

of hours involved, the cost, the fact that it included a

one-year 500 Club membership, and her entitlement to 52

technique hours (TR 486). Moreover, when asked whether or

not she understood the number of hours and the associated

cost of all the contracts she purchased, Mrs. Mummery

testified that she did comprehend the contractual terms

(TR 586-587).

-28-

Mrs. McKee, who had been a student since 1953 (TR 613)

and who had already taken 1420 hours of lessons (TR 622),

was aware that her $8,033.50 contract (CX 34) "was to take

a trip to Hawaii, plus the 350 hours of lessons" (TR 620),

and she knew that "I paid my way, a teacher's way, an escort

to Hawaii, and back, plus the expenses for meals and hotels

and entertainment" (TR 625).

The fact that Mrs. Riddle purchased a $5,188.18

contract (CX 65) without understanding its terms is highly

questionable in light of her ability to understand and

refuse similarly large contracts. She stated that the

manager " . . . wanted me to buy a trip, I believe to

Puerto Rico, and also join the 500 Club" (TR 1241). She

refused to purchase either (TR 1241).

Mrs. Stambaugh, a student since 1953, also under

stood the terms of a $4,000 contract (CX 53). She testified

that "This is a 500 Club contract. To be eligible to be

come a member of the 500 Club, you have to have either 500

hours on the books or buy 500 hours" (TR 775-776). And

further, "I want to say that this contract also included

four hotel parties a year for three years, participation

in the dance Olympics for that year, 1963, technique lessons

once a week including formation, for three years" (TR 776).

-29-

Mrs. Lapin, an Arthur Murray student since 1950

who had already taken 1500 hours of instruction (TR 714),

was aware that her $4,300 contract (CX 50) was a 500 Club

contract; she knew that it involved 500 hours, provided

for twelve parties, and what it would cost (TR 700).

The record shows that Mrs. Carr understood fully

the terms of a $1,736 contract (RX 25) she signed with

respondents (TR 2105-2106). Mrs. Carr testified that:

"I don't sign contracts in a hurry and the managers I

have had know that and . . . I will listen and think it

over and sometimes we might have two or three conferences

before we decide which is the best for me" (TR 2118-2119).

This was also the case when Mr. Trout signed a

$2,556.14 contract (RX 20). He testified that ". . .my

instructor estimated more or less what it would take and

the number of hours to achieve a certain level of pro

ficiency, and this was verified by the manager, Mr. Burns,

and he discussed it with me and explained what it entailed.

We worked out a program to do it" (TR 2058).

Mrs. Leary stated that she and the studio manager

discussed a $2,000 contract with respect to the type of

course, the cost, and the method of payment (TR 2197).

-30-

As opposed to complaint counsels' proposed finding,

the record shows that respondents' students were in fact

aware of the terms of the contracts they signed.

While the use of lengthy and emotional sales

practices and techniques might influence the judgment of

prospects, the two "cooling-off" provisions, voluntarily

agreed to by respondents, provide effective protection to

the consumer because, in combination, they will provide

maximum opportunity to any contracting party for an in-

depth reconsideration of any contractual obligation. (See

pp. 35-37 of respondents' principal brief).

A $1500 limitation on contracts can add nothing

more to protect the consumer than these agreed-to provisions

and the penalties for violation they contain. Such a

limitation can neither eliminate unfair sales practices

nor provide redress to the consumer if harmed by such

practices. The existing provisions of the order are

sufficient.

PROPOSED FINDING 30 Students who take advantage of trips provided by

respondents incur expenses other than expenses for their own travel and lodging.

-31-

Dance-o-ramas were weekend events attended by many

students, some of whom were witnesses in this proceeding

(TR 557; 1296; 1695; 2122). One witness described them as (TR 1695):

". . .a show-case for a student to exhibit what they have learned in the way of a special or specific dance routine, and competing against other students from other Arthur Murray Studios."

In order to prepare for these exhibitions, students pur

chased additional lessons to perfect specific dance

routines which had to be choreographed individually

(TR 1696). The routines themselves were not part of the

achievement of a medal standard and were therefore paid

for outside of the student's normal program (TR 1063;

1696).

It was clear to the students that they were paying

the expenses of their instructor as well as their own

when attending dance-o-ramas or on other trips (TR 556;

625; 644; 674; 791; 1698; 2123). This was the policy in

Mr. Chapman's studios as well (TR 1968-1969). As one

student explained (TR 1698):

-32-

" . . . the instructor was going for the student, dancing with the student, taking his own time and his teaching time as well, plus the fact that [the studio] had to pay for his expenses as well up there."

Moreover, there is no indication that students were in any

way dissatisfied with the dance-o-ramas.

PROPOSED FINDINGS 27, 29, 31, 33 and 36 27. Due to investments in excess of $1500 for

dance instruction, students of respondents' studios have had to continue to attend the studios although the level of dance instruction and other studio services were unsatisfactory or nonexistent.

29. Many students of respondents' dance studios were unable to obtain a level of instruction equivalent to their level of dancing proficiency.

31. Respondents' dance studios have been unable to employ sufficient dance instructors who are qualified to teach students in advance courses of instruction.

33. Respondents' studios were operated with the expressed design of obtaining the maximum amount of money from students without regard to the quality or quantity of services to be provided to the students.

36. Dance instruction contracts and contracts for other services emanating from respondents' dance studios in excess of $1500 have in many instances been patently unfair and grossly inequitable with regard to the obligations incurred by students in return for services to be performed by respondents.

-33-

These proposed findings relating to the quality of

service provided by respondents' studios fly in the face

of very strong and convincing evidence in the record that

respondents' studios were among the very best. James

Graham was qualified by complaint counsel as an expert

dance instructor (TR 1515-1519). He was employed by the

Arthur Murray Studio of Washington, Inc. from September

1967 to September 1968 (TR 1529) to train teachers in all

of respondents' schools (TR 1579). During direct examina

tion by complaint counsel, Mr. Graham volunteered the

following with respect to the quality of respondents'

instruction (TR 1532-1533):

"At that time the school was almost exclusively teaching international style of dancing from half way through the Bronze, all the way through, and I think all of Horst-Mara schools were doing the same, because I taught all of the teachers in different cities: Chicago, Boston, et cetera, and I knew, from hearsay at the time, that all of the other schools in the country were not doing that. They were doing the Arthur Murray style. Horst and Mara were doing English style. So, they were not teaching the same steps as Arthur Murray, Inc.

"I will go as far as to say now that in my opinion, being from another country and being a reputed international dance expert, the Horst-Mara schools were the

-34-

best kind of instruction, the best quality dancers of all of the Arthur Murray chain in that period. They were using international style." (Emphasis added).

Respondents' purpose in employing Mr. Graham and

his wife was to upgrade the quality of instruction (TR 1580).

As a result, each of respondents' schools had a number of

teachers qualified to teach on the most advanced level

(TR 1580-1581). As Mr. Graham testified (TR 1585):

" . . . [Respondents] were trying to establish what they had sold; they were trying to fulfill the obligations of Gold Bar and Gold Star, the high standard it had sold."

This is extremely reliable evidence given by one

of complaint counsels' witnesses. More than that, it is

testimony given by an expert in dancing. It shows that

respondents were genuinely concerned about the level of

instruction in their schools and about the welfare of their

students.

Nor was this an isolated effort to upgrade the

quality of instruction available at these studios.

Mr. Regan, another expert dance instructor, had been to

respondents' studios several times during the period 1963

-35-

to 1968 (TR 995-996). During each such visit of several

days' duration, Mr. Regan taught the instructors in the

Washington Studio (TR 996). In addition, he worked directly

with the students at the studio (TR 996). This included

both lectures and individual work (TR 997-998). In the

latter instance he would (TR 998):

"try to help with the construction of the dance program in such a fashion that [the students] will get the most out of it, so they will not waste any time. And, naturally, will not waste any money."

He also helped students with the choreography of their

routines (TR 998).

The benefit of such visits is perpetuated not only

through the teachers who have improved their skills but

also through the dance director of the studio whose re

sponsibility it is to pass his knowledge along to teachers

and pupils alike (TR 1095).

Just like Mr. Graham, Mr. Regan had high praise for

the caliber of instruction available at respondents' studios

(TR 1097-1098) :

-36-

Q "As you observed the Horst Studio in the Washington area, during your approximately three visits, did they have the same caliber in terms of level of instruction as other Arthur Murray Studios that you observed throught the United States?

A "As a matter of fact, during the visits I paid the Washington Studios under the Horst [ownership], I think they were probably about a higher standard than average.

Q "On what do you base that statement?

A "They had a higher standard of teachers. Teachers teaching and dancing at a higher level than most of the other schools."

He also observed that there were an adequate number of

teachers available to students {TR 1099-1100).

It should be pointed out that many of the witnesses*

complaints related to the eighteen-month period after the

individual respondents first took over the Washington area

schools late in 1963 (TR 365; 468; 613-614; 699; 775). It

was during that period that the studios were suffering the

after-effects of the loss of their top staff people who

all taught up to the gold level (TR 1150-1151).

At the time that respondents took over the Washington

schools they were considered the best in the Arthur Murray

chain, and representatives from other studios throughout

-37-

the country came to Washington for instruction in teaching

techniques (TR 1143; 1148). When several top instructors

suddenly left, both the studio and the pupils were adversely

affected. In fact, there was another time in November 1965

when the manager of the Arlington studio left to operate a

studio in Columbus, Ohio and took with him the leading

members of the teaching staff (TR 419? 558). Such teachers

are very much in demand (TR 1044), and a number of years

are required to train them (TR 1043). Specifically, it

would take someone capable of teaching the bronze level

at least a year to become a silver medal teacher and another

year after that to become a gold medal teacher (TR 1043) .

It takes a long time to train such people (TR 1044).

It has been shown that respondents were cognizant

of this problem at the silver and gold levels. They there

fore brought in Mr. Regan and Mr. and Mrs. Graham in an

effort to fulfill their obligations to their students who

were at the higher levels (TR 1585). This temporary

shortage of high-level instructors, however, in no way

suggests a shortage of bronze level teachers.

Complaint counsels' proposed findings at no point

relate the question of quality of service to contract

366

-38-

price. While there were periods of inadequate service

shortly after respondents took over the Washington area

studios, the record shows that respondents sought to

remedy this situation. That set of circumstances does

not in itself justify an absolute ban on the size of

contracts.

Furthermore, considering that the sale of larger

contracts is critical to the financial viability of dance

studios (see respondents' proposed finding 9), it is

clearly illogical to suggest, as complaint counsel have,

that respondents adopted a policy of discriminating

against their best customers as regards the quality of

service. Moreover, if a dance studio or any other organi

zation develops a reputation for poor service, the forces

of the marketplace will ordinarily correct whatever im

balance might exist between promise and performance. We

say, ordinarily, because in some cases this imbalance is

not corrected because of extraneous factors that are brought

to bear. These factors, such as false advertising, pressure

sales tactics and other false and misleading practices which

are unfair to the consumer, are the proper subject for

-39-

Federal Trade Commission action. Contract size, large

or small, will neither correct the imbalance nor will it

remedy the extraneous practices. The order to which all

of the parties have agreed will adequately and most effec

tively place respondents in a position where, if the

services they provide are inadequate, they will not be

able to take advantage of the public by bringing unfair

practices to bear.

The record shows that the students who complained

most about the quality of instruction were the same ones

who had sued respondents (See p. 29 of respondents'

principal brief). While it is not suggested that all of

their testimony be disregarded, it should be recognized

that these witnesses were biased and their testimony,

prejudiced.

Bias has long been recognized as a factor that may

be used to impeach the credibility of a witness. McCormick

Evidence, §40 (1954); 3 Wigmore, Evidence, §945 et seq.

(3rd ed. 1940); 98 C.J.S. Witnesses §539 et seq. (1955).

As has been shown above, there is conflicting evidence in

the record with regard to the quality of services provided

by respondents. In such an instance, testimony from biased

-40-

witnesses need not be believed and cannot be accepted

as conclusive. 98 C.J.S. Witnesses §539, supra. The

existence of civil litigation has been deemed significant

in determining the question of bias (U.S. v. Cohen, 163

F.2d 667, 669 (3rd Cir. 1947)): "We think the fact . . . that

Straw had instituted a civil action against the appellant based upon the same transaction charged in the information would have a direct bearing on the credibility of Straw, to show bias and prejudice, as well as his relation to the case."

Courts and other authorites have recognized that a

witness may be biased or prejudiced because he had a suit

against the opposing party growing out of the same trans

action, accident or set of events in which he is currently

testifying, though his prior suit may have been settled

or terminated. 98 C.J.S. Witness §546, supra; Mannion v.

General Baking Co., 266 App. Div. 1028, 44 NYS 2d 890 (1943);

Rynar v. Lincoln Transit Co., 129 N.J.L. 525, 30 A.2d 406

(1943); Haves v. Coleman, 338 Mich. 371, 61 NW 2d 634 (1953).

Several statements contained in proposed findings 31,

33 and 36 require specific comment.

-41-

Not untypically, there is no support cited for

counsels' assertion that respondents were not concerned

with providing high level dance instruction (p. 28). The

fact is that respondents went to considerable lengths, as

discussed above, to provide top-level teacher training and

also instruction for their students.

Moreover, complaint counsel claimed that "After

only three weeks of training, Miss Bare was teaching students

who had advanced dance instruction programs." This is an

utter distortion of the record calculated to mislead the

reader. She testified that the students she taught were

in the "advanced teaching department" and that they had

a program to be taught (TR 1346). The advanced teaching

department was where the student went after his first four

lessons (CX 59a)! • The following sentence on p. 28 of their brief is

similarly a distortion of the record: "From the testimony of students who had purchased substantial programs, advanced instructors were either unavailable or not interested in providing capable instruction unless the student was willing to purchase additional instruction."

Of their many citations, there is only one that vaguely supports the statement that the instructors required

additional purchases (TR 721-722).

-42-

Proposed finding 33 is a half truth. Like any other

business, respondents' studios were operated for the pur

pose of generating profits. This is not surprising (TR 2161-

2162). What is not true, as discussed above, is that the

studio had no regard for the services it provided. The

only citations given for this portion of the proposed

finding (TR 1155; 1175) come from the testimony of Mr. Gregory

who left the studio early in 1964 (TR 1110).

In the reasons for proposed finding 36 is the state

ment that many students were "required" to convert from

private to group lessons. The very citations given by

counsel belie this claim. Mrs. Mummery twice stated that

people were "asked" to convert their lessons (TR 521).

She later testified that, once having converted, she was

allowed to switch back (TR 558). Mrs. Stambaugh was not

"required" to convert either. She told her instructor

that she had bought and paid for private lessons, and that

was the end of it (TR 799).

PROPOSED FINDING 34

Many students who have purchased substantial hours of dance instruction, which would take several years to use, have been unable to complete their hours of instruction due to the peculiar nature of long term personal service contracts.

-43-

Paragraphs 9 and 10(a) of the agreed-to order

(pp. B-3 and 4 of respondents' principal brief) provide

complete protection to consumers who, having purchased

personal service contracts, find themselves unable or

unwilling to complete their contracted hours of instruction.

Appendix A of respondents' principal brief shows

that, if this order had been in effect, the staff's seven

witnesses would all have had a minimum of five months —

and three of them more than a year — to cancel the first

contract for $1,500 or more negotiated by each of them

with respondents. The record also shows that these

students would have had even greater amounts of time in

which to cancel subsequent contracts.

Under the order, using the same method of analysis

as for Appendix A, Mrs. Templeman would have had about 76

weeks to cancel a $3,172 contract (CX 4) and nearly 308

weeks to cancel her $6,443 contract (CX 6). As regards

Mrs. Mummery, she would have had 45 and 101 weeks, re

spectively, to cancel a $1,803 and a $6,337 contract.

Mrs. McKee would have had 52 weeks to cancel her $8,032.50

contract (CX 34) and 2 33 weeks to cancel a $2,994.10 con

tract (CX 37). Mrs. Hailman would have had about 14 weeks

-44-

to cancel her $1,874 contract (CX 43), 61 weeks for a

$4,428 contract (CX 45) and 201 weeks to cancel a $2,641

contract (CX 47).

Mrs. Stambaugh would have had 76 weeks under the

order to cancel a $1,248 contract (CX 56), while Mrs. Riddle

would have had 117 weeks to cancel a $1,308 contract (CX 66a).

What is significant about these long periods of time

is that they would afford every student ample opportunity

to gauge the performance of the studio. During this time

the student can determine whether he is satisfied with the

level of instruction and other services provided, whether

he finds the atmosphere congenial and whether he wishes

to invest additional time and money on this form or recrea

tion or hobby.

The record shows that the existing order would

provide effective protection for consumers desiring to

cancel longer term contracts for whatever reason — finan

cial, preferential, physical or psychological. The evidence

of record also shows that all the witnesses in this case

who claim they have unused lessons or services could have

received satisfaction of their contracts by availing them

selves of respondents' facilities.

373

-45-

Mrs. Templeman said she attended seven of the

twelve dinner dances to which she was entitled (TR 410)

under a contract with respondents (CX 6). When asked if

she had an opportunity to attend the remaining five dinner

dances, she testified that she could have attended all

twelve if other commitments had not intervened (TR 410).

With respect to the 313-1/2 unused hours still on the

books of respondents' studio, Mrs. Templeman, when asked

if there was any reason why she could not take those

hours, said "There is an existing reason now that is

irrelevant to the studio's side of the picture, and that

is a back injury . . . " (TR 461)(emphasis added).

Mrs. Mummery, who complained of the unavailability

of instructors in the Virginia studio to teach a program

planned for her, could have received these services at

the Washington studio (TR 560). Mrs. Mummery did not avail

herself of these services because she "did not like driving

in Washington" (TR 560). Thus, while respondents stood

prepared to honor the terms of their contracts, certain

students, for personal reasons, refused to avail themselves

of respondents' offer to service their contracts.

-46-

Mrs. Riddle is a similar case in point. She had

over 200 hours of untaught lessons when she left respondents'

studio, but her testimony as to the reason for leaving was

the "adverse publicity that the studio had received"

(TR 1292). Nowhere did she state that respondents would

not or could not service the remaining 200 hours of lessons.

Complaint counsel state that, when new owners took

over respondents' studios, Mrs. McKee converted a number of

unused hours at a cost of $1,660. This is most surprising

since the new owners had agreed "to teach the untaught

hours as provided in the contracts between such students

and the aforesaid studios" (RX 23b). Mrs. McKee's situa

tion seems to be unique, since no other witness lost hours

as a result of the change in ownership (TR 1711; 2072).

There is nothing "peculiar" about long-term, personal-

service contracts. To the extent, however, that students

do not wish to continue with their lessons, paragraph 10(a)

of the agreed-to order gives customers an absolute right

to cancel any contract entered into while another is still

in effect and for seven days thereafter. Moreover, para

graph 9 provides for a seven-day cancellation period even

if no other contract is outstanding.

-47-

PROPOSED FINDING 43

The aforesaid acts and practices of respondents, as herein alleged, were all to the-prejudice and injury of the public and of respondents' competitors and constituted, and now constitute, unfair methods of competition in commerce and unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

There is nothing whatever in the transcript of the proceedings or in the stipulations to warrant a finding that respondents' acts and practices have caused injury to respondents' competitors in violation of Section 5 of the FTC Act.

II. CONCLUSION

The staff's proposed findings, even if adopted by

the Examiner, do not justify the extraordinary relief

sought in this case. The order already agreed to by the

parties is far reaching and deals effectively with each

allegation of the Complaint.

The proposed findings, even when taken in their most favorable light, lend no support to any theory which might justify imposition of the dollar limitation. These findings do not show that respondents' contracts in excess of $1500 are per se illegal; they do not show that respondents'

-48-

contracts in excess of $1500 are the means to accomplish

illegal acts; they do not show that the imposition of a

dollar limitation will prevent repetition of the acts and

practices already prohibited by the order more effectively

than the threat of $5,000 per day penalties.

The public interest will be protected by the agreed-

to order. If the order is not observed, the Commission

has the power under §3.72(b)(1) of its rules to impose

the dollar limitation. But until there is proof of non-

compliance, the imposition of a dollar limitation is

punitive.


Paul F. Hannah


June 19, 1970

\

\

APPENDIX A

FEDERAL TRADE COMMISSION WASHINGTON. D. C. 20580

burttu of D«e»pliv« Praeticx

August 29f 1969.

Tom Schaumberg, Esquire, Gadsby & Hannah, 1700 Pennsylvania Avenue, N.W., Washington, D. C. 20006

Re: Arthur Murray Studio of Washington, Inc., et al.,

Docket No. 8776. Dear Mr. Schaumberg:

Enclosed is a draft of a proposed substitute Paragraph 11 of the Agreement and Stipulated Order sent to you on August 14, 1969. The draft paragraph follows in substance the eighth paragraph of the Order in the matter of Arthur Murray. Inc.. et al.. Docket No. 78^5. The order has been modified to include a requirement that any additional contracts expressly state a cancellation clause, a refund provision, a provision relating to the use of existing lessons prior to commencement of additional lessons, and the number of lesson hours remaining under the existing contract.

I am available at your convenience to discuss the aforesaid substitute paragraph. Upon agreement as to form of a substitute paragraph, I shall have the necessary changes made in the Agreement and Stipulated Order.

Very truly yours,

Edward D. Steinman, Attorney.

Enclosure.

378

A-2

11. Contracting with a student or prospective student for a specific course of dancing instruction and thereafter, prior to the completion of the given course, subjecting such student or prospective student to sales effort toward the purchase of additional dance lessons, unless: (a) Any additional contract for

lessons shall expressly state therein that such contract is subject to cancellation by such student or prospective student, with or without cause, at any time up to and including one week after the completion of the units of dancing instruction previously contracted for, without cost or obligation, except that a charge may be made for not in excess of two additional lessons furnished during such week; and

(b) Any additional contract for lessons shall expressly state that any moneys or other consideration, except as exempted in subparagraph (a) hereof, tendered to the respondents for additional dance lessons will be promptly returned when such contract is can-celled within the time period specified in subparagraph (a) hereofj and



379


In the Matter of ) ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ) ARTHUR MURRAY STUDIO OF BALTIMORE, INC., } ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ] ARTHUR MURRAY STUDIO OF SILVER.SPRING, INC., )

corporations, and ) DOCKET NO. 8776 VICTOR F. HORST and ) EDWARD MARANDOLA, also known as ) EDWARD MARA, Individually and as officers )

of said corporations )

INITIAL DECISION

Eldon P. Schrup, Hearing Examiner.

1 Donald L. Bachman, Esq., Edward D. Steinman, Esq.,

Counsel Supporting the Complaint. Tom M. Schauraberg, Esq., Gadsby & Hannah 1700 Pennsylvania Avenue, N.W. Washington, D.C.

Counsel for Respondents.

STATEMENT OP THE PROCEEDINGS The complaint In this matter Issued April 3* 1969

and charges certain alleged acts and practices by the named respondents were all to the prejudice and Injury of the public and of respondents' competitors and constituted, and now constitute, unfair methods of competition In commerce and unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

Respondents filed answers on May 16, 1969 and a prehearing conference was held on June 16, June 27 and July 3, 1969. Subsequent to the prehearing conference of July 3, 1969 a joint motion by respective counsel, that the matter be withdrawn from adjudication and a settlement agreement containing a consent order to cease and desist be accepted, was certified to the Commission without recommendation on July 11, 1969.

The principal difference between the order to cease.and desist in the proposed consent settlement and the form of the order to cease and desist set forth in the Notice of the complaint was as to paragraph 9 of the complaint order which prohibited the respondents from entering into one or more contracts or written agreements under which a student or other party is obligated to pay a total amount which at any one time exceeds $1500. In contrast, the order to cease and desist In the proposed consent settlement read in this regard as follows:

9. Entering into one or more contracts or written agreements for dance instruction or any other service provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $4000.

The matter was contingently withdrawn from adjudication by Commission order of August 11, 1969 which stated an acceptable order to cease and desist for settlement purposes would Include the following:

9. Entering into one or more contracts or written agreements for dance Instruction or any other service provided by respondents ' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500.

Motions filed by respective counsel for Commission reconsideration of paragraph 9 of the order to cease and desist in the proposed consent settlement were denied by Commission order of October 9, 1969 and the matter was directed to be returned to adjudication.

The prehearlng conference was reconvened on November 5, 1969 and a stipulation of facts between the parties encompassing Paragraphs One through Fifteen of the complaint was entered on the record. 1/ The form of an order was jointly agreed upon by the parties except for the inclusion of the words "or other services" contained in the preamble and the $1500 indebtedness limitation contained in paragraph 9 of the order to cease and desist proposed by complaint counsel. 2/ Legal briefs were filed by the parties and oral argument was held thereon following which the record for the reception of evidence was ordered to be closed at the prehearlng conference on December 19* 1969.

Complaint counsel on January 5, 1970 moved to reopen the record for the reception of further evidence in support of and confined to the above proposed paragraph 9 of the order to cease and desist. Said motion by complaint counsel stated in part:

Complaint counsel will introduce evidence through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts in excess of $1500. Evidence will be adduced from members of the dance industry to show that $1500 is a fair balance between the practical business need of an operator of a dance studio and an equitable and fair amount which a person should be -indebted for dance instruction.

Respondents' application for permission to file an appeal from the order reopening the record for such limited purpose was denied by Commission order of February 17, 1970. On February 20, 1970 the prehearlng conference was ordered reconvened on March 2, 1970 and the hearing was set for March 23, 1970. Upon the unopposed request of counsel for the respondents the hearing was reset for March 30, 1970.

The hearing on the case-ln-chief was held March 30, 31, April 2, 3, 6, 7t 9, 10, 13 and complaint counsel rested their case at the hearing on April 14, !970. The hearing on the defense was held April lo, 17* 21, 22, 23 and defense counsel rested his case at the hearing on April 23, 1970. No rebuttal hearing was held and the record for the reception of evidence was closed by order of the hearing examiner entered April 27, 1970.

The names, addresses and occupations of the various type witnesses and the transcript location of their testimony are as follows:

Case-ln-Chlef 1. Mrs. Eleanor Lee Templeman

3001 Pollard Street Arlington, Va.

2. Mrs. Dorothy A. Lockhart-Mummery

134 Chanel Terrace Falls Church, Va.

3. Mrs. Elise McKee 36OI Connecticut Avenue Washington, D.C.

4. Mrs. Katherine Hailman 800 4th Street, S.W. Washington, D.C.

5. Mrs. Winifred Lapin 2121 Virginia Avenue, N.W. Washington, D.C.

6. Mrs. Gertrude M. Stambaugh 3900 Connecticut Avenue Washington, D.C.

Writer and Tr. 347-463 Publisher (Dance Student) Librarian Tr. 463-610 (Dance Student)

Retired Tr. 610-660 (Dance Student)




Gase-in-Chlef cont'd 7. Mr. David G. Crocco

336 Eastslde Avenue Ridgewood, New Jersey

8. Mr. Perry S. Gregory 4373 Lee Highway Arlington, Virginia

9. Mr. Billy Orvis Shelton 1810 Midlothian Court Vienna, Virginia

10. Mrs. Beatrice H. Riddle 2908 Naylor Road, S.E. Washington, D.C.

11.

12.

13.

14.

3.

Miss Kathleen Bare 246l Wisconsin Avenue Washington, D.C. Mr. John Wells 3511 Lancer Drive Hyattsville, Maryland Mr. James Graham 101 Kennedy Street Alexandria, Virginia Mr. Joseph J. Koman, Jr. 118 Hazel Drive Manassas, Virginia

Defense Mr. Prank Regan Wayne, Pennsylvania Miss Kathleen Bare 246l Wisconsin Avenue Washington, D.C. Mrs. Francis Diane Shane 500 N. Roosevelt Blvd. Falls Church, Virginia

Claims Attorney Tr. 818-984

Dance Studio Tr. 1109-1172 Operator and Professional Dance Instructor Dance Studio Tr. 1173-1221 Operator and Professional Dance Instructor Secretary Tr. 1225-131& (Dance Student)

Professional Tr. 1345-1493 Dance Instructor

Accountant Tr. 1496-1512

Dance Studio Tr. 1515-1607 Operator and Professional Dance Instructor F.T.C. Investiga-* Tr. l6ll-l673 tion Attorney

Professional Tr. 986-1107 Dance Instructor Professional Tr. 1493-1495 Dance Instructor

Administrative Assistant (Dance Student)

Tr. 1689-1768

-5-

384

Defense cont'd 4. Mr. John Salonz

100 Truesdale Drive Croton on the Hudson New York, N.Y.

5. Mr. Ward Thomas Chapman 4505 Brentwood Drive Kansas City, Missouri

6. Mr. James E. McCormlck 4l66 Fleethaven Road Lakewood, California

7. Mr. Philip A. Trout 11215 Oakleaf Drive Silver Spring, Maryland

8. Mrs. Olive Carr 305 Redding Avenue Rockvllle, Maryland

9. Mrs. Margaret J. Leary 1204 Oakview Drive Silver Spring, Maryland

10. Mr. Richard J. Lurlto 4814 North 20th Place Arlington, Virginia

Dance Studio Operator



Electronics Engineer (Dance Student)

Tr. 1769-1910

Tr. 1913-2020

Tr. 2021-2046

Tr. 2049-2099


Secretary Tr. 2193-2211 (Dance Student)

Assistant Professor Economics

Tr. 2233-2349

The record, in addition to such testimony, embraces a substantial number of documentary exhibits, all of which have been considered in this Initial decision, together with the proposed findings of fact, conclusions, briefs and the replies thereto by respective counsel. Proposed findings of fact, conclusions and order as submitted by respective counsel and not hereinafter adopted or found in substance or form are rejected as being irrelevant, immaterial or not supported by the facts of record.

Following a thorough review of the record in this proceeding and based upon both observation of all witnesses testifying and consideration of their overall testimony, the following Findings of Fact, Conclusions and Order are hereby made and issued:

-6-

385

FINDINGS OP PACT 1. Respondent Arthur Murray Studio of Washington,

Inc. is a corporation organized, existing and formerly doing business under arid by virtue of the laws of the District of Columbia, with its principal office and place of business formerly located at 724 14th Street, Northwest, in the City of Washington, District of Columbia.

Respondent Arthur Murray Studio of Baltimore, Inc. is a corporation.organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 217 North Charles Street, in the City of Baltimore, State of Maryland.

Respondent Arthur Murray Studio of Bethesda, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 4923 Elmo Drive, Bethesda, Maryland.

Respondent Arthur Murray Studio of Silver Spring, Inc. is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with Its principal office and place of business formerly located at 934 Ellsworth Drive, Silver Spring, Maryland.

Respondents Victor P. Horst and Edward Marandola, also known as Edward Mara, are individuals and are officers of all the corporate respondents. They formulated, directed, and controlled the acts and practices of the corporate respondents, including the acts and practices hereinafter set forth. Respondent Victor P. Horst1s business address is the Racket Club, 7930 East Drive, Harbour Island, Miami Beach, Florida. Respondent Edward Marandola, also known as Edward Mara, maintains his business address at 9 West Washington, Chicago, Illinois. 3_/ 27 Paragraph One of the complaint admitted by stipulation between counsel at Tr. 98-IO3.

-7-

386

2. The Individual respondents are now, and for some time last past have been, engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public. The corporate respondents for some time last past have been engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public. 4/

3. In the course and conduct of their business as aforesaid, respondents for some time last past have caused their advertising matter to be published in newspapers of interstate circulation and their promotional materials to be sent or otherwise conveyed to various prospective customers residing in the States of Maryland and Virginia and the City [of Washington in] of the District of Columbia. Advertising matter, contracts, letters, checks or other written Instruments and communications have been sent and have been received between the respondents at their former places of business located in Washington, B.C., and in various other States of the United States. In addition, written communications and instruments, including payroll records, contracts, payment records and other documents, have been passed between the aforesaid studios and a bookkeeping firm located in the State of Florida,, owned by the individual respondents. As a result of said Interstate advertising and promotion and as a result of said transmission and receipt of said written instruments and communications, respondents have maintained a substantial course of trade In said courses of dancing instruction in commerce, as "commerce" is defined in the Federal Trade Commission Act. 5/ .

4. In the course and conduct of their aforesaid business, respondents have made certain representations in newspaper advertisements, and by other means, including social security number contests, "special selection" offers, and "Can You Spell" contests, in which the winner is awarded a gift certificate.entitling him or her to a specified number of Arthur Murray lessons purportedly worth from $35-$65. 57 Paragraph Two of the complaint admitted by stipulation between counsel at Tr. 103. ]5/ Paragraph Three of the complaint admitted by stipulation between counsel at Tr. 103-104.

The representations made In newspaper advertisements have Included those which relate to special or Introductory offers purporting to furnish the first lesson of a course of dance instruction or a short eourse in dancing either at a reduced price or free of charge.


"CAN YOU SPELL WIN A $65.00 DANCE COURSE IP YOU CAN PIND THE MISSPELLED WORDS

• * * * * * * * * * *


WIN PRIZES WORTH $300 $250 $200 $150 $100 $75

PLAY THE EXCITING NEW SOCIAL SECURITY GAME ~"~ ~


Every week there will be WINNERS in each prize category. The winning number will be selected from among

social security numbers sent to us ...." 6/ 5. By and through the use of the aforesaid statements

and representations, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by implication, that:

(l) Said contests are based on abilities and skills of the contestants or upon chance and that a winner will be chosen on one of these bases.

§7 Paragraph Pour of the complaint admitted by stipulation between counsel at Tr. 104-105.

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(2) The winner of said contests will receive a gift certificate worth a stated amount or, either without charge or at a reduced price, a bona fide course of dancing instruction or a specified number of bona fide dancing lessons. 7/

6. In truth and in fact: (1) Said contests are not based on skills

or abilities of the contestants or upon chance, nor are winners chosen on any of these bases. The purported contests are so simple of solution or the winning thereof so easy, as to remove them from the categories of competition, skill, or special selection, and are such that substantially everyone, if not all, can qualify and win. Rather the purported quizzes, puzzles, and contests are designed to attract members of the purchasing public for the purpose of obtaining leads to prospective purchasers of dance Instruction.

(2) The winners of said contests do not receive a gift certificate worth the stated amount, or a bona fide course of dancing instruction or a specified number of bona fide dancing lessons. Although they receive some dance instruction in the beginning of the specified time, the balance of the course is devoted to salestalk designed to induce the purchase of further dancing lessons or the signing of a long term dancing instruction contract.

Therefore, the statements, representations and practices as set forth in Findings 4 and 5 hereof were and are false, misleading and deceptive. 8/

'Paragraph Five of the complaint admitted by stipulation .etween counsel at Tr. 106. 8/ Paragraph Six of the complaint admitted by stipulation between counsel at Tr. 106-107. E

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7. In the course and conduct of their aforesaid business, respondents have made certain representations on postal cards sent through the United States mail.


"Your Telephone Number was selected today, and this entitles any adult to a Wonderful Gift, fully paid for by our Advertising Department .... No obligation or charge to you. Please call 783-6880 between 3:00 p.m. and 9:00 p.m., Monday through Friday, to tell us the name and address of the person entitled to the gift." 9/ 8. By and through the use of the aforesaid statements

and representations, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by Implication, that the recipient has been selected to receive a valuable and unconditional gift. 10/

9. In truth and in fact the recipient has not been selected to receive and will not receive a valuable or unconditional gift. After dividing the local telephone directory into certain sections, respondents' representatives send cards to each name listed therein, for the purpose of obtaining leads to prospective purchasers of dancing instruction. The recipient of respondents1 "gift" is lured into one of respondents' studios under.the guise of receiving a "dance certificate" supposedly entitling him to a number.of free dancing lessons. Instead, he is thereupon subjected to a sales talk to Induce the purchase of a course of dancing Instruction.

Therefore, the statements and representations as set forth in Findings 7 and 8 herein were and are false, misleading and deceptive. 11/ ^7 Paragraph Seven of the complaint admitted by stipulation between counsel at Tr. 107-108. 10/ Paragraph Eight of the complaint admitted by stipulation between counsel at Tr. 108. 11/ Paragraph Nine of the complaint admitted by stipulation between counsel at Tr. 108-109.

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10. In the course and conduct of their aforesaid business, respondents have made representations concerning adult social clubs in newspaper advertisements appearing in the Washington, D.C. area of which the following appearing in the pictured advertisements at pages 7, 8 and 9 of the complaint are typical and Illustrative, but not all inclusive thereof. 12/

11. By and through the use of the aforesaid statements and representations, and others of similar import not specifically set out herein, respondents have represented, directly or by Implication, that the Party Time Club and the Holiday Club were bona fide adult social clubs offering members a program of activities such as daily and weekly social events and gala night club parties. 13/

12. In truth and in fact, the Party Time Club and the Holiday Club were not bona fide adult social clubs offering members a program of activities such as daily and weekly social events and gala night club parties. These clubs were devices used as a means of obtaining the names of prospective students and of luring prospects into the studios where the sales presentation for dancing instruction purchases may be made. Unless a member contracted to purchase a substantial amount of dance instruction, usually between $450-^5,000, there were no activities in which he might participate irrespective of any club registration which he may have paid.

Therefore, the statements and representations as set forth in Pindings 10 and 11 hereof were and are false, misleading and deceptive. 14/

13. In the course and conduct of their aforesaid business, respondents, directly or through their representatives and employees, have used various unfair and deceptive techniques and practices as a means of selling initial or supplemental courses of dance instruction. 1§7 Paragraph Ten of the complaint admitted by stipulation between counsel at Tr. 109. 13/ Paragraph Eleven of the complaint admitted by stipulation between counsel at Tr. 109. 14/ Paragraph Twelve of the complaint admitted by stipulation between counsel at Tr. 109-110.

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391

Typical and illustrative, but not all inclusive, of such techniques and practices are the following:

(1) The use of sham "dance analysis tests" for the alleged purpose of evaluating the student's ability, progress or proficiency, when in fact all students and prospective students are given the same test results regardless of dancing ability, aptitude or proficiency.

(2) Respondents represent to students or prospective students that upon completion of a given course of dancing instruction the student will have achieved a specified standard of proficiency, whereas, in fact, before the given course of dance instruction is completed and before the specified standard of proficiency has been achieved, the prospect or student is subjected to further coercive sales efforts toward the purchase of additional instruction in dancing.

(3) The use of "relay salesmanship", involving successive efforts of a number.of different Arthur Murray representatives who, in a single day by force of number and unrelenting sales talks, and aided occasionally by hidden listening devices monitoring conversation with the prospect or student, attempt to persuade and do persuade a lone prospect or student to sign a contract for dancing instruction.

(4) The use of intense, emotional, and unrelenting sales pressure to persuade a prospect or student to sign a contract obligating such person to pay for a substantial number of dancing lessons at substantial cost without affording such person a reasonable opportunity to consider and comprehend the scope and extent of the contractual obligations involved.

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Such contracts o£ten provide for more than 100 hours of dancing instruction with a cost to the prospect or student in excess of $1500, and such person is insistently urged, cajoled, and coerced to sign such a contract hurriedly and precipitately through the use of persistent and emotionally forceful sales presentations which are often of several hours duration.

Therefore, these statements, representations and practices as hereinabove set forth were and are unfair and deceptive. 15/

The evidence of record discloses the following as to: (l) The sham "dance analysis tests." Persons responding to the various advertising and

promotional devices disseminated by respondents or prospective students coming to the studio other than in response to such advertising and promotional material were directed to studio personnel known as "analysts" (Tr. 820, 826, 918). The function of the analysts was to give the prospect a test allegedly for the purpose of evaluating the prospect's initial dancing capability (Tr. 826-827). In reality, the analyst would be reciting from an elaborate script from which the analyst was required to memorize quotations to be used on each and every prospective student (Tr. 820; CX 58 A-58 B).

After approximately one-half hour of purportedly evaluating the prospect's dancing ability, the analyst would introduce the prospect to a dance studio employee known as a supervisor (Tr. 827). The function of the supervisor was to sell the prospect a moderately expensive dance instruction program (Tr. 896). Once the prospect purchased a dance instruction program, the new student would be assigned to an interviewer or junior who would schedule the student for the four hour junior procedure (Tr. 828; CX 59 A-59 H). 157 Paragraph Thirteen of the complaint was admitted by the stipulation between counsel at Tr. 110-112* Upon the reopening of the case for further evidence, counsel for the respondents over objection by complaint counsel made a disclaimer of the stipulation as to Paragraph Thirteen. See Tr. 358-362, 373-374, 474_48o, 529-539, 1327-1328. Absent the stipulation, however, the evidence herein introduced by complaint counsel amply supports the allegations of the said paragraph.

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During the four hour junior procedure, the interviewer would attempt to find out personal background information which would form the basis of an emotional appeal to sell instruction (Tr. 839). Mr. David 0. Crocco, a former Interviewer at respondents' studio in Baltimore, Maryland, testified that he was able to discover the prospect's background by responses to questions posed to the prospect concerning her "social life , "contacts", "attitudes toward people" and "attitudes toward dancing" (Tr. 838). This fact finding was facilitated by having the prospect fill out a background questionnaire (Tr. 847*855).

The interviewer prepared a plan of instruction for the individual and Introduced the student to a number of dance steps which had to be mastered and demonstrated to the satisfaction of the supervisor prior to approval of the dance instruction program (Tr. 847-849, 853-862). The approval test was allegedly given to determine whether the student could achieve the planned dance standard within the hours set forth by the interviewer.

Upon being advised of passing the approval test, the student would be taken into the "closing room" to secure an executed contract. Mr. Crocco describe'd the physical and mental appearance of the students at closing as follows:

Most of them were emotionally drained at that time. I had built up the test to such an importance in the prospect•s mind that they often told me it had assumed the importance of an appearance before a judge and jury. (Tr. 069)


Students were also given alleged dance analysis tests at other times during the course of instruction, such as prior to a proposed extension of an existing dance instruction program or as a prerequisite to qualifying to be a member of respondents' purportedly elite clubs respectively termed

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the "500 Club" and the "Tiffany Club" (Tr. 373, 375, 378, 395, 437, 471^472, 500, 506, 658, 703, 853, 1124, 1235). Messrs. Crocco and Perry S. Gregory, both former employees of respondents' dance studios, described such tests as a "sham" and "of no importance" (Tr. 853, 1124). Mr. Marandola advised his employees that "nobody flunks" the tests (Tr. 1126).

It is noted that respondents' use of sham "dance analysis tests" is to be prohibited by identical language in Paragraph 6.of the order to cease and desist proposed by complaint counsel and Paragraph 6 in the order to cease and desist proposed by counsel for respondents. This paragraph of the order reads as follows:


(2) The sales of additional dance instruction before the current contracted for course of instruction is completed.

The twenty-eighth proposed finding by complaint counsel asks for a finding that:

28. Respondents have regularly and systematically obtained dance instruction contracts from students who had outstanding contracts with untaught hours of dance Instruction.

The reply by counsel for the respondents to this proposed finding states:

While respondents have obtained contracts from students who had.contracts outstanding, the agreed-to order makes such further contracts unconditionally cancelable.

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The controversy between respective counsel arises over the modification of Paragraph 11 in the order to cease and desist submitted by complaint counsel in their proposed findings of fact filed June 5, 1970. Respondents' reply filed June 19, 1970 contains in Appendix A a letter from complaint counsel dated August 29, 1969 forwarding a draft of a proposed Paragraph 11 to be adopted in the non-contested provisions of the proposed order to cease and desist agreed upon between respective counsel. This provision was adopted in complaint counsel's brief before the hearing examiner filed November 18, 1969 and in the brief of counsel for the respondents filed December 8, 1969. 16/ The same provision is also submitted in the proposed order to cease and desist in the respondents' Proposed Findings of Fact and Brief filed June 8, 1970. The provision as originally agreed upon between respective counsel will be adopted in the order to cease and desist hereinafter being entered.

It will here be further noted that complaint counsel have also departed from the form of other of the non-contested provisions agreed upon and further have submitted several new provisions in their proposed order to cease and desist which are not related to the limited purpose for which the proceeding was reopened. 17/ The paragraphs in question are 1, 10, 12, 13, 14, 15, 10 and 19. Paragraphs 1, 10, 18 and 19 will be adopted in their original agreed upon form in the order to cease and desist hereinafter being entered. New Paragraphs 12, 13, 14 and 15 will be rejected. It will be observed as to proposed new Paragraphs 12 and 13 that the complaint makes no allegation nor do the terms therein set forth find adequate record support. 18/ As to new proposed Paragraph 14 the complaint contains no allegation as to such a limitation and it is also apart from the $1500 limitation herein specifically litigated. The same can also be said as to the proposed new Paragraph 15 for Inclusion in the order to cease and desist being entered. 1B7 Tr. 113-121 of the prehearing conference on November 5, lfo9. 17/ See pages 1-6 of respondents' reply filed June 19, 1970. 18/ Proposed Paragraph 13 appears intended to correspond with Section 1812.97 of Title 2.5 of the California Civil Code entitled Contracts for Health or Dance Studio Services.

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396

(3) The use of "relay salesmanship." The use of "relay salesmanship" involved the con

secutive sales efforts of a number of different Arthur Murray representatives who by force of number and continuing sales talks attempted to persuade and did persuade prospective and actual students to sign contracts for dance instruction. Hidden listening devices were utilized by respondents to assist in persuading prospective and actual students to execute dance instruction contracts (Tr. 861-862, 888, 1357). "Relay salesmanship" was a common device used by respondents to procure dance instruction contracts from prospective and actual students (Tr. 379-382, 506, 897-898, 1235-1236).

It is noted that respondents' use of "relay salesmanship" is to be prohibited by Identical language in Paragraph 8 of the order to cease and desist proposed by complaint counsel and Paragraph 8 in the order to cease and desist proposed by counsel for the respondents. This paragraph of the order reads as follows:


(4) Respondents' sales pressures relating to the entry into dance instruction contracts aggregating in excess of $1500 owing at any one time.

The first complaint witness a divorcee age 57 at the time period herein concerned 19/ testified at length as to the various representations made to her to induce her to join the respondents• 500 Club and the sales pressures exerted to cause her to join, together with the excuses made for the refusal of the allowance to her of any time for consideration of the financial obligations Involved. A particular inducement according to the witness was that "if I joined the 500 Club they would include at no extra expense a trip to Acapulco with the staff, with my teacher going along as my escort, for a wonderful week in Mexico." (Tr. 377-382) According to the witness she paid out approximately $11,000 to the respondents during the course of the year 1964 (Tr. 387-390). 20/ T97 See tabulation of witnesses in order of appearance at page 4, supra. 20/ See CX 1-14 and Tr. 3^3-364, 373-382, 394-400.

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The second complaint witness a divorcee age 47 at the time period herein concerned, testified that from the first dance instruction contract with the respondents in March, 1964 to her last in August, 1965 she had signed for 696 hours of dance instruction and paid a total amount of from $12,000 to $13,000 (Tr. 468-469 and CX 15 - CX 27). The witness quite vividly described her sales pressure ordeal and the results obtained by the respondents (Tr. 482-484, 499-517, 587). As regards CX 19 in the amount of $1332.80 the witness recognized that it provided for "a weekend trip to the World Fair, with dinner at the Tavern on the Green and the Roseland Ballroom dancing * * * I was importuned by my instructor to do this. As with all the other importunings, I agreed." (Tr. 482) According to the witness her trip expenses and.those of her instructor were included in the contract amount paid (Tr. 483-484).

As to CX 26 signed August 24, 1965 in the amount of $6377 and paid for in cash, the witness entered a strong protest as to the sales pressures causing her to sign such contract for a 500 Club membership which the respondents refused to cancel (Tr. 524-527 and CX 29 and 30). As to CX 20 in the amount of $1803 the witness also recognized it provided for membership in respondents' 500 Club and inclusion in its social activities (Tr. 486). Under cross-examination the witness testified "As a rule of thumb, I would say that every contract for a sizeable sum was entered under extreme pressure or what I interpreted as extreme pressure. To me it was extreme pressure" (Tr. 547) and I did not of my own volition sign any of these sizeable contracts without extreme pressure being exerted upon me. I resisted every step of the way." (Tr. 548)

The third complaint witness a widow age 69 at the time period concerned entered into 7 dance contracts with the respondents between December, 1964 and December, 1965 which totaled approximately $17,820 (Tr. 613-614 and CX 33-CX 39). At Tr. 620 the witness testified that CX 34 entered in December, 1964 in the amount of $8033.50 represented $6033.50 for dance lessons and a $2000 overcharge for a sponsored trip by the respondents to Hawaii. Commission Exhibit 34 discloses on its face that it was for 350 hours of dance instruction and a membership in the 500 Club. Commission Exhibit 34 bears the morbid statement "Hours may be willed in case of death." As to entering into this contract the witness testified "Well, it was hard not to sign on the dotted line, because I was more or less pressured into doing it. It was to take a trip to Hawaii, plus the 350 hours of lessons. And it was a combination of wanting to go, but not wanting to buy as many hours as that." (Tr. 620) As to the "Hours may be willed in case of death", the witness testified "Well, I had been very ill, very bad operation, a year and a half or so before that, and didn't really know

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whether I would get through with these number of hours. So X was determined that I would at least be able to will them to somebody. And I specified that I wouldn't sign unless I did and they wrote that In." (Tr. 621) As to the $2000 overcharge the witness testified "It paid my way, a teacher's way, an escort to Hawaii, and back, plus the expenses for meals and hotels and entertainment. It covered everything except some small items." (Tr. 625) Testifying as to another of the contractual arrangements with the respondents involving a European trip, the witness stated that the $4734.10 paid by her represented $2734.10 for 150 hours of dance Instruction and a $2000 overcharge covering the expense of the trip for the teacher and herself. The witness stated the 150 hours of dance instruction was not used on the trip and when asked why she signed up for additional hours when she already had 467 unused hours outstanding, the witness replied "Well, its the same story, to go on the trips they required to buy some hours. That is what I was told, that if I went on the trip I would have to purchase this amount of hours." (Tr. 632-633)

The fourth complaint witness a widow age 62 at the time period herein concerned, testified to having entered into 8 different dance contracts between January, 1967 and November, 1967 with the respondents. The contracts totaled approximately $11,000 which the witness testified to having paid (Tr. 669-670 and CX 40 - CX 47). Her testimony in such connection is succinct and graphic "No matter how long you danced, they always said you weren't good enough and you needed all of these lessons. So I had to keep on paying money to take more lessons." (Tr. 670) Commission Exhibit 45 in the amount of $4428 provided for membership in the respondents' 500 Club. As to this contract and why she signed it, the witness stated "I J#st get kind of hypnotized by the whole thing. And I kept on wanting to go on." (Tr. 678)

The witness also testified to having signed still a ninth contract in November, 1967 in the amount of $7740 paid by check (CX 48) on which she stopped payment. The circumstances surrounding the induction of the witness in respondents' Tiffany Club and the stoppage of payment on the $7740 check are set forth in the testimony of the witness at Tr. 685-688, 695. Further see, Tr. 688-693 and CX 49. As to the sales pressures directed by respondent Horst in connection with the Tiffany Club see Tr. 394-399, 447-451.

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A fifth complaint witness and a divorcee for some 29 years past testified as to her entry during October, 1963 into CX 50, a 500 Club dance contract, calling for the payment of $4300 to the respondents. At Tr. 700-701 the following appears:

Well, at that time, I had been asked to, invited to join the 500 Club, which involved 500 hours and 12 special parties at the studio — I mean with studio teachers. But I found that I couldn't possibly raise that amount for 500 hours, which was about $7,000. So I decided I couldn't do it. Then I came into the studio and I was asked to have a talk with Mr. Mara. So he talked to me in one of the small offices and tried to persuade me and impress on me how, what a wonderful opportunity this was and that I would be very foolish not to do it and I would be sorry for the rest of my life if I didn't sign up.

I tried to say no and get out of it and I got very, very upset because I got frightened at paying out all that money and having nothing to fall back on. I remember I started crying and couldn't stop crying. All I thought of was getting out of there.

So finally after — I don't know how much time, Mr. Mara said, well, I could sign up for 250 hours, which was half the 500 Club, which would amount to $4300.

So I finally signed it, because I was —

HEARING EXAMINER SCHRUP: (Jo ahead, Finish your statement. .

THE WITNESS: I had entered into that contract for $500 -- 500 hours, I mean — at the end of September before I actually found out whether I could raise the money. After that, I tried to raise the money from the bank and found I couldn't get a loan for that amount and I didn't have any savings and I had to get a bank loan to pay for it.

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That was when I went back and asked him to cancel that contract. Bit Mr. Mara said that he couldn't cancel it, but they did agree to make it just half of it, the 250 hours.

HEARING EXAMINER SCHRUP: The Mr. Mara you speak of, do you recognize him as being present in the hearing room?

THE WITNESS: Yes. See the further testimony of the witness as to the ^_

"closing" of her contract with respondent Mara at Tr. 700 and the corroborating testimony of the witness Gregory in this and other contract "closings" of like nature at Tr. 1124-1128.

The sixth complaint witness age 70 at the time period herein concerned, testified as to the circumstances of her loining the respondents» 500 Club (Tr. 775-784). Commission Exhibit 54 is the letter of recommendation by her instructor toMrMaraand Staff and CX 55 is the congratulatory letter to The S n e s f from Mr. Mara on her " ° ^ E ^ ' f

C 8 ^ 8 l < m pvhih-tt «w is her 215-hour contract in the amount of $4uuu S £ " d I n t ^ L p J L b e r 20, 1963 -d paid with a |100 down payment, $2700 on September 24, 1963 a11**™5 BoJ\^ o? $120C?iS60*days according to the witness (Tr. 786). The witness further described the circumstances of her entry into another dance instruction contract during September, 1964 originally proposed to her as being for iSo hSurs at a cost to her of $2600 but reduced to 50 i™,™ at a term price of $1332.80 when she demurred to S S i ' "Tne^ness tested she finally settled for and paid a cash price in the amount of $1248.84 UT. (°t ?So) The contract was for additional dance instruction hours for a proposed exhibition movie including the witness aêgediy lo*e used by the respondents on TV plus a sponsored weekend dance student group visit to New York and the World's Pair with dance instructor escorts. The w??nest stated as to payment of the expenses of the instructor escorts, "I P ^ e It came out of what we paid for these contracts. ITr. fyij

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The seventh complaint witness who was single and age 42 at the time period herein concerned, testified as to the circumstances surrounding her signing and paying for CX 64 dated January 4, 1965 being a Holiday Club membership purchased for $438 and CX 65 dated January 9, 1965 in the amount of $5118.18 for a 500 Club membership (Tr. 1232-1242). At Tr. 1236 the witness testified as to her entry into the 500 Club:

Q. Can you tell us why you characterized it as an unpleasant experience?

A. First of all, I did not want the lesson, and I think it was unpleasant because I had three, maybe four, people, as I say, pressuring me to buy something by a certain time, and I do recall asking that I be let to think, let me think it over, and I was told that the contest would end at 6 o'clock or something to that effect and if I did not sign by a certain time it would be too late.

Q. Did you sign by that time? A. I think we got under the deadline by

maybe a minute or two. Under cross-examination the witness reiterated her

direct testimony that she signed dance instruction contract CX 65 under adverse circumstances and that she had wanted time to think it over. At Tr. 1299-1300 the following appears in this connection:

Q. I am now asking you if your wish had been granted, how do you believe this would have affected that contract and your signing of it?

THE WITNESS: If I had been given time to think, I would not have signed that contract. At the hearing of April 7, 1970 a ruling was entered

upon the record that the remaining dance studio P ^ ^ r witnesses designated by complaint counsel would be cumulative to the testimony of the preceding dance studio customer witnesses called by complaint counsel and accordingly that the testimony of the said remaining witnesses would not be heard (Tr. 1320-1325).

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402

Contested Paragraph 9 proposed for inclusion in the order to cease and desist to be entered herein reads as follows:

9. Entering into one or more contracts or written agreements for dance instruction or any other service provided by respondents ' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500.

It will be noted that the above prohibition is iaot limited to dance Instruction alone but includes any oliher service provided by respondents' dance studios.

14. Mr. Prank Regan, professional dance instructor and consultant to Arthur Murray, Inc., 21/ testified as a defense witness and explained the Arthur Murray dance instruction brochures entitled "Bronze Intermediate and Bronze Medal Standard" (RX l); "Silver Intermediate and Silver Medal Standard" (RX 2): "Gold Intermediate and Gold Medal Standard" (RX 3)J Gold Bar Intermediate and Gold Bar Medal Standard" (RX 4). According to the witness the Bronze type instruction brochure (RX 1) embraces the popular social dances, such as the fox trot, waltz, swing, morang, rhumba, cha-cha, tango and samba. The witness stated a degree of proficiency in these dances to the extent that one can execute them in time to the music and lead a partner efficiently on the floor represents the Bronze Medal Standard. As to the hours of dance instruction that might be necessary to be taken, the witness stated it would be somewhere in the region of about 25 to 30 hours to perform each dance to a level where one might be socially adequate on the dance floor (Tr. 1004). The following appears at Tr. 1010-1011:

Q. Mr. Began, you gave the example before of the young lady that might come in and ask you to teach her the waltz because she is planning to get married at some time in the future. Is it typical for a student to want to learn how to dance to come In and ask about only one dance, or are the students typically interested in learning a number of dances when we are speaking about this social level of dancing?

217—The expert qualifications of Mr. Regan appear at Tr. y86-1000 and his connection with Arthur Murray, Inc. appears at Tr. 1022-1023. _24_

A. Yes, yes, it is quite a common occurrence, I would say. Some people come in who perhaps just want

to be able to dance a little bit of foxtrot because that is all that is played at their country club affairs, you know. Or perhaps they have been exposed to some of the Latin rhythms and in their dancing environment cannot execute them, so they want to learn a little cha-cha, rumba, samba, whatever. Or perhaps they just come in and want to learn discotheque dancing.

The witness testified that the "Bronze Intermediate and Bronze Medal Standard" as employed by both the Arthur Murray Studio system and other dance studio systems had the same characteristics and that a pupil who could dance the Bronze Medal system proficiently could go into another school, not an Arthur Murray School, and dance with pupils who were proficient in their own Bronze Medal system (Tr. 1013). The witness stated that he personally could get a student with average ability satisfactorily through a Bronze Medal test in less than 100 hours of dance lessons but that he would not attempt to do so in a 50-hour period. A 50-hour time period according to the witness would result in only a minimum passing grade and as to a 75-hour time period the witness stated "Well, you see, you can pass an examination with a 65 percent score or pass it with a 90 percent score" (Tr. 1093-1094).

In explaining what RX 2 the next higher Silver Intermediate and Silver Medal Standard of dance instruction seeks to accomplish, the witness stated the following at Tr. 1025:

A. We now get out of the realm of social dancing and we now start to involve ourselves in something that is not social dancing as such, but is really in the Silver Medal Standard, the beginnings of an art form which eventually will evolve through the medium of the Gold Medal, Gold Bar and Gold Star, into an art form on a very high level.

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We are now discussing the type of dancing that is executed by couples who compete in competitions, not dancing that is suitable for the night club floor, bub dancing that is geared toward competitive or exhibition style dancing, dancing of a more extroverted, interpretive nature. Mr. Perry S. Gregory, a dance studio operator and

professional dance instructor, 22/ formerly employed at respondents' Washington Dance Studio, testified that his present studio operated under student dance instruction contracts not in excess of 50 hours at one time and that depending on the ability of the student, from 50 to 200 hours would allow sufficient time to teach the Bronze Medal standard of dancing proficiency. According to Mr. Gregory 200 hours would represent a very slow learner and the student average would be between 125 and 150 hours. Mr. Gregory further testified that the method of payments for dance lessons would not affect his ability to teach a student to achieve a Bronze Medal standard of proficiency. (Tr. 1135-1136, 1139)

Mr. Billy Orvis Shelton a dance studio operator and professional dance instructor, 23/ formerly employed at respondents' Washington Dance Studio, testified that respondents' so-called 500 Club operation was merely a money making operation. The witness described the procedure used by the respondents to induce students to join this allegedly exclusive membership club "was simply to enroll as many people as you could, get the.cash as fast as you could, with no real regard as to what the person would get for the amount of money they were spending. The test itself was not a real test." (Tr. 1174-1175)

Mr. Shelton testified to the following at Tr. 1184: 22/ Mr. Gregory's expert qualifications appear at Tr. 1110-1117. 23/ Mr. Shelton and the witness, Mr. Gregory, are partners in the operation of an Arlington, Virginia, dance studio.

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Q. Then, would It be accurate for me to say that a student who has agreed to take 25 hours towards a Bronze level proficiency — that that would not affect your ability to teach him to reach that ultimate proficiency?

A. No, we would teach them each hour as though they were working towards the Bronze. Mr. James Graham, a Washington, D.C. dance studio

operator and professional dance instructor, 24/ formerly employed at respondents' Washington, D.C. Dance Studio 25/ testified that the financial arrangement or method of payment by a dance studio customer would not affect the ability of the student to achieve the Bronze Medal standard of proficiency nor the effectiveness of the dance instruction being given. Mr. Graham's dance studio would accept customers willing to contract for only 25 hours of dance lessons at one time (Tr. 1537-1540). Mr. Graham's dance studio overall contracts average around $400 to $500 owing by a student at any one time with the average sale being $347, some more some less, and according to the witness "It is whatever the person wants to take." (Tr. 1542, 1594) The studio had less than ten contracts outstanding on which the students were obligated in excess of $1500 and these were special contracts combining the Bronze and Silver standards. (Tr. 1542-1543, 1592-1594)

The studio sponsored weekend trips to dance contests and in 1969 a 2-week trip to England. The students paid their own expenses and Mr. Graham paid the accommodations and expenses of the instructors for the weekend contests and the international trip. (Tr. 1543* 1595) According to Mr. Graham the students did.not have to purchase additional hours of instruction for such purposes, stating "No, they already had those" (Tr. 1543).

Mr. Graham testified that the hourly rate for dance Instruction lessons at his studio was approximately $20 and that the hourly rate decreases as the student progresses from the Bronze standard to the higher standards of Silver, Gold Medal, Gold Bar and so on because they have been continuous customers and thus get a rate reduction. 247 Mr. Graham's expert qualifications appear at Tr. 1515-1523. 25/ Mr. Graham's comments on his employment appear at Tr. 1529-1530 of his testimony.

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According to Mr. Graham a student being taught the Bronze program would not currently also be solicited by the studio to enroll in the higher Silver standard program (Tr. 1570-1571). At Tr. 1571-1572, the following colloquy occurred:

HEARING EXAMINER SCHRUP: Mr. Graham, in your opinion, would the course of instruction which encompasses just the Bronze category, would that type, give a person sufficient dance proficiency for a normal everyday social life?

THE WITNESS: Yes, Bronze would. It would not be exciting dancing; it would not be professional-looking dancing or exhibition-type dancing, but good, comfortable, all-around competent dancing anywhere in the world. That is what we represent, a solid foundation of dancing. Mr. John Saionz, a dance studio operator and defense

witness, testified that he was formerly associated with the Arthur Murray, Toledo, Ohio, school of dancing about 10 years ago and since then had purchased three Fred Astaire franchised schools of dancing located in New York City, White Plains, New York, and Philadelphia, Pennsylvania (Tr. 1769-1770).

This defense witness testified that approximately 90 percent of the students entering his studios came primarily for dance instruction and about 10 percent additionally came to attend social activities (Tr. 1784). The witness estimated about 40 percent of his dance studio contracts were in excess of $1500, 26/ and that there was a self-imposed contract limit of "$5000 (Tr. 1799). The remaining 60 percent of dance studio contracts would not be anywhere near $1500 (Tr. 1801-1802) and according to the witness most of his studio customers stopped half-way through the Bronze standard category.

Most students interested in fully achieving the final Bronze standard of dancing proficiency would buy and pay for successive 50-hour dance lesson units rather than pay for all dance lessons as some others have in advance, but "257 The record does not show the acts and practices of the studios of the witness in obtaining dance instruction contracts in excess of $1500 to be the same as the unfair and deceptive acts and practices employed by the respondents in such regard. (Tr. 1834-1844)

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in making part payments according to the witness they did, however, obtain logical units for completion of their dance instruction such as would be comparably obtained by successive school semesters (Tr. 1908-1909). The monetary advantage to a student in purchasing a full dance instruction program rather than a contract for a lesser amount of hours would be a decrease in the hourly rate charged for the fuller program. (Tr. 1891, 1904-1905)

Mr. Ward Thomas Chapman, a dance studio operator and defense witness, testified to being an Arthur Murray, Inc. franchise holder operating dance schools in Kansas City, St. Louis, Phoenix and Scotsdale, Arizona (Tr. 1913). The witness stated he was the largest operator in the Arthur Murray chain (Tr. i960). Mr. Chapman testified that his studios tried to sell the new student being initiated a program of about 40 to 45 hours of dance instruction not to exceed $1000 in cost, and that about half way during the course of such Instruction an attempt would be made to sell a Bronze program (Tr. 1932-1933). According to the witness to teach a beginner the entire Bronze program would run between 150 hours for a person of excellent ability to about 350 hours for a person with poor ability (Tr. 1934).

The witness stated his studios do not have a sliding rate scale but a flat rate of $22 per hour of instruction and that the purchase cost of the entire Bronze program would run somewhere between $3200 to $7000 depending on the individual and based on private hours of instruction (Tr. 1934-1935). The witness testified that a 50-hour unit of instruction would cost the student $1100 (Tr. 1937)* and that out of a student body of 1000 a little over 100 in number would have entered into dance contracts in excess of $1500 27/ and the balance of approximately 900 student contracts remaining would range from $55 up to $1000 (Tr. 1949-1950). When questioned as to student customers who cannot afford to buy a full Bronze program and pay in advance, the witness testified at Tr. 2019-2020: ^77 Under cross-examination by complaint counsel the following appears at Tr. 2001:

Q. During your testimony several questions have been propounded relating to a $1500 contract. Are you aware that this $1500 contract limitation or provision has no bearing upon your operations at this point? A. Yes, I am.

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A. The fortunate ones we are talking about are roughly 28 to 35 people a year that buy a bronze program and pay cash, and the rest of them are not that fortunate, they buy it in many stages or don't buy it at all and the school is geared to service all types of dancing, not just the people that can afford the medal programs. His dance studios according to the witness established

a 300 Club to encourage enrollment in the Bronze program and still further dance Instruction. Club membership entitles the students to certain privileges paid for by the studios. These include hotel dance parties every 6 weeks for which the studio pays the first two years after which the students each contribute $10 per year in club dues. According to the witness the cost of these hotel dance parties are not incorporated in the charge to the students for dance instruction but the student mu3t have enrolled for a full Bronze program to be a 300 Club member. The witness estimated that if the students were paying for these parties on their own, it would cost each student about $100 the first two years. (Tr. 1938-1939)

The witness testified his dance studios sponsored student vacation trips to glamorous vacation places where dancing is available — Puerto Rico, Hawaii and coming up were Mexico City, Guadalajara and Puerto Vallarta. The trip is elective to the student. The student pays the entire amount charged by the studio to him or her which includes the expenses of the escort instructor plus a week's salary paid by the studio to the instructor for such service. (Tr. 1968-1971)

15. In the course and conduct of their aforesaid business, and at all times mentioned herein, respondents have been in substantial competition, in commerce, with corporations, firms and individuals in the sale of dancing lessons of the same general kind and nature as those sold by respondents. 28/ 287 Paragraph Fourteen of the complaint admitted by stipulation between counsel at Tr. 112-113.

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16. 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 mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were true and into the purchase of substantial quantities of dancing instruction by reason of said erroneous and mistaken belief. 29/

CONCLUSIONS 1. The Federal Trade Commission has jurisdiction

of the subject matter of this proceeding and over the respondents.

2. The complaint herein,states a cause of action and the proceeding is in the public interest.

3. The aforesaid acts and practices of the respondents as found in the foregoing Findings of Fact were and are to the prejudice and injury of the public and constituted, and now constitute, unfair and deceptive acts and practices in commerce In violation of Section 5 of the Federal Trade Commission Act.

FOREWORD TO ORDER In Luria Brothers and Company v. Federal Trade

Commission, 389 F. 2d B47, cert, denied, 393 U.S. 029 (1968), the United States Court of Appeals for the Third Circuit in its opinion relative to the Commission's order to cease and desist stated in part at pp. 861-862 as follows:

In reviewing the propriety of the various provisions of the order, we are mindful of the language of the Supreme Court in Federal Trade Commission v. National Lead Co., 352 U.S..419, 428, 77 S.Ct. 502, 509, 1 L.Ed.2d 438 (1956):

2^7—Paragraph Fifteen of the complaint admitted by stipulation between counsel at Tr. 113'

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"The Court has held that the Commission is clothed with wide discretion in determining the type of order that is necessary to bring an end to the unfair practices found to exist. In Jacob Siegel Co. v. Federal Trade Commission, 327 U.S. 608 [66 S.Ct. 758, 90 L.Ed. 888] (1946), the Court named the Commission 'the expert body to determine what remedy is necessary to eliminate the unfair or deceptive trade practices which have been disclosed. It has wide latitude for judgment and the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist.1 Id., [327 U.S.] at 612-613 [66 S.Ct. at 760]. Thereafter, in Federal Trade Commission v. Cement Institute, 333 U.S. 683, 726 [68 S.Ct. 793* 815, 92 L.Ed. 1010] (1948), the Court pointed out that the Congress, in passing the Act, 'felt that courts needed the assistance of men trained to combat monopolistic practices in the framing of judicial decrees in antitrust litigation.' In the light of this, the Court reasoned, it should not 'lightly modify1 the orders of the Commission. Again, in Federal Trade Commission v. Ruberoid Co., supra, [343 U.S. 470] at 473 [72 S.Ct. 800, at 803, 96 L.Ed. 1081], we said that 'if the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity.' We pointed out there that Congress had placed the primary responsibility for fashioning orders upon the Commission. These cases narrow the issue to the question: Does the remedy selected have a 'reasonable relation to the unlawful practices found to exist1?"

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Petitioners' contention that the language "exclusive or substantially exclusive" is too vague cannot be accepted. The order, when interpreted in light of the record, is clear and not subject to attack on that ground. It is necessarily general. Anything more specific would be subject to evasion. E. B. Muller & Co. v. Federal Trade Commission, 142 F.2d 511, 520 (6 Cir. 1944). Furthermore, the Commission's order is not required to "chart a course for the petitioner." Zenith Radio Corp. v. Federal Trade Commission, 143 F.2d 29, 31 (7 Cir. 1944).

Petitioners raise several hypothetical situations in their attack on the Commission's order. However, this avenue has been closed by the Supreme Court.

"Respondents pose hypothetical situations which they say may rise up to plague them. However, 'we think it would not be good judicial administration,' as our late Brother Jackson said in International Salt Co. v. United States, 332 U.S. 392, 401 [68 S.Ct. 12, 17, 92 L.Ed. 20] (1947), to strike the contested paragraph of the order to meet such conjectures. The Commission has reserved Jurisdiction to meet just such contingencies. As actual situations arise they can be presented to the Commission in evidentiary form rather than as fantasies. And we might add, if there is a burden that cannot be made lighter after application to the Commission, then respondents must remember that those caught violating the Act must expect some fencing in. United States v. Crescent Amusement Co., supra, [323 U.S. 173] at 187 [65 S.Ct. 254, at 261, 89 L.Ed. l6o].,! Federal Trade Commission v. National Lead Co., supra, 352 U.S. at page 431, 77 S.Ct. at page 510.

Further and as appropriately stated in the Commission opinion of April 1, 1969 in D. 8738 In the Matter of All-State Industries of North Carolina, Inc., et al., affirmed, 423 F.2d 423 <1970), at page 11:

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The Commission, in short, is expected to proceed not only against practices forbidden by statute or common law, but also against practices not previously considered unlawful, and thus to create a new body of law—a law of unfair trade practices adapted to the diverse and changing needs of a complex and evolving competitive system.16/

16/ "Courts have always recognized the customs of merchants, and it is my impression that under this act the Commission and the courts will be called upon to consider and recognize the fair and unfair customs of merchants, manufacturers and traders, and probably prohibit many practices and methods which have not heretofore been clearly recognized as unlawful." 51 Cong. Rec. 11593 (191$) (remarks of Senator Saulsbury). See, e.g., P.T.C. v. Texaco, Inc.,—U.S. — , 89 S.Ct. 429 (1968); F.T.C. v. Brown Shoe~Co., 384 U.S. 316 (1966); Atlantic Refining Co. v. P.T.C, 381 U.S. 357 (1965); P.T.C. v. R. P. Keppel & Bro., Inc., 291 U.S. 304 U934); P.T.C. v. Algoma Lumber^Co., 291 U.S. 67 (1934). In the words of Judge Learned Hand, describing the Commission's power in the field of deceptive and unfair practices: "The Commission has a wide latitude in such matters; its powers are not confined to such practices as would be unlawful before it acted; they are more than procedural; its duty in part at any rate, is to discover and make explicit those unexpressed standards of fair dealing which the conscience of the community may progressively develop." P.T.C. v. Standard Education Society, 86 P.2d 692, 09b (2d Cir., 193bJ, rev'd on other grounds, 302 U.S. 112 (1937).

The words "or other services" contained in the preamble of the order to cease and desist being entered make the provisions of the order applicable (except the $1500 limitation) to any other type business activities entered into by the individual named respondents. See the opinion of the Commission and final order entered February 23, 1968 in Docket 8713, In the Matter of General Transmissions Corporation of Washington, et al., sustained on appeal in Walter Dlutz v. Federal Trade Commission, 406 P.2d 227, cert, denied, 395 U.S. 93b U9b9).

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A disputatious question posed in this matter is whether or not the rescission provisions of Paragraph 10 in the proposed order to cease and desist eliminates the need for or prevents the inclusion of the provisions of Paragraph 9. The answer is that the inclusion of Paragraph 9 in the order is not to be made dependent on conjecture as to the sufficiency of the rescission opportunities of Paragraph 10 to effect an adequate cure. Paragraph 10 does not eradicate the root of the evil and comes into play only after the purposes of the respondents' unfair and deceptive acts and practices have been perpetrated. Paragraph 9 is a necessary and reasonable safeguard to forestall and stop in their incipiency the respondents' unfair and deceptive acts and practices before their purposes become fulfilled. Particularly apt under the record facts herein is the old adage — "An ounce of prevention is worth a pound of cure." 30/

As recently stated in the June 17 , 1970 opinion of the Commission in D. 8810, In the Matter of Zale Corporation and Corrigan-Republic, Inc.:

The selection of an appropriate remedy, and the admissibility of evidence with regard thereto, are governed by the unlawful practices actually found to exist, and not by the allegations of the complaint. Cf. Federal Trade Commission v. National Lead Co., et al., 352 U.S. 419, 427 (1957J. An appropriate remedy is one which bears a reasonable relation to the unlawful practices found to exist. Jacob Siegel Co. v. Federal Trade Commission, 327 U.s! 608 (19467: : Further, Paragraph 9 cannot be held to unreasonably

impinge on the contractual rights of either the respondents or their prospective or actual student customers in the presence of the overriding public interest that an adequate protective order to cease and desist be entered in this matter. The answer to the question of whether or not 3(5/ For an example, see the attempt at rescission by complaint witness No. 2, supra, at Tr. 524-527 and CX 29 and CX 30. This witness at Tr. 596 testified:

I did consult counsel. I did enter a suit. I did receive two judgments against Arthur Murray. HEARING EXAMINER SCHRUP: Were those judgments

satisfied^ THE WITNESS: No, they were not. I received not

one penny. -35-

the respondents' contracts In excess of $1500 are "unconscionable" upon the facts of record herein and within the meaning of the interpretative tests to be applied under the few decided legal precedents is not necessary of being reached under the disposition of this matter hereinbefore made. Still another question arising herein was whether or not the respondents' dance studios could profitably operate under the provisions of Paragraph 9. This is beside the point. Economic feasibility does not act to insulate or excuse the respondents ' challenged acts and practices from the requirements of the law nor allow the respondents to obtain the ill-gotten gains of their unfair and deceptive acts and practices.

ORDER IT IS ORDERED that respondents Arthur Murray Studio

of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, or other services, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:

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Advertising or otherwise offering or conducting any quiz, contest, or other device which purports to base the selection of the winner upon skills or abilities of the contestants or upon chance, unless such are the facts. Using any promotion for the purpose of obtaining leads to prospective purchasers of dancing instruction or to induce people to come to respondents' studios unless respondents disclose fully and conspicuously in each and every announcement or description of such promotion (a) that the purpose of such promotion is to induce prospective purchasers of dancing lessons to come to respondents' studios, and (b) that, once at respondents' studios, the prospective purchaser will be subjected to attempts by respondents, through their employees or representatives, to sell said prospective purchasers a course of dancing instruction. Representing, directly or by implication, by means of social security number contests, "special selection offers", "Can You Spell" contests, or any other promotion offer or

-37-

contest or any certificates relating thereto, or by any other method or means, that a course of dancing instruction or a specified number of dancing lessons, or any other service or thing of value will be furnished free of charge, at a reduced price, or for any price, unless the entire period or periods of bona fide dancing instruction or other service or thing of value is in fact furnished in every instance as represented. Representing on any postal cards sent through the United States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of: (a) The nature of the gift the recipient

is to receive, and (b) The full name and address of the offeror

of the gift, and

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Representing, directly or by implication, that the Party Time Club or the Holiday Club, or any other club, group or organization offers members a program of activities such as daily or weekly social events or gala night club parties, or any other activities, unless there is clear and conspicuous disclosure in connection with each offer that such activities are available only upon the purchase of a substantial amount of dancing lessons and the total cost of such lessons is disclosed. Using "dance analysis" tests or any other device purportedly designed to evaluate dancing ability, progress, or proficiency when such test or device is not so designed and so used; or misrepresenting in any manner a student's or prospective student's dancing ability, or the progress made or proficiency achieved by a student during the course of or as a result of taking respondents' courses of instruction.

-39-

7- Representing, directly or by implication, that upon completion of a given course of instruction in one specific dance, a specified standard of proficiency will be achieved when, before the specified course is completed or the given standard has been achieved, the student is or will be subjected to sales efforts to induce the purchase of additional dance instruction.


9. Entering into one or more contracts or written agreements for dance instruction or any other service provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500.

10. Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or wMtten agreements, regardless

-40-

of the obligation incurred, shall bear the following notation in at least 10-point bold type:


"If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be promptly refunded. Contracting with a student or prospective student for a specific course of dancing instruction and thereafter, prior to the completion of the given course, subjecting such student or prospective student to sales effort toward the purchase of additional dance lessons, unless: (a) Any additional contract for lessons

shall expressly state therein that such contract is subject to cancellation

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by such student or prospective student, with or without cause, at any time up to and including one week after the completion of the units of dancing instruction previously contracted for, without cost or obligation, except that a charge may be made for not in excess of two additional lessons furnished during such week; and

(b) Any additional contract for lessons shall expressly state that any moneys or other consideration, except as exempted in subparagraph (a) hereof, tendered to the respondents for additional dance lessons will be promptly returned when such contract is cancelled within the time period specified in subparagraph (a) hereof; and

(c) Any additional contract for lessons shall expressly state that all such units of dance lessons previously contracted for shall be used or

-42-

completed prior to the commencement of the additional lessons; and


Falling to deliver to each party a copy of every contract entered into by such party providing for dancing instruction or other services. Falling to deliver a copy of this order to cease and desist to all present and future employees, instructors, or other persons engaged in the sale of respondents' services, and failing to secure from each employee or other person a signed statement acknowledging receipt of said order. Failing to post in a prominent place in each studio a copy of this cease and desist order, with the notice that any student or prospective student may receive a copy on demand.

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15. Failing, after the acceptance of the initial report of compliance, to submit a report to the Commission once every year during the next three years describing all complaints of which respondents have notice respecting unauthorized representations, all complaints of which respondents have notice respecting representations by salesmen which are claimed to have been deceptive, the facts uncovered by respondents in their investigation thereof and the action taken by such respondents with respect to each such complaint.

Eldon P. Schrup l| Hearing Examiner v

July 16, 1970

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423


tf>

A

; # ' RECEIVED 0/'

AUG 7 - 1970

SECRETARY




DOCKET NO. 8776

NOTICE OF INTENTION TO APPEAL

On July 17, 1970, the Hearing Examiner filed an

initial decision in this matter, and service was completed

on July 29, 1970. In accordance with Rule 3.52(a) of the

Commission's Rules of Practice, defendants hereby file

their notice of intention to appeal from said initial

decision.


Tom M. Schaumberg ^

August 7, 1970

424


6 7 - 1970

SECREMRV

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC. corporations, and


DOCKET NO. 8776,

NOTICE OF INTENTION TO APPEAL

In accordance with Sec. 3«52(a) of the Rules of Practice for Adjudicative Proceedings, counsel supporting the complaint hereby files notice of intention to appeal the initial decision of the hearing examiner in the above-entitled matter.

Said initial decision was served on counsel supporting the complaint on July 28, 1970.


dward D. Steinman,

onald L. Bachman, Counsel Supporting the Complaint.

August 7 , 1970.


® &• TRADE COM^/S RECEIVED

SEP 2 " 1970

SECRETARY

DOCKET NO. S77b

IN THE MATTER OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC. AND ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., CORPORATIONS, AND

VICTOR F. HORST AND EDWARD MARANDOLA, ALSO KNOWN AS EDWARD MARA, INDIVIDUALLY AND AS OFFICERS OF SAID CORPORATIONS.

APPEAL BRIEF OF COUNSEL IN SUPPORT OF THE COMPLAINT

DONALD L. BACHMAN,


MICHAEL J. VITALE, ASSISTANT DIRECTOR FOR GENERAL LITIGATION,

BUREAU OF CONSUMER PROTECTION.

PAUL A. JAMARIK, ACTING DIRECTOR, BUREAU OF CONSUMER PROTECTION.

427

SUBJECT INDEX

I. Statement of the case 1 A. The Parties 1 B. The Pleadings 2 C. The Prehearings 2 D. The Hearings 4 E. The Initial Decision 4

II. Issue presented for review 4 III. Argument 5

1. The Examiner erred in strictly adhering to the agreed-to-form of order after respondents were permitted to withdraw from the stipulations of facts upon which the order was based 5

2. The Examiner erred in failing to adopt modifications of, and additions to, the agreed-to-form of order 6

IV. Conclusion 11 TABLE OF CASES

All-State Industries of North Carolina, Inc. v. F.T.C. 423 F. 2d 423 (4th Cir. 1970)

(i)

TDQ era Arthur Murray, Inc., et al., 57 P.T.C. 30b (19b0) . 8

Campbell Soup Company, et al., Docket No. C-1741, May 25, 1970 11

Carter Products, Inc. v. F.T.C. 323 F. 2d $23 (5th Cir. 1963) 6

Colgate-Palmolive Company v. F.T.C, 310 F. 2d »9 (1st Cir. 1962) 6

F.T.C. v. National Lead, Co., 352 U.S. 419, (1957).. 6

Jacob Siegel Co. v. Federal Trade Commis-sion, 327 U.S. bOb (1946^ 6

Waltham Watch Company v. F.T.C., 327 F. 2d 427 (7th Cir. J9b4), cert. denied 377 U.S. 922 (1964) ,"reh"ei denied 379 U.S. 872 (1964) 7 10

Windsor Distributing Company, Inc., et al., Docket No. by73, March 6, 1970

STATUTES Cal. Civil Code, Title 2.4, §§1812.64 -1812.65 (I969) ,

(ii)


In the Matter of j ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ) ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ) DOCKET NO. 877 ARTHUR MURRAY STUDIO OF BETHESDA, INC. and ) ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., ) corporations, and )

VICTOR F. HORST and ) EDWARD MARANDOLA, also known as ) EDWARD MARA, individually and as ) officers of said corporations. )

APPEAL BRIEF OF COUNSEL IN SUPPORT OF THE COMPLAINT

I. STATEMENT OF THE CASE A. The Parties

The respondents herein are Arthur Murray Studio of Washington, Inc., Arthur Murray Studio of Baltimore, Inc., Arthur Murray Studio of Bethesda, Inc., Arthur Murray Studio of Silver Spring, Inc., corporations and Victor F. Horst and Edward Marandola, also known as Edward Mara, individuals and officers of the corporate respondents. Respondents Horst and Marandola formulated, directed and controlled the acts and practices of the corporate respondents.

430

B. The Pleadings The Commission issued its complaint in this

matter on April 3, 1969 and said complaint was duly served on all respondents. The complaint alleges that respondents through such inducements as contests, offers of valuable and unconditional gifts and availability of adult social clubs have unfairly and deceptively lured prospective students to the premises of respondents where such persons were subjects of the following unfair practices: sham "dance analysis tests", coercive sales efforts prior to completion of courses of dance instruction, unrelenting sales efforts by a number of respondents' sales personnel in a single day and intense, emotional sales pressure for the purpose of urging, cajolling and coercing prospective students or students to execute contracts, often in excess of $1500.

Respondents filed on May 19, 1969, separate answers that contained certain admissions but generally denied any violation of law. A request for • admissions of facts was served upon both individual respondents in June I969. Said request for admissions of facts was subsequently withdrawn by complaint counsel (Tr. 121-122).

C. The Prehearings Prehearing conferences were held on June 16,

June 27 and July 3, 1969. At the prehearing conference held on November 5, 1969 complaint counsel and respondents' counsel stipulated on the record that the material factual allegations contained in Paragraphs One to Fifteen of the complaint served on the respondents were true and correct (Tr. 98-II3). Separate and apart from the stipulations of facts, counsel supporting the complaint and counsel for respondents agreed in substance to many of the prohibitions contained in the proposed order attached to the complaint issued by the Commission (Tr. 113, 115-119).

On December 19, 1969, a prehearing conference was convened for the purpose of the presentation of oral argument by complaint counsel and respondents1 counsel with regard to the propriety of a prohibition in the order limiting the contracts of respondents with students for dance instruction or any other service provided by respondents' dance studios to an amount not exceeding $1500 and regarding whether the order should apply to services provided by respondents other than dance studio services. During said conference it became apparent that the stipulations of facts contained insufficient facts upon which the Examiner could make a proper evaluation of the merits of this proceeding. Complaint counsel requested that they be allowed to introduce additional evidence to amplify the stipulated facts (Tr. 219). The Examiner denied the request and closed the record.

By motion dated January 5, 1970, complaint counsel moved that the record be reopened for the presentation of additional evidence on the propriety of the $1500 contractual provision. The Examiner by order dated January 19, 1970 reopened the record for the reception of further evidence. The Commission on February 17, 1970 denied respondents' request to file an interlocutory appeal from the Examiner's aforesaid order.

Another prehearing conference occurred on March 2, 1970 for purposes of hearing argument on respondents' motion to quash an order of access and to complete preliminary matters prior to commencement of evidentiary hearings.

-3-

D. The Hearings Evidentiary hearings were held in Washington,

D.C. during the period of March 30 through April 23, 1970. Complaint counsel during their case-in-chief presented the testimony of 14 witnesses and offered 300 exhibits into evidence. During the presentation of complaint counsels' prima facie case, respondents over the objection of complaint counsel withdrew their stipulations of facts to Paragraph Thirteen of the complaint (Tr. 358-362, 373-374, 474-480, 529-539, 1327-1328). Upon respondents'disclaimer of the stipulationsof facts, the Examiner required complaint counsel to present evidence to support the allegations contained in Paragraph Thirteen. In their defense, respondents' counsel presented testimony of eight witnesses and offered 33 exhibits into evidence.

E. The Initial Decision Proposed findings of fact, conclusions of law

and orders were filed on June 0, 1970. Reply findings were submitted on June 19J 1970.

In his initial decision filed on July 17, 1970, the Examiner found that the allegations of the complaint to be established and issued an order to cease and desist in accordance with his findings.

Based on facts disclosed at the hearing as a result of respondents' withdrawal from the stipulations of facts, complaint counsel modified the previously agreed-to-order to more precisely conform to the facts of record. The Examiner dismissed each modification sought by complaint counsel.

II. ISSUE PRESENTED FOR REVIEW Whether the Examiner erred in failing to adopt modifications of, and additions to, the agreed-to-form of order.

-4-

III. ARGUMENT 1. The Examiner erred in strictly adhering ■

to the agreed-to-form of order after respondents were permitted to withdraw from the stipulations of facts upon which the order was based.

During complaint counsels' case-in-chief, respondents withdrew from each stipulated fact contained in Paragraph Thirteen of the complaint. The purported basis of respondents' withdrawal was to avoid conflict with cross-examination of witnesses regarding such stipulated facts.

Complaint counsel in presenting evidence to support the contested $1500 contractual provision attempted to amplify the stipulated facts to provide a record upon which theExaminer could appropriately evaluate the judiciousness of the $1500 contractual provision. In permitting respondents to unilaterally withdraw from the stipulated facts, the Examiner released complaint counsel from their acceptance of provisions of the agreed-to-order evolving from the withdrawn stipulated facts.

Once complaint counsel were advised by the Examiner that he would not consider the stipulated Paragraph Thirteen in his initial decision, complaint counsel were obligated to establish by evidence, other than the stipulations, the allegations contained in said Paragraph. • The record that resulted from the presentation of such evidence provides the basis for modifying the agreed-to-form of order.

In view of respondents' withdrawal from the aforesaid stipulated paragraph of the complaint and in consideration of evidence presented as a result of said withdrawal, the Examiner erred in failing to permit modifications of the agreed-to-order.

Certainly, the Commission is well acquainted with applicable precedent demonstrating that the Commission has wide discretion in fashioning the type of order necessary to prevent the repetition of the practices found to exist. Jacob Siegel Co/ v. Federal Trade Commission, 327 U.S. 608 (1946). By adhering to the agreed-to-order, the Examiner is preventing the issuance of an order providing an effective remedy for the unfair practices disclosed by the record.

2. The Examiner erred in failing to adopt modifications of, and additions to, the agreed-to-form of order.

The order issued by the Examiner is restricted to the prohibitions contained in the agreed-to-order with the exception of limiting respondents' contracts to $1500 and applying the order to "other services" that respondents may provide. Efforts by complaint counsel to modify the agreed-to-order to more effectively prevent repetition of the unfair practices found to exist were to no avail.

Upon completion of the record in this matter, complaint counsel fashioned provisions of their proposed order to enable the Commission to directly respond to the practices disclosed by the record. Although recognizing the principle that the order is based on the evidence of record and not on the allegations of the complaint, the Examiner dismissed the modified provisions for the reason that no allegations appeared in the complaint relating to the new forms of order (I.D. p. 17). Such action is contrary to appellate decisions providing that there is no lack of due process when the Commission issues an order emanating from the evidence of record rather than from allegations of the complaint. F.T.C. v. National Lead, Co.,352 U;S. 4l9, (1957); Carter Products, inc. v. F.T.C. 323 F. 2d 523 (5th Cir. 19b3)i Colgate-Palmolive Company v. F.T.C., 310 F. 2d «9 (1st Cir. l9bi>). The new provisions proposed by complaint counsel in no way prejudice respondents since they have ample opportunity to contest such provisions before the Commission. In addition, the facts upon which the provisions of the order are based were contested before the Examiner.

-6- 435

Proposed Paragraph Ten of the order has been modified to permit students of respondents dance studios to cancel contracts with respondents either 14 days after the contract is signed or within seven days from the date of receiving services provided by the contract. This alternative cancellation provision is necessary to counteract situations where students sign the contracts but wait a considerable time to commence taking lessons.

As recognized by the Examiner in his initial decision, respondents have an elaborate procedure, the four hour junior procedure, wherein students are put through an emotional sales appeal to obtain contracts of amounts based on the upward limit of the students' financial reserves (I.D. pp 14-15). In order to protect students from such a procedure, it is necessary that cancellation of the initial contract be permitted so that a student can avoid such an insidious sales technique. In addition, the student is in a better position to evaluate the merits of the services to be provided pursuant to the contract after initial performance of such services has begun. A similar provision was included in the order issued by the Commission in Windsor Distributing Company, Inc., et al., Docket No. VCC5, March b, lyyu.

Modified Paragraph Ten also contains a time certain for respondents to refund moneys due after recision of the contract. The record contains numerous instances of respondents' failure to refund moneys as well as evading execution of monetary legal judgments (I.D. pp. 19, 22, 35). The import of such a provision is to set a definite time f°r respondents to refund the moneys paid and to provide students who utilize the cancellation clause with a date certain upon which they can expect return of their expeditures.

Paragraph Eleven, as amended, would limit respondents to entering into subsequent contracts with their students for not more than fourteen hours when an existing contract has outstanding hours of instruction. It appears from page 17 of the initial decision that the Examiner refused to permit this modification of the proposed order solely on the basis of an agreement between counsel occurring prior to respondents' withdrawal from the stipulations of facts. The evidence of record demonstrates that the public interest demands revision of the agreed-to-order to prevent subsequent contracts of unlimited hours.

The Examiner found that respondents repeatedly obtained subsequent contracts while hours of instruction remained untaught from existing contracts. He did not, however, give cognizance to the facts of record showing respondents' practice of absorbing existing contracts into the subsequent contracts (Tr. 402-403, 63I-632, 788-789, 2054, 2059). Paragraph Eleven, as issued by the Examiner, is very similar to Paragraph Eight of the order in Arthur Murray, Inc., et al, 57 F.T.C. 306 (i960). Respondents have already shown a methodology that would evade the efficacy of such a provision. The absorbing of an initial contract into a subsequent contract can be construed as a novation, i.e., substitution of the new contract for the prior contract with the resulting extinguishment of the prior contract.

To avoid such problems in enforcement of the cease and desist order, the provision contained in the proposed order should be adopted with limited modifications. The modified provision in substance prohibits respondents from entering into contracts for dance instruction with their students, when such students are already under contracts, until there are 14 hours of instruction or less remaining from the prior contracts. Such provision eliminates compliance difficulties which may evolve from Paragraph Eleven of the order issued by the Examiner.

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The Examiner rejected Paragraph Twelve (18% per annum interest for failure to refund moneys within five days of cancellation of contracts) and Paragraph Thirteen (surety bond for benefit of students injured by respondents1 unfair practices) of complaint counsels' proposed order on the basis that there are no allegations in the complaint relative to said proposed paragraphs and the terms of such provisions having no record support. As stated previously (supra, p. 6) respondents have incurred no lack of due process because of the absence of exact allegations relating to proposed Paragraph Twelve and Thirteen in the complaint.

The record amply supports inclusion of such provisions in the order to be issued by the Commission. The Examiner recognized in his initial decision the respondents' proclivity to resist cancelling contracts, refunding moneys paid by students, and evading execution of judgments arising from dance studio operations (I.D. pp. 19, 22, 35). Besides the need for such provisions in order to insure that students will promptly receive money expended for contracts which are subsequently cancelled, these provisions are necessary safeguards to dissipate the harsh effects of the unfair practices disclosed by the record. Complaint counsel through proposed Paragraph Thirteen are providing students of respondents' dance studios with a remedy to which they may avail themselves if the respondents commit such unfair practices in the future. The State of California has also recognized the necessity for requiring a surety bond for the benefit students injured by dance studio practices. Cal. Civil Code, Title 2.4, §§1812.64 - 1812.65 (19^9).

There can be no question that the practices disclosed by the record and the nature of personal service contracts in general require a limitation of one year on the performance of services due pursuant to respondents' contracts (See proposed Paragraph Fourteen). The record has revealed numerous instances of the ill effects of long term personal service contracts. Students had to indure long lapses of time without qualified instructors (Tr. 46l, 558, 801). An indication of the adverse

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effect of such contracts is shown by the experience of Mrs. Elise McKee, a former student of respondents. Mrs. McKee had in excess of 350 hours of instruction outstanding when respondents ceased doing business in the Washington, D.C. area. When the franchise succeeding respondents began operation, Mrs. McKee was required to pay an additional $l66o to use her outstanding hours (Tr. 653). A limitation on the duration of services provided by respondents should prevent repetition of the inequitable circumstances resulting from long term personal service contracts.

The Examiner rejected proposed Paragraph Fifteen relating to a requirement that respondents disclose to students taking trips with respondents that such students are obligated to pay the expenses of instructors accompanying such students. Although there is no allegation in the complaint regarding such disclosures, it is clear from the Examiner's initial decision that respondents have utilized trips as means to successfully procure large sums of money from their students. Affirmative disclosures have been required by the Commission in many cases to advise consumers of material facts arising from transactions with business concerns. All-State Industries of Worth Carolina.. Tnn.. v. F.T.C.. 423 F. 2d 423 (4th Cir., 1970); Waltham Watch Company v. F.T.C., 327 F. 2d 427 (7th Cir. 19b4), cert. denied 377 U.S. 922 (1964), rehearing denied 379 u.s. 872 (1964).

Due to the extreme nature of the unfair practices found to exist, complaint counsel believe that respondents should be required to advise their prospective students and students that respondents are subject to a cease and desist order (See proposed Paragraph Eighteen). In order for the provisions of the cease and desist order to be effective against renewal of practices shown by the record, students need to be informed of the prohibitions of the order which directly affect services provided by respondents. The Commission has the authority to require such disclosures

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439

when necessary to reduce the effects of unfair practices previously utilized by respondents. Campbell Soup Company, et al., Docket No. C-1741, May 25, 1970.

Proposed Paragraph Nineteen was modified by complaint counsel to clarify the original compliance paragraph of the order. This was done to assist respondents in having a clear and concise understanding of their obligations in submitting compliance reports to the Commission.

IV. CONCLUSION "WHEREFORE, counsel in support of the complaint

submit that the Examiner erred in failing to adopt complaint counsels' modifications and additions to the proposed order issued by the Commission. Therefore, counsel in support of the complaint request that the Commission adopt the appended provisions of the order as being properly based on the evidence of record.


Edward D. Steinman, APPROVED: Donald L. Bachman, Counsel Supporting

Michael J. Vitale, the Complaint. Acting Assistant Director for General Litigation.

Paul A. Jamarik, Acting Director, Bureau of Consumer Protection.

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APPENDIX

Proposed Order

IT IS ORDERED that respondents Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor P. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, or other services, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:



A-l

Representing, directly or by implication, by means of social security number contests, "special selection offers" , "Can You Spell" contests, or any other promotion offer or contest or any certificates relating thereto, or by any other method oi* means, that a course of dancing instruction or a specified number of dancing lessons, or any other service or thing of value will be furnished free of charge, at a reduced price, or for any price, unless the entire period or periods of bona fide dancing instruction or other service or thing of value is in fact furnished in every instance as represented.

Representing on any postal cards sent through the United States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of: (a) The nature of the gift the

recipient is to receive, and (b) The full name and address of

the offeror of the gift, and (c) The manner in which such

recipient has been selected. Representing, directly or by implication, that the Party Time Club or the Holiday Club, or any other club, group or organization offers members a program of activities such as daily or

A-2

weekly social events or gala night ?** Parties, or any othSr actSfties unless there is clear and conspicuoS^ of?er°?h»? ± n S ° n n r t l o n w i t h ««S offer that such activities are avail-S i V n ^ ?P°n t h e Purchase of a lndStSe lnLT°Unt °i d a n c i nS lessons d?scloseed?tal C ° S t ° f S U C h l e s s o n s i s

6. Using "dance analysis" tests or any other device purportedly designed to evaluate dancing ability, progress or proficiency when such test or ' device is not so designed and so aSs^riÎfliSrepresenting i n any ^nner a student's or prospective student's n ? ^ - a * i l l t y ' ° r t h e Progress made or proficiency achieved by a student 2ring.the course of or as a result ot taking respondents' courses of instruction.



9. Entering into one or more contracts or written agreements for dance instruction or any other service

A-3

provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1500. Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-point bold type:

"Notice: You may rescind (cancel) this contract, for any reason whatever, by submitting notice in writing of your intention to do so within fourteen (14) days from the date of making this agreement or within seven (7) days from the date of receiving services provided by this agreement, which ever period of time is longer.

If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be refunded, within five (5) days of cancellation of this contract".

At the time of signing of any contract or written agreement, respondents shall also communicate orally to each party the terms of the above notice. Entering into a contract with a student who is already under a contract with respondents that provides for dancing instruction, until fewer than 15 lesson hours remain under the

A-4

existing contract. Any contract entered into under such circumstances shall state the number of lesson hours remaining under the existing contract, shall provide that all dancing instruction previously contracted for shall be used or completed prior to the commencement of the additional lessons and shall state that such contract is subject to cancellation, without cost or obligation except for a fair charge for any lessons or services actually furnished prior to cancellation, at any time up to and including one week after the completion of the units of dance instruction due pursuant to the previous contract. Such contract shall also state that all moneys or other consideration tendered to respondents for additional dance instruction will be refunded within five (5) days of cancellation of said contract.

Failing to pay to students who have cancelled contracts pursuant to Paragraphs 10 and 11 hereof an interest charge of 1.5$ per month (18$ per year) on all moneys or consideration that is not refunded to such students within five (5) days of cancellation of such contracts. Failing to establish and maintain for each of respondents' dance studios a bond issued by a surety company having as a principal sum an amount not less than $10,000 or an amount equal to 25$ of each said studio's gross income from its business operations during its last fiscal year, which ever amount is larger. The bond required for each studio shall be in the favor of all prospective students and/or students of each said studio who are injuried as a result of respondents'

A-5

engaging in unfair or deceptive acts or practices. The bond for each studio shall remain in effect for two years after each respective studio ceases business operations.

14. Entering into a contract or written agreement for dance instruction or any other services provided by respondents' dance studios when the terms of such contracts or written agreements provide that the services to be render to a student of respondents' dance studios extend over a period of one year from the date of execution of said contract.

15. Failing to orally disclose prior to consummation of a sale of trips in which respondents provide chaprone services or provide in any manner escorts for students taking such trips, and in writing on any contract or written agreement pursuant to which such services are to be provided and with such clarity as is likely to be observed and read by such studentss that:

Students taking trips under the auspices of respondents are obliged to pay their own expenses for such trips as well as paying for- the expenses incurred by studio personnel accompanying such students.

16. Failing to deliver to each party a copy of every contract entered into by such party providing for dancing instruction or other services.

A-6

Failing to deliver a copy of this order to cease and desist to all present and future employees, instructors, or other persons engaged in the sale of respondents' services, and failing to secure from each employee or other person a signed statement acknowledging receipt of said order. Failing to orally disclose to students prior to consummation of the sale of dance instruction or any other service provided by respondents' dance studio that respondents are subject to this cease and desist order and failing to advise such students of the location where in a prominent place in the studio a copy of said order is posted, with notice that any student or prospective student may receive a copy of the order on demand. Failing, after the acceptance of initial report of compliance, to submit a report to the Commission once every year, during the next three years, describing: (1) all complaints received from prospective students and/or students respecting sales practices utilized by respondents, their agents, representatives or employees; (2) the facts uncovered by respondents in connection with any investigation thereof; (3) the action taken by respondents with respect to each such complaint.

A-7


& '<$?- RECEIVED *A

OCT 2 31970 SECRETARY

DOCKET NO. 8776

IN THE MATTER OF

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.



APPEAL BRIEF OF"RESPONDENTS





DOCKET NO. 8776

IN THE MATTER OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC. corporations, and


APPEAL BRIEF OF RESPONDENTS


Gadsby & Hannah 1700 Pennsylvania Avenue, N.W, Washington, D. C. 20006


452

INDEX

STATEMENT OF THE CASE

ISSUES PRESENTED . .

ARGUMENT

INTRODUCTION . . A. The Commission's Cease And Desist

Order Cannot Properly Prohibit Respondents From Entering Into Contracts For An Amount In Excess Of $1500 For Dance instruction Or Any Other Service Provided By Respondents' Dance Studios 1. The Commission should

disregard the Initial Decision

2. The record does not support the imposition of a $1500 contractual limitation

3. The Commission may not bar contracts in excess of a certain amount

4. Conclusion. .

B. The Commission's Cease And Desist Order Cannot Properly Encompass "Other Services" When The Allegations Of The Complaint, The Stipulated Facts, And The Evidence Of Record Relate Exclusively To The Dance Business And To No "Other Services" . ,

APPENDIX A

i


CASES: Page Cotherman v. F.T.C., 417 F.2d 587

(5th Cir. 1969) 23

Doyle v. F.T.C., 356 F.2d 381 (5th Cir. 1966) 30

In the Matter of All-State Industries of North Carolina, Inc., et al., [1967-1970 Transfer Binder], Trade Reg. Rep. 518,740, aff'd., 423 F.2d 423 (4th Cir. 1970) 25, 26

In the Matter of General Transmissions Corp. of Washington, et al., [1967-1970 Transfer Binder], Trade Reg. Rep., 518,254 (1968) 34

In the Matter of Leon A. Tashof, t/a New York Jewelry Co., [1967-1970 Transfer Binder], Trade Reg. Rep. 518,606 (1968) 13

Jacob Siegel v. F.T.C., 327 U.S. 608 (1946) 12

Luria Brothers and Company v. F.T.C, 389 F.2d 847, cert, denied 393 U.S. 829 (1968) 11-12, 15, 22

N. Fluegelman & Co., Inc. v. F.T.C, 37 F.2d 59 (2d Cir. 1930) 24

The Sperry and Hutchinson Company v. F.T.C, No. 26,73 9 (5th Cir. September 29, 1970) 22, 23

Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C Cir. 1965) 13

ii

STATUTES: Page California Civil Code, §1812.53(a)

(1969) 28 California Corporation Code, §25140(a)

(1968) 28

Federal Trade Commission Act; Section 5 6, 23

15 U.S.C. §77a-77aa (1963) 27

Wheeler-Lea Amendment, 52 Stat. Ill, (March 31, 1938) . . . . . . . . 31

LEGISLATIVE MATERIALS:

77 Congressional Record, May 5, 1933 27

S. Rep. No. 221, 75th Cong., 1st Sess. (1937) . . 31, 32

MISCELLANEOUS: FTC Rules of Practice for Adjudicative.

Proceedings (July 1, 1970): Section 3.21(a)(3) 2 Section 3.43(a) 20 Section 3.43(g) 15 Section 3.72(b) 29

iii


In the Matter of

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776

APPEAL BRIEF OF RESPONDENTS

STATEMENT OF THE CASE

The Commission issued its complaint in this matter

on April 3, 1969, and respondents filed separate answers

on May 19, 1969. Respondents initiated efforts to settle

this case even after it reached the adjudicatory stage.

Agreement as to a proper order was reached by respondents'

counsel and staff counsel, and, on July 10, 1969, the

456

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Hearing Examiner certified to the Commission a joint

motion seeking withdrawal of the matter from adjudication..

By order of August 6, 1969, the Commission determined

that the consent order agreed to by counsel supporting the

complaint and counsel for respondents did not afford an

adequate basis for settlement. In addition, the Commission

indicated the form of order it would consider acceptable.

In a further effort to arrive at a settlement

acceptable both to respondents and to the Commission,

respondents filed a motion for reconsideration on

September 5, 1969. In an answer filed on September 11,

1969, Commission counsel supported respondents' motion

for reconsideration.

On October 9, 1969, the Commission again denied

respondents' settlement offer and ordered that the matter

be returned to adjudication.

Thereupon, a final prehearing conference was held

on November 5, 1969. At that time, pursuant to §3.21(a)(3)

of the Commission's Rules, the parties entered into stipula

tions of fact, and respondents agreed to certain provisions

of the proposed order. As a result, the parties agreed

that a trial of this matter would be unnecessary. More

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specifically, respondents, in an effort to expedite the

proceedings and to save both themselves and the public

the expense of a protracted proceeding, agreed to each

and every factual allegation of the Commission's complaint.

Respondents furthermore consented to a majority of the

provisions of the proposed order. As a result, the

controversy was narrowed to two provisions of the proposed

order. Briefs were filed on those issues, and oral argument

was heard on December 19, 1969.

Close to the conclusion of oral argument, complaint

counsel suddenly made a motion to introduce evidence on the

issues in dispute (TR 204). This motion was denied, the

record was closed, and the Hearing Examiner afforded complaint

counsel ten days to make a motion to reopen the record (TR 219).

On January 5, 1970, complaint counsel moved that the

record be reopened solely for the presentation of evidence

on one of the two issues still in the case, the propriety

of the $1500 contractual limitation which the proposed

order sought to impose on respondents.

By order of January 20, 1970, the Hearing Examiner determined that the record be reopened "for the limited purpose requested in the aforesaid motion by complaint counsel" (p. 3).

458

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On January 26, 1970, respondents filed a request

for permission to file an interlocutory appeal from this

order, which was denied by the Commission on February 17,

1970. A final prehearing conference was held on March 20,

1970, and by order of March 13, 1970, the Examiner reviewed

the history of these proceedings and ordered that hearings

commence on March 30, 1970.

Evidentiary hearings were held in Washington, D.C.

during the period March 30 through April 23, 1970. Complaint

counsel presented the testimony of 14 witnesses and offered

300 exhibits into evidence. Respondents presented the

testimony of 10 witnesses and offered 33 exhibits into

evidence.

Proposed findings of fact, conclusions of law, and

orders were filed by both parties on June 8, 1970. Reply

findings were submitted on June 19, 1970. in his Initial

Decision, filed on July 17, 1970, the Hearing Examiner

reiterated the stipulations of fact and entered the order

agreed to by counsel for the parties as well as the two

provisions which had been in dispute. The Examiner did,

however, specifically dismiss each modification of the

459

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previously agreed-to order sought by counsel supporting

the complaint.

ISSUES PRESENTED

The following issues are hereby presented on

appeal:


properly prohibit respondents from entering into contracts

for an amount in excess of $1500 for dance instruction or

any other service provided by respondents' dance studios?


properly encompass "other services" when the allegations

of the Complaint, the stipulated facts, and the evidence

of record relate exclusively to the dance business and to

no "other services."

ARGUMENT

INTRODUCTION The most significant aspect of this appeal is its

limited scope. This is not an appeal seeking reversal of the Hearing Examiner's determination that respondents

-6-

violated §5 of the Federal Trade Commission Act. Rather,

respondents are appealing only two aspects of the order to

cease and desist entered by the Examiner.

This is the first instance, to the best of counsel's

knowledge, that an adjudicatory hearing was held before a

Hearing Examiner of the Federal Trade Commission to determine

only one thing—whether a particular provision should be

included in an order to cease and desist.

The hearing was not held to determine whether there

was a violation of law. All the facts alleged in the

complaint from which such a determination could be drawn

were stipulated by respondents.

The hearing was requested by complaint counsel and

held for the sole purpose of determining whether respondents

should be directed by order to limit to a maximum of $1500

the amount of their contracts for dance instruction or any

other service provided by their studios. Counsel were

specific in explaining their goal in having such a hearing: Complaint counsel will introduce

evidence through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts in excess of $1500. Evidence will be adduced from members of the dance industry to show that $1500 is a fair balance between the practical

business need of an operator of a dance studio and an equitable and fair amount which a person should be indebted for dance instruction. (Motion to Reopen Record, p. 2) .

In other words, staff counsel wished to prove two

things: (a) the unconscionability of respondents' contracts

in excess of $1500 and (b) the fairness of such a limitation

when the economics of operating a dance studio are balanced

against some "fair amount which a person should be indebted

for dance instruction."

We will show that complaint counsel proved neither.

Furthermore, we will show that the record does not support

the inclusion of the $1500 provision and that, even if it

did, the Commission cannot properly impose such a provision.

Finally, we will also show that neither the initial Decision

nor the record supports the inclusion of "other services"

in the preamble of the order.

A. The Commission's Cease And Desist Order Cannot Properly Prohibit Respondents From Entering Into Contracts For An Amount In Excess Of $1500 For Dance Instruction Or Any Other Service Provided By Respondents' Dance Studios.

1. The Commission should disregard the Initial Decision.

-8-

There is nothing in the Initial Decision that

justifies entry of the $1500 contractual limitation

sought by staff counsel. In fact, there is virtually

nothing in the Initial Decision which would not have been

there if the Examiner had decided the case as originally

agreed by counsel on the basis of the stipulations and

briefs.

The hearings added nothing to the Commission's case,

a fact well reflected by the Initial Decision. Every

finding except finding 14 was stipulated by respondents..1/

Finding 14 is nothing more than a description of portions

of the testimony of certain witnesses, most of whom were

called simply "to amplify the stipulations of facts."

Complaint Counsels' Proposed Findings as to the Facts,

Conclusions and Order, p. 39. Because of this and because

1/ Contrary to footnote 15 of the Initial Decision, counsel for respondents did not make a general disclaimer of his stipulation to Paragraph 13. The question of withdrawal only arose when the Examiner ruled that, despite the stipulation, complaint counsel could introduce evidence in support of this paragraph. As stated then, "it would be grossly unfair for me to be put in the position of having to defend against allegations which I supposedly have already stipulated to..." (TR 358). As further stated, "I feel it is almost unethical for me to cross examine witnesses on points that I have stipulated" (TR 532). Thus, the withdrawal was only for purposes of the hearing on relief, not for purposes of determining whether there was a violation of law.

-9

the Examiner drew no conclusions whatever from any of this

testimony, finding 14 contributed nothing substantive to

the Initial Decision. With regard to the issue of the $1500

limitation, the Initial Decision is no more than a narrative

of the proceedings with quotations from the testimony.

As stated above, complaint counsel requested a hearing

solely to prove (a) the unconscionability of respondents'

contracts in excess of $1500 and (b) the balance achieved

by imposing the dollar limitation. Astonishingly, the

Examiner granted complaint counsel the relief they requested

despite the fact that he considered both of these issues

"beside the point." As to the question of unconscionability,

the Examiner stated: The answer to the question of whether or not the respondents' contracts in excess of $1500 are "unconscionable" upon the facts of record herein and within the meaning of the interpretative tests to be applied under the few decided legal precedents is not necessary of being reached under the disposition of this matter hereinbefore made. (I.D. 35-36).

Similarly, he makes short shrift of any balancing concept:

Still another question arising herein was whether or not the respondents' dance studios could profitably operate under the provisions of Paragraph 9 [the $1500 limitation]. This is beside

-10-

the point. Economic feasibility does not act to insulate or excuse the respondents' challenged acts and practices from the requirements of the law nor allow the respondents to obtain the ill-gotten gains of their unfair and deceptive acts and practices. (I.D. 36).

Since the Examiner included in his Order a provision

limiting respondents' future contracts to $1500, and since

it was not for any of the reasons propounded by complaint

counsel, one must ask what the Examiner's rationale was.

It appears to be contained in the old adage that "'An ounce

of prevention is worth a pound of cure.'" (I.D. 35).

Despite his statement that he does not reach the

issue of unconscionability (I.D. 35-36), the Examiner con

tends that the $1500 limitation is necessary to prevent

the recurrence of any of the acts and practices charged.

(I.D. 35). This, however, is tantamount to saying that

contracts in excess of $1500 are unconscionable, because

their negotiation is dependent upon the use of illegal

selling acts and practices. He neglects to explain, however,

how this is accomplished; nor can the record be of any

assistance. It was clearly shown that contracts of $1500

or more are a commonplace in the dance industry and have

465

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been negotiated without recourse to illegal sales

techniques.2/

Furthermore, could the Examiner be suggesting

that it is not worth it to violate the Commission's

Order for less than a $1500 contract? If so, what is

to prevent violation of the $1500 provision as well?

Perhaps the best way to prevent recurrence of any viola

tion is to put respondents out of business. Such

reasoning overlooks, of course, the $5,000 per day

penalties that Congress considered sufficient as an

enforcement device. As will be discussed below, Congress

did not give the Commission power to impose punishment

nor to prohibit that which is legal.

The Hearing Examiner's application of prior case

law to the issue of a dollar limitation consists of a

lengthy quotation from Luria Brothers and Company v. F.T.C.,

389 F.2d 847, cert, denied, 393 U.S. 829 (1968) 3/ without

any analysis of the facts of that case and how they relate

2/ See footnote 26, I.D. 28, and the accompanying text. See also the testimony of witnesses Shane (TR 1689-1768), Trout (TR 2049-2099), Carr (TR 2101-2172) and Leary (TR 2193-2211).

3/ This material was also quoted at length by the Examiner during the course of the proceedings (TR 2236 et seq.).

-12-

to the instant case. While the quoted language is impressive,

it does not support inclusion of a provision in an order

because "An ounce of prevention is worth a pound of cure."

Although no one will deny that the Commission has latitude

in fashioning its orders, the remedy selected must bear a

"reasonable relation to the unlawful practices found to

exist." Jacob Siegel Co. v. F.T.C.. 327 U.S. 608, 612-613

(1946). That reasonable relationship has certainly not

been shown to exist in this initial Decision.

2. The record does not support the imposition of a $1500 contractual limitation.

One will look in vain through almost 2400 pages of

transcript for any evidence or testimony which would support

the limitation imposed. The testimony supports the factual

allegations of the complaint, but those allegations were

never in question; indeed, respondents had stipulated to

those allegations. While respondents had not stipulated

to a violation of law, such a conclusion could easily be

drawn from the stipulated facts.

The question was whether that violation of law justified the never before granted, extraordinary relief

sought by the staff. Complaint counsel offered to prove

-13-

their entitlement to this relief, as mentioned above, by

proving the unconscionability of respondent's contracts

in excess of $1500, as well as by the fact that the

economics of the dance industry required contracts of no

greater size. Motion to Reopen Record, p. 2.

The staff absolutely failed to prove the first point,

and the evidence was overwhelmingly to the contrary with

regard to the second. While the Examiner avoided the issue

of unconscionability (I.D. 35-36), it is clear that no case

of unconscionability could be proved under either Williams v.

Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965) or

In the Matter of Leon A. Tashof, t/a New York Jewelry Co.,

[1967-1970 Transfer Binder], Trade Reg. Rep., 118,606 at

20,941 (1968). See the discussion of these cases at

pp. 27-34 and 56-60 of Proposed Findings of Fact and Brief

Submitted by Respondents. The only new development with

regard to the unconscionability issue is complaint counsels'

concession "that certain students have been able to obtain

a cheaper per hour rate for lessons by purchasing contracts

in excess of $1500...." Complaint Counsels' Reply to

Respondents' Proposed Findings of Fact and Brief, p. 6.

-14-

Complaint counsel totally failed to prove that $1500

represents a balance between the needs of the studio and

the customer. This is shown by their inability to reply

to respondents' proposed findings 5 through 9. These

findings show that contracts in excess of $1500 are critical

to the operation of a successful, studio. While the Hearing

Examiner considered this fact "beside the point" (I.D. 36),

the fact that the imposition of a dollar limitation might

put respondents out of business makes this very much to

the point.

It is clear that the staff moved for the reopening

of the hearings because they thought that the economics of

the $1500 issue were on their side and that they could

prove it. But when it turned out that all the economic

arguments favored the respondents, economics became beside

the point.

The Examiner was amazingly inconsistent on this

point during the hearings. First of all, over the strong

objections of respondents, he reopened the hearings to

give the staff an opportunity to present their economic

evidence. Order Reopening Record for the Reception of

Certain Evidence, p. 3. Then, during the course of the

-15-

hearings, he recognized that testimony regarding the

disastrous experience of California studios under a dollar limitation was relevant because:

there is another side of the coin that possibly should be looked at. That is, whether putting this $1500 limitation standing alone would allow say these respondents to stay in business.

That I don't know. So I think that this testimony is relevant and should be considered (TR 2027).

Yet, when counsel for respondents sought to introduce

further evidence in this regard from his expert, Dr. Richard

Lurito, an economist on the faculty of Georgetown University,

he was denied that right.4/ Shortly after reading prepared

quotations from Luria Brothers, supra, the Examiner rejected

Respondents* Exhibit 33A through G, together with any testi

mony by Dr. Lurito as to their content (TR 2235).5/

The purpose of these exhibits and the proferred

testimony was to show the effect of a dollar limitation on

4/ It is worth reading the manner in which the objection of complaint counsel was raised (TR 2233-2234).

5/ The Examiner did allow the rejected exhibits and testimony into the record in accordance with §3.43(g) of the Commission's Rules of Practice.

-16-

studio operators, studio employees and on consumers.

Respondents thought it would be relevant to the Commission's

deliberations to show that dance studios which presumably

acted within the law were dependent, just as respondents,

on contracts in excess of $1500.6/ This is particularly

relevant when complaint counsel sought these hearings for

the purpose of demonstrating the contrary.

Even the Examiner showed confusion on this point.

He rejected Respondents' Exhibit 33F because it compared

one of the respondents with a studio that had not been shown

to engage in any of the alleged acts or practices (TR 2273).

Yet, it was for this very reason that the chart was presented,

namely, to show that respondents' percentage of contracts

over $1500 was not higher than the percentage of another

studio whose owner had testified as a complaint witness.

The Examiner also improperly rejected.Respondents' Exhibit

33G which was based, except for the first line of the chart,

upon testimony admitted into evidence (TR 2274-2275).7/

6/ See footnote 26, I.D. 28. j / Counsel for respondents is specifically not asking that

the case be remanded for further hearings on the economic issue. As explained during the hearings (TR 2279), this would cause these individual respondents expense which they are not prepared to bear.

-17-

The exhibits, as well as the testimony, are in the

record. The Commission is urged to consider this evidence.

It will first show that contracts in excess of $1500 are

not unusual in the industry, even for small studios. The

evidence will also show that the imposition of a contractual

limitation is tantamount to denying the individual respon

dents 8/ the opportunity to engage in the dance business

in the future.

This record completely fails to support a $1500

contractual limit upon respondents in dealing with the

consumer. As discussed above, complaint counsel thought

the answer lay in the doctrine of unconscionability or in

some balancing concept. The record, however, supports

neither of these presumed bases.

Throughout the hearings the Examiner was concerned

about the justification for the dollar limitation. When

complaint counsel had presented ten of their fourteen

witnesses, including all their consumer witnesses, the Examiner

asked a series of questions which he thought "might be of

assistance to counsel" (TR 1325). They were as follows:

8/ The corporate respondents are no longer in business (I.D. 7).

-18-

Based on the stipulated acts and practices of respondents as charged in the complaint, and the live testimony of the witnesses so far taken, these questions have occurred to me:

1. Can it be said that any dance contract with the respondents for $1,500 or more owing at any one time must have been entered in this manner.

(Discussion off the record.)

HEARING EXAMINER SCHRUP: Back on the record.

I have explained to the counsel off the record that these were just thoughts that occurred to me and I was hopeful they might in some way expedite the proceeding.

No. 2. Would these acts and practices charged in [the] complaint necessarily be present in all dance contracts for less than $1,500 owing at one time.

3. Based on the testimony of the two partners in the Feather and Three Dance Studio [an independent Washington area studio] and how they operate, could we say that if they entered into a contract for dance instruction of $1,500 or more owing at any one time [it] would be unconscionable?

4. In the absence of any of the acts and practices charged in the complaint, why a $1,500 platform and what is its relevance? (TR 1326).

Later, the Hearing Examiner asked the following question, similar to 4, above, of counsel for respondents:

473

-20-

I see a few things that it might be balanced against. Then I come back to the question, why $1500; why not 2,000 or why not 1,000. Why 1500. What is the test of $1500 to be balanced against.

MR. STEINMAN: Your Honor, we feel that $1500 is a fair and equitable amount in which a student should be obligated to pay for dancing lessons. This witness has testified —

HEARING EXAMINER SCHRUP: Tell me why? Does it have a relation to a specific number of hours or anything of that nature?

MR. STEINMAN: No, your Honor. Just because respondents provide, as we showed in our case in chief, other services that couldn't be considered in terms of hours.

HEARING EXAMINER SCHRUP: Well, I think we are getting no place here on our discussion back and forth and it seems the witness here, as I said, has finished direct (TR 1851-1852).

At no point in the record or in the Initial Decision is any one of these very important questions answered. The fault is not that of the Hearing Examiner, for complaint counsel presented no evidence to answer these questions.

The burden is on the staff to justify the order sought. §3.43(a) of the Commission's Rules of Practice. The Initial Decision shows that the staff failed to carry this burden. The Examiner's inability to posit any legally acceptable

-21-

reason to justify the imposition of the $1500 limitation

demonstrates that he was unable, from the evidence, to

justify his decision.

Staff counsels' obligation, as well as that of the

Examiner, to consider the merits of the $1500 question

directly and frankly is all the more important because of

the Commission's unwillingness to settle this case. Respon

dents twice offered, each time with the support of the

staff, to settle on the basis of a $4,000 limitation. In

each instance, the Commission rejected the offer, indicating

that it required a $1500 limitation. Orders of August 6, 1969,

and October 9, 1969.

In light of the Commission's unwillingness to accept

the $4,000 limitation, there was an obligation upon staff

counsel to answer the Examiner's question "why $1500; why

not 2,000 or why not 1,000. Why 1500. What is the test

of $1500 to be balanced against" (TR 1851). It is clear

that nothing in the record justifies this or any other

figure. Such justification is indispensable when the

limitation contains no qualifications and no requirement

that the contract be arrived at illegally. In short, there

is nothing that supports or mitigates against the total and

absolute nature of the ban.

-22-

3. The Commission may not bar contracts in excess of a certain amount. The subject of the Commission's authority to order a

contractual limitation has been discussed extensively in

Proposed Findings of Fact and Brief.Submitted by Respondents,

pp. 37-62, and will not be repeated here. If the Hearing

Examiner's discussion of Luria, supra, was intended to answer

those arguments, it has not done so for the reasons stated

at pp. 24-25 of the above-cited brief. Blind application

of the broad language of that case without any regard for the facts is irresponsible.

At no point in the Initial Decision did the Examiner find that respondents' contracts in excess of $1500 are illegal in and of themselves. Without such a finding they cannot be outlawed under Luria, supra, or any other decision.

In a recent decision, the United States Court of Appeals for the Fifth Circuit held that in order to prohibit a certain course of action it must be shown that the practice sought to be prohibited violates either the letter or the spirit of the antitrust laws. The Sperry and Hutchinson Company v. F.T.C.. No. 26,739, (5th Cir., September 29, 1970). As stated by that Court: •

-23-

The Commission should at least determine that the practice violates the policy or spirit of the antitrust law. If it does not, then the Commission casts itself in the form of a legislative body. (Emphasis added.)

This follows very close that same Court's reasoning

in Cotherman v. F.T.C., 417 F.2d 587 (5th Cir., 1969). In

that case, the respondents had engaged in deceptive adver

tising and unfair lending practices in violation of §5 of

the Federal Trade Commission Act. Specifically, they had

advertised the availability of cash on terras which were not

available to most applicants. The Commission's order re

quired respondents, among other things, to cease and desist

from representing that loans are: (1) made at a six

percent rate of interest and (2) repayable over a fifteen-

year period. The Court held (p. 21):

These sections are too broad because they forbid Cotherman and Sullivan from ever representing that they would lend on these terms, even if they did in fact lend on these terms. The evil the Commission intended to do away with its [sic] misrepresentation of lending terms. If Cotherman and Sullivan should represent that they would lend at six percent for fifteen years and then in fact lend at eleven percent for five years they would be covered by a cease and desist order. This order covers the case where the

-24-

petitioners represent that they will lend at six percent for fifteen years and in fact lend on these terms. There is nothing illegal or deceptive about such a representation. The order should not be drawn so broadly that it will cover legitimate practices. (Emphasis added.)

This ruling has direct bearing on the instant pro

ceedings. There is nothing inherently illegal or deceptive

about a contract for dance instruction for an amount in

excess of $1500. If the contract has been arrived at by

legitmate means, it cannot be deemed to be illegal, nor

should it be prohibited, regardless of the amount. This

decision makes it clear that a Commission order which seeks

to prohibit lawful practices will be struck down by the

Courts. See also N. Fluegelman & Co., Inc. v. F.T.C.,

37 F.2d 59 (2d Cir. 1930).

The logic of these decisions reflects the policy that

the Federal Trade Commission is responsible only for the

elimination of acts or practices which reduce or destroy

the power of consumers to make rational decisions in the

marketplace. Wherever possible, this responsibility should

be dispatched with minimal interference in the market

process. In the present case, the imposition of a $1500

-25-

limitation involves an unnecessary interference with the

market mechanism, since the other provisions of the order

are sufficient to eliminate the undesirable acts and

practices stipulated.

Another recent decision which shows the impropriety

of the $1500 limitation is In the Matter of All-State

Industries of North Carolina, Inc., et al., [1967-1970

Transfer Binder], Trade Reg. Rep., 518,740 at 21,100 (1969),

aff'd., 423 F.2d 423 (4th Cir. 1970). In that case: The complaint charged that respondents had violated section 5 of the Federal Trade Commission Act by failing to disclose to their credit purchasers that instruments of indebtedness executed in connection with the purchase of respondents' products would be transferred to third parties to whom respondents' purchasers would thereafter be indebted and against whom the purchasers' claims or defenses on the contract may not be available (footnote omitted). 518,740 at 21,104.

The Commission held that such nondisclosure was "inherently

unfair" and "deceptive." The Commission ruled: The obvious remedy for such deception is to require the seller to disclose affirmatively to the purchaser that a conditional sales contract or other

-26-

instrument of indebtedness executed in connection with the sale may, at the seller's option and without notice [to] the purchaser, be assigned to a finance company or other third party to whom the purchaser will thereafter be indebted and against whom the purchaser's claims or defenses on the contract may not be available (footnote omitted). 518,740 at 21,107.

That decision is indeed significant to this proceeding,

but not for the reasons quoted by the Hearing Examiner (I.D.

33-34). First, there was a finding that the practice in

question was "inherently unfair" and "deceptive." No such

conclusion has been, or indeed can be rendered, with regard

to a dance contract in excess of $1500. But, more importantly,

the Commission's remedy in All-State was not to outlaw the

transfer of instruments of indebtedness to third parties,

as the Examiner would contracts in excess of $1500; the

Commission, as well as the Court of Appeals, recognized that

complete protection to the consumer would be afforded by full

disclosure.

Just as the assignment of contracts is not inherently illegal, dance contracts in excess of $1500 are not inherently illegal. What can be illegal is the method by which they are, in the one case, assigned, and in the other, entered into. The possibility of assignment must be disclosed and

-27-

the illegal practices must be stopped, but neither the

assignment nor the dance contract may properly be outlawed.

A parallel to the issue of disclosure versus pro

hibition exists in the area of securities regulation. The

primary federal statute dealing with the sale of securities

is the Securities Act of 1933. 15 U.S.C. §§77a-77aa. The

preamble to that Act provides that it is an "act to provide

full and fair disclosure of the character of securities

sold in interstate and foreign commerce and through the

mails, and to prevent frauds in the sale thereof, and for

other purposes." The Securities Act of 1933 is a disclosure

statute? the Securities and Exchange Commission is not given

power to pass upon the merits of any security, to establish

the prices at which they should be sold, or to endorse or

approve any security. 77 Cong. Rec. 2910 et seq., May 5, 1933.

A contrary type of regulation exists in many of the

state securities acts, often referred to as "blue sky"

laws. The power of the state to regulate the sale of

securities is part of the police power of the state, and

many states have used this police power to regulate the

fairness of any offering, i.e., to make a decision as to

the merits or soundness of the security being offered. Many

-28-

blue sky statutes create a "fair, just and equitable"

standard for qualification. The California Corporate Securities Law of 1968, for example, provides:

The commissioner may issue a stop order denying effectiveness to or revoking the effectiveness of, any qualification of securities...if he finds (1) that the order is in the public interest and (2) that the proposed plan of business of the issuer or the proposed issuance of securities is not fair, just, or equitable.... California Corporations Code, Title 4, Division 1, Section 25140(a).

The State of California has imposed a dollar limita

tion on dance lesson contracts under the same police power.

While such inherent power may reside with a state, the

Federal Trade Commission is a creature of Congress which

must live within the confines of its authority. Since the

Commission has not been given the power to impose dollar

limitations on contracts, it can only protect consumers by

ordering businessmen to operate within the law. The Com

mission was not given the power to decide whether it is a

wise investment to spend more than $1500 on dance-related

activities.

9/ in this connection, it is significant to note that that limitation rose from $500 to $1500 in 1967 and then to $2500 in 1969, where it stands presently. Cal. Civil Code, §1812.53 (a), 1969.

-29-

The drastic remedy of banning, without qualification,

all contracts exceeding $1500 is particularly improper when

respondents are not first given the opportunity to demonstrate

that, by abiding by the other comprehensive provisions of the

order in the future, they will rectify the practices charged

in the complaint. The opportunity exists for the Commission

to reopen this case if it finds that the order, without the

$1500 limitation, is not adequate to protect the public

interest. §3.72(b) of the Commission's Rules of Practice.

Moreover, it can also institute $5,000 per day penalty

proceedings in the event of non-compliance with the order.

Furthermore, as has been suggested previously, the

unavailability of support in this record for a $1500 con

tractual limitation is perhaps not a total bar to Commission

action. The Commission has available its rule-making

authority whereby it can act on an industry-wide basis without

having proven any specific violation of law. Brief of Counsel

for Respondents (December 8, 1969), pp. 18-21.

In the final analysis, without the availability of

any rational explanation for the imposition of the $1500

limitation, its intent must be deemed punitive. It should

also be remembered that this order, whatever its scope,

-30-

applies only to the individual respondents inasmuch as the

corporate respondents are no longer in business.

The unjust burden under which these individuals will

henceforth have to make their livelihood because of the

breadth of this order is vividly described in Doyle v.

F.T.C., 356 F.2d 381 (5th Cir., 1966). The issue there was

whether the Commission's cease and desist order should apply

to petitioner in his individual capacity. The Court stated:

While there is some merit in the Commission's statement that by not applying the order to Doyle he is free to go to another molasses company and execute the same kind of unlawful orders, the punishing effect of this type of usage of cease and desist orders far outweighs any remedial effects to be gained. In effect, Doyle would need to retain personal anti-trust counsel to advise him prior to his executing any orders given by his superior officers in a new company. In fact Doyle would probably find it very difficult indeed securing employment in the molasses industry with a cease and desist order around his neck in albatross fashion. This order would be a brand for life, with violation of it subjecting petitioner to a fine of $5,000 for each day of disobedience. [Footnote omitted.] And to force him to seek employment outside his field of experience, the molasses industry, would be harsh economic punishment indeed. 356 F.2d at 385. (Emphasis added.)

It is easy to see how the order in this case will have an

even harsher effect on the individual respondents, since

-31-

any dance studio with which they may become associated will

automatically be forced to abide by the dollar limit imposed

by this order.

It is clear from the legislative history of the

Wheeler-Lea amendments (52 Stat. Ill) that it was never the

intent of Congress to vest the Commission with punitive

powers. The Senate report stated, in this regard:

The procedure...is merely preventive and cooperative rather than penal. S. Rep. No. 221, 75th Cong., 1st Sess. 1 (1937).

When it amended the Federal Trade Commission Act, Congress

did not give the Commission any new sanctions? it merely put

teeth into the then existing sanctions.

The Commission can issue cease and desist orders

and grant injunctive relief, and it can fine violations of

these orders. But any "penalty" attaches only after the

violation, not before any such violation occurs. The Congress

could have given the FTC punitive power when it considered the

weakness of the cease and desist order. It specifically

chose not to do so: After consideration, the Committee is of the opinion that, since the powers of the Commission in this respect are injunctive

-32-

rather than punitive, the Commission should have the power to restrain an unfair act before it had become a method or practice.... S. Rep. No. 221, supra, at 3-4.

The Commission cannot assume power which Congress

specifically refused to authorize.

4. Conclusion.

It is clear that the staff failed to prove that

which the extensive hearings in this case were intended to

show—that contracts in excess of $1500 are unconscionable

and that a $1500 limitation strikes a fair balance between

the needs of the consumer and the requirements of the studio.

Without a showing that contracts in excess of $1500

are themselves illegal or that they are the tools by which

illegal practices were made possible, there is no justifi

cation for the contractual limitation. The fact that the

Hearing Examiner included such a provision in the order

is not consequential, since he did not state any legally

sufficient reason for the imposition of the limitation.

The findings in the Initial Decision add nothing to that which had been stipulated prior to the hearings.

-33-

While the stipulated facts do justify the stipulated provisions of the order, they do not justify the extraordinary and unique remedy of imposing a contractual limitation on respondents.

In the final analysis, the Commission should go

back to the record and the briefs of counsel and come to

an independent determination. In that connection, respon

dents request that their briefs of December 8, 1969, and

June 8 and 19, 1970, be considered in their entirety. Such

an independent determination will convince the Commission

that the agreed-to provisions of the order, along with the

threat of $5,000 per day penalties, will prevent recurrence

of the stipulated acts and practices and are sufficient

protection of the public interest.

B. The Commission's Cease And Desist Order Cannot Properly Encompass "Other Services" When The Allegations Of The Complaint, The Stipulated Facts, And The Evidence Of Record Relate Exclusively To The Dance Business And To No "Other Services."

The Examiner decided to include the words "other services" in the preamble of the Order solely on the strength of one citation. There are no findings of fact

-34-

and no independent analysis by the Examiner which sheds

light on his thought processes.

The case cited in the Initial Decision (p. 34),

In the Matter of General Transmissions Corp. of Washington,

et al., [1967-1970 Transfer Binder], Trade Reg. Rep.,

518,254 at 20,650 (1968), was previously discussed in Brief

of Counsel for Respondents (December 8, 1969) pp. 8-9.

Further discussion of the propriety of including "other

services" in the preamble, thereby extending the order

beyond the dance industry, is contained in Proposed

Findings of Fact and Brief Submitted by Respondents,

pp. 62-65. Nothing further can be added.

The Commission is urged, for the reasons stated

in those briefs, and because of the lack of any findings

in the Initial Decision justifying such a provision, to

exclude "other services" from the preamble of the order.


Paul F. Hannah

Tom M. Schaumberg 1/ Counsel for Respondents

October 23, 1970

489

/ê*wfcu*X»VL_

A-l

APPENDIX A

Proposed Order

IT IS ORDERED that respondents Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:



A-2


Representing on any postal cards sent through the united States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of:


(b) The full name and address of the of-feror of the gift, and


Representing, directly or by implication, that the Party Time Club or the Holiday Club, or any other club, group or organization offers members a program of activities such as daily or

A-3


Using "dance analysis" tests or any other device purportedly designed to evaluate dancing ability, progress, or proficiency when such test or device is not so designed and so used; or misrepresenting in any manner a student's or prospective student's dancing ability, or the progress made or proficiency achieved by a student during the course of or as a result of taking respondents * courses of instruction.

Representing, directly or by implication, that upon completion of a given course of instruction in one specific dance, a specified standard of proficiency will be achieved when, before the specified course is completed or the given standard has been achieved, the student is or will be subjected to sales efforts to induce the purchase of additional dance instruction.

Using in any single day "relay salesmanship", that is, consecutive sales talks or efforts of more than one representative to induce the purchase of dancing instruction.

Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-point bold type:

A-4




(a) Any additional contract for lessons shall expressly state therein that such contract is subject to cancellation by such student or prospective student, with or without cause, at any time up to and including one week after the completion of the units of dancing instruction previously contracted for, without cost or obligation, except that a charge may be made for not in excess of two additional 3e ssons furnished during such week; and

(b) Any additional contract for lessons shall expressly state that any moneys or other consideration, except as exempted in sub-paragraph (a) hereof, tendered to the respondents for additional dance lessons will be promptly returned when such contract is cancelled within the time period specified in subparagraph (a) hereof? and

A-5



11. Failing to deliver to each party a copy of every contract entered into by such party providing for dancing instruction or other services.

12. Failing to deliver a copy of this order to cease and desist to all present and future employees, instructors, or other persons engaged in the sale of respondents' services, and failing to secure from each employee or other person a signed statement acknowledging receipt of said order.

13. Failing to post in a prominent place in each studio a copy of this cease and desist order, with the notice that any student or prospective student may receive a copy on demand.

14. Failing, after the acceptance of the initial report of compliance, to submit a report to the Commission once every year during the next three years describing all complaints of which respondents have notice respecting unauthorized representations, all complaints which respondents have notice respecting representations by salesmen which are claimed to have been deceptive, the facts uncovered by respondents in their investigation thereof and the action taken by such respondents with respect to each such complaint.


DOCKET NO. 8776

IN THE MATTER OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC, corporations, and


ANSWERING BRIEF OF RESPONDENTS




497

INDEX Page

I. INTRODUCTION 1 II. THE LIMITED SCOPE OF THESE PROCEEDINGS

HAS BEEN CLEAR FROM THE OUTSET 2 III. THE RECORD WAS REOPENED SOLELY WITH

REGARD TO THE $1500 PROVISION 3

IV. THE HEARING EXAMINER REFUSED TO DEVIATE FROM THE AGREED POSTURE OF THE CASE 4

V. THE STAFF'S ARGUMENTS ARE NOT SUPPORTED BY THE FACTS 5

VI. CONCLUSION 9


F.T.C. v. National Lead Co., 352 U.S. 419 (1957) 8

In the Matter of Carnation Co., 52 FTC 998 (1956) 5


In the Matter of



DOCKET NO. 8776

ANSWERING BRIEF OF RESPONDENTS

THE DEVIATIONS FROM THE AGREED-TO ORDER PROPOSED BY COMPLAINT COUNSEL

SHOULD BE DENIED BY THE COMMISSION AS THEY WERE BY THE HEARING EXAMINER

I. INTRODUCTION.

Commission counsel, without amending the complaint, without prior notice to respondents' counsel, without the taking of any evidence on the issues, and in disregard both of their agreements with respondents' counsel and the order of the Hearing Examiner reopening the record

for a limited purpose, are seeking the imposition of un

precedented sanctions on the individual respondents.1/ This

attempt failed before the Hearing Examiner and deserves the

same result before the Commission.

THE LIMITED SCOPE OF THESE PROCEEDINGS HAS BEEN CLEAR FROM THE OUTSET.

The history of this case has been stated elsewhere.2/

Suffice it to say that, from the earliest stages of this

proceeding through the hearings, the staff kept to them

selves their intent to urge adoption of the provisions in

the order to cease and desist now sought. This is all

the more incredible in light of the positive and unequivocal

agreement of the parties that the only contested matters in

this proceeding are: 1) the words "or other services" in

the preamble of the proposed order and 2) that paragraph

of the proposed order which would place a $1500 limitation

on respondents* contracts for dance instruction (TR 123;

I.D. 3). As has been fully discussed in earlier pleadings,3/

it was respondents' further understanding throughout the

1/ The corporate respondents are no longer in business (I.D. 7). 2/ Appeal Brief of Respondents, pp. 1-5.

3/ See Opposition to Motion to Reopen Record filed January 16, 1970, and Request for Permission to File Interlocutory Appeal filed January 26, 1970.

500

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"prehearing" period that these issues would be resolved

strictly on the stipulated facts, on briefs to be sub

mitted by counsel and without a hearing.

THE RECORD WAS REOPENED SOLELY WITH REGARD TO THE $1500 PROVISION.

Staff counsel succeeded, however, in having the

record reopened for the reception of evidence. They moved (Motion to Reopen Record, p. 1):

that the Examiner reopen the record for the reception of further evidence to support the prohibition in the proposed order that respondents be prohibited from entering into one or more contracts with students or prospective students of respondents' dance studios when said students are indebted to respondents in excess of $1500.

The concluding paragraph of that motion stated plainly,

clearly and unequivocally (p. 2):

complaint counsel request that the Examiner reopen the record for the limited purpose of introducing evidence on the $1500 contractual provision. (Emphasis added).

The order of the Examiner reopening the record, dated

January 19, 1970, was just as explicit (p. 3):

-4-

IT IS ORDERED that the record for the reception of evidence in this proceeding be, and the same hereby is, reopened for the limited purpose requested in the aforesaid motion by complaint counsel. (Emphasis added).

On March 13, 1970, the Hearing Examiner entered

a further order wherein he stated the background of the

case with great precision and detail. This was the final

order entered before hearings commenced on March 30, 1970.

In that order the Examiner reiterated (p. 2):

Complaint counsel on January 5, 1970 moved to reopen the record for the reception of further evidence in support of and confined to the Paragraph 9 $1500 indebtedness limitation on dance studio obligations owing the respondents by any party at any one time.

THE HEARING EXAMINER REFUSED TO DEVIATE FROM THE AGREED POSTURE OF THE CASE.

In his Initial Decision, the Hearing Examiner

made short shrift of complaint counsels' attempt to

alter the agreed-to order by rejecting not only each

and every modification sought by the staff but also

each and every new paragraph that they attempted to add

to the order (I.D. 17). The Examiner stated specifically

that these deviations were a departure from counsels'

-5-

prior agreement and the purpose for which he ordered the

hearings to be held: It will here be further noted that

complaint counsel have also departed from the form of other of the non-contested provisions agreed upon and further have submitted several new provisions in their proposed order to cease and desist which are not related to the limited purpose for which the proceeding was reopened.17/

17/ See pages 1-6 of respondents' reply filed June 19, 1970.

The Hearing Examiner's treatment of this matter

was appropriate as well as just. In In the Matter of

Carnation Co., 52 FTC 998, 999 (1956), the Commission

stated: Agreements between counsel should

not be entered into lightly and when entered should be observed to the letter. They should be withdrawn or abrogated by the Commission only under conditions which would permit no other course. (Emphasis added).

V. THE STAFF'S ARGUMENTS ARE NOT SUPPORTED BY THE FACTS. Having failed before the Hearing Examiner, complaint

counsel now come before the Commission with a contrived argument to justify inclusion of their rejected proposals in the order. Their argument appears to be that the scope

503

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of the proceedings has become open-ended because counsel

for respondents attempted to withdraw from one of the

stipulations of fact during the course of hearings held

solely to determine the propriety of the $1500 provision.

This overlooks the fact that the attempted withdrawal was

found necessary by counsel for respondents because the

staff insisted on examining their witnesses with regard

to matters that had already been stipulated. When the

Hearing Examiner permitted this, counsel for respondents v

was put in the position of having to cross-examine on

matters to which he had stipulated. As stated at the

time, "I feel it is almost unethical for me to cross-

examine witnesses on points that I have stipulated"

(TR 532). it was for this reason alone that the with

drawal was sought. The shabby inference created by staff

counsel by calling this the "purported basis" for the

attempted withdrawal in no way changes the facts. (Appeal

Brief of Counsel in Support of the Complaint, p. 5).

In an attempt to develop their argument, the staff

states: Complaint counsel in presenting

evidence to support the contested $1500 contractual provision attempted to amplify

-7-

the stipulated facts to provide a record upon which the Examiner could appropriately evaluate the judiciousness of the $1500 contractual provision. Id.

This admission supports respondents' argument that the

sole purpose of the hearing, in the minds of the parties

as well as the Examiner, was to determine the appropriate

ness of the dollar limitation.

There then follows a most astounding statement in

the staff's brief:

in permitting respondents to unilaterally withdraw from the stipulated facts, the Examiner released complaint counsel from their acceptance of provisions of the agreed-to-order evolving from the withdrawn stipulated facts. Id.

Not only would this come as a great surprise to the

Hearing Examiner who ruled exactly to the contrary (I.D. 17),

but it shows the shallow foundation on which the staff has

built its syllogistic argument.4/

At another point in its brief the staff argues that

"there is no lack of due process when the Commission issues

an order emanating from the evidence of record rather than

4/ It should also be noted that the Hearing Examiner did not permit respondents to withdraw from the stipulation. Rather, he stated that he would "disregard" the stipulation (TR 1327-1328).

-8-

from allegations of the complaint." It is not necessary to

argue against the validity of this proposition because the

facts make the proposition here irrelevant. At the time

the record was reopened, all the allegations of the complaint

had been stipulated. The only principal issue remaining

was whether a $1500 contractual limitation should be in

cluded in the order. The record was reopened and testimony was

taken solely for the purpose of permitting the staff to

support, if it could, the need for such a limitation.

Clearly then, this evidence was not to support the charges

of the complaint but only to determine the appropriateness

of this one limitation in the proposed order.

It was not until after the record had been closed

for a second time that there was the slightest indication

that the testimony would be used in an attempt to get a

different order. The situation here is far from that in

F.T.C. v. National Lead Co., 352 U.S. 419, 427 (1957),

where, as the Supreme Court said:

the record is replete with evidence that counsel supporting the complaint would seek the use of such a method of enforcement.

-9-

Not only did complaint counsel here never argue such a

proposition while the record was still open, but they

stated unequivocally that the purpose for reopening the

record was "for the limited purpose of introducing

evidence on the $1500 contractual provision." (Motion

to Reopen Record, p. 2). It would be impossible, there

fore, to say that the respondents in this case had a

fair hearing, the essence of due process, on the order

as now proposed.5/

CONCLUSION.

Complaint counsel, counsel for respondents and

the Hearing Examiner have been in agreement as to the

scope of these proceedings since the earliest stages of

this case. It was understood that the parties were in

complete accord on the allegations of fact contained in

the complaint and that the only issues in dispute were

the two contested provisions of the order (TR 123).

Complaint counsel have attempted to fabricate an argument

that they have been "released" from this agreement as the

result of a chain of events which they themselves set in

motion when they examined their witnesses on facts already

5/ In this connection, see also Order Contingently Withdrawing Matter from Adjudication issued August 6, 1969.

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stipulated. Such a self-serving twisting of the facts

is contrary to the understanding of both the Examiner

and counsel for respondents who are the only other

persons with first-hand knowledge of the case.

The Commission would be doing itself, as well as

respondents, a grave injustice by adopting complaint

counsels' boot-strap arguments. They have already been

rejected by the Hearing Examiner who was in the best

position to judge the intent of counsel and the agree

ments of counsel made in his presence.

Many of the Commission's substantial achievements

in the public interest result from stipulations and

consent orders. These enable it to handle the great

case load of which it annually disposes? without them,

the Commission's accomplishments would be far less. The

atmosphere of confidence and respect that has developed

over the years between the Commission and the private

bar will quickly disappear if the staff cannot be counted

on to keep the agreements it makes.

-11-

For the reasons stated above, the Commission is

respectfully urged to deny the appeal of counsel supporting

the complaint.


Paul F. Hannah


November 23, 1970

<SS^0 E C 0 M^\ ^ R E C E I V E D ^ \

,)fr. 2 - 1970

SECRETAt f r *^


DOCKET NO. 077b

IN THE MATTER OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC, AND-ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., CORPORATIONS, AND

VICTOR F. HORST AND EDWARD MARANDOLA, ALSO KNOWN AS EDWARD MARA, INDIVIDUALLY AND AS OFFICERS OF SAID CORPORATIONS.

ANSWER BRIEF OF COUNSEL IN SUPPORT OF THE COMPLAINT

DONALD L. BACHMAN,


MICHAEL J. VITALE ASSISTANT DIRECTOR FOR GENERAL LITIGATION.

ROBERT PITOFSKY, DIRECTOR, BUREAU OF CONSUMER PROTECTION.

512

SUBJECT INDEX

Page

I. STATEMENT OF THE CASE AND PRELIMINARY STATEMENT ±

II. THE INITIAL DECISION WAS BASED ON THE RECORD AS A WHOLE 2

III. A HEARING WAS REQUESTED IN ORDER TO ESTABLISH FACTS TO SUPPORT A $1500 CONTRACTUAL LIMITATION g

IV. THE RECORD SUPPORTS THE IMPOSITION OF A $1500 CONTRACTUAL LIMITATION 7

V. ECONOMIC FEASIBILITY DOES NOT INSULATE OR EXCUSE DECEPTIVE ACTS AND PRACTICES 11

VI. THE RECORD ADEQUATELY RESOLVED THE QUESTIONS POSED BY THE EXAMINER ' 1X

VII. THE LEGISLATIVE HISTORY OF THE FEDERAL TRADE COMMISSION ACT SUPPORTS THE AUTHORITY OF THE COMMISSION TO IMPOSE A MONETARY LIMITATION ON CONTRACTS 13

VIII. THE COMMISSION HAS THE AUTHORITY TO IMPOSE A MONETARY LIMITATION ON RESPONDENTS* DANCE STUDIO CONTRACTS -, (L

513

A. The Propriety Of The $1500 Contractual Prohibition Need Not Depend On A Finding That Respondents' Contracts In Excess Of $1500 Are Illegal In And Of Themselves 16

B. Where The Order Is Reasonably Related To Unfair Practices In The Record, The Commission Can Place Limitations On A Lawful Activity 17

C. A Provision In The Order Requiring Affirmative Disclosure Is Not A Panacea 18

D. Respondents Have Misconstrued The Applicability Of Security Regulation To The Instant Proceeding 19

E. The Commission Has Reserve Jurisdiction To Resolve Inequities Of An Order 20

F. The Applicability Of Trade Regulation Rules Is Not A Bar To The Commission's Authority To Impose An Order On Respondents 21

G. The Imposition Of The Monetary Limitation Is In The Public Interest And Not Punitive 21

IX. THE RECORD SUPPORTS THE EXAMINER'S INCLUSION OF "OTHER" SERVICES" IN THE PREAMBLE TO THE ORDER 23

X. CONCLUSION 24 APPENDIX-A A-

ii

TABLE OF CASES

PAGE Bally Mfg. Corp., SEC Securities Act Release No. 4952 (Mar. 3, 1969) 19 Cotherman v. FTC, 417 F. 2d 587 (5th Cir. 1969).. 18 Doyle v. FTC, 356 F. 2d 381 (5th Cir. 1966) 22 FTC v. National Lead Co., 352 U.S. 419 (1957) 18 FTC v. Ruberoid, 343 U.S. 470 (1962) 16 FTC v. Standard Educ. Soc'y, 86 F. 2d 692 (2nd Cir. 1936) rev'd on other grounds 302 U.S. 112 (1937) 15 FTC v. Universal-Rundel Corp., 387 U.S. 244 (1967) .77 21 Greater No. Manageroent Co., SEC Securities Act Release (Dec. 23, 1968).. 19 International Salt Co. v. United States, 332 U.S. 392 (1942) 21 In the Matter of All-State Industries of North Carolina, Inc., Docket No. 8738 (April 1, 1969) 18 In the Matter of General Transmissions-Corporation of Washington, Docket No. 8713 (leb. 23, 1968) :... 23 In the Matter of Household Sewing Machine Co., Docket No. 8761, (August 6, 1969) 17 Jacob Siege1 Co. v. FTC, 372 U.S. 608 (1946) 17 Luria Bros. & Co. v. FTC, 389 F. 2d 847 (3rd Cir. 1968), cert, denied, 393 U.S. 829 (1968) 16

•jjii

Moog Indus, v. FTC, 355 U.S. 411 (1958) 21 N. Fluegelman & Co., FTC, 37 F. 2d 59 (Cir. 1930). 18 Oklahoma-Texas Trust v. SEC, 100 F. 2d 888 (10th Cir. 1939) 19 S. Dean Slough v. FTC, 396 F. 2d 870 (5th Cir. 1968 (, cert, denied, 393 U.S. 980 (1968) 11 The Sperry & Hutchinson Co. v. FTC, No. 26, 739 (5th Cir. Sept. 29, 1970) 17 White Electromagnetics, Inc., SEC Securities Act Release No. 4979 (June 11, 1969 19

STATUTES California Corporation Code, §25140(a) (1968) 20 Federal Trade Commission Act §5 15,16,20 Securities Act of 1933, 15 U.S.C. §77 (e) (1963)... 19 Securities Act of 1933, 15 U.S.C. §77(h) (1963)... 19,20 Wheeler-Lea Amendment, 52, Stat. Ill, (March 31,

1938) 14

LEGISLATIVE MATERIALS H.R. Rep. No. 1142, 63rd Cong. 2d Sess. §§ 18-19

(1914) 14 S. Rep. No. 597, 63rd Cong. 2d Sess. (1914) 14 S. Rep. No. 221, 75th Cong. 1st Sess. §1 (1937)... 15

iv

516


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC. and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776

ANSWER BRIEF OF COUNSEL IN SUPPORT OF THE COMPLAINT

I. STATEMENT OF THE CASE AND PRELIMINARY STATEMENT.

The history of the proceeding in this matter up to the time the initial decision was filed has been set forth in pages one through four of the Appeal Brief of Counsel In Support of The Complaint filed September 2, 1970, and will not be repeated here.

The Examiner's initial decision was filed on July 17, 1970. The Examiner found that each allegation of the complaint was proven and issued an order to cease and desist which contained, inter alia, a provision.prohibiting the respondents from entering into contracts with a student which would obligate the student at any one time for more than $1500. The respondents have appealed the initial decision because of the contractual limitation provision in the order and that portion of the order which extends the order to include "other services".

517

Respondents' brief in support of their appeal contains arguments which are invalid in that they contain no substance either in law or fact. Respondents' brief is filled with arguments that have been previously made by respondents. As before, respondents' basic arguments are the impropriety of the $1500 contractual limitation and the scope of the order to include "other services". Complaint counsels' responses to these arguments are the same as before with one important exception and that is, the Examiner in his initial decision agrees with complaint counsel.

II. THE INITIAL DECISION WAS BASED ON THE RECORD AS A WHOLES

It should be manifestly evident that (1) the hearing produced additional facts; (2) the facts materially altered the record; and (3) the record so altered forms a basis for entering a $1500 contractual prohibition provision in the order to cease and desist filed by the Examiner. The initial decision was correct in that it was based on the record as a whole.

In his initial decision, the Examiner states: Absent the stipulation, however, the evidence herein introduced by complaint counsel amply supports the allegations of the said paragraph [thirteen of the complaint], (n. 15, I.D., p. 14; emphasis added).

This obviously shows that the Examiner intends for the statements in his initial decision as to the practices of respondents to be findings. A contrary conclusion would be inept. After reaching the conclusion that paragraph 13 of the complaint was proven by facts of record, the Examiner proceeded to set out many of the facts established by the record in narrative form to give a picture of how the practices of respondents were actually put into effect.

The Examiner begins by describing how "sham dance analysis tests" were utilized by respondents for the purpose of placing the student in a high emotional state, and while the student is in this high emotional state, persuade the student to purchase dance instructions.

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518

"The amount of the contract would depend on the finances of the student which were ascertained during the junior procedure" (I.P., p. 15; emphasis added). The four hour junior procedure was a device used by the respondents to "find out personal background information which would form the basis of an emotional appeal to sell [dance] instruction" (I.D., p. 15). The Examiner found, as supported by the record, that "[s]tudents were also given alleged dance analysis tests at other times during the course of instruction, such as prior to a proposed extension of an existing dance instruction program or as a prerequisite to qualifying to be a member of respondents' purportedly elite clubs respectively termed the '500 Club' and the 'Tiffany Club'" (I.D., pp. 15-16; emphasis added).

The Examiner's reference to page 506 of the transcript typically illustrates the actual method of how relay salesmanship was employed by respondents:

...separately, together, two a[t] a time, three at a time, one at a time, [they] would take me in relays and batter and pressure me. I was confused, I was confounded,

I was beset, I was frantic, I didn't want it, and I couldn't get out of it, and I signed this contract and practically went off the deep end after it.

At the time she signed the above-mentioned contract (CX 26), which was for $6,377.00 and was paid for in full, this witness (Mrs. Lockhart-Mummery) had hundreds of hours to use on prior existing contracts (Tr. 493, 506) . This witness • level of education consists of two years of college, three years of schooling at the New York School of Fine and Applied Arts (now Parsons School of Design). She is employed as a librarian (Tr. 465). However, in spite of her learning and intelligence, the record amply shows that during the time that this relay salesmanship was employed against her, she was deprived of any rational means to make a proper judgement as to the wisdom of entering into the above-mentioned contract. It is noted that while employing

the relay salesmanship technique, the respondents utilized what information they had acquired from the student during the junior procedure or prior interviews (Tr. 511) .

In further support of his finding as to relay salesmanship, the Examiner cites pages 1235-1236 of the transcript wherein Mrs. Riddle, who was single at the time of attending the studio, endured for one and a half hours, sales pitches from three persons immediately after she had taken a dance test for the bronze program. She recalled that the experience was an unpleasant one because she had three, maybe four, people "...pressuring ...[her] to buy something by a certain time." Although she asked for time to think it over, she was told that she only had until 6 o'clock to think it over; whereupon, she "got under the deadline by a minute or two." The executed contract was for $5,188.18 of which she was credited $481.80, but paid the balance of $4,706.38 (Tr. 1240). Mrs. Riddle at the time of signing the aforementioned contract obviously was in no state of mind so as to exercise a meaningful choice.

In his findings as to the respondents' sales pressure relating to students' executing dance instruction contracts, aggregating in excess of $1500 owing at any one time» the Examiner makes extensive references to the record to reveal the facts surrounding the signing of these contracts. One witness, Mrs. Templeman referred to by the Examiner, paid approximately $11,000 during the course of one year as a result of sales pressure exerted on her together with excuses made by respondents for refusing to allow her anytime to consider the financial obligations involved. Her testimony is replete with instances reflecting that respondents' patent intentions were to obtain as much money from her as possible without any regard either to the services respondents would provide or the manner used in extracting the money. As was the case with Mrs. Lockhart-Mummery, Mrs. Templeman who is a writer/publisher, was subjected to such malevolent sales tactics so as to render her incapable of exercising a meaningful choice when she executed the various contracts. This is illustrated by the circumstances surrounding her signing a contract of $6,443 (CX 6) of which she testified:

4

520

And so the complete physical, nervous, emotional exhaustion of all that I had gone through that day and the emotional strain and nervous strain... I capitulated and signed the contract (Tr. 381).

After an entire day of dance tests and interviews, Mrs. Templeman signed the contract at approximately 11:00 p.m. (Tr. 380).

To illustrate the pressures brought to bear by respondents in procuring contracts in excess of $1500, the Examiner again cites Mrs. Lockhart-Mummery's testimony wherein Mrs. Mummery testified under cross-examination:

As a rule of thumb, I would say that every contract for a sizeable sum was entered under extreme pressure or what I interpreted as extreme pressure. (I.D., p. 19)

The Examiner also relies on the testimony of Mrs. McKee, age 69, who had an extremely serious operation prior to signing a contract of $8,003.50 (CX 34), but signed the contract because it was very hard not to sign on the dotted line, because "... [she] was more or less pressured into doing it" (I.D., p. 19). As stated by the Examiner, "Commission Exhibit 34 bears the morbid statement' Hours may be willed in case of death*" (I.D., p. 19). This is one more illustration of the many in the record of the respondents' obsession to procure as much money as possible from the students with utter disregard for the services to be provided because as one of the individual respondents stated "make a bundle or two, get the cash, because they may walk out and get hit by a car, but you have got the cash in hand" (Tr. 1127).

The Examiner devotes five pages of his initial decision to the method employed by respondents in procuring contracts in excess of $1500. The record fully supports the conclusion that the higher the contract amount the more malevolent the sales tactics of the respondents.

The fourteenth finding is not a mere description of portions of the testimony of certain witnesses as asserted by respondents but contains citations of testimony which reflect:

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521

(1) that dance studios do operate effectively by obtaining the greater portion of their student contracts for less than $1500; (2) that the ability of a student to learn is not commensurate with the financial amount of the contract; and (3) that these studios obviously are operating successfully financially. While the Examiner made no express categorical conclusions in his fourteenth finding, the conclusions could be no other than the three aforementioned ones.

III. A HEARING WAS REQUESTED IN ORDER TO ESTABLISH FACTS TO SUPPORT A $1500 CONTRACTUAL LIMITATION.

Respondents are in error to assert that complaint counsel requested a hearing solely to prove the unconscion-ability of respondents* contracts in excess of $1500 and the economic balance achieved by imposing the dollar limitation.

During the course of the oral argument before the Examiner in December of 1969 as to the propriety of a $1500 contractual prohibition and in their brief in support thereof, one contention that was constantly and consistently propounded by respondents was that the record as it existed at the time of the oral argument was void of the necessary facts to support a $1500 contractual limitation, i.e., the commercial setting of the $1500 contracts should be shown on the record (Tr. 164-165); a finding of unconscionability requires extensive evidence be available to the finder of fact (p. 16, Respondents' Brief of 12-8-69); a more complete record is needed (Tr. 190). In addition to this assertion by respondents, it appeared that during the oral argument the Examiner was of the opinion that the record lacked sufficient facts upon which he could make findings to support issuance of an order containing a $1500 contractual limitation provision, i.e., the mechanics of how these contracts were negotiated (Tr. 188); how credulous consumers were (Tr. 189); the respective ages of the consumers (Tr. 189); the extent of their education (Tr. 189); and the record consists of only the complaint and stipulation (Tr. 201). References to the absence of these facts were made in complaint counsels' motion to reopen the record dated January 5, 1970.

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522

The foregoing shows that the purpose of complaint counsel for requesting a hearing was far broader and more inclusive than that suggested by respondents.

IV. THE RECORD SUPPORTS THE IMPOSITION OF A ?1500 CONTRACTUAL LIMITATION.

The malevolent manner and approach utilized by respondents to extract as much money as possible from students without any regard to the services respondents were to render are set out in vivid detail throughout the record of the hearings. This testimony and documentary evidence not only support the allegations in the complaint but also support the need for the contractual limitation imposed by the order accompanying the initial decision.

The abusive manner in which the respondents used personal information which they obtained from their students to persuade such students, by emotional appeal, to take dance lessons is demonstrated throughout the record and is reflected in part in the initial decision. An interviewer at respondents' studio testified that he was able to discover the prospect's background from responses to questions posed to the prospect concerning her social life, contacts, attitudes toward people and attitude toward dancing (I.D., p. 15). The instructional material provided to new employees of respondents vividly describes the purpose of these interviewing techniques:

In all cases there is a logical reason for people taking dancing, such as keeping up with modern trends, curiosity, wanting to learn a popular new dance, preparing for a Caribbean Cruise, etc. However, if we probe a bit deeper, we will find in every case a much stronger emotional reason for coming to the school (CX 59-A).

In addition, the instructional material states that it is the analyst's responsibility to uncover that emotional reason referred to in the above-quoted language. The testimony of the students reflects the high degree of success respondents had in obtaining this personally emotional information.

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523

When a student took the "sham dance analysis test" and was subsequently taken into the "closing room" to execute a contract, the student would be emotionally drained at that time (I.D., p. 15). Testimony reveals that many of the students would openly cry during the closing; one student dropped down on one knee and pleaded with the studio manager to let her enroll (Tr. 866). As previously stated, it was while in this high emotional state that the student was impelled to purchase dance instructions with the amount of the contract depending on the finances of the student which were ascertained during the junior procedure. "The aim of the studio was to sell the student the largest possible program" (I.D., p. 15). In one instance because a student was practically through the last available program offered at the studio, respondent Marandola suggested to one of the student's instructors to make up a program on paper with the dance steps of an existing program backwards (Tr. 1131). This absurd suggestion naturally was only for the purpose of obtaining more money from the student. Also observe the instance when Mrs. Lockhart-Mummery paid approximately $6400 for a non existent teaching program (Tr. 564).

The mental torture and anquish experienced by the students while in the "closing room" can be seen by the experience of Mrs. Lapin, a divorcee for 29 years and a retired government translator. She testified that while in the closing room with respondent Marandola, "[she] felt like...[she] wanted to get up and leave, but Mr. Mara[ndola] was sort of sitting between...[her] and the door and...[she] felt like...[she] was hemmed in the corner" (Tr. 706). Her mental anquish is further revealed on pages 21-22 of the initial decision. Such episodes are not uncommon asshown by a past instructor who testified that Mr. Marandola, in refusing to permit a student to leave a closing, "rolled [a] chair in front of the door and blocked it" (Tr. 128). The respondents were unlimited in their methods and pure obsession to extract money from students.

The Examiner's initial decision contains references to the testimony of seven witnesses who gave vivid and detailed accounts of their experiences while students at the respondents' studios. The testimony of each in many instances corroborates that of the others. In addition, their testimony is corroborated by other non-student witnesses. Appendix A to this brief is a chart which contains the respective ages, incomes and contracts with amounts of these seven witnesses.

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524

An analysis of the chart reveals that in many instances the students had suffucient hours of instruction outstanding when they were beset by respondents to purchase additional lessons.

It appears obvious that the contumelious sales tactics of the respondents must be abated. As was state before the Examiner by complaint counsel during oral argument in December of 1969, the respondents were aware of the Commission's condemnation of unfair practices similar to the practices utilized by respondents (Tr. 151) . The hearings also revealed the respondents' knowledge of the Commission's past interest in dance studio operations. A past instructor at, one of respondents' studios was asked why the number 500 was chosen to be the number in the "500 club", to which he replied:"...as we knew, the Federal Trade cease and desist... Anything that would total 500 would be within this cease and desist order" (Tr. 1130). An interviewer employed by respondents' Baltimore studio testified that he was shown a copy of a "Federal Trade Commission Consent Decree" by the manager and was asked his opinion as to whether certain sales practices that were used almost every day violated the decree (Tr. 896). After the witness expressed his , opinion that the practices did violate the decree and the manager refused to abate the practices because the studio was not bound by the decree, the witness terminated his employment because he did not "...want to be part of an operation that directly violates a consent decree of a Government organization" (Tr. 888-889).

It is clear that the Commission must consider whether an order that it issues is reasonably related to the practices that were found to exist. It is likewise clear that the Commission should also take into account the likelihood of whether respondents knew or should have known that their conduct was unlawful and whether the scope of the order is sufficient to ensure that the respondents will not engage in violation of the law again. The Examiner has rightfully found that the $1500 contractual limitation provision of the order reasonably relates to the practices which were employed by the respondents, and that such a provision will abate the unlawful practices of the respondents and prohibit such practices in their incipiency before the respondents' objectives become fulfilled (I.D., p. 35).

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525

The dollar limitation provision will also abate many of the ill effects that respondents' practices had on the students. Mrs. Lockhart-Mummery sold stock and utilized the money from the sale of her home to pay for her dance lessons (Tr. 510, 513-514) which cost her in excess of $12,000 over approximately a one year period (Tr. 469). Her financial status became so acute that her brothers and sisters had to pay her rent (Tr. 514). Mrs. Riddle who executed two contracts totaling more than $6,000 (CX 65, 66), described her financial difficulties resulting from executing the contracts as "I was robbing Peter to pay Paul, to repay the loans and it was quite a hardship on me" (Tr. 1270) . For other instances of such difficulties, see complaint counsels' proposed finding twenty-four. (Proposed Findings as to the Facts, Conclusions and Order filed June 5, 1970) Over a period of time, many students would invest substantial amounts of money in respondents' studios. Having invested huge sums of money, in many instances over $10,000, students obviously considered such amounts as proprietary interests in the studio. Testimony elicited from students reveals that the primary reason for their continuing to attend the studio, knowing that they would be subjected to offensive and abrasive sales practices, was to protect or at least salvage some of their investments, (see also complaint counsels' proposed finding twenty-seven).

Another ill effect experienced by the students which resulted from the practices attributable to the respondents, was that the students quite often were unable to obtain a level of instruction equivalent to their own respective levels of dancing proficiency. For instance, Mrs. Winifred Lapin, who achieved a gold medal prior to attending respondents' dance studio, was forced to stop attending respondents' studio within one year after buying approximately $4300 worth of dances lessons because the studio had a "sacarcety [sic] of teachers and no teachers that could really teach the advanced standard of dancing" (Tr. 708).

The above-mentioned ill effects of the practices on the students will in great measure be abated by the dollar limitation. While the adage, "An ounce of prevention is worth a pound of cure," is a succinct manner in which to express the need for a$1500 contractual limitation, the Examiner did find and conclude that the practices that were found to exist support the inclusion of such a provision in the cease and desist order (see also n. 30., I.D., p. 35).

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526

V. ECONOMIC FEASIBILITY DOES NOT INSULATE OR EXCUSE DECEPTIVE ACTS AND PRACTICES*1/

The Examiner was correct in rejecting respondents' exhibits 33 A through G together with Dr. Lurito's testimony relating to those exhibits. What other dance studios do with relation to a $1500 contractual limitation is irrelevant t o t h e acts and practices charged against the respondents (1r. 2237-B).Moreover, the charts are misleading, inaccurate and statistically compound such inaccuacies.

Complaint counsel disagree with the absurd position of respondents that the rejected evidence somehow shows that the imposition of a contractual limitation is tantamount to denying the respondents the opportunity to engage in the dance business. In spite of complaint counsels1 disagreement as to what the rejected evidence will show, the Commission's power to prevent deceptive practices may be exercised although the affected business could not successfully operate without the use of such practices. S. Dean Slough v. FTC, 396 F. 2d 870 (5th Cir., 1968) cert, denied, 393 U.S. 980 TT968) .

VI. THE RECORD ADEQUATELY RESOLVED THE QUESTIONS POSED BY THE EXAMINER .

The questions propounded by the Examiner during the hearing and which give respondents much concern were obviously satisfactorily answered or resolved in that the Examiner saw the need for a $1500 contractual limitation provision in the order accompanying the initial decision.

The record supports the affirmative of the first question asked by the Examiner. 2/ Respondents' brief contains citations to the testimony of four witnesses to illustrate that some contracts were negotiated by respondents without recourse to illegal sales techniques. However, it is at least questionable whether these witnesses' contracts were executed absent any deceptive or unfair practices.

1/ I.D., p. 36. 2/ "Can it be said that any dance contract with the

respondents for $1500 or more owing at any one time must have been entered in this manner" (Tr. 1326) .

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527

The biased nature of Mrs. Shane's testimony was brought out on the record. As typical of many students, Mrs. Shane, born in 1917, was a widow for several years before attending the respondents' studio (Tr. 1718-1719). When she first attended the studio, she was living with one of the instructor's mother. When that instructor left the studio, she then took up residency in the same apartment complex in which the studio manager, Mr. Nace lived (Tr. 1780). After Mr. Nace left the studio, she then took up residency in the same apartment complex in which one of her dance instructors and his wife lived (Tr. 1733). This suggests that Mrs. Shane had a strong social attraction to the studio and its personnel, especially when considered with the reasons for her attending the ..studio: "The people, the association, the dancing and the physical and mental lift it gives me" (Tr. 1731) .

While earning approximately $6500 year, Mrs. Shane spent almost that much (approximately $6,000) in two years for dance lessons from respondents. The record shows that Mrs. Shane was vague and elusive as to the actual money expended by her. She brought no records to support her testimony. It was only through cross-examination that she revealed that she bought a European trip for $1000 in peculiar contrast to paying as much as $600 for a New York trip (Tr. 1736). It appears obviously clear that the respondents' studio was a large and necessary element in Mrs. Shane's life; and for her to realize and admit that she was victimized as the other students were, would be a too difficult and burdensome task.

Mr. Trout's testimony is equally filled with matter which portrays his unwillingness to concede, or even to consider, that he had been deceived, e.g., signing a contract (Rx 22) for additional dance lessons obligating him for $547.50 while having owed to him $7,000 worth of lessons simply because "It (Rx 22) was a bargain sale" (Tr. 2087). The supposed "bargain" was entered into by an electronics engineer with a BSEE degree earning $18,000 a year (Tr. 2049) who was a divorcee and attended the studio not for dancing lessons, but as a form of social activity (Tr. 2080).

Mrs. Olive Carr was of the impression that the present Silver Spring studio, which she was attending at the time she testified, was being sued and she was appearing as a character

-12-

528

witness on behalf of that studio (Tr. 2171). Respondents' fourth student witness, Mrs. Leary had no documents to sustain her testimony as to the type of contracts she executed, the amount paid, and the method of payment (Tr. 2193-2211) .

The foregoing, at the very least, casts doubt as to whether respondents' assertion that certain contracts executed by respondents were without recourse to illegal sales tactics. Assuming arguendo respondents' assertion is accurate, such testimony would not alter the fact that respondents employed abusive sales practices as to other students.

The Examiner in his initial decision has shown that the third question (relating to practices of other studios not subject to this proceeding) posed by him during the hearing is not relevant and does not have to be considered in order to reach a determination of the issue involved in this matter. The answers to his other two questions 3/ have been the subject of this entire brief as well as all the other briefs and documents previously filed in this matter. Such answers must be given in consideration of the totality of the practices that were found to exist as well as the objective which the $1500 prohibition provision is designed to accomplish. It is rash to suggest that such answers can be given summarily in one or two sentences.

VII. THE LEGISLATIVE HISTORY OF THE FEDERAL TRADE COMMISSION ACT SUPPORTS THE AUTHORITY OF THE COMMISSION TO IMPOSE A MONETARY LIMITATION ON CONTRACTS.

As heretofore discussed, the Examiner correctly held that a finding of respondents' dance studio contracts in excess of $1500 as being unconscionable is not controlling to the issue of the propriety of the subject prohibition (I.D., page 36). Without taking issue with that determination, complaint counsel are impressed that the record fully supports a finding that respondents' contracts in excess of $1500 were patently unfair.

3/ "Would these acts and practices charged in [the] complaint necessarily be present in all dance contracts for less than $1500 owing at one time.... In the absence of any of the acts and practices charged in the Complaint, why a $1500 platform and what is its relevancy?" (Tr. 1326).

-13-529

The numerous memoranda filed by respondents disclose their attempt to have the Commission review the Examiner's initial decision in the abstract. The complete lack of cognizance of the full record is apparent in respondents' arguments.

Whether respondents' contracts in excess of $1,500 are deemed an unfair practice or not is an issue to be decided on the basis of a review of the entire record and not merely the stipulations of facts. It is evident from the Examiner's initial decision that considerable evidence was adduced at the hearing concerning the methodology utilized by respondents to obtain their announced goal of procuring the largest amount of money from each student as possible. (I.D., pp. 14-24)

It is in consideration of that philosophy of operation that the Commission should uphold the Examiner's findings of fact and order. Furthermore, the record is replete with evidence establishing that respondents expended so much effort to devise nefarious methods to secure executed contracts that the services to be provided pursuant to such contracts were unsatisfactory or nonexistent. Because of the obvious susceptability of a large segment of respondents' student body to the types of emotional sales techniques used by respondents and due to the harm resulting from such practices both to the students and respondents' competitors, respondents' contracts arising from such practices in excess of $1,500 should be considered in contravention of the Federal Trade Commission Act. Respondents have improperly maintained that the Commission could not make such a determination.

The role of the Commission as envisioned by Congress is not merely to remain stagnate, but to act in response to innovations adopted by enterprising businessmen in marketing their products or services. The public interest would not be protected if the Commission did otherwise.

The reports of both the Senate Committee and the House Committee on the Federal Trade Commission Trade Act prior to the enactment in 1914 declare the intent of Congress to permit the Commission To decide the types of practices that are unfair. S. Rep. No. 597, 63rd Cong. 2d. Sess. (1914); H.R. Rep. No. 1142, 63rd Cong. 2d. Sess. 18-19 (1914). This intent was again affirmed when Congress considered the passage of the Wheeler-Lea Amendment (52 Stat. Ill, March 31, 19 38) to the aforesaid Act, to wit:

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530

Under section 5 the Commission is a quasi-judicial body in determining what constitutes an unfair method of competition, or, under the proposed legislation, an unfair or deceptive act or practice. This power was given to the Commission under the original act, rather than to attempt to define in the statute all the different unfair practices. On June 13, 1914, the Senate Committee on Interstate Commerce in reporting the bill used the following language:

The committee gave careful consideration to the question as to whether it would attempt to define the many and variable unfair practices which prevail in commerce and to forbid their continuance or whether it would by a general declaration condemning unfair practices, leave it to the Commission to determine what practices were unfair. It concluded that the latter course would be the better, for the reason, as stated by one of the representatives of the Illinois Manufacturers' Association, that there were too many unfair practices to define, and after writing 20 of them into the law it would be quite possible to invent others. (Emphasis added, S. Rep. No. 221, 75th Cong., 1st Sess. 1 (1937).

The courts have recognized the intent of Congress to provide the Commission with broad authority to respond to the expanding areas of deceptive or unfair practices. Read the cogent statement of Judge Learned Hand in FTC v. Standard Educ. Soc'y, 86 F. 2d 692, 696 (2d Cir. 1936), rev'd on other grounds, 302 U.S. 112 (1937):

The Commission has wide latitude in such matters; its powers are not confined to such practices as would be unlawful before it acted; they are more than procedural; its duty in part at any rate, is to discover and make explicit those unexpressed standards of fair dealing which the conscience of the community may progressively develop.

-15-

531

From the aforementioned background of the legislative history of the Federal Trade Commission Act, there can be no doubt that the Commission may, when the facts of record so require, determine that contracts over a certain amount are unfair in violation of Section 5 of the Federal Trade Commission Act. Complaint counsel have previously set forth the facts of record which more than adequately show support for finding that respondents' dance contracts in excess of $1500 are unlawful.

VIII. THE COMMISSION HAS THE AUTHORITY TO IMPOSE A MONETARY LIMITATION ON RESPONDENTS' DANCE STUDIO CONTRACTS. A. The propriety of the $1500

contractual prohibition need not depend on a finding that respondents' contracts in excess of $1500 are illegal in and of themselves.

In the presentation of their argument on the scope of the Commission's authority under Section 5 of the Federal Trade Commission, respondents misconstrue the applicability of the Examiner's reliance on the excerpt from Luria Bros. & Co. v. FTC, 389 F. 2d 847 (3rd Cir. 1968) , cert, denied, 393 U.S. 829 (1968) to the instant matter. It is evident that Luria was quoted in order to present in a concise manner the wealth of precedent establishing the Commission's wide discretion in fashioning cease and desist orders to prohibit repetition of unfair practices developed in the record.

To attempt to construe the Examiner's utilization of the Luria decision to mean that the Examiner was required to "find that respondents' contracts in excess of $1500 are illegal in and of themselves" (emphasis added) as a basis for determiningÊhat the $1500 contractual prohibition is proper is totally without merit (see Respondents' Appeal Brief, p. 22).

A principal criterion in determining the propriety of a provision in a cease and desist order is whether the remedy chosen by the Commission is reasonably related to the unfair practices found to exist. FTC v. Ruberoid, 343 U.S. 470 (1962). Respondents would" have the validity of the subject prohibition be examined in a vacuum without

-16-532

consideration of the acts and practices which necessitated the fashioning of the said prohibition. Such an astonishing position is untenable as being inconsistent with fundamental trade practice law. Jacob Siegel Co. v. FTC, 372 U,S. 608 (1946). Complaint counsel have hereinbefore demonstrated the existence of the reasonable relationship between the unfair practices established by the record and the subject prohibition (supra, pp. 7-13). That relationship will not be repeated here.

Complaint counsel have repeatedly asserted, and the Examiner so found (I.D., p. 35), that the subject prohibition is necessary to dissipate the effects of the unfair practices shown by the record. Once such a necessity is shown, it is not incumbent on the Commission to determine that the activity proscribed by the order is unlawful in and of itself,. When the Commission determined that a 3-day cooling-off period was necessary to "dissipate the effects of deceptive invasions of the home", there was no showing, and properly so, that the existing lack of a cooling-off provision in contracts was an illegal act in and of itself. In the Matter of Household Sewing Machine Co., Docket No. 8761, August 6, 1969. As in Household, respondents' proclivity for the use of unfair or deceptive practices creates the need for an order prohibiting an activity which may not be in and of itself unlawful.

B. Where the order is reasonably related to unfair practices in the record, the Commission can place limitations on a lawful" activity.

In an endeavor to provide additional support for their argument, respondents rely on an extracted quotation from the case, The Sperry and Hutchinson Co. v. FTC, No. 26,739 (5th Cir., September 29, 1970) to the effect that in order for the Commission to lawfully prohibit a practice it must make a determination that such a practice "violates the policy or spirit of the antitrust laws". What is evident by respondents* use of the above quoted language is that respondents have again erroneously confused the question of the propriety of the order with the issue as to whether the practices necessitating the order are unlawful. There is no dispute between respective counsel that the practices established by the record contravene Section 5 of the Federal Trade Commission Act (Respondents' Appeal Brief, pp. 5-6). The essential issue before the Commission is

-17-

533

whether the contractual provision of the order is reasonably related to the practices found to exist in the record. The Commission does not have to consider the issue of whether respondents' procuring of contracts in excess of $1500 is an unfair practice when holding that such a contractual imposition is justifiable in light of the unfair practices contained in the record. Therefore, the Commission need only to adopt the Examiner's finding that the contract limitation imposed on respondents "is a necessary and reasonable safeguard to forestall and stop in their incipiency the respondents unfair and deceptive acts and practices before their purposes became fulfilled" (I.D., p. 35) in order to justify the inclusion of the subject prohibition in any order issued by the Commission.

Respondents reliance on Cotherman v. FTCf 417 F. 2d 587 (5th Cir. 1969) is misplaced. An accurate analysis of the holding in this case discloses that the court concluded that the absolute prohibitions of representations concerning the 6% interest rate and the 15 year duration for repayment were not reasonably related to the "evil the Commission intended to do away with Iwhich was respondents'] misrepresentation of lending terms" (emphasis added, Cotherman, supra, at page 596). Surely the unfair practices disclosed in the instant matter, which form the basis for the imposition of the contractual limitation, are not remotely comparable to the deceptive representations presented in the Cotherman case. The propriety of impropriety of an absolute prohibition should be determined from the practices shown by the record; and not from abstract legal reasoning. As stated by respondents on page 22 of their brief:

Blind application of the broad language of ...[a] case without any regard for the facts is irresponsible. The court's dicta that provisions of a cease and desist

order can not prohibit legitimate practices is contrary to establish law that in appropriate circumstances the Commission can prohibit a lawful practice when said practice is a part of a broader scheme or methodology that is in contravention

-18-

534

of the Federal Trade Commission Act. FTC v. National Lead Co., 352 U.S. 419 (1957); Lurfa Bros. & Co. v. FTC, supra. For the reasons set forth above, respondents' use of the case of N. Fluegelman & Co. v. FTC, 37 F. 2d 59 (2d Cir. 1930) is equally unpersuasive.

C. A provision in the order requiring affirmative disclosure is not a panacea.

Respondents' use of the Commission's opinion in In the Matter of All-State Industries of North Carolina, Inc., Docket No. 8738, April, 1969, to support their argument is falacious on its face. The unfair practice causing the Commission to require an affirmative disclosure of the possibility of assignment was respondents' failure to disclose such information. No facts were present in All-State relating to the need to prohibit assignment of contracts. The unfair practice was respondents' failure to make a material disclosure to customers. What'respondents have obviously miscontrued is the relationship between the failure to disclose the possibility of the assignment of the contract along with its subsequent effect on the legal rights of persons executing such contracts and the assignment of the contract itself. There is no relationship between the absence of the material disclosure and the assignment of contracts as far as an appropriate remedy for relief is concerned. In order to effectively abate the unfair practice (lack of a material disclosure), the Commission did not need to prohibit assignment of contracts. Surely, it is absurd to urge to the Commission that "complete disclosure to the consumer" (Respondents' Brief, page 26) is a.panacea for the unfair practices disclosed by the record in the instant matter. While a remedy of affirmative disclosure may dispel the adverse effects of unfair or deceptive acts or practices in one instance, such remedial action may not be sufficient to alleviate injury to the public resulting from unfair practices shown to exist in another instance. The latter situation is true in the instant matter. Because of the vastly different factual situations (i.e. the unfair practices herein are significantly harsher and more flagrant than of a lack of material disclosure), the relevance of the Commission's choice of remedy in All-State is marginal at best.

Full disclosure can be an appropriate remedy where persons can exercise an unemotional, rational and educated choice prior to embarking on a particular activity. But, where, as

-19- 535

shown by the facts of record, respondents have incorporated into their sales procedures a presentation designed to confuse, confound and alter the rational judgment of their customers so that such persons can not properly evaluate the terms of respondents' contracts, the success of a disclosure provision without other prohibitions is nonexistent.

D. Respondents have misconstrued the applicability of security regulation to the instant proceeding.

It is unfortunate that respondents in categorizing the Securities and Exchange Commission's (SEC) role in attempting to prevent fraudulent sale of securities imply that the SEC has no authority to prevent the sale of securities (Respondents' Appeal Brief, page 27). Such a conclusion is contrary to the effect of Section 8(d) of the Securities Act of 1933 which provides the SEC with authority to issue a stop order suspending the effectiveness of a registration statement which does not conform to the disclosure requirements of the act (15 U.S.C. §77h). The effect of the stop order is to prohibit the sale of the security in interstate commerce that is the subject of the aforesaid registration statement (Oklahoma-Texas Trust v. SEC, 100 F. 2d 888 (10th Cir. 1939); Greater Northern Management Co., SEC Securities Act Release No. 4941 (December 23, 1968); Bally Manufacturing Corp., SEC Securities Act Release No. 4952 (March 3, 1969); White Electromagnetics, Inc., SEC Securities Act Release No. 4979 (June 11, 1969) (see 15 U.S.C. §77e for irestrictions on the sale of securities where registration statement is not in effect).

A substantial difference in the authority of the SEC in its role of providing protection to the public and the Commission's similar role is that the Commission only enters the area of concern after the unfair or deceptive practices have occurred. The evil of such practices and the resulting harm to the public interest have been demonstrated prior to Commission action. From such a foundation, the Commission selects proper remedies to put an end to the unfair practices and to alleviate the harmful effects arising from such practices.

The role of the SEC is to exercise judgment on the propriety of the registration statement filed contemporaneously with the offering of a security. While it is true the SEC cannot pass judgment on the merits of a security, the security

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536

can not be sold until the registration statement becomes effective. Furthermore, as previously stated the SEC can suspend the effectiveness of a registration statement thereby halting further sale of the security involved. Thus, the SEC's authority is more involved with preventing a fraudulent practice from coming into existence, and not with attempting to react to dissolve the effect of an unfair or fraudulent practice already shown to exist.

It would appear that respondents include the citation to the California Corporate Security Law (California Corporations Code, Title 4, Division 1, Section 25140(a)) for the purpose of demonstrating that only individual states with their police powers have the authority to "regulate the fairness of any offering, i.e., to make a decision as to the merits or soundness of the security being offered" (Respondents Appeal Brief, pp. 27-28). Such is simply untrue. Complaint counsel have heretofore described how the SEC pursuant to Section 8(d) of the Securities Act of 1933 has the authority to stop the sale of securities through suspension of the effectiveness of registration statements containing either untrue statements of material facts or omission of material facts. Further, parties may not sell a security until after the SEC has permitted the registration statement to become effective.

Without unnecessarily prolonging a response to this point, it is obvious that respondents are really arguing that the Commission has no police powers; and therefore, the Commission has no authority to impose a limitation on respondents' dance contracts. It is clear that respondents' comparison of the authority of the SEC with the authority of the state of California to bar securities has no bearing on the Commission's authority under Section 5 of the Federal Trade Commission Act to impose a monetary limitation on respondents' dance studio contracts.

E. The Commission has reserve jurisdiction to resolve" inequities of an order.

In November, 1969, complaint counsel stated that the reserve jurisdiction of the Commission permits respondents the opportunity to demonstrate any inequitable contigencies occurring as a result of the Commission's issuance of the monetary limitation on respondents' contracts (Complaint

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537

counsels' Brief to the Examiner, page 7). The Supreme Court has frequently made reference to the existence of reserve jurisdiction of judicial bodies to meet instances where parties can demonstrate that a particular provision of a judgment is unduly burdensome or no longer necessary. Federal Trade Commission v. National Lead Co., supra at page 431; International Salt Co. v. United States, 322 U.S. 392, 401 (1942). (see also, opinion of the Commission in In the Matter of General Transmissions Corporation of Washington, Docket No. 8713, February 23, 1968, at page 11).

Such cases are illustrative of the point that proper judicial administration is for the party later to establish the inequalities of a judgment in fact rather than, to initially strike the challenged provision on the basis of hypothetical situations.

The record more than amply supports the need for imposition of a monetary limitation on respondents' dance studio contracts (supra, pp. 7-13 ). After the subject prohibition goes into effect and the respondents have evidence to establish that the subject prohibition is no longer essential to protect the public interest, then Section 3.72(b) of the Commission's Rules of Practice is available for respondents to seek modification of the order.

F. The applicability of trade regulation rules is not a bar to the Commission's authority to impose an order on respondents.

The rule-making authority of the Commission to attack violations of law on an industry-wide basis is not considered to be a bar to the Commission's authority and discretion to enforece an order against a particular member of an industry. Moog Indus, v. FTC, 355 U.S. 411 (1958); FTC v. Universal-Rundle Corporation, 387 U.S. 244 (1967).

G. The imposition of the monetary limitation is in the public interest and not punitive.

As a final basis to demonstrate the invalidity of the subject prohibition, respondents assert that such an order is punitive. The corporate respondents' cessation of active business is not a sufficient basis for concluding the order

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538

only is applicable to the individual respondents. Surely, respondents would not have the Commission believe that mere cessation of business is tantamount to dissolving a legal entity. Inactive corporations can be built into thriving viable operations without great difficulty.

Complaint counsel are constrained to point out the absurdity of the applicablity of the decision in Doyle v. FTC, 356 F. 2d 381 (5th Cir. 1966) to the issue of the alleged punitiveness of the subject prohibition. The facts of Doyle disclose that the Commission's order embraced a large publicly held corporation as well as Bascom Doyle, a territorial sales manager, who merely advised the president of the corporation on pricing policies. It was further shown that the "ultimate decisions on all pricing were made...[by the president of the company] and then effectuated by Doyle. Doyle, supra, page 382. The court was impressed that no threat of evasion existed as to the corporate respondent. Thus, without the threat of evasion of the order combined with Doyle's position as an employee rather than a party directing and controlling corporate policy, the court determined that Doyle should not be held individually liable for future violations of the order.

There exists no issue in this proceeding as to whether the individual respondents formulated, directed, and controlled the acts and practices of the corporate respondents, including the acts and practices contained in the stipulation of facts (I.D. page 7). In addition, the record contains numerous references to the participation of the individual respondents in the unfair practices shown to exist.

Considering the position of the individual respondents to this proceeding, the existence of a definite threat of evasion of the order (corporate respondents' being inactive) and the tenor of the unfair practices, imposition of the subject prohibition on the respondents is fully supported.

The attitude of respondents in operation of dance studios was graphically portrayed before the Examiner as seen from the following quote attributed to respondent Marandola:

"make a bundle or two, get the cash, because they may walk out and get hit by a car, but you have got the cash in hand." (Tr. 1127)

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539

Such philosophy in operating dance studios demands in the public interest that a monetary limitation be imposed on subsequent contracts obtained by respondents arising from the dance business. Based on the record, there is absolutely no support for respondents' assertion that imposition of the monetary contractual limitation on respondents is punitive.

IX. THE RECORD SUPPORTS THE EXAMINER'S INCLUSION OF "OTHER SERVICES'* IN~T~HE PREAMBLE TO THE ORDER.

The Commission provided in General Transmissions Corporation of Washington, Supra, the criteria to be used in determining whether the provisions of an order should follow the respondents in other products or services which may be provided to the public. The dance related unfair practices disclosed by the record can be easily adapted to such other service-oriented businesses as health clubs, social clubs and schools. The nature of the unfair practices of record and their resulting adverse effects on consumers also provides bases for applying the order to other services respondents may make available to consumers. The criteria of General Transmissions having been met, the Examiner quite appropriately included "other services" in the preamble of the order.

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540

X. rnNPT.nsTnu. The inclusion by the Examiner of a $1500 contractual

limitation in his order and his holding that the order should extend to "other services" that respondents may render were proper and amply supported by substantial evidence of record and applicable law. Therefore, based on the foregoing and the record of the entire proceeding in this matter, respondents' appeal should be denied.


cu~ CA. G£*«/-_ Donald L. Bachman,


Michael J. Vitale, Assistant Director for General Litigation.

Robert Pitofsky, Director, Bureau of Consumer Protection,

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541

APPENDIX A

CM

Witness Name Marital Contract Contract

Age Status CX #*s Dates Contract Pace Value

1. Eleanor Lee Templeman 57 Divorced 1-8, 10, 13 CXI - 1/16/64 CX2 - 2/1/61 CX3 - 2/13/64 CX4 - 3/7/64 CX5 - 5/22/64 CX6 - 5/28/64 CX7 - 9/2/65 CX8 - 9/2/65 CX10- 9/22/65 CXI3- 3/2/68

$

2. Dorothy A. Lockhart-Mummery

47 Divorced 15-27 CXI 5 CXI 6 CXI 7 CXI 8 CXI 9 CX20 CX21 CX22 CX23 CX24 CX25 CX26 CX27

3/1/64 3/6/64 3/11/64 8/8/64 9/19/64 10/22/64 11/23/64 1/9/65 2/1/65 4/21/65 6/12/65 8/24/65 6/23/64

10.00 223.00 798.00

3,172.00 55.00

6,443.00 1,201.40 3,182.60 910.00

8,310.00

10.00 250.30 798.00 848.00

1,332.80 1,803-00

55.00 932.80 15.00

638.00 310.00

6,377.00 168.00

Hours of Each Contract

Outstanding Hours Prior to Signing Particular Contract 1/

7 20 65

240 3

450 80

245 86

520

4 20 65 65 50

140 3

50 4 50 50

427 15

CX3 (absorbs CX2) CX4 (absorbs CX3) CX6 380 CX7 500 CX10 CX13 313 1/2

CX26 200-300 CX27 397 1/2 (After CX 27)

1/ Based on testimony of record

Witness Name Age Marital Status

APPENDIX A (con't)

Contract Contract CX #'s Dates

Contract Face Value

Hours of Each Contract

CO

Outstanding Hours Prior to Signing Particular Contract 1/

3. Elise McKee 74 Widowed 33-39 CX33 12/28/64 $ 55.00 3 CX34 12/29/64 8,033-50 350 CX35 1/9/65 1,067.50 50 CX36 4/8/65 3,150.00 200 CX37 4/29/65 2,994.10 150 CX38 12/19/65 1,420.51 71 CX39 12/30/65 1,100.00 20

CX34 102 CX35 450 CX37 467 (35 & 37 supercede 36)

CX38 50 CX39 superceded CX 38

Katherine Hailman 64 Widowed 40-48 CX40 CX41 CX42 CX43 CX44 CX45 CX46 CX47 CX48

1/11/67 1/27/67 3/7/67 4/29/67 5/15/67 6/14/67 9/5/67 11/1/67 11/21/67

15.00 326.54

1,570.31 1,874.00 565.00

4,428.00 100.00

2,641.00 7,740.00

10 days 6 months 93 hours 100 36 320 5

140 260

5. Winifred Lapin Divorced 50 CX50 10/15/63 4,300.00 254 CX50 80


A-2

Witness Name Age Marital Status

APPENDIX A (con't)

Contract Contract CX T s Dates

Contract Pace ." Value

LO

Outstanding Hours Prior to Signing

Hours of Particular Each Contract Contract 1/

6. Gertrude M. Stambaugh 77 Married 52, 53 56-57

CX52 11/20/56 CX53 9/20/63 CX56 9/4/64 CX57 9/2/64

$8,570.00 4,000.00 1,248.00 1,332.80

1000 215 5 50

CX53 285 hours

7. Beatrice Holton Riddle 45 Single 64, 65, 66 A

CX64 1/4/65 CX65 1/9/65 CX66A 6/21/65

438.00 5,188.18 1,308.00

50 hrs. 292 hrs 75 hrs

& 1 yr CX65 150


A-3

<$r RECEIVED °^N

,DEC 2 -1970 SECRETARY


DOCKET NO. 8776

IN THE MATTER OP ARTHUR MURRAY STUDIO OP WASHINGTON, INC., ARTHUR MURRAY STUDIO OP BALTIMORE, INC. ARTHUR MURRAY STUDIO OP BETHESDA, INC. AND ARTHUR MURRAY STUDIO OP SILVER SPRING, INC., CORPORATIONS, AND

VICTOR P. HORST AND EDWARD MARANDOLA, ALSO KNOWN AS EDWARD MARA, INDIVIDUALLY AND AS OFFICERS OF SAID CORPORATIONS.

REPLY BRIEF OF COUNSEL IN SUPPORT OP THE COMPLAINT

DONALD L. BACHMAN,


MICHAEL J. VITALE, ASSISTANT DIRECTOR FOR GENERAL LITIGATION,

BUREAU OF CONSUMER PROTECTION.

ROBERT PITOPSKY, DIRECTOR, BUREAU OP CONSUMER PROTECTION.

545

SUBJECT INDEX PAGE

I. THE RECORD SUPPORTS THE POSITION OP COMPLAINT COUNSEL 1

II. THE WITHDRAWAL OP THE STIPULATIONS OP PACTS PRECIPITATED CHANGES IN THE AGREED-TO-ORDER *»

III. NO LACK OF DUE PROCESS ARISES PROM MODIFICATIONS OP AND ADDITIONS TO THE AGREED-TO-ORDER 5

IV. THE COMMISSION IS NOT BOUND BY THE AGREED-TO-ORDER 8

V. CONCLUSION 8

TABLE OF CASES CARTER PRODUCTS, INC. V. PTC, 323 P. 2D 523 (5th CIR. 1963)... 7

FTC V. NATIONAL LEAD CO., 352 U.S. 419 (1957).. 6,

IN THE MATTER OF CARNATION CO., 52 FTC 998 (1956) 8

JACOB SIEGEL CO., V. FTC, 327 U.S. 608 (19*16)... 6

LURIA BROS. & CO., V. FTC 393 F. 2D 847 (3rd Cir. 1968) cert, denied, 393 U.S. 829 (1968) 7



VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, Individually and as officers of said corporations.

DOCKET NO. 8776

REPLY BRIEF OF COUNSEL IN SUPPORT OF THE COMPLAINT

!• The Record Supports The Position of Complaint Counsel

The issue as set forth below, and as presented by the briefs submitted by complaint counsel and respondents' counsel, is analogous to the proverbial question of the chicken and the egg. Complaint counsel have argued that respondents' withdrawal from the stipulations of facts relating to Paragraph Thirteen of the complaint provides a sufficient basis for modifications of and additions to the agreed-to-form of order (Appeal Brief, pp. 5-6). Respondents' response to said position is that complaint counsel left respondents with no other recourse than to withdraw from the stipulations due to complaint counsels' insistence upon presenting testimonial evidence of facts which was already contained in the aforesaid stipulations (Respondents' Answering Brief, pp. 5-7).

547

At a prehearing conference prior to the evidentiary hearing, complaint counsel stated that testimony would be elicited relating to the mechanics of how respondents' contracts were negotiated and the subsequent emotional and adverse economic effects such contracts had on the students (Tr. 299-300, 335). Thus, approximately one month prior to the hearing, respondents were advised that this type of testimony would be adduced at the hearing. At that time, respondents attempted to impose a limit on the testimony to be introduced by complaint counsel. But such efforts were unsuccessful.

When complaint counsel began to elicit testimony relating to the circumstances leading up to execution of contracts in the aggregate in excess of $1500, respondents objected on the basis of the stipulated facts. That is, respondents did not consider it ethical to cross-examine witnesses on matters previously admitted by respondents to be true.

Complaint counsels' response to respondents' need to cross-examine witnesses on stipulated facts was most appropriate (Tr. 359):

Your honor, I am concerned with respondents (sic) counsel's remarks as to his defending facts he has stipulated to. If the facts have been stipulated to, respondents' counsel is not required to defend...[against them],

The Examiner was also concerned with the obvious inconsistency of respondents' rationale for withdrawal (Tr. 475-W):

Hearing Examiner Shrup (sic): Is it your position that the testimony of the prior witnesses and the testimony so far as to this witness is contrary to the stipulated facts? Mr. Schaumberg: That is not my position, but I will not be bound by a stipulation if facts are going to be introduced, regardless of the fact I stipulated. I

-2-

548

would like to have the opportunity in good faith to cross-examine and object to evidence that is being put forth in the hearing. Otherwise, I suppose there would be no point in having a hearing.

In further colloquy with the Examiner, respondents' counsel stated that the circumstances surrounding the negotiations of contracts were contained in the stipulations of facts (Tr. 479). Respondents' counsel also argued that since the facts were stipulated as true such facts should not be placed in the record again (Tr. ^79).

The Examiner correctly dismissed such arguments as illogical (Tr. 359, 480, 539). The record demonstrates that the Examiner was aware that much of the testimony to which respondents objected was not part of the stipulations of facts. Otherwise, he would, upon the insistence of respondents' counsel, have ruled that the introduction of further evidence relating to the stipulated facts was improper because such evidence was merely cummulative of evidence of record. No such ruling was made. On the contrary, the Examiner allowed the testimony.

It should be noted that respondents finally admitted, after the Examiner was forced to repeat the question many times, that the evidence being introduced by complaint counsel was not contrary to the stipulated facts, but merely amplified the stipulated facts. The following graphically demonstrates the difficulty encountered by the Examiner in extracting a logical reason from respondents' counsel for his withdrawal of the stipulated facts. (Tr. 538):

Hearing Examiner Schrup: Let me ask you this question: Is the testimony that is being elicited today contrary to any of the facts stipulated? Mr. Schaumberg: Your Honor, you asked me that question yesterday. Hearing Examiner Schrup: And you refused to answer it off the record. I am asking you on the record, this time. Mr. Schaumberg: Let me say this, the evidence that is being presented

-3-

549

Hearing Examiner Schrup: Is it contrary to the stipulated facts? Mr. Schaumberg: [the evidence] goes beyond the stipulated facts,they include some stipulated facts. The testimony does. But neither you, Mr. Examiner, nor I know whether the testimony is true or not. (emphasis added).

The above is clearly indicative of the fact that respondents1 counsel confused the issue of the truth or falsity of evidentiary matters not contained in the stipulated facts with the truth or falsity of the stipulations of facts. Even so, respondents were given full opportunity, and the record is replete with lengthy cross-examinations of witnesses, to cross-examine witnesses on the new matters as well as on the stipulated facts.

Based on such a record, complaint counsel are impressed that respondents' statement in regard to a "contrived argument" is unfounded.

There is nothing in complaint counsels' brief "contrived" or "fabricated". Complaint counsel advised respondents as to the nature of the testimony to be adduced prior to the hearing. Such testimony was elicited along with certain stipulated facts. The Examiner realized that such testimony could not be introduced in a vacuum, but that the testimony had to be presented "step by step" (Tr. ^78). Respondents wanted otherwise. When the Examiner refused to stifle the introduction of such testimony in order to provide a full record, respondents withdrew from the stipulations of facts pertaining to Paragraph Thirteen of the complaint.

II. The Withdrawal of the Stipulations of Facts Precipitated Changes In The Agreed-To-Order.

The record speaks for itself. For their own reasons, respondents systematically withdrew from each of the stipulations of facts contained in Paragraph Thirteen of the complaint. The rationale of respondents' decision to extricate themselves from the confines of the stipulations of facts need not be explored further. The essential issue is what effect does a unilateral withdrawal of stipulated facts have on the provisions of an agreed-to-order which are related to those withdrawn stipulated facts.

550

An examination of the modified and new provisions of the order suggested by complaint counsel reveals that such provisions are directly related to the unfair practices set forth in the withdrawn stipulated Paragraph Thirteen of the complaint. Once the evidentiary base on which provisions of the agreed-to-order are removed (compare provisions 6-10, 13-11* of the proposed order in Appeal Brief of Respondents, October 23, 1970, pp. A-3 - A-5 with withdrawn Paragraph Thirteen of the stipulations of facts [Tr. 110-112]), can such provisions still be viable? Complaint counsel think not.

When complaint counsel entered into the agreement with respondents' counsel as to the provisions of the proposed order that would not be contested, it was believed, at that time, that the agreed-to-form of order was proper in terms of the facts contained in the stipulation of facts. This contention is easily shown by the following preamble to the agreed-to-order:

Your Honor, the parties have agreed that the following provisions of the [agreed-to-form of] order are appropriate, and will not be contested, and feel that you should make such a finding based on the stipulation of facts heretofore placed in the record' (emphasis added; Tr. 113).

The Examiner was of the opinion that he could not prevent respondents' withdrawal. Therefore, without ruling on the propriety of respondents' motion to withdraw, the Examiner advised respective counsel that Paragraph Thirteen of the stipulations of facts would not be considered in the initial decision and that he would rely on the "testimony in this proceeding" (Tr. 1328).

It is precisely that testimony, the exhibits introduced therewith and the remaining stipulations of facts which requires modifications of and additions to the agreed-to-order.

H I . No Lack of Due Process Arises from Modifications of and Additions to the Agreed-To-Order.

Complaint counsel have argued that there is no lack of due process resulting from the modifications of and additions to the agreed-to-order since the Commission has authority to fashion an order by relying on the evidence of record and that such an order need not be restricted to the allegations of the complaint.

551

Respondents do not take issue with the above assertion as to the Conunission's authority, but contend that if such authority exists, it is irrelevent to this proceeding. Unfortunately, respondents' argument as to irrelevancy is inconsistent with applicable law.

While neatly avoiding the issue of whether the modifications of the agree-to-order are supported by the record, respondents limit their response to the position that any new evidence introduced at the hearing was introduced for the sole purpose of supporting the $1500 contractual prohibition and therefore, such evidence may not be considered by the Commission for any other purpose. If such a propositon were correct, the Commission could never be permitted to alter a proposed order since evidence of practices related to the allegations in the complaint, but not covered by the proposed order, could never be considered. The Commission would as a result have no foundation to fashion orders applicable to unfair or deceptive practices not precisely alleged but shown to exist by the record. The Supreme Court has not so limited the authority of the Commission to fashion an appropriate order. Jacob Siegel Co. v. FTC,327 U.S. 608 (1946).

Considering the authority of the Commission to fashion cease and desist orders based on the evidence of record, the issue is whether respondents are being accorded due process because the modified provisions were first brought to bear in complaint counsels' proposed findings submitted to the Examiner. The cases cited by complaint counsel (Appeal Brief, page 6) amply demonstrate that there is no lack of due process where respondents have contested in a evidentiary hearing the facts upon which the challenged provisions are based and in addition had the opportunity to contest the legality of the order both before the Examiner and the Commission.

Respondents' reliance on a quotation taken out of context from FTC v. National Lead Co., 352 U.S. *»19 (1957) is improper. On commenting on possible lack of due process, the Supreme Court said at page *127:

It goes without saying that requirements of a fair hearing include notice of the claim of the opposing party and an opportunity to meet them. (citation deleted).

-6-552

The record indicates that the respondents were afforded those safe-guards. The emphasis that there was no charge, no evidence, no finding to support the inclusion of the objectionable provision in the order is misplaced. Its insertion was nothing more than a mndP of implementation^ selectee py the Commission, to enforce its findings r>r vinifltion of the Act: Moreover, the record is replete with evidence that counsel supporting the complaint would seek the use of such a method of enforcement. (emphasis added).

Complaint counsel are impressed that ^ e above reference to the record containing indications of the use of the challenged order is not to be considered a restriction or limitation on the Commission's authority to amend the proposed order.

It is noted that appeal courts have also determined that due process does not require that respondents be apprised (of amendments to the proposed order) during the coSrse of the evidentiary hearing. As a practical matter, it is not until the record can be carefully reviewed that amendments to the proposed order are deemed necessary. Furthermore, as stated in Luria Brothers and Co Inc., et al v. Federal Trade Commission, 3bTF. 2d 0 7 Ura QrL IQ^BL cert, denied, j^TTsT 829 (1968), at page 862:

The fact that petitioners did not have an opportunity to be heard orally by the Examiner...is not a defect requiring reversal since all the requirements of a proper administrative hearing were met prior to the issuance of the final order.

The same construction of due process was aPPJ^ d *n 2d Carter Products. Inc. v. F.T.C., (5th Cir. 1963) 323 P. 2d

523, 533. IV. The Commission Is Not Bound By The

Acrreed-To-Order ♦ Bv inference from an excerpt from the Commission's

*~.<-~~*i~~„i-n™ nHMnn In the Matter of Carnation Co., 5? F!T?C 998 U956), respondents would have the Commission

"7" 553

be impeded in its obligation to protect the public interest due to complaint counsels' agreement with respondents' counsel that only two provisions of the proposed order would be contested. While complaint counsel would agree that agreements between counsel should not be taken lightly, it is evident that the subsequent events of record place the propriety of the aforementioned agreement in doubt. Moreover, the facts developed during the hearing would make continuation of such an agreement unduly restrictive on the Commission and thereby contrary to the public interest.

The emotional argument propounded by respondents with regard to the possible adverse effect on the private bar if the Commission adopts the modifications proposed by complaint counsel, is completely inane. First, the informed private bar knows that on review of a matter the Commission may make its own findings of fact and fashion an appropriate order. Such authority can not be compromised by actions taken by complaint counsel during the course of adjudicative hearings. Second, respondents would hold complaint counsel and the Commission to a higher standard of conduct than respondents' own standard as demonstrated by the withdrawn stipulation of facts.

V. Conclusion. The record both procedurally and on substantive

evidence is indicative of the Commission's authority and need to adopt the proposed amendments and additions to the order contained in the initial decision. The invalidity of respondents' arguments to the contrary can be succinctly summarized as:

Having lost the battle on the facts, they hope to win the war on the type of decree. FTC v. National Lead Co., supra, at page 129.

554

WHEREFORE, complaint counsel request that the Commission issue an order containing the proposed modifications of and additions to the agreed-to-order.


Donald L. Bachman,

Edward D. Steinman, Counsel Supporting the Complaint.

Michael J. Vitale, Assistant Director for General Litigation.

Robert Pitofsky, Director, Bureau of Consumer Protection

•9- 5

7"-p

RECEIVED

DEC 111970 UNITED STATES OF AMERICA ^0 ^

BEFORE FEDERAL TRADE COMMISSION ^—SECRETART

DOCKET NO. 8776

IN THE MATTER OF ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


REPLY BRIEF OF RESPONDENTS




556

INDEX

Page A. THE STAFF'S BRIEF DOES NOT DEAL SQUARELY

WITH THE ISSUES 1 B. THE STAFF HAS FAILED TO RESPOND TO THE

CRITICAL QUESTIONS RAISED BY THE PROPOSED CONTRACTUAL LIMITATION 11

C. THE CONTRACTUAL LIMITATION IS IMPROPER SINCE THERE IS NO PER SE VIOLATION 16

D. THE COMMISSION LACKS AUTHORITY TO IMPOSE A DOLLAR LIMITATION 21

E. CONCLUSION 23

APPENDIX A A-l


In the Matter of



DOCKET NO,

REPLY BRIEF OF RESPONDENTS

A. THE STAFF'S BRIEF DOES NOT DEAL SQUARELY WITH THE ISSUES.

It should be plain to anyone reading the staff's

answer brief that it substitutes emotionalism for reason,

hyperbole for fact and specious argument for sound legal

analysis. While it would be unprofitable as well as

unproductive to take the staff to task for each and

every instance where these offenses are committed, a few examples should make the point.

-2-

The emotional approach of the staff's brief is

shown by the following three sentences which are un

supported by any specific citation to the record, yet

contain, in each sentence, the word "record" or "testi

mony" (p. 7) :

The malevolent manner and approach utilized by respondents to extract as much money as possible from students without any regard to the services respondents were to render are set out in vivid detail throughout the record of the hearings. This testimony and documentary evidence not only support the allegations in the complaint but also support the need for the contractual limitation imposed by the order accompanying the initial decision.

The abusive manner in which the respondents used personal information which they obtained from their students to persuade such students, by emotional appeal, to take dance lessons is demonstrated throughout the record and is reflected in part in the initial decision.

Such statements are most inappropriate when they are made

without support.

The oft repeated use of the word "obvious" makes

clear that the staff is extrapolating from and exaggerating the facts of the case. For instance, after quoting from a

-3-

footnote in the Initial Decision relating to only one

paragraph of the complaint, staff counsel make the

following statement (p. 2): This obviously shows that the Examiner intends for the statements in his initial decision as to the practices of respondents to be findings. A contrary conclusion would be inept.

Not only is this a non sequitur, but it exemplifies the

unreliable nature of all too many statements contained

in the staff's brief.

Finally, the staff's discussion of Cotherman v.

F.T.C., 417 F.2d 587 (5th Cir. 1969), is representative

of their penchant for confusing argument with analysis.

After disparaging the use of "abstract legal reasoning,"

the staff's brief makes the following statement (pp. 18-

19):

The court's dicta that provisions of a cease and desist order can not prohibit legitimate practices is contrary to establish [sic] law that in appropriate circumstances the Commission can prohibit a lawful practice when said practice is a part of a broader scheme or methodology that is in contravention of the Federal Trade Commission Act. FTC v. National Lead Co., 352 U.S. 419 (1957); Luria Bros. & Co. v. FTC, supra.

-4-

First of all, the language from the Cotherman case

cited in Appeal Brief of Respondents (pp. 23-24) is

not "dicta" but central to that portion of the case

dealing with Cotherman's appeal of the breadth of the

order. Moreover, while counsel make reference to "a

broader scheme or methodology that is in contravention

of the Federal Trade Commission Act," they stop there

and rest with the innuendo because they have no support

in the record.

In addition, the staff's reliance on both F.T.C. v

National Lead Co., 352 U.S. 419 (1957) and Luria Brothers

and Company v. F.T.C 389 F.2d 847 (3rd Cir. 1968) is

misplaced. In the first place, National Lead involved

respondents "representing practically the entire economic

power in the industry" (352 U.S. at 424). Secondly, the

prohibition there involved did not bar all zone pricing,

but only where it had the purpose or effect (352 U.S. at

423):

"of systematically matching the delivered price quotations or the delivered prices of other sellers of lead pigments and thereby preventing purchasers from finding any advantage in price in dealing with one or more sellers as against another."

-5-

Thirdly, the order was temporary, lasting only until

(352 U.S. at 425):

independent pricing might be established without the hangover of the long-existing pattern of collusion.

Fourthly, while the Supreme Court had not previously

ruled zone pricing to be invalid, it specifically

declared in National Lead that it had not decided the

validity of the zone pricing plan used there {352 U.S.

at 425).

Finally, and most important, in National Lead

and the cases therein cited, the lawful practice suppressed

was "'the very cornerstone of the...conspiracy'" (352 U.S.

at 425). Furthermore, '"it was the adherence by each of

them [respondents] to this system of pricing that made

the combination work'" (352 U.S. at 424).

Here, contract quantum is not a means of achieving

any illegal result. The practices sought to be condemned

are not dependent for accomplishment upon the making of

contracts of a particular size. In National Lead, by

barring the zone price system when certain purposes were

present, an effective tool of competitive restraint was

563

-6-

destroyed, and the illegal practices made more difficult,

if not impossible, to achieve. Here, however, a bar on

contract size would make no impact on the alleged unfair

and deceptive acts. They would be as easy or hard to

accomplish, irrespective of contract amount.

In National Lead no per se prohibition was attempted.

Here, every contract over $1500, whether with a millionaire

or a pauper, and irrespective of the circumstances of its

making, is to be condemned.

Luria Brothers and Company v. F.T.C., supra, a

case similar to National Lead, is distinguishable from

the situation here on the same grounds. in that case,

Luria had entered into agreements with a number of respon

dent steel companies restraining trade and tending to

create a monopoly in the scrap metal market. The Com

mission's order prohibited the respondent mills from

buying "more than 50 percent of their scrap from Luria

except to the extent that scrap, adequate in quantity

and quality, is not available from other suppliers on

terms which are substantially similar and competitive..."

(389 F.2d at 852).

564

-7-

The challenge to this portion of the order by

some of the smaller respondent mills who claimed that

their purchases were lawful was rejected on the ground

that, "All contribute to the unlawful result and all

should share in the consequences" (389 F.2d at 863).

The Third Circuit Court in Luria recognized that

the Commission had power to prohibit lawful actions only

when they directly aided and abetted illegal actions.

This is shown by the case on which the Court relied

(389 F.2d at 863), Modernistic Candies v. F.T.C., 145 F.2d

454 (7th Cir. 1944).1/

It would labor the obvious to reiterate that con

tracts which are the products of sales efforts, whether

proper or improper, are the product and not the means of

the sales efforts. The dance lesson contracts themselves,

1/ In that case, the prohibition against distribution of ballgum boards which were used as gambling devices was sustained because (145 F.2d at 455):

...Those who aid and abet such a method of merchandising, those participes criminis with gamblers and their schemes, are likewise engaged in unfair trade practices contrary to public policy.

-8-

irrespective of size, are not tools, means, aids or

abettors. Their size bears no reasonable relationship

to the practices condemned.

Another difference makes Luria not applicable

here. In Luria, there was no absolute ban because

respondent mills could still order half of their require

ments from Luria. Moreover, if they could not get scrap

elsewhere on competitive terms, they could buy 100% from

Luria.

Another case misapplied by the staff is In the

Matter of All-State Industries of North Carolina, Inc.,

et_al., [1967-1970 Transfer Binder] Trade Reg. Rep.

518,740 (1969), affjd.., 423 F.2d 423 (4th Cir. 1970).

Contrary to their argument (p. 19), it was not the mere

lack of disclosure that the contract would be transferred

to a third party that was harmful but the fact that once

suchâ transfer occurred the buyer's defenses to such a

contract would be unavailable as against such a third

party. The staff did, however, recognize, "In order to

effectively abate the unfair practice (lack of a material

disclosure), the Commission did not need to prohibit

assignment of contracts" (p. 19). Yet, both the staff and

-9-

the Examiner (I.D. 35) are saying in this case that the

best way to prevent respondents' unfair practices from

recurring is not only to prohibit the practices themselves,

but to prohibit respondents from entering into certain

size contracts even though they have never been shown to

be illegal. As will be discussed below, no justification

has been given for such drastic action.

There are several other points in staff counsels'

brief that deserve reply. They quote (p. 5) the state

ment that "'every contract for a sizeable sum was entered

under extreme pressure.'" The remedy for this is clearly

to outlaw the pressure. Once this is done, there will

either be no more large contracts or there will be large

contracts entered into without pressure.

In his Initial Decision, the Hearing Examiner did

not adopt any of the proposed findings of complaint

counsel (other than stipulated paragraphs) or of respon

dents. This can only mean that they were all "rejected

as being irrelevant, immaterial or not supported by the

facts of record" (I.D. 6). Undaunted and realizing per

haps that the Initial Decision has certain shortcomings,

-10-

the staff has tried to rewrite that opinion. One example

of this (pp. 5-6) is where the staff tries to make three

findings which are contrary to fact and which even the

staff admits were not made by the Examiner. 2/

The third Roman numeral of the staff's brief (p. 6)

states categorically that "A Hearing was Requested in

Order to Establish Facts to Support a $1500 Contractual

Limitation."3/ The point they are trying to make is that

a hearing was sought to prove various points other than

the unconscionability of contracts in excess of $1500 and

the economic balance achieved by imposing the dollar limi

tation. First of all, this seems to be an admission by

the staff that they proved neither of these, since, if they

had, the other points would be immaterial. Secondly,

their Motion to Reopen Record (January 5, 1970) makes

quite clear that the two items mentioned above were the

only ones complaint counsel offered to prove (p. 2).

2/ "While the Examiner made no express categorical conclusions in his fourteenth finding, the conclusions could be no other than the three aforementioned ones" (p. 6).

3/ This is quite interesting in light of the staff's own appeal seeking to broaden the scope of the order.

568

-11-

Thirdly, the entire point of their argument is that,

since respondents and the Examiner were of the opinion

that the record lacked facts to support the $1500 limita

tion, complaint counsel made reference "to the absence

of these facts" (p. 6) in their motion to reopen. What

they neglect to admit, however, in making this boot-strap

argument, is that the motion never urged positively any

thing other than the two propositions they utterly failed

to prove during the hearings (see Appeal Brief of Respon

dents, pp. 12-17).

B. THE STAFF HAS FAILED TO RESPOND TO THE CRITICAL QUESTIONS RAISED BY THE PROPOSED CONTRACTUAL LIMITATION.

The overall weakness of complaint counsels' case is nowhere made clearer than by their continuing inability

to answer the following four very significant questions

posed by the Examiner during the hearings (TR 1326):

Based on the stipulated acts and practices of respondents as charged in the complaint, and the live testimony of the witnesses so far taken, these questions have occurred to me:

1. Can it be said that any dance contract with the respondents for $1,500 or more owing at any one time must have been entered in this manner.

* * * * * *

-12-

No. 2. Would these acts and practices charged in [the] complaint necessarily be present in all dance contracts for less than $1,500 owing at one time.

3. Based on the testimony of the two partners in the Feather and Three Dance Studio [an independent Washington area studio] and how they operate, could we say that if they entered into a contract for dance instruction of $1,500 or more owing at any one time [it] would be unconscionable?

4. in the absence of any of the acts and practices charged in the complaint, why a $1,500 platform and what is its relevance?

The staff's brief (pp. 11-13) attempts to manu

facture answers where there are none. Complaint counsel

seek to answer the first question by discrediting all of

respondents' consumer witnesses (pp. 12-13). In this

shallow undertaking they raise innuendos about one female

witness, ridicule an educated man's decision to take

advantage of a bargain, attack a witness, not for not

telling the truth but for supposedly not fully compre

hending the purpose for her testimony, and, for lack of

anything better to say, challenge a witness for testifying

from a document (CX 31) which stated the number of hours

she purchased but not the price. As will be shown, it is

-13-

quite clear from the testimony of these witnesses that

they all bought contracts totalling in excess of $1500

and that in every case these purchases were made willingly.

In the case of Mrs. Shane, after testifying that

she had entered into a contract for $1800 (TR 1691) and

one for $3,000 (TR 1694) she was asked whether she had

gotten what she paid for. Her answer was, as follows

(TR 1716):

Yes, I do. I have thoroughly enjoyed my time. I have found it most beneficial to me in, as I said before, physically, mentally. I have been part of the dance-a-ramas. I still thoroughly enjoy dancing and intend to continue to do so.

I have made many close friendships and I have found both the management and the teachers to be very fine people.

Mr. Trout testified that he purchased lessons

totalling $7,900 (TR 2059; RX 17-21) without feeling that

he was pressured (TR 2061). He then testified, "I have

gotten everything they said I would and I think it has

been well-worth the money" (TR 2063).

Mrs. Carr entered into a series of contracts

(RX 24-30) and when asked whether she felt any pressure

-14-

she testified she did not. As she explained (TR 2118-

2119): Well, I don't sign contracts in

a hurry and the managers I have had know that and certain things are presented to me at one time and I will say that I will listen and think it over and sometimes we might have two or three conferences before we decide which, before I decide which is the best for me.

Finally, Mrs. Leary, a secretary in the office of

Congressman Patman (TR 2201), testified that she signed

a contract for approximately $2,000 (TR 2197). At no

time, either on direct- or cross-examination did she

indicate there had been any pressure. In fact, she later

signed up for more hours of instruction (TR 2205).

Clearly, then, the answer to the Examiner's first

question must be in the negative.

Complaint counsels' attempt to answer the other

three questions (p. 13) is equally unconvincing. Their

bold assertion that the Examiner did not consider the

third question relevant in his Initial Decision is

totally unsupported and contrary to fact. The Examiner

was quite careful to point out in footnote 26, page 28,

-15-

that with regard to a witness who testified that 40% of

his dance studio contracts were in excess of $1500:

The record does not show the acts and practices of the studios of the witness in obtaining dance instruction contracts in excess of $1500 to be the same as the unfair and deceptive acts and practices employed by the respondents in such

• regard. (Tr. 1834-1844)

With regard to questions two and four, the staff

does not even attempt to supply a response except by

saying that those questions have been the very subject

of their various briefs (p. 13). Quite the contrary,

complaint counsel have never been able to supply a satis

factory answer to either one of these questions. Their

inability to answer the fourth question (why $1500?) has

been particularly noticeable throughout these proceedings.

(See Appeal Brief of Respondents pp. 19-21).

It is clear that, until the staff, or indeed the

Commission, can answer all four of these questions satis

factorily, there is no foundation, save an emotional one,

for imposing a $1500 limitation.

-16-

C. THE CONTRACTUAL LIMITATION IS IMPROPER SINCE THERE IS NO PER SE VIOLATION.

Staff counsel appear to be confused over the

question whether respondents' contracts in excess of

$1500 are illegal per se. At one point (p. 13) they say

they are "impressed that the record fully supports a

finding that respondents' contracts in excess of $1500

were patently unfair." Yet, on the following page, it is

argued that such contracts should be considered in contra

vention of the Federal Trade Commission Act only when

arising from certain kinds of practices. This thought is

repeated (p. 16) when it is stated that "when the facts of

record so require" the Commission may "determine that con

tracts over a certain amount are unfair in violation of

Section 5 of the Federal Trade Commission Act."

It is indeed the practice or the methodology that

is unfair, not the contract amount. Even a $50 contract

can be unfair if it is entered into under unfair circum

stances.^/

4/ This was, incidentally, the point of the Examiner's second question:

Would these acts and practices charged in [the] complaint necessarily be present in all dance contracts for less than $1500 owing at one time. (TR 1326).

-17-

The provisions already contained in the agreed-

to order are adequate to prevent the challenged acts

and practices from recurring, particularly in light of

the $5,000 a day penalties that may be imposed for viola

tion of a Commission order (FTC Act, §5(1)). with such

a built-in safeguard the $1500 limitation becomes all the

more incomprehensible.

Furthermore, that order prohibits not only all the

practices alleged as unfair in the complaint, but, perhaps

even more significantly, contains two "cooling-off" pro

visions voluntarily agreed to by respondents. Paragraph 10

of the order (I.D. 40-41) requires respondents' contracts

to state in at least 10-point bold type that, regardless

of obligation incurred, a contract may be rescinded "for

any reason whatever" within seven days from the date the

agreement is made. Furthermore, Paragraph 11(a) of the

order (I.D. 41-42) provides that any contract entered into

while another contract is still in force is unconditionally

cancelable until one week after the expiration of the

earlier contract.

To the best of counsels' knowledge, this is the first time that any respondent has voluntarily agreed to

-18-

such provisions. In only one prior instance has the

Commission unilaterally imposed a cooling-off period.

Household Sewing Machine Co., Inc., [1967-1970 Transfer

Binder] Trade Reg. Rep. 518,882 (1969). As was stated

by the Commission in that case (fl8,882 at 21,218):

An order limited merely to a prohibition against repetition of deceptive advertisements or a generalized ban against bait and switch tactics is not adequate protection for the consumer. What is required is an order that will dissipate the effects of deceptive invasions of the privacy of the home where high-pressure tactics may result in the ill-advised purchase of expensive merchandise which would not be bought upon careful reflection. The most effective protection is that which the consumer can provide for herself by talcing a second look at the product to reconsider whether she can really afford it, or to discuss the purchase with her husband, all free from the influence of deceptive sales techniques.

Accordingly, the order will require respondents to allow a three-day period of grace during which all contracts negotiated in the consumer's home may be rescinded by the purchaser. This will serve as a cooling-off period during which any consumer, who may be subjected to the unfair pressures resulting from the deceptions we have

-19-

discussed or similar deceits, may re-evaluate and cancel her purchase. (Emphasis added).5/

The above-quoted language makes it clear that

a cooling-off provision is the "most effective protection"

the consumer can have against precipitate action resulting

from deceptive sales techniques. It will allow a con

tracting party time enough to consider all the ramifications

of the terms of the contract.

These cooling-off provisions, along with the

absolute prohibitions of the order, are adequate protection

to the public without the contractual limitation. By way

of example, applying Paragraphs 10 and 11(a) of the order

to the first sales contract in excess of $1500 entered

into by each of the Commission's witnesses, each such

person would have had a minimum of 20 weeks and as many

as 76 weeks to reconsider her decision and cancel such

contract (see Appendix A).6/


6/ Unlike respondents' chart which provides the Commission with specific references to the transcript in support of its figures, complaint counsels'

577

-20-

Nowhere has it been demonstrated why the con

tractual limitation is necessary. Even the Hearing

Examiner did not explain how the limitation would serve

to stop practices in their incipiency (I.D. 35). A

cooling-off period, on the other hand, acts as a safety

valve so that if there has been undue pressure (which

would nonetheless be punishable as a violation of the

order) it will be dissipated during the cooling-off

period. Adding a dollar limitation on top of that

simply makes no sense. First of all, it accomplishes

nothing. Secondly, there has been no showing that there

is any relationship between the size of the contract and

the amount of the pressure. Finally, the size of the

6/ (cont'd.) Appendix A wholly distorts various contractual arrangements and fails to provide facts upon which certain computations are based. Staff counsel have, for instance, neglected to point out that a great number of the contracts listed provided benefits other than dance lessons. For example, CX 34 included the cost of a trip to Hawaii (TR 620); CX 35 was partly to pay for a trip to New York (TR 630); CX 37 was for a trip to Europe (TR 631). Equally disturbing is the fact that certain contracts listed never went into effect. Again by way of example, this is true of CX 36 (TR 631-632) as well as CX 38 (TR 645). Perhaps the clearest indication of the meaningless nature of the staff's chart is the footnote referring to "testimony of record without any citation.

-21-

contract is not what is illegal, but the methodology

used to achieve it might be. The fact of the matter

is that a $1500 limitation implies a lack of Commission

concern about contracts of smaller size.

D. THE COMMISSION IACKS AUTHORITY TO IMPOSE A DOLLAR LIMITATION.

Complaint counsel have recognized that (p. 19):

Full disclosure can be an appropriate remedy where persons can exercise an unemotional, rational and educated choice prior to embarking on a particular activity.

Yet, they completely misconstrued (pp. 20-21) the

parallel that respondents sought to draw between

disclosure and outright prohibition in the securities

field and in the trade regulation area (Appeal Brief

of Respondents, pp. 27-28). No one suggested that the

SEC did not have authority to stop the sale of a security.

The point is that, while the SEC does have the power to

require full disclosure and to impose a stop order for

failure to disclose, it does not have the power to pass

on the merits of a particular investment or to set a

ceiling on the price of a security. Such power does,

579

-22-

however, reside in the states under their inherent 7/

police power which is

...the obligation of the state to protect its citizens and provide for the safety and good order of society.... It is the governmental power of self-protection and permits reasonable regulation of rights and property in particulars essential to the preservation of the community from injury.8/

It is similarly pursuant to this broad constitutional

reservation of power to the states that California

enacted its statute placing a $2500 limitation on dance

contracts executed within its borders.^/

Complaint counsel, erroneously and confusingly,

are seeking to invest the Commission with a power that

can reside only in the states. There is no grant of

2/ The Tenth Amendment to the Constitution provides:

The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.

8/ Panhandle Eastern Pipe Line Co. v. State Highway Commission of Kansas, 294 U.S. 613, 622 (1935); see also Lochner v. New York, 198 U.S. 45, 53 (1905).

9/ Cal. Civil Code, §1812.53(a)(1969).

-23-

authority to be found in either the Constitution or the

laws of Congress that gives the Commission the power to

set a $1500 limit on dance contracts.10/

Absent such a grant, an attempt to impose a dollar

limitation might well constitute a deprivation of property

violative of the due process clause of the Fifth Amendment,

particularly, where the staff has failed to prove that

respondents' contracts in excess of $1500 are illegal

per se, that they are the means or tools for illegal

practices or that they constitute a method for violating

the antitrust laws.

E. CONCLUSION.

It is difficult at this late stage of the pro

ceedings to determine precisely what the staff is urging

in support of the $1500 limitation. There was a time

when they were arguing that a contract in excess of that

amount was unconscionable and therefore illegal in and

of itself (Brief of Complaint Counsel in Support of the

Contested Provisions of the Order, pp. 9-10, November 18,

1969). In fact, this was still their position at the

10/ For a further discussion of this subject, see Proposed Findings of Fact and Brief Submitted by Respondents, pp. 37-60, June 8, 1970.

581

-24-

time proposed findings were submitted to the Hearing

Examiner (Proposed Findings as to the Facts, Conclusions

and Order, p. 40, June 8, 1970).

Similarly, there was a time when staff counsel

were going to show that "$1500 is a fair balance between

the practical business need of an operator of a dance

studio and an equitable and fair amount which a person

should be indebted for dance instruction" (Motion to

Reopen Record, p. 2, January 5, 1970). Now, however,

they are strangely silent on this proposition.

Complaint counsels' theory in support of this

never before sought or imposed remedy is difficult to

discern. While arguing extensively in their answer brief

that the Commission has the authority to impose a dollar

limitation (pp. 13-14), they never explain why the Com

mission should exercise this presumed authority or how

its exercise will benefit the public. The closest they

come to analyzing this question is the statement that

"the subject prohibition is necessary to dissipate the

effects of the unfair practices shown by the record"

(p. 17). They do not explain, as did not the Examiner,

why such a provision is necessary in light of the other

-25-

provisions of the order or how, if implemented, such a

provision will have the desired effect.

It is clear that complaint counsel have not con

sidered these questions for they state that, "The

essential issue before the Commission is whether the

contractual provision of the order is reasonably related

to the practices found to exist" (pp. 17-18). Their

advice to the Commission is that it (p. 18):

...need only to [sic] adopt the Examiner's finding that the contract limitation imposed on respondents "is a necessary and reasonable safeguard to forestall and stop in their incipiency the respondents' unfair and deceptive acts and practices before their purposes become fulfilled" (I.D., p. 35) in order to justify the inclusion of the subject prohibition in any order issued by the Commission.

Clearly, the Commission has a much greater responsibility.

First, it must assure itself that it has been given the

authority by Congress to impose an absolute dollar limita

tion on contracts. Thereupon, it must justify the

imposition of such a limitation in light of the other

provisions of the order, the penalties already available

-26-

to punish violation of Commission orders and the four penetrating questions raised but left unanswered by the

Hearing Examiner. Respectfully submitted,

Paul F. Hannah


December 11, 1970

APPENDIX A

EFFECT OF STIPULATED CANCELLATION PRIVILEGE

AMOUNT OF TIME CONTRACT CONTRACT NO. OF UNUSED HOURS UNTIL CONTRACT

NAME DATE AMOUNT ($) CX NO. HOURS REMAINING AT BECOMES UN-PURCHASED CONTRACT DATE 1/ CANCELABLE 2/

(weeks)

1/16/64 10 1 4 0 1 TEMPLEMAN 2/1/64 223 2 20 0 1

2/13/64 798 3 60 18 3/ 19 3/7/64 3,172 4 240 75 76

3/4/64 10 15 4 0 1 3/14/64 798 17 65 0 1

MUMMERY 8/8/64 848 18 65 17.5 4/ 8 9/19/64 1,332.80 19 50 71.25 29.5 10/22/64 1,803 20 120 110 45

00 C71

> i

MCKEE 12/28/64 12/29/64

55 8,033.50 5/

33 34

3 350 102 6/

1 52 7/

HAILMAN 1/11/67 1/27/67 3/7/67

15 326.54

1,570.31

40 41 42

5 67 93

8/ 8/

0 0

1 1

21 9/ LAP IN 10/15/63 4,300 10/ 50 254 80 11/ 33 12/

STAMBAUGH 9/20/63 4,000 13/ 53 215 285 14/ 72.25 15/

RIDDLE (nee HOLTON)

1/4/65 1/9/65

438 5,188.18

64 65

50 292

0 47 16/

1 20 17/

Footnotes fo l low on pages A-2 and A-3

FOOTNOTES

1/ This column is calculated by subtracting from the total hours purchased the number of hours used weekly according to the witness' testimony.

2/ This column is calculated by dividing the number of hours used weekly into the total unused hours and then adding one week in accordance with paragraph 10(a) of the stipulated order. Where there are no unused hours, paragraph 9 of the stipulated order provides a one-week cancellation period.

3/ She was taking a maximum of one hour per week. (Tr. 455).

4/ She was taking two or three hours of instruction per week. (Tr. 501) . For purposes of calculation, 2.5 hours per week was used.

5_/ $2,000 of this amount was for a trip to Hawaii. (Tr. 620). She was an Arthur Murray student since 1953 (Tr. 617) and had taken 1,420 hours of instruction. (Tr. 622).

6/ Tr. 618. > i

7/ She was taking two hours of instruction per week. (Tr. 620-21).

8/ This figure includes studio parties specifically provided for in the contract.

9/ Calculated on basis of number of weeks remaining in Holiday Dance Club membership. 10/ She was an Arthur Murray student since 1950 and had taken 1,500 hours of instruction between

1950 and 1963. (Tr. 714).

11/ Tr. 702.


13/ She was an Arthur Murray student since 1953. (Tr. 771).

14/ Tr. 776.

15/ She was taking four hours of instruction per week. (Tr. 792). 16/ She had three lessons the first week. (Tr. 1233).

17/ She was taking two or three, hours of instruction per week. (Tr. 1268) . For purposes of calculation, 2.5 hours per week was used.

c©


COMMISSIONERS: Miles W. Kirkpatrick, Chairman Paul Rand Dixon Everette Maclntyre Mary Gardiner Jones David S. Dennison, Jr.



DOCKET NO. 8776

FINAL ORDER Respondents and counsel supporting the complaint

having filed cross appeals from the initial decision of the hearing examiner, and the matter having been heard upon briefs and oral argument; and the Commission having rendered its decision denying the appeals and adopting the initial decision:

IT IS ORDERED that respondents shall, within sixty (60) days after service upon them of this order, file with the Commission a report, in writing, setting forth in detail the manner and form in which they have complied with the order to cease and desist.

By the Commission.

Charles A. Tobin, Secretary

ISSUED: February 23, 1971 588


COMMISSIONERS: Miles W. Kirkpatrick, Chairman Paul Rand Dixon Everette Maclntyre Mary Gardiner Jones David S. Dennison, Jr.

In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC. , ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC., and ARTHUR MURRAY STUDIO OF SILVER SPRING, INC., corporations, and


DOCKET NO. 8776

OPINION OF THE COMMISSION By Dixon, Commissioner:

This matter is before the Commission on cross appeals of respondents and counsel supporting the complaint from an initial decision holding that respondents had violated Section 5 of the Federal Trade Commission Act.

The complaint charges four corporations and two individuals with numerous unfair and deceptive practices in connection with the sale of dance instruction courses. The alleged unlawful conduct includes the following practices: obtaining leads to prospective purchasers of dance instruction by awarding gift certificates for such instruction either through the use of so-called "contests" in which all participants can win or by falsely representing that a person has been "selected" to receive a free course of instruction; failing to provide the full number of "free" hours of dance instruction promised but instead devoting much of the time to promoting the sale of dancing lessons; representing that certain clubs sponsored by respondents are bona fide adult social clubs when in fact

589

D. 8776

the dance industry to show that $1500 is a fair balance between the practical business need of an operator of a dance studio and the equitable and fair amount which a person should be indebted for dance instruction."

The examiner granted this motion over respondents* objection and the Commission subsequently denied respondents' application for permission to file an interlocutory appeal from the examiner's order reopening the record. Hearings were then held to permit counsel supporting the complaint to introduce evidence supplementing the stipulation of facts in support of the requested prohibition against contracts in excess of $1500.

The hearing examiner, in an initial decision based upon the stipulated facts and the evidence adduced in support of the $1500 contractual limitation, found that the charges in the complaint had been sustained and issued his order to cease and desist. This order is the same as that originally agreed to by counsel, except that it includes the words "or other services" in the preamble and also contains the $1500 limitation on respondents' contracts.

In their appeal from the initial decision respondents do not contest the examiner's findings or his conclusions that the challenged practices are illegal. They address themselves only to two aspects of the order to cease and desist. The first and by far the more important of the two major issues raised by their appeal is whether the order may properly prohibit respondents from entering into contracts for an amount in excess of $1500 for dance instruction or any other service provided by respondents' dance studios.

Respondents argue in this connection that counsel supporting the complaint did not prove either the unconscionability of respondents * contracts in excess of $1500 or the fairness of such a limitation when the economics of operating the dance studio are balanced against a "fair amount which a person should be indebted for dance instruction." In the absence of proof of the illegality of such contracts, according to respondents, the Commission has no authority to issue an order

-3-

D. 8776

banning their use. Respondents further contend that the hearings added very little, if anything, to the case-in-chief in support of the complaint — that respondents had stipulated to all facts upon which the essential findings of the initial decision were based. They further argue that despite the examiner's statement that he did not reach the issue of unconscionability, his holding that the $1500 contractual limitation is necessary to prevent recurrence of the practices is tantamount to saying that contracts in excess of $1500 are unconscionable because their negotiation is dependent upon the use of illegal selling acts and practices.

We agree with respondents that most of the evidence adduced by counsel supporting the complaint does not go beyond the facts originally stipulated by counsel. Certainly much of this evidence is redundant. We also agree that counsel supporting the complaint did not prove that all contracts for dance instruction in excess of $1500 are unconscionable. We do not agree however that the evidence adduced is not relevant to the question of whether a $1500 contractual limitation should be imposed; nor do we agree that the record does not support the imposition of such a limitation.

It should be emphasized first of all, contrary to the arguments advanced by respondents, that the Commission's remedial powers under Section 5 are not restricted to the prohibition of only those acts and practices found to be unlawful. The purpose of a Commission order is to prevent the continuance of such practices but, to accomplish this end, the Commission may, if it deems necessary, forbid acts lawful in themselves. In Jacob Siegel Co. v. Federal Trade Commission, 327 U.S. 608 (1946) the Supreme Court held that the Commission has wide discretion in determining what remedy is necessary to eliminate unfair or deceptive practices which have been disclosed, and in Federal Trade Commission v. Ruberoid Co., 343 U.S. 470, 473 (1952) the Court stated that "if the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its roadblock to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity.

D. 8776

The Court also upheld the Commission's order suppressing the use of a "lawful device" for the purpose of preventing the continuation of a price fixing conspiracy in Federal Trade Commission v. National Lead, 352 U.S. 419, 510 (1959) concluding that "the Commission was justified in its determination that it was necessary to include some restraint in its order against the individual corporations in order to prevent a continuance of the unfair competitive practices found to exist." 1/

It is apparent from a review of the initial decision that the hearing examiner believed that the $1500 limitation should be imposed, not because contracts in excess of that amount are unconscionable or per se illegal, but because a restriction of this type would be necessary to prevent a recurrence of unfair acts and practices employed by respondents to induce members of the public to execute long-term contracts. Having found that the order without the $1500 limitation "does not eradicate the root of the evil," he concluded that such a limitation "is a necessary and reasonable safeguard to forestall and stop in their incipiency the respondents' unfair and deceptive acts and practices before their purposes become fulfilled." (Initial decision, p. 35)

We agree with this conclusion* Without the $1500 limitation the order will not, in our opinion, effectively deter respondents from engaging in many of the unfair practices which they have used to sell dancing lessons. It is important to note, in this connection, that the order contained in the initial decision does not specifically prohibit all the practices alleged as unfair in the complaint, as respondents contend. The complaint charges

1/ In arguing that the Commission cannot prohibit a practice, such as a contract in excess of $1500, which it has not specifically found to be unlawful, respondents quote passages from the Circuit Court's opinions in Cotherman v. FTC, 417 F. 2d 589 (5th Cir. 1969) and The Sperry & HutchTnson Company v. FTC, 432 F. 2d 146 (5th Cir. 1970). Respondents' reliance on these cases is misplaced, however. Neither of them is in point since neither addresses itself to the question of whether legitimate practices may be prohibited by the Commission for the purpose of curing the ill effects of unlawful conduct or of preventing the continuance of other practices found to be illegal.

593

D. 8776

in Paragraph 13 that respondents have used "intense, emotional and unrelenting sales pressure" to persuade a prospect or student to sign a long-term contract and that "such person is insistently urged, cajoled, and coerced to sign such a contract hurriedly and precipitatedly through use of persistent and emotionally forceful sales presentations which are often of several hours' duration." The record fully supports this charge. The unfair pressure tactics used by respondents to persuade students to sign contracts for dance instruction are disclosed in the testimony of students and former employees of respondents' studios. However, except for "relay salesmanship," these unfair pressure tactics, some of which are described below, are not prohibited either specifically or in general terms.

A former employee of respondents' Baltimore studio testified with respect to a procedure used routinely by respondents to exert pressure on the prospective student. This witness testified that in his capacity as interviewer and dance analyst he would attempt to gain the confidence of a student for the purpose of obtaining information about the student's past which could be used to persuade her to sign a contract. According to him, the sales approach or technique used by respondents assumed that many of the people who come to dance studios do so for some more deep-seated reason than simply a desire to learn to dance. Respondents referred to this reason as the "X-Factor" and assigned to the interviewer the task of discovering it. This factor could be loneliness, marital difficulties, or some unpleasant experience or unhappiness in the prospect's past which could be exploited for the purpose of selling dance instructions. The information obtained by the interviewer would be passed on to the studio manager, who would sometimes eavesdrop on the interview and instruct the interviewer by telephone how to conduct the interrogation. Thereafter, the student would be given a sham dance analysis test and then brought to a small room where the studio manager would close the deal. Prior to closing, members of the staff would attempt to make the student as nervous and confused as possible. Also prior to closing, the interviewer would extract a promise from her that she would not tell the studio manager that she

-6-

D. 8776

needed or wanted time to think about signing the contract. The interviewer would then stand beside the student at the closing, sometimes holding her hand, and would pretend to speak in her behalf, leading her to believe that he was persuading the studio manager to accept her as a student. By making this feigned appeal to the manager and by appearing extremely solicitous of her welfare, the interviewer would attempt to bring the student to a highly emotional state. Often the student would break down and cry and on one occasion a young woman actually "dropped down on one knee and asked the studio manager to please let her enroll." (Tr. 866)

To apply additional pressure to the more recalcitrant students the studio manager would falsely state at the closing that the decision to enter into the contract must be made immediately and that the student would not be permitted to sign after a specified hour. Sometimes the studio manager would block the door to prevent the student from leaving, and once respondent Mara pushed a chair in front of the door. In some cases, the closing would last three to four hours.

Even after a student had obligated herself for lessons costing thousands of dollars she was still constantly harassed and badgered to sign up for more hours. One student, a woman 62 years old, who had over 300 unused hours of dance instruction testified that she was under considerable pressure to take a test to determine whether she would qualify to join respondents' "Tiffany Club" which would cost an additional $8000. She testified that she had no intention of buying more hours but that she took the test because she had learned that a student was "practically ostracized at the studio" (Tr. 395) if she refused to do so. Although she "insisted through the entire thing that [she] was not going to make any further investment" she nevertheless signed a contract for the additional lessons "to relieve the pressure." (Tr. 397)

Another student described her closing experience as follows:

"I tried to say no and get out of it and I got very, very upset because I got frightened at paying out all that money and having nothing to fall back on. I remember I started crying

-7-

D. 8776

and couldn't stop crying. All I thought of was getting out of there.

"So finally after — I don't know how much time, Mr. Mara said, well, I could sign up for 250 hours, which was called the 500 Club, which would amount to $4300.

"So I finally signed it...." (Tr. 700) Another testified, "I was confused, I was confounded, I was beset, I was frantic, I didn't want it, and I couldn't get out of it, and I signed this contract and practically went off the deep end after it...." She further stated that she had "begged and pleaded with these people to leave [her] alone." (Tr. 506-508)

The difficulty in fashioning an order which will effectively stop respondents from engaging in practices of the type described above is apparent. Respondents suggest that "The remedy ... is clearly to outlaw the pressure." But this is not easily done. An order which would enjoin the particular acts and practices previously used by respondents could be avoided by a change in tactics, and one which would prohibit generally the use of excessive or unfair pressure would be virtually impossible to enforce. Since the selling practices involved here almost invariably take the form of oral representations made privately to a student, violations of an order addressed to such practices would be extremely difficult to discover and prove. In view of respondents' demonstrated proclivity to utilize such sales methods, we have no doubt that they would continue to use them if they believed they could do so without detection. They would, however, have considerably more difficulty circumventing an order which would prohibit them from entering into contracts in excess of $1500. 2/

2/ There is other evidence of record which strongly supports an order imposing a monetary limitation on respondents' contracts with students. Several witnesses testified that after a student had executed a long-term contract the quality of service provided by respondents to that student deteriorated. The prohibition may well have the added salutary effect therefore of deterring respondents from taking advantage of "captive" students.

-8-

D. 8776

Respondents argue, however, that there is no reasonable relation between the prohibition and the practice found to be unlawful — that a bar on contract size bears no reasonable relationship to the unfair and deceptive practices used to secure such contracts. We do not agree. Human nature being what it is, we think that respondents are far more likely to apply excessive pressure to secure a large contract than a small one. The greater the gains or rewards respondents will reap, the greater their incentive will be to engage in these practices or to devise new and more elaborate methods to accomplish the desired end. There is, moreover, testimony in the record indicating that such is the case. As one witness testified, "As a rule of thumb, I would say that every single contract for a sizable sum was entered into under extreme pressure..." (Tr. 547) and that "The more sizable ones would have, in my interpretation, more pressure than the lesser size." 3/ (Tr. 548) But if we are wrong on this point, and we later

3/ There is some testimony, however, that respondents use equally objectionable methods to make a small sale. The following testimony was given by one woman student concerning a related technique:

"There were many things that I found objectionable. The unremitting, relentless pressure of the sales tactics, first and foremost, was objectionable.

"Secondly, the rude ridicule that occasionally was used to help make a sale was objectionable.... " ... I was on the dance floor with my instructor, Raymond McCurdy, at one time when a carnival was coming up. I did not join the carnival. I did not wish to join the carnival, and while it was only an additional $55, I had no desire to join. There were a great many pupils on the dance floor dancing with their teachers. He went over and switched off the record player and there was dead silence, and he asked everyone in the room to sit down and he stood up in a circle around me and stood me up in that circle, in the middle of that circle, and said, 'Everybody, I want you to look at this woman here who is too cheap to join the carnival. Here she is, a 500 Club member and working on her Bronze Medal,' and so forth, and so forth, 'and she is too cheap to join the carnival. I just want you to look at a woman like that. Isn't it awful?'

"Well, that was an objectionable feature, and I was absolutely horrified." (Tr. 515, 516)

-9- 597

D. 8776

learn that respondents are engaging in the objectionable practices despite the $1500 limitation, we can consider at that time what monetary limitation will have the desired effect on their behavior.

Respondents also contend that the public is adequately protected by the provision in the order which requires them to include in all contracts a statement to the effect that the student may rescind the agreement for any reason by submitting written notice of their intention to do so within seven days from the date of execution thereof. While this provision will of course be of value, we have no reason to believe that all students who succumb to respondents' unfair practices will demand within seven days to be released from the contract merely because there is a notation in the contract that they may do so. Moreover, it is quite apparent from the testimony that many of the students are in such a confused and highly emotional state when they execute the contract that it is unlikely that they are even aware of the notation.

We turn next to respondents* contention that the prohibition under consideration will impose upon them dire economic hardship. The hearing examiner, having found that the prohibition is necessary to prevent unfair practices, held that whether or not respondents can operate profitably under this provision of the order is beside the point — that "Economic feasibility does not act to insulate or excuse the respondents' challenged acts and practices from the requirements of the law nor allow the respondents to obtain the ill-gotten gains of their unfair and deceptive acts and practices." (Initial decision, p. 36) We find no error in this ruling. As the Supreme Court stated in United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316, 327, with respect to an order requiring divestiture, "the Government cannot be denied the latter remedy because economic hardship, however severe, may result. Economic hardship can influence choice only as among two or more effective remedies."

-10-

D. 8776

In any event we find no substance to respondents' contention that the evidence shows that the imposition of a contractual limitation is tantamount to denying the individual respondents the opportunity to engage in the dance business in the future. Testimony of studio owners called by respondents that they could not exist without long-term contracts is for the most part based on the assumption that they would lose all the income they were receiving from students under such contracts. 4/ This is of course an unfounded assumption since there is no reason to believe that this income would be lost if the students were released from the long-term contracts or if they had not signed them in the first place. 5/

4/ For example, one Arthur Murray franchisee testified as follows:

"Q Could you tell us what percentage of your total sales in your most recent, either calendar or fiscal year, were accounted for by contracts which exceeded $1500?

"A I would say very close to 50 percent.

Q The examiner asked you what effect a $1500 limitation would have on your profit. Do you recall what your response was?

"A Well, I think if you start out with the fact that 50 percent of our volume is over, then you have to reduce our volume 50 percent, is that right? ..." (Tr. 1941-1956)

5/ Under the prohibition in question, respondents will be free to renew a student's contract indefinitely so long as the student's obligation does not exceed $1500 at any time.

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D. 8776

Other witnesses called by respondents failed to give a plausible explanation of why it is necessary to the successful operation of a dance studio for the student to be obligated to take hundreds of hours of dancing instruction. The principal advantage to the studio may well be that the student who has executed a long-term contract is less likely to drop out, even though he may desire to do so, than one who has not so obligated himself. Understandably, respondents do not make this argument.

Respondents also try to establish that the student will suffer if he is denied the right to enter into a long-term contract. The gist of the testimony on which they rely is that a student must sign up for a complete program of several hundred hours in order to achieve a certain proficiency, e.g., the Bronze Medal which may take more than three hundred hours. It appears from the testimony of respondents* witnesses, however, that the only reason the student cannot achieve the same proficiency by obligating himself for fewer hours at a time is that the studio would not permit it. The testimony of complaint counsel's witnesses on the other hand reveals quite clearly that from the standpoint of the student long-term contracts are wholly unnecessary.

One final point on this phase of respondents' appeal should be mentioned. Respondents suggest that the Commission act on an industrywide basis under its trade regulation rule procedure to impose the $1500 limitation on dance studios. This suggestion would have merit only if we would hold that contracts for dance instruction in excess of $1500 are unlawful. We do not so hold, however. We have not found that other firms are engaging in the type of practices used by respondents and we would not impose the restriction in question except on the basis of a record showing circumstances similar to those existing here.

Respondents have also appealed from the examiner's inclusion of the words "or other services" in the preamble of the order, contending that the initial decision does not provide an adequate basis for this extension of the order. This argument is also rejected. First of all, the order is not as broad as respondents indicate. Most of the provisions, including that imposing the $1500 contractual limitation, are so worded that they apply

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D. 8776

only to the sale of dancing instructions or other services provided by dance studios. Secondly, the unfair or deceptive practices prohibited by the remaining provisions of the order can be readily adapted to the advertising and sale of other services. The hearing examiner apparently believed that on the basis of their past conduct respondents might well engage in the prohibited practices in some other field of endeavor and should be prevented from doing so. It is not essential that he make separate findings on this point as respondents' brief suggests. Certainly respondents have given no valid reason why the scope of the order should not have been so broadened.

Counsel for the complaint have appealed from the hearing examiner's ruling denying their request to modify the agreed-to order to cease and desist by changing certain of the provisions thereof and by adding others. Complaint counsel contend in this connection that after the record had been reopened to permit them to introduce evidence supplementing the stipulation of fact in support of the provision in the order prohibiting contracts in excess of $1500, respondents were permitted to withdraw that part of the stipulation which encompassed the allegations of Paragraph 13 of the complaint. They argue, therefore, that by permitting this withdrawal or disclaimer of part of the stipulation, the hearing examiner "released complaint counsel from their acceptance of provisions of the agreed-to-order evolving from the withdrawal of stipulated facts." Thus, according to complaint counsel, they were free to propose more stringent prohibitions than those originally agreed to.

Respondents' counsel contend, however, that they sought to withdraw from the stipulation solely because complaint counsel had insisted on examining witnesses with regard to matters that had already been stipulated and that they considered it "almost unethical" to cross-examine witnesses on these points. They further contend that they had no intimation that evidence was being introduced by complaint counsel for any purpose other than for the limited purpose of showing the need for the $1500 contractual limitation.

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D. 8776

We concur in the examiner's ruling. Respondents were not placed on notice that evidence introduced by complaint counsel which amplified previously stipulated facts would be used as a basis for expanding the order. Moreover, we do not interpret the hearing examiner's ruling as releasing complaint counsel from the non-contested provisions of the agreed-to order. The examiner was correct in refusing to adopt complaint counsel's proposed modification.

The appeals of respondents and counsel supporting the complaint are denied. The hearing examiner's initial decision is adopted as the decision of the Commission. An appropriate order will be entered.

February 23, 1971

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602

OFFICIAL TRANSCRIPT OF PROCEEDINGS

BEFORE THE

Federal Trade Commission

DOCKET NO. 8776

In the Matter of:

ARTHUR MURRAY STUDIO OF WASI5IHGTOH0 I N C 0 Gt a l .

Place Washington , , D . C„

Date December 17 B 1970

Pages 1 t h y u 6 3

Alderson Reporting Company, Inc.

300 Seventh St.. S. W. Washington, D. C.

NA 8-2345

C E R T I F I C A T E

This is to certify that the following pages and related exhibits are a transcript of hearings before the FEDERAL TRADE COMMISSION in the matter of:

DOCKET NO. - 8776 CASE TITLE - ARTHUR MURRAY STUDIO OF WASHINGTON, INC., et al.

PLACE - Washington, D. C.

DATE - . December 17, 1970 PAGES NUMBERED 1 to §J INCLUSIVE, which were had as therein appears, and that this is the original transcript thereof for the files of the Commission.

Alderson Reporting Company r Trie. Official Reporter

(Title oJTOff^cial) MGR- DUP<-'CAT,NG DEPARTMENT

TABLE OF CONTENTS

ARGUMENTS OF; Tom M. Schaumberg, on behalf of Respondents-Arthur Murray Studios

E. D. Steinman, on behalf of Federal Trade Commission

D. 0. Bachman, on behalf of Federal Trade Commission

* * * * *

LaFRANCE/GeoK

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BEFORE THE


x In the Matter

of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ARTHUR MURRAY STUDIO OF BALTIMORE, INC., ARTHUR MURRAY STUDIO OF BETHESDA, INC.,

and ARTHUR MURRAY STUDIO OF SILVER SPRING,

INC., corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as officers of said corporations.

Docket No. 8776

Room 532, Federal Trade Commission Building, Pennsylvania Avenue and Seventh Street, N.W., Washington, D. C., December 17, 1970

Met, pursuant to notice, at 2:00 p.m. BEFORE:

MILES W. KIRKPATRICK, CHAIRMAN PAUL RAND DIXON, Member EVERETTE MacINTYRE, Member MARY GARDINER JONES, Member

DAVID S. DENNISON, JR., Member

APPEARANCES: TOM M. SCHAUMBERG, Attorney for the respondents

(1700 Pennsylvania Avenue, N.W., Washington, D. C.) D. O. BACHMAN and E. D. STEINMAN, Attorneys for the Federal Trade Commission

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P R O C E E D I N G S

CHAIRMAN KIRKPATRICK: Good afternoon.

Mr. Schaumberg, you may proceed.

ORAL ARGUMENT OF TOM M. SCHAUMBERG, ON BEHALF OF

RESPONDENTS — ARTHUR MURRAY STUDIOS

MR. SCHAUMBERG: Mr. Chairman and Members of the

Commission: I should like to reserve 25 minutes of my 45 minutes

of allotted time for rebuttal.

COMMISSIONER DIXON: You have the principal burden. are taking more time to answer than you are to present. That i|s your choice. Go ahead.

MR. SCHAUMBERG: Thank you. The Commission issued its complaint in this case in

April 1969. The respondents filed their answers in May, but even after that point an attempt was made to enter into a settlement. The staff and counsel for respondents were able t( agree that an appropriate disposition of this case would be th< order as attached to the complaint with a few minor language modifications and a provision that would limit respondents — rather than to $1500 contracts, the limitation that we agreed upon was $4,000. We made this submission to the Commission wi:h the approval of the Hearing Examiner and the Commission refuse< to accept this settlement and indicated that if the parties were able to agree to a $1500 limitation, the agreement would

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be acceptable. Well, of course, it would be because it would be the

same order that was attached to the complaint. A motion was made for reconsideration by the Commission and again it was supported by the staff who agreed that the $4,000 limitation would be, along with the other provisions of the order, an adequate disposition of the case. Once more the Commission turned this down, returned the case for adjudication and order that hearings begin forthwith.

Respondents at that time determined that there was absolutely no purpose in forcing the Commission to prove its case. We felt that the appropriate procedure for us would be to stipulate to all of the allegations in the complaint and, furthermore, to stipulate to all of the provisions of the proposed order except the two that we had then been unwilling to stipulate to all along, namely, the inclusion of the term "other services" in the preamble of the complaint, and the $1500 absolute prohibition we were unwilling to agree to.

The Hearing Examiner found this an acceptable course and, of course, the staff agreed to our willingness to stipulate to all of the facts as well as to most of the provisions of the order. We submitted briefs on only those two remaining points of the order and oral argument was held, I think, almost a year ago to the day. The argument took about three hours before the Hearing Examiner.

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Close to the end of that argument, for reasons best known to them, complaint counsel made a motion that they be permitted to present evidence on the two provisions of the orde : that were in contest. Actually I think they meant really the $1500 provision.

The Hearing Examiner denied the motion at the time, but offered them an opportunity to make a motion to reopen, which they did, and at this time the Examiner allowed them to or, in fact, ordered that the record be reopened for the reception of evidence.

I sought a determination of this question by the Commission and the Commission supported the Hearing Examiner. The case went to adjudication. We had four weeks of hearings on one issue, namely, whether the Commission should and could impose this $1500 limitation on respondents. That hearing took place fLn the month of April.

Proposed findings were thereafter submitted to the bearing Examiner and he rendered his decision a few months ago. His initial decision, as you have probably seen, is in great part a repetition of the stipulated facts. On the critical Issue of the imposition of the $1500 limitation, he ruled in effect that imposition of the $1500 limitation would inhibit in ;heir incipiency the practices which respondents had already igreed they committed and agreed to forebear from in the future md he used that old and well-known adage that "An ounce of

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prevention is worth a pound of cure." It is difficult to argue with that proposition. MR. DIXON: Based on his logic what happened after

the reopening wasn't necessary?

MR. SCHAUMBERG: I would agree with that. We have since submitted briefs to the Commission. As you know, there are cross-appeals pending because the staff felt that the $1500 provision was not adequate. They have come up with a few new ones.

I will let them carry the burden on that. Going back to what issues in this proceeding are at

present from my point of view, and I would like to quote in this regard from the motion to reopen of complaint counsel, when they made their motion to reopen the proceedings for the reception of evidence so that they could support the $1500 limitation, they said the following and I quote, "Complaint counsel will introduce evidence through consumer and expert witnesses to demonstrate the onconscionable nature of respondents' contracts in excess of $1500. Evidence will be adduced from members of the dance industry to show that $1500 is a fair balance between the practical business need of an operator of a dance studio and an equitable and fair amount which a person should be indebted for dance instruction."

Then they go on to say, "Wherefor complaint counsel requested the Examiner to reopen the record for the limited

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purpose of introducing evidence on the $1500 contractual provision ."

The other issue in the case is, of course, the question whether the preamble should contain the words "or other services," so that these individual respondents would be bound by this order not only if they engaged in the dance industry, but any "other services" industry they may engage in.

COMMISSIONER DIXON: As to any evidence they put in, did you call any witness in rebuttal?

MR. SCHAUMBERG: Yes, I did. Your Honor. It is strange that the Hearing Examiner neglected to mention particularly the consumer witnesses that we did call. There were four consumers who were called and the purpose of calling them was to show that, indeed, it is possible to satisfy customers of these studios even though they have entered into contracts in excess of $1500.

I felt that despi-e the fact that in my judgment nothing whatsoever had been shown about the figure $1500, I should put on a few witnesses in this regard.

COMMISSIONER DIXON: Did you call on any other dance studios to illustrate the charges are rational?

MR. SCHAUMBERG: Yes, I did. I called the owner of the largest, I believe it is the largest studio in the Fred Astaire operation, namely, in New York City, and on this question of $1500 he testified that 40 percent of his studio's

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contracts were in excess of that amount. Similarly, I called the operator of the largest

studio in the Arthur Murray chain. That gentleman testified that 50 percent, I believe that is correct — 50 percent of his contracts, meaning of his income, came from contracts in excess of $1500. In that connection, the Hearing Examiner did in a footnote indicate that there has been no showing, of course, that either of these gentlemen or anyone else who testified was engaging in any unfair or deceptive acts or practices.

COMMISSIONER JONES: What was your reason in offering evidence as to the number of dance contracts in excess of $1500[? What would that show?

MR. SCHAUMBERG: If I may answer that indirectly. Perhaps I was a little bit misled by the remarks I just quoted by complaint counsel. They said they were going to prove, No. 1, that our contracts were unconscionable; No. 2, that they represented some kind of fair balance between what is proper as far as the individuals are concerned and what is needed as far as the studio is concerned.

So it was really for the purpose of disproving the second point ttiat I felt I should put on some economic evidence, meaning other studio operators and, of course, these statistics then were rejected by the Hearing Examiner. It was principally to rebut that contention, but perhaps it could be said that

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8 much of that effort has turned out to be unnecessary because

complaint counsel, at least to my knowledge, have not pursued

the contention. In fact, they have not pursued either one of

these contentions. They are no longer saying that this repre

sents a fair balance because there is absolutely nothing in the

record about the figure $1500.

They tried during the course of the hearing to put on

some economic evidence of their own. They called two local

studio operators. I think it is fair to say that one of those

operations was not making any money whatsoever and had not been

I think, over a period of several years.

The other studio operator, I think the evidence was

that approximately 43 percent of his income came from contracts

in excess of $1500.

COMMISSIONER JONES: You agreed, as I understand it, to

accept a limitation on your contract of $4,000. What was your

rationale for doing that?

MR. SCHAUMBERG: My client:!s rationale was that that was better than the enormous expense he has now undergone in its stead.

COMMISSIONER JONES: I am trying to get what your ardu ment is in terms of opposing $1500. You apparently do not base your argument on the fact that we don't have the power of the limitation of contract amounts as reasonably related to deception

What is your rationale for accepting the $1500

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limitation? MR. SCHAUMBERG: That was not done during the adjudi-

catory stage of the proceeding. COMMISSIONER JONES: You raised the consent settle

ment. Ordinarily one does not talk about them, but since this is part of your argument, I assumed you wanted to open the subject up.

MR. SCHAUMBERG: If I may turn this around on you, Commissioner Jones, the Commission, not as presented constitute}! turned down our offer of $4,000 and instead insisted that the appropriate limitation should be $1500.

I would say that the burden of sustaining that differ ence is not mine, but is that of complaint counsel. They have not done that. They have not shown what the situation is of $1500.

COMMISSIONER DIXON: Going back to the second half, the Hearing Examiner found, and I will put the question to you, based on rationale that it wasn't necessary because having found all the other things that were wrong that led to the contractual relationship, that to nip it, you say, in the bud the Commission make such a finding and issue such an order.

Now answer the bare-bone question, do you think this Commission has the power based upon the stipulated wrong-doings of your client to issue an order?

MR. SCHAUMBERG: No, quite clearly the Commission

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does not.

COMMISSIONER DIXON: Why not?

MR. SCHAUMBERG: At the risk of offending the Commission, I have expounded on this question in our briefs and I think in short there has been a series of cases, and I mention the Cotherman case, more recently is and had as well as all state industries which say essentially that the Commission cannot outlaw things that are inherently legal.

In the Cotherman case they had been advertising that they had available to the public 6 percent loans for 15 years. In fact, this was deceptive because most people would not qualify for these loans and they were paying much higher interest rates for much shorter periods of time.

Nonetheless there was a provision in the order stating that henceforth Cotherman could not advertise 6 percent loans for 15 years.

The Fifth Circuit said that if they are, in fact, making those loans available as indicated, the Commission cannot tell them that they may not advertise it or, indeed, that they may not do it. There is nothing inherently illegal about a 6 percent loan for 15 years. It is only if you advertise it and don't back it up.

COMMISSIONER DIXON: Isn't your logic that minus all of the practices which you have stipulated, if you can get some old lady or some gentleman or someone in the studio and

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can by no chicanery or high pressure get them to sign up to a $10,000 or $15,000 contract that it is perfectly legal, is that right?

MR. SCHAUMBERG: Absolutely, absolutely. I don't think that any of us is in a position to make a value judgment. I am not in a position to say that dancing is worth X dollars or Y dollars, nor am I in a position to say it is worth X or Y dollars to spend whatever number of dollars it is that it costs to belong to a country club to play golf.

To each his own and people should be able to make their own decision on how much they would like to spend if they have the benefit of full disclosure and no deceptive acts or practices. That is what I think the Commission can accomplish here by prohibiting the acts and practices which are, after all the means.

The 1500 or the $1501 contract is only the result of fch< illegal means. There is nothing illegal about a $1501 contract which I would have to set off against a contract for $1499. There was no attempt made by staff counsel to my knowledge anyway to show why $1500 is the appropriate sum or indeed why any sum — it could be $50 or it could be $5,000 — why any of these would constitute a per se illegal contract because that is what I think Commissioner Dixon's question really goes to.

Absent these acts and practices you would have to say that the $1500 contract per se is legal.

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To highlight this four weeks of hearings by the Hearing Examiner was the day when he asked four very cogent questions. Unfortunately I don't think they were ever answered and certainly he did not answer them for himself when he wrote his Initial Decision. Let me just quickly read through those four questions.

He said, "Can it be said that any dance contract with the respondents for $1500 or more owing at any one time must have been entered into in this manner?" He asked that question

He then asked, "Would these acts and practices charge^ in the complaint necessarily be present in all dance contracts for less than $1500 owing at any one time?

Three: "Based on the testimony of the two partners ifi the Feather & Free Dance Studios"

COMMISSIONER DIXON: Of whom did he ask the questions)? He must have had some witnesses.

MR. SCHAUMBERG: No, I think he asked these, if I recall correctly — I believe he asked these during an intermission between Complaint counsel's witnesses. He said, "These thoughts have occurred to me as being sort of relevant in this

proceeding and I just throw them out to you for your consideration."

Now, indeed, these are questions I would say that he has to ask, first of all, of Complaint counsel because they ha\|e the burden of showing that $1500 is an appropriate limitation.

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No. 3: "Based on the testimony of the two partners in the Feather & Free Dance Studio, which is an independent Washington studio, on how they operate could we say that if they entered into a contract for dance instruction at $1500 or more owing at any one time, it would be unconscionable?"

Then he asked, "In the absence of any of the acts and practices charged in the contract why a $1500 platform and what is its relevance?"

I submit to the members of the Commission that not only were these questions never answered during the hearing by either Complaint counsel or by the Examiner in his Initial Decision, but indeed if they were answered, I think they would all be answered in such a way that you would have to conclude that it is improper to impose the $1500 limitation if there is anything wrong with a $1500 contract absent these acts and practices by one studio, then I suppose there is something wrong with it regardless of who does it.

CHAIRMAN KIRKPATRICK: Aside from the law, as a

practical matter what does this $1500 limitation do to your

client? Why is it so objectionable? Why are you here on appea]? MR. SCHAUMBERG: Very honestly I am here to protect

lis rights, first of all. CHAIRMAN KIRKPATRICK: I understand.

MR. SCHAUMBERG: Second of all, as far as this record Ls concerned the only respondents who are still involved are the

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individual respondents. The corporate respondents are no longer doing business and they have not been, I think, for a couple of years now.

Any other answer I would give you, Mr. Chairman, would be an answer outside the record.

CHAIRMAN KIRKPATRICK: If that is your answer. Let me ask you one more question then. Going to the language of "other services," what other services? Are there any other services to which that language now attaches?

MR. SCHAUMBERG: No, sir. CHAIRMAN KIRKPATRICK: There are none? MR. SCHAUMBERG: In a manner of speaking, no, becuase

these individual respondents are not now engaged in any other -• excuse me, one of theindividual respondents is indeed engaged in another service. It has nothing to do with dance instruction. So, therefore, the order would apply.

COMMISSIONER JONES: I want to ask a factual question How long is a $1500 contract, how many lessons?

MR. SCHAUMBERG: That is an interesting question because the $1500 can be for a combination of things. A person may enter into a contract that entitled him to a certain number of hours of dance instruction, but in addition to that, it coul< include the cost of a tourament which is taking place in New York or Florida or someplace like that.

COMMISSIONER JONES: Let us take dance instruction,

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first. Whatwould the $1500 amount to for dance instruction lessons?

MR. SCHAUMBERG: There is a figure in the record that the dance lessons now cost approximately $20 and up. So if you wish to use the $20 figure, it would be 75 hours of instruction.

Perhaps 15 weeks, if there are three lessons a week. COMMISSIONER DIXON: You did offer in the record

other managers or owners of dance studios. You recited here that certain percentages of their contracts were in excess of $1500. Did you pursue in the examination of these witnesses any expression from them as to whether or not if they were to break even or make money, they would have to have at least some contracts over and above $1500?

MR. SCHAUMBERG: Absolutely. It is quite clear from the record that both of these major studios, at least in the opinion of their owners, would fold up if they were placed under the $1500 limitation. As I believe one man said, "95 percent of my income comes in from the contracts of $1500 or more and the other 10 percent from those below that."

CHAIRMAN KIRKPATRICK: This would not necessarily impinge on that. It is simply no more than $1500 at any one time. You could have a succession of $1500 contracts. I don't think that testimony necessarily supports the proposition that you state.

MR. SCHAUMBERG: This was in answer to the Chairman's

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question. These people think that if they were put under the

$1500 limitation, as you have just characterized it, this would

inhibit their operations.

CHAIRMAN KIRKPATRICK: That is what I am saying. The fact that most of their contracts are for more than $1500 is not necessarily a proof of that particular pudding. That is what I think I am saying.

MR. SCHAUMBERG: No, it is not. But I submit that we don't even reach that question until the Commission can answer several threshold questions.

COMMISSIONER DIXON: Were any of these specific contracts in excess of the $1500 gone into to explain what a contracting party got for her money?

MR. SCHAUMBERG: Yes, certainly.

COMMISSIONER DIXON: Say a contract for $4,000 or $5,000. Whatin the world does a person get for $4,000 or $5,00<

MR. SCHAUMBERG: That is a fair question. COMMISSIONER DIXON: Well, it is an interesting ques

tion. For a fellow who learned to dance by rote, that is an impressive figure. I might say I can't do all these fancy steps.

MR. SCHAUMBERG: As I say, I am not here to defend the bance industry. I think, though, that there is a general misunderstanding about what people can get from taking many dollars worth of instruction from these studios. I believe this is all

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in the record. These people who continue to come to the studic month after month and year after year are coming there for more than just to learn how to do a box step or just how the cha-cha works. They come there in great part because they look upon dancing as a hobby, as an art form, as a form of relaxation, recreation.

It certainly has its social aspects. As one woman testified, "I live in an all-women's world. I am a school teacher. This is the only opportunity I have, because I am a widow, to mix with gentlemen."

There are only so many places where people can go and mix socially. One of them happens to be a dance studio which not only provides lessons, but also provides various social activities on the weekends and trips and so on.

But getting back to the dancing, itself, it turns out that dancing is quite a science, which is something I never knew before. I have here Respondent's Exhibits 1, 2, 3, 4 and 5. They start off with what is called the bronze intermediate and bronze medal standards. There is a bronze standard, silver gold, gold star, gold bar. It just keeps on going until you become either a professional dancer

COMMISSIONER DIXON: You don't know what you are until you try it out, is that it?

MR. SCHAUMBERG: That is part of it. The fact of the matter is that these charts show, and whether it is these chart3

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or any other charts you look at the rumba is not just one step. It may have ten steps.

If you do it at the silver level, it may have 20 steps. At the gold it may have 40. It takes many, many hours of instruction, practice and so forth to become adept at it. You might ask why would anybody want to spend thousands of dollars to become adept at doing the rumba?

I can't answer that question. It is because they like to dance, they like the recreation, art form, the hobby aspect of it. To each his own.

If people want to spend that kind of money on dancing they should have full disclosure and not be subjected to unfair practices, but after that they should be allowed to buy as much as or as little of it as they desire and make their own decisions in that regard.

Does that answer your question, Mr. Dixon?

COMMISSIONER DIXON: Incidentally, at one point the

staff tried to support this $1500 provision by pointing to

CHAIRMAN KIRKPATRICK: I should warn you that your 25 minutes are up.

MR. SCHAUMBERG: I will take five more.

They pointed to a statute in California which did indeed impose a $1500 limitation of the kind that is being discussed here. We have not heard much about this statute in the last few briefs, because the people in California at least

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decided that $2500 was a more appropriate figure. They started

with a $500 limitation, they upped it to $1500. They are now

at $2500. Where will it end? I don't know. Why $1500, why

$2500? I don't know that either.

The State of California incidentally, when it upped i|t to $2500, did not give any reasons for it. It is very difficult to justify any particular dollar limitation. Yet that was the burden that I believe the Commission imposed on its staff and that the staff assumed when they were required to pursue this particular course.

Now there has been a lot of talk about Jacob Segal case, the National Lead case. These are marvelous cases. They give the Federal Trade Commission great latitude in fashioning appropriate remedies, and that is as it should be, but those cases don't say it just has to be reasonably related because anything can be reasonably related.

Jacob Segal says, "The remedy is necessary to eliminate the unfair or deceptive trade practices which have been disclos sd" and then you get to the question of whether the remedy selected is reasonably related. It is not enough to say $1500 is reasonably related to the abuses shown in this case. You have to show what do you accomplish by imposing the $1500 or any other dollar limitation, thatyou don't impose, No. 1, because you are the Federal Trade Commission, you have this order out against respondents, in fact it could have been out now already for a

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year and a half, and you have the possibility of imposing $5,Oo|) a day penalties. That is the force that should be behind the order, not the piling on of a $1500 limitation which at least at this point I don't think the staff has justified.

COMMISSIONER DIXON: The amount of the contract was surrounded by an agreement of things that were stipulated to that were considered by the Commission to be unfair and deceptive. You agreed to that?

MR. SCHAUMBERG: Yes, sir.

COMMISSIONER DIXON: So in the past every contract that you have entered into is colored with that agreement. Now the question is, having that coloration is it necessary to do more than to just say, "stop that" or can the Commission go beyond that and say, "Stop it, but don't go beyond $1500."

MR. SCHAUMBERG: First of all, we didn't say that every contract was tainted with this practice.

COMMISSIONER DIXON: When you agreed to what you did, you did not argue about whether it was one or all, you made an agreement.

MR. SCHAUMBERG: Nor does the complaint say that all feuch contracts were tainted. We did engage in these acts and practices. If I understand your question, if indeed past contacts were tainted by these acts and practices, the imposition :oday of a $1500 limitation is not going to help any of these

20 ?eople back then.

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The point is that henceforth your order will be in effect and the contracts will not be tainted by any of these acts and practices because we will have been ordered to cease and desist from engaging in them. So that at that point the $1500 limitation becomes superfluous.

COMMISSIONER DIXON: If it is found that someone got over-exhilarated and did a bit of damage and got such a contract, were we to fine you the $5,000, what would happen to the party that was signatory to the contract? You could enforc^ the contract, could you not? Could you not insist that your client collect on that contract?

MR. SCHAUMBERG: I think the other side of the coin is that if we have engaged in these practices despite the Commission's order, I think the most urgent answer to that is that the Commission can enforce its order.

COMMISSIONER JONES: What does the order provide, counsel, in terms of past contracts and contracts that are stilL in effect?

MR. SCHAUMBERG: May I just for the record say that I would like to sit down, but I will be happy to answer your question in terms of saving time.

COMMISSIONER JONES: No, the time that is encompassed in the Commission's questions you can have to answer that.

MR. SCHAUMBERG: I am sorry, I was not aware of that).

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order provide in terms of past contracts or contracts which are still in effect now?

MR. SCHAUMBERG: It provides nothing with regard to past contracts.

COMMISSIONER JONES: In other words, it can be a contract still in existence which may or may not have been entered into pursuant to these practices and there is no provision that the customer has a right to cancel the contract or hai the right to get out of it, has any right? Are they still stuc: with those contracts?

MR. SCHAUMBERG: Let me say, first of all, the corporate respondents are no longer in the business so that the evidence in this record relates only to contracts that were signed in the Washington area and Baltimore. So that the respondents here are no longer doing business here.

The only direct answer I can give you to that is that Respondent's Exhibit 23 is the contract of sale between these respondents and the present owners of the Washington area studies and that contract provides that the present owners will assume as a liability all of the untaught hours outstanding on respond pnt's contracts.

That is in the record, that is part of the contract of sale between these respondents and the present owners of the studios. So, the answer is that the studios, the present studies are obligated under contract to fulfill these contracts.

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COMMISSIONER JONES: What about the customers? Do they have a right of cancellation or do they have an obligation to fulfill?

MR. SCHAUMBERG: Many of the contracts, including contracts in this record, have cancellation provisions in them.

COMMISSIONER JONES: On what basis? For what kind of reasons?

MR. SCHAUMBERG: I can't answer that unless I can take a look at some of the contracts.

CHAIRMAN KIRKPATRICK: Is there any indication in the record as to what proportion of the contracts of the respondent at some period prior to bringing of thecomplaint were in excess of $1500 at one time and what weren't?

MR. SCHAUMBERG: There is an indication that 34 percent of the income of respondents, I believe, in the years '65 and '66 was accounted for by contracts in excess of $1500, but I believe thatinformation is contained in a rejected exhibit.

ORAL ARGUMENT OF E. D. STEINMAN, ON BEHALF OF FEDERAL TRADE COMMISSION

MR. STEINMAN: Mr. Chairman, fellow members of the Commission?

I think it might be appropriate now if we get down to discussing really what this case was brought about to do and th^t is to prevent the acts and practices that respondents engaged in.

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It is very appropriate that Mr. Schaumberg put up the insurance of Mrs. McKee. That is she on Appendix A of our charf:. I think it might be appropriate to look at the contracts she signed.

On December 29, 1964, she signed an $8,000 contract which included $2,000 for a trip to Hawaii and $6,000 worth of dancing instruction. It is also interesting to note at that time she had 102 hours outstanding. When we asked her, "Mrs. McKee, why did you sign this contract?" she said, "The salesman was a supersalesman. He pressured me into it."

Mrs. McKee had a malignant operation in 1962. She had arthritis. She didn't need these hours.

COMMISSIONER DIXON: She went to Hawaii?

MR. STEINMAN: She went to Hawaii with the dancing instructor. Mrs. McKee was 77 years old. The dance instructor was 35 years old.

COMMISSIONER DIXON: I imagine she enjoyed every bit of it.

MR. STEINMAN: That may well be as to her trip, but she also bought, as this chart indicates, 350 hours of instruction. It was brought out on the record in order for her to go on the trip, she had to keep buying instruction. Why did she do it? Because he was a supersalesman.

COMMISSIONER JONES: Each has a right to spend his mo[iej as he wants and we have no right to tell how a person should

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spend i t .

What is your answer to that?

COMMISSIONER DIXON: That is my understanding, high pressure deception.

COMMISSIONER JONES: Answer it any way you want to, but answer it both ways.

MR. STEINMAN: I am slightly confused now. Would you mind repeating the question?

COMMISSIONER JONES: You heard my question. To each his own. The Commission has no right and power to tell them not to spend any money. If they are lonely, if they want to buy dancing lessons, what right has the Commission to tell them how to spend their money?

MR. STEINMAN: Our answer is to each his own when a person can make a rational judgment. I think if you will look at the acts and practices and the sales procedures used by thes<|s respondents, and that is why we didn't bother to look at what other studios were using, we were just looking at the acts and practices of these respondents.

COMMISSIONER JONES: He did not say this on oral argument. But in his brief he did. He said minus this $4,000 provisions we have agreed to stop all this high pressure and ai: the other acts and practices, therefore you have no right to put a limitation. How do you meet that argument?

MR. STEINMAN: I think that the record will show that

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the order does not appropriately stop the acts and practices.

It does not stop the methodology utilized by respondents to

alter the judgment of the person. They have a junior procedure

which Mr. Bachman will go into in detail where after the pro

cedure is ended, as indicated by the record one witness dropped

down to one knee and begged to become a member of the dance

studio.

They purposely use emotional sales tactics, try to so disorient the student so at the time they take him in at the closing, at this time the student is so confounded, beset and confused, as the record indicates, they have no way of avoiding taking the services that respondents provide.

COMMISSIONER DIXON: You missed the question again. It was the question I brought in. They have agreed to stop the things you have just described. Now we are looking as to whether there is something necessary other than the agreement to stop those practices. Theoretically one could believe that a $6,000 contract could be negotiated without the way you described that they did negotiate, it could be negotiated reasonably and above board.

Now what right do we have or why should we say no one shall be allowed, you shall not be allowed to contract with anyone above $1500? What is your rationale for that?

Remember, everything else is gone, so don't color it 2§ Iwith that.

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MR. STEINMAN: I think the record will show that the order does not remove everything. The order does not remove all the intended practices.

COMMISSIONER DIXON: What is the difference between

this order and the one that originated with the complaint?

MR. STEINMAN: The differences proposed by complaint counsel or as proposed by the Commission?

COMMISSIONER DIXON: By the Commission.

MR. STEINMAN: We have a $1500 limitation that the Commission would like to impose, as proposed by the Commission, but it was taken out in settlement and it happens to still be in the agreed to order which we now try to have changed.

There was a $15000 absolute prohibition. The respond ents' counsel indicated that prohibition didn't exist, but it definitely did, which said that respondents could not renegotiate or contract a student until there were less than 15 hours remaining from a prior contract.

This type of order and the $1500 contract limitation is going to prevent acts and practices that are not covered by the order.

I think it might be appropriate now if I can discuss with you the acts and practices that were revealed in the hearing that are not covered by the order and why we are asking now that the order be modified to cover these acts and practice

COMMISSIONER DIXON: Is this when you reopened the 1

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MR. STEINMAN: when we reopened the record and we started to introduce evidence on paragraph 13 of the complaint.

COMMISSIONER DIXON: Was the failure of the Hearing Examiner because of his rationale or was it necessary to go into the question of conscionability or what-have-you? In other words, he said having done all these other things, it is perfectly logical to put a limitation on the contract.

MR. STEINMAN: I am going into the practices that were disclosed during the hearing that the Examiner said did not support the proposed modifications of complaint counsel to the order.

COMMISSIONER MacINTYRE: In your appendix, item 2, you have some information about some person or thing there. Will you explain that? It seems to involve about $13,000.

MR. STEINMAN: You mean Mrs Lockhart-Mummery? COMMISSIONER MacINTYRE: Yes. What is that?

MR. STEINMAN: Possibly you are referring to CX 26 which involves a $6,000 contract. It might be interesting to note she signed a $6,000 contract for an Amalgamated System in Dancing instruction and then found out there was no such system. She tried to get a refund from respondents. Respondents jwould not refund the money.

She brought two actions in the State of Virginia and she has not received one penny.

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COMMISSIONER MacINTYRE: You mean Lockhart-Mummery, the contractor here?

MR. STEINMAN: Yes, that is her name, Dorothy A. Lockhart-Mummery. The record reveals the precise nature of respondents selling techniques and resulting effect on students ability to make a rational choice. It also reveals, and I think this is extremely important, that respondents expressed an intention and obscession to generate the largest possible cash sale from each student without any regard for the quality and quantity of the service.

During the period 1965 through 1966 respondents weren offering the services for the monies that the contractees had signed for. They could not get any type of instruction.

We had one witness who had 200 hours approximately outstanding and couldn't get any instruction. In fact, the type of instruction that was available from respondents' studio was a lower level than she was. She had to go to another studio to get the instruction.

The respondents want cash. They have a junior procedure where they found out the students' financial resources. At that time they put them through the procedure. They alter their judgment. They get them to sign the contract, they say we would like to have it in cash.

If they sign on an installment basis, they turn around three days later, give them a $200 cash discount and

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try to get the cash from them. The reason for that is that the management tells theinstructors, "Well, you can't get people who have money still owing to the studio on an installment basis to buy new contracts. So we have to get them to pay cash first."

That is exactly how they get someone to pay, such as Mrs. McKee, $8,000 with 350 hours of instruction and then go and turn around and sell her 200 hours more, because she has already paid the money. If she still were paying for it, it is quite possible she would not feel another 200 hours were necessary when she already had 400 hours outstanding.

Also the record reveals that respondents didn't provide adequate instruction. It also revealed, and I think this is extremely important, the adverse economic effect caused by investigating significant portions of a student's financial reserve when their judgment was disoriented by the practices of respondents. They were placed in economic jeopardy. I thinJ the record indicates one of our witnesses had to borrow money from her brothers to pay her rent.

Another witness characterized her situation as robbing Peter to pay Paul.

Another effect of contracts of large sums, as indicated in the record, was that the student was forced to keep on coming back to the studio and being subject to the unfair and deceptive practices when she knew they were being exposed to

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her, but she had no other recourse because she had paid $2,000 or $3,000 for instruction and she wanted the instruction.

We have never said that dancing is a bad thing. We think in some instances it is very good, but the people want instruction. Respondents weren't giving instruction. They were subject to abusive sales techniques and they had to keep going back because they had such large investments.

COMMISSIONER JONES: How does the $1500 work? Would it prohibit renewals? Would it regulate the time period when renewals can be made? How would it work?

MR. STEINMAN: The $1500 prohibition would stop respondents from obligating any one student at one time to more than $1500. As we understand it, if she had a contract for $750, she could sign up for a contract for $749, but she could [lever owe the studio more than $1500 at one time.

COMMISSIONER JONES: So only at one time you claim she can't be obligated to $1500, but she could finish up a $1500 contract and come back in and get another one.

MR. STEINMAN: Certainly. We just don't want her to be obligated to go to the studio and to be subject to practices that are not covered by the complaint.

COMMISSIONER JONES: This is not an absolute ban on respondents contracting with customers for more than $1500 {worth of dancing?

MR. STEINMAN: No.

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COMMISSIONER JONES: It only says you can't contract for more than $1500 at any one time?

MR. STEINMAN: That's right, as long as the students used up less than $1500, he could come back in and buy up to $1500 again. We just don't want the student to have obligated himself to such a level as indicated in the record that he has no other choice but to go to respondents' studio.

We also think the limitation has an effect on practices that are covered in the record that aren't actually prohibited by the other provisions or practices which respondents in their innovativeness may dream up in the future.

I think another point that should be raised and I think where respondents really abused the student is that they had the instructor get into what we consider a quasi-fiduciary relationship with the studio. The instructor played up to the emotion of his student and then it became the instructor and the student against management.

All the time the instructor was getting 5 percent of all the money the student was giving the studio. I think at this time it would be appropriate for me to start discussing our modifications and show how they relate to the practices whij:h we found to exist. We have expanded paragraph 10 of the agreed to order, which as agreed would only limit respondents, would provide cancellation provision of only seven days.

We think that because of the emotional selling

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practices and the confidential relationship that I just alluded to that a seven-day period of time should be expanded to at least fourteen and that it should be, in the alternative, that the student should be able to have at least seven days as a minimum for observing the service in which they can cancel the contract.

COMMISSIONER JONES: I am not sure I understand what this emotional relationship is between student and teacher. It strikes me off-hand the longer the cancellation period, the less apt they would be to recognize it. It would be counterproductive.

MR. STEINMAN: That is true. That is why we have the $1500 provision.

COMMISSIONER JONES: What I am suggesting is that the relief you are asking for would be tending to enhance rather than diminish the emotional relationship you describe.

Why fourteen, which would presumably give the teacher la longer time to establish this kind of emotional hold on the Istudent?

MR. STEINMAN: That is the number of days that we think jis appropriate. We think the provisions of the order will abate such practices. We also have the provision, as I said, bhe $1500 provision

COMMISSIONER JONES: I fail to see what your support [Is for the longer period of time. How do you support the need

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for fourteen days?

MR. STEINMAN: We support it on the basis that the student will be able to evaluate the services during that perio of time. Also I think what we are also saying and possibly I hadn't made strong enough is that during this period of time of fourteen days the student hopefully will have withdrawn from the emotion to some extent.

COMMISSIONER JONES: Are you trying to create a: trial period here or are you trying to have a longer period to enable somebody who has been high pressured to sit back and think about it?

MR. STEINMAN: We are trying to do both. We are trying to have a cooling off period. That is the fourteen days when they can withdraw themselves from the studio. What we are saying is that in some respect this negates this emotional selling.

We are also saying they should have at least seven days in which to evaluate the practices.

COMMISSIONER JONES: Is the charge here that the practice that the services delivered did not come up to promises!? Is there a need for a trial period and evaluation?

MR. STEINMAN: That particular practice is not precisely alleged, but it was found to be all through the record that students weren't able to get the type of instruction that they needed. You can look at the testimony of Mrs. Mummery,

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COMMISSIONER JONES: Is that something that was part of the contract?

MR. STEINMAN: This is part of a longer range contract.

COMMISSIONER JONES: That would not go to the 7-14 day

MR. STEINMAN: She could sign a contract later on. jwhen she signs a contract later on in her association with the studio, it gives her an opportunity to cancel if she finds the service has deteriorated. I think Mrs. Templeman's statement was that when you sign a contract, you are a queen bee. Then after it is signed, you are the forgotten woman.

We want to give them a period of time that this is a characteristic of the studio they can observe and cancel the contract.

Also in modified paragraph 10 we have placed a set number of days in which respondents are to refund any monies th4t are paid for a contract which is cancelled. This is necessary so that the consumer will have a date certain in which she can expect to get her money back.

Paragraph 11 of the order has been modified to prohibit the respondents from entering into new contracts until there are less than 15 hours outstanding from a prior contract. We modified it somewhat to permit them to cancel any new contract

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course?

during this period of time that they use up the 15 hours.

This is similar to what was proposed by the Commission. But then for settlement purposes we went to the paragraph 8 of the order against AMI in the 1960 consent agreement. The reason we are changing back to the order proposed by the Commission is for the simple reason that the evidence of record shows that respondents have utilized and have demonstrated a method of evading that provision.

I can show it to you now. when Mrs. Templeman entered into CX 5 for 65 hours and paid $798, we can assume she had a certain number of hours outstanding from CX 2. The agreement, CX 3, absorbed CX 2, therefore extinguished any of the hours of instruction outstanding in CX-2. So if she wanted to cancel ZK 3 under the terms of the cancellation provision as in the agreed to order, she would not be able to do that because the prior contract would have been extinguished.

The same is true of CX 4. when she entered that provision for 240 hours it absorbed all the other outstanding hours of instruction from cx-3, therefore if she wanted to cancjl CX 4, she would not be able to do that because if she looked into the outstanding contract, it would not be any more.

The outstanding contract would be CX 4. COMMISSIONER DENNISON: Are any of these contracts

Isold or transferred to an asignee or buyer or holder in due

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MR. STEINMAN: There is nothing in the record.

COMMISSIONER DENNISON: What do the contracts themselves show? Do they have a cognovit provision?

MR. STEINMAN: No, they don't.

COMMISSIONER DENNISON: Those are payable in installments?

MR. STEINMAN: I think now as I reflect there is something in the record, I think witness Kroker, who was an interviewer in the Baltimore studio, said that it was his belief thai. respondents did sell certain contracts to an Eastern educational group in Kansas City.

COMMISSIONER DENNISON: Basically a collection agency! MR. STEINMAN: I think so, yes.

Paragraph 18 of the order which has modified paragraph L4 of the order accompanying this decision was modified to Include a requirement that respondents fully advise the students ar prospective students prior to execution of the contract that

13 respondents are subject to a cease and desist order.

19 What we are asking the Commission to do here is what 2o|p*ey said they had the authority to do in Campbell Soup.

21 i COMMISSIONER. DIXON: Do you think you proved what you 22 pet ofut to when you asked the record to be reopened? Do you 23 think that you have proved the unconscionability of the contract ^ knd the necessity for the $1500 limitation? You didn't convince «g :he Hearing Examiner.

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MR. STEINMAN: I think we convinced the Hearing Examiner by showing acts and practices that could only be abated by a $1500 limitation.

COMMISSIONER DIXON: The Hearing Examiner did not say that. The Hearing Examiner said that because of having engaged in all these other practices, that is all you need. In other words, as far as I can determine from his logic, there was no reason in his mind to reopen. Did you follow that?

MR. STEINMAN: I haven't extrapolated that type of value from the Initial Decision. I think in the reopened perioi we offered evidence that wasn't in the stipulations of fact. I think everyone knows that the stipulations are fairly bare and that certain acts and practices were disclosed that were no exactly covered in the stipulations.

The Examiner reviewed the entire record, he studied the demeanor of the witnesses.

COMMISSIONER DIXON: Maybe you are correct. He was all-inclusive.

MR. STEINMAN: Paragraph 19 of the order merely changes the language somewhat in the compliance provision in order that it be more clear and precise.

Now we tried to have the Examiner adopt some new provisions rather than modify some old provisions as well. The Examiner rejected these provisions.

Paragraph 12 of our new provisions imposes on

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respondends an interest rate of 1.5 percent per month in situations where they don't refund the monies when contracts are cancelled under paragraph 10 or 11 within five days. We think the record amply supports the need for this provision.

Respondents have refused to refund monies. They refused to refund monies where people have gotten lawful judgments. This is something that the Examiner put in his Initial Decision is the reason why the agreed to order without a $1500 limitation would not be

COMMISSIONER DIXON: Since those ladies' names are in the record, I am referring to Appendix A, was the financial condition of those ladies revealed in totality? How much money were they worth? Whether a thing is conscionable or not so far in volves a whole lot of issues.

If those old ladies have more money than they have anything else, it is not unconscionable.

MR. STEINMAN: Commissioner Dixon, I don't believe the [record will show that

COMMISSIONER DIXON: You said one of them had to borrdw tioney to pay the rent. What about the rest of them?

MR. STEINMAN: I think the record would show most of them had incomes of between $5,000 and $6,000.

COMMISSIONER DIXON: They might have had a vault full

of gold bonds, too, or something. MR. STEINMAN: That does not give the respondents the

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right to go into those gold bonds.

COMMISSIONER DIXON: I am coming to the fact that no* we have an order that says you can't do that any more, none of these things, and you want an order that goes beyond that and says and, in addition to that, prohibits contracts over $1500 from now and forever more.

MR. STEINMAN: We are saying, and I think Mr. Bachroan will go into it in more detail, thatin order to stop the acls and practices disclosed in the record that we feel that the order would not be able to abate such practices.

COMMISSIONER DIXON: You misunderstand me. Why is it not possible to be unconscionable or be most ruthless under $1500? If I had $1500 and you take $1400 away from me, it is just as bad as if I had a million dollars and you took $1500 or $10,000 from me.

MR. STEINMAN: We think the other provisions of the order, as Mr. Schaumberg indicated he feels, will be adequate to stop certain practices and we think it will, but that the $1500 provision goes beyond

COMMISSIONER DIXON: What is the magic of the $1500 figure? I will put it that way. Why not $500?

MR. STEINMAN: I think it could be said that the figure may be somewhat arbitrary as to $1500, but we think that the imposition is reasonable and that what we have tried to do with $1500 is tie the contracts to a one-year period of time.

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We have another provision in the order that limits respondents' contracts to providing service for only one year. We think the record indicates that as far as respondents providing service and utilizing and devising new techniques -to subject their students to unfair practices, that it would be extremely unfair to have the students

COMMISSIONER JONES: You are saying that the record demonstrates that $1500 is the average year's contract? Is that your rationale?

MR. STEINMAN: We are saying that we are going to use that figure to limit the contracts to one year.

COMMISSIONER JONES: My question is, is there evidence in the record that a one-year contract is $1500?

MR. STEINMAN: It could be where the student only goes once a week.

COMMISSIONER JONES: I have trouble in terms of what you think and what might be and what the record shows. If the rationale of $1500 is based on what an average one-year contract is, the record demonstrates that is rational, good or bad it is rational. You are saying "we think" or "it could be."

I don't know what the record shows. MR. STEINMAN: I think that the various students

testified that they would go either two or three times a week. tfe think the $1500 at that rate and at the current rate of $20

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75.

an hour would mean that

COMMISSIONER DIXON: Go to that chart there and try to answer that question.

As I see it from here, every one of those parties was in hock for far more than $1500.

CHAIRMAN KIRKPATRICK: Mrs. Hailman was close to $15,000.

COMMISSIONER DIXON: Did you add all those up to find out how much she spent?

MR. STEINMAN: No. Certain contracts supersede other! land other contracts were optioned. I think the record will show that respondents through their sales techniques didn't try to have the contract just run for one year. They tried to get as many contracts out of the people as possible, to run them on for six years.

If you will look at the record for Mrs. McKee, at one point she had almost 600 hours outstanding. At her rate, she was going twice a week, I think. It would take her about eight years, four to eight years.

COMMISSIONER DIXON: How old was she?

MR. STEINMAN: At that time she — she is still going. She is one of the women still going. She was 74 or

I think that I covered the part of our initial lappeal. I think Mr. Bachman

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COMMISSIONER MacINTYRE: I would like to ask a

question in furtherance of that line of questions Commissioner

Dixon was asking you about the sources of this income. I see

quite a number of these listed on this appendix are divorcees.

The income is listed there. Is there anything in the record

that will show the source of thatincome as to whether it is

earned income, alimony or out of maybe securities or something

of the kind?

MR. STEINMAN: Yes, there is, Commissioner Maclntyre. The record will show that most of the witnesses were getting their income either from annuities or from stocks or other types of retirement funds. I think there was one witness who was working at the time, she was not retired. That would be Mrs. Riddle, who was earning $5,000 to $6,000.

COMMISSIONER MacINTYRE: Does the record show any of it was alimony?

MR. STEINMAN: We didn't go into that. I think Mr. Bachman will now proceed.

CHAIRMAN KIRKPATRICK: Mr. Bachman, you have just about 12 minutes.

ORAL ARGUMENT OF D. O. BACHMAN, ON BEHALF OF FEDERAL TRADE COMMISSION

MR. BACHMAN: Thank you.

Now in the Initial Decision the reason given by the Examiner was to stop in its incipiency these acts and practices

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I would like to point out what the $1500 contract limitation would do in answer to the four questions proposed in the hearing which respondent's counsel has asserted has not been answered.

The first thing that the contract limitation provision would do: As reflected by the Initial Decision, it would abate in its incipiency the financial economic effect on the student resulting from exceptinally large contracts.

Secondly, it will alleviate to a great extent, if not toally, the respondents* method employed in

COMMISSIONER DIXON: But it would not alleviate the running of one contract for one year of $1499 and then signing up for a new one the next year and the next year and the next year.

MR. BACHMAN: That is true, Commissioner Dixon. What it would do, it would protect the initially enthusiastic from these oppressively emotional selling techniques.

COMMISSIONER DIXON: It could not if at the time ther was a single hour remaining in one year.

MR. BACHMAN: With the $1500 contract limitation, the student would not be exposed to this type of selling technique until the contract was to a point that, as I must submit, another contract would be entered into.

COMMISSIONER JONES: We are not interested in trying to prevent another contract to be entered into. Indeed, the

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45 customers may be very satisfied. I gather the purpose of the $1500 is to make sure they don't overcommit themselves in the very beginning. Certainly your argument is not to try to stop them from renewing if they are satisfied.

MR. BACHMAN: That is true. COMMISSIONER JONES: If the old lady wants to take

dancing lessons at $1500 a year, surely counsel for respondent is correct, that should be done.

MR. BACHMAN: I agree. I thought that was what I was saying.

COMMISSIONER MacINTYRE: May I ask you this question, The matter of the $1500 as a limitation would not

operate as a bar to enticing someone to enter into another contract, would it?

MR. BACHMAN: They would not be able to enter into another contract until that $1500 contract got somewhere below the amount of $1500.

COMMISSIONER MacINTYRE: Let us analyze that to see whether what you have just said is correct. Suppose that on January first, 1971, a $1500 contract is entered into. It is to run for one year. Presumably by July 1 there is $750 remaining on that contract unused, unpaid.

Suppose on July 1, therefore, the salesman — and I don't know how you describe him, whether he is super or not — persuades the contractee to enter into a new contract, and thi; 25

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time it is not §1500, but it is $750, and it is also to extend the remaining outstanding contract now until July of next year, not just to December 31. Then that runs for six months and it is reduced now to $750, but it has not expired, it is to run until July. So on January first, 1972, another $750 jcontract is entered into which brings the total back to $1500.

Now what in your suggestion about the $1500 limitatioi pars that?

MR. BACHMAN: It will not bar that. Commissioner kaclntyre. What it will do, it will only obligate the student fit one time for $1500.

COMMISSIONER MacINTYRE: That being the case, then the tull force and effect of your answer is to say "yes" to Com-lissioner Jones' question, it is to keep low the total outstanding amount rather than to prevent keeping the student

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MR. BACHMAN: That is true. In addition, what the 18|1500 contract would do is that it would only obligate that

19 itudent to $1500 so as to eliminate a lot of harsher finan-20 ial hardships.

Now in an attempt to rebut some of respondents' irgument, if the Commission will permit me, he uses the Stable

23 rase to demonstrate the Commission does not have the authority :o abate the practice involved. In that specific case, in a

25 'ery abbreviated manner, it involves a trade name. The court I

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was of the opinion that a trade name is an asset, the same as the contractor's business. If that trade name is deceptive, it should not be; and if there is any way to abate that deception, we should do it even if it means prohibiting the use of that trade name.

Now the court cited two other cases. One holds that you could abate that trade name if it were a deceptive practice and in the Raw Milling case there is a way you can quality it. The court sent it back for the Commission to consider whether it should abate or prohibit the respondent in that case from utilizing that trade name. That was the extent of that holding

Now respondent counsel has asserted that absent the practices, why the $1500 contract limitation, that is respondents will agree not to commit such practices, why the $1500 contract limitation? During the hearing a witness on behalf of plaintiff testified. He was an interviewer for one of the respondent studios.

He was testifying as to the technique use to obtain some emotional type of information from the student. At that time respondents made a motion to have an in camera hearing for that type of testimony. That motion was overruled.

A short time thereafter counsel for AMI requested to [make a statement on the record. This was granted.

On page 873 of the transcript Mr. Don Underhill made the following statement: "I have discussed the matter with

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complaint counsel for the complainant and I am satisfied that this testimony relates to activity alleged to have been engaged in by respondents. The alleged conduct, the subject matter of the investigation, by Arthur Murray, Inc., certain of this information has been made available to staff of the Commission and AMI presently operating under the consent prder."

He also made the statement that he has no objection, he did not think this would be in camera treatment. This demonstrates that respondents were consciously aware of their acts and practices and that these types of acts and practices *ere putting them into line that they were transgressors with acts and practices that the Commission has established to be1

|Ln violation of the Trade Commission Act.

Commissioner Dixon asked the question what was the contracting party getting for his or her money? Some of them, as demonstrated by the record, got nothing. We can take Mrs. Hummery, who made a contract for $6,000 for an amalgamated danc< program. It was nonexistent.

COMMISSIONER DIXON: She did not get her money back? MR. BACHMAN: No. The record shows she instituted

[suit. The Hearing Examiner asked, "Did you get a judgment?" She said, "Yes." She got two judgments. They were not satisfied.

Now respondents have asserted here that students

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attended the studio for various reasons. He had exhibits to

show the complexity of these dances. One respondent witness

testified that "I go to the studio for social reasons." None

theless he had an exceptionally large amount of hours. At one

time he entered into a contract for over $500, testifying that

it was a bargain. It was a bargain in the light that he had

owing to him dancing lessons in the sum of $7,000.

COMMISSIONER DIXON: Why should these respondents not be ordered not to engage in a dance studio, period?

MR. BACHMAN: I am not sure that the Commission has that type of authority.

COMMISSIONER DIXON: Are you sure we have the authority to limit it to $1500?

MR. BACHMAN: If it would abate the practices, if there is no other way to abate these practices.

COMMISSIONER DIXON: That is a matter of judgment, too.

MR. BACHMAN: It is a judgment for the Commission, yes.

COMMISSIONER DIXON: You said something that intrigue< me. You said there was no assurance that they would not engage in these practices again.

MR. BACHMAN: That is true.

COMMISSIONER DIXON: Does the record illustrate that type of conduct to you, that it is so reprehensible that there

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is no assurance that they won't repeat?

MR. BACHMAN: It does to me personally, yes. That is why complaint counsel is urging a $1500 contract limitation

COMMISSIONER DIXON: Do you think that is the best type remedy? You would not suggest that you can't engage in that practice any more?

MR. BACHMAN: I would suggest that that would not be sufficient.

COMMISSIONER: But you have given them a $1500 chance.

MR. BACHMAN: I agree with you.

CHAIRMAN KIRKPATRICK: Your time is up.

MR. BACHMAN: In closing, the burden is on the respondents to show that the Examiner's Initial Decision is in error. Naturally if complaint counsel thinks it is not, we urge you to adopt the modified provision which the Examiner did not accept.

CHAIRMAN KIRKPATRICK: May I address this question to you, Mr. Schaumberg.

Make this assumption. Let us assume that the Commission here has reviewed this record and finds what some of the cases might call a proclivity to evil, that this record demonstrates that in this setting that these respondents have shown a proclivity to adopt these acts and practices which are a part of the record before us.

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Now, let us assume also, which is the case, that

there is a constant temptation to continue this kind of acts

and practices. There are closed doors here. There are nego

tiations that take place behind those closed doors. There are

people who in the nature of things are probably more receptive

to this kind of pressures than others in the business world.

Let us make a further assumption that we don't think that all of our orders are perfectly obeyed in all circumstance! to the letter. Do we not have the power to put in this $1500 limitation for the purpose of reducing the temptation that these respondents have to transgress the provisions of our orde] and to reduce it in some way that for enforcement purposes is objective and measureable and immediately ascertainable by us? In other words, I ask you to address it not that a contract for $5,000 is unconscionable or that $1500 is unconscionable, but for the purposes of remedying the evil that we see here and seeing that our order is enforce realistically.

Do we not have the power to put in what may be a [reasonable limit of $1500 to reduce the temptation? That is py question.

REBUTTAL ARGUMENT OF TOM M. SCHAUMBERG, ON BEHALF OF RESPONDENTS — ARTHUR MURRAY DANCE STUDIOS MR. SCHAUMBERG: I suppose I have to answer the ques

tion by saying that if you determine on this record that these respondents show a proclivity not only to violate the law,

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but also the order, that you are going to impose, in effect, that they have already agreed to, then putting them under a $1500 limitation is giving them a license to steal up to $1500.

You ought to put them under a $500 limitation if that is what you really believe.

CHAIRMAN KIRKPATRICK: It is reducing the temptation?

MR. SCHAUMBERG: No, it does not reduce the temptatioJi at all, because they are in business — they are not in business at all in this geographical area, but if they were in business and this order were to apply to their present business enterprise, if you had the authority to do this and determined that you had to impose the $1500 limitation, you are not stopping them from engaging in any of the other reprehensible practices by putting a lid on it.

CHAIRMAN KIRKPATRICK: The order would be as it is.

COMMISSIONER JONES: Let me supplement that because [l think ther* is another facet to the Chairman's question here.

Would it not create an incentive on the part of the respondent to supply services for the contract price since :hey have not tied that customer up for a $7,000 contract, they lave to convince the customer that what they promised her or lim was actually delivered so that it might focus the atten-ion of the respondent on delivering services?

MR. SCHAUMBERG: The point is that if you are going

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[to assume that they are going to try to violate the order

and you can either assume they will violate the $1500 provision

along with that CHAIRMAN KRIKPATRICK: Except that happens to be

something that is readily identifiable. It will be ascertain-able in the record. It is not like a conversation behind closed doors with an aged widow. There is quite a difference.

MR. SCHAUMBERG: But in terms of running a profitable operation — I don't like to say this, but you have asked me the question and the only proper way to answer it is to say that you are imposing pressure on every contract for less than $1499, because what you are saying to the studio is that you can act within the confines of this order up to this $1500 mark and after that we know that you have to be doing something wrong.

What you are really saying to them is, "Go see what you can do up to $1499, but after that we have got you."

CHAIRMAN KIRKPATRICK: Let me go to whether or not what I propose is realistic. It does not go to our power. I am worrying here about our jurisdiction and power to do this in furtherance of the execution and obedience to our own order.

MR. SCHAUMBERG: Sir, you have the power, first of all, to impose penalties for violation of the order and it is not that difficult to prove that somebody who is supposedly as

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reprehensible as these respondents violated the order.

CHAIRMAN KIRKPATRICK: But they will be more subtle in the future.

MR. SCHAUMBERG: The record shows they were blatant u, to now, even though they knew all this. I think you are making assumptions that are pretty unfounded.

The other thing is that you do have the power to 8ireopen this order. Normally it is the Commission saying that 9 to the respondents, "You know, when the time comes, you can

10 :omes back and ask us to be relieved of something." I turned 11 that around and say if, indeed, it is determined by the Commis

sion that we have a proclivity to violate orders of the Federal 'rade Commission

CHAIRMAN KIRKPATRICK: No, I did not say that. I said a proclivity to this kind of activity," this kind of deception,

16|his kind of practice, which would lead one to think that the

1 7 >rder would, therefore, be the more burdensome and would lead jg »ne to think that violations might occur in the course of time. jg MR. SCHAUMBERG: There is nothing to indicate in this

3J record certainly that these people would either violate the

a >rder that we have agreed to or, second, that we have a pro-22 rlivity to try to get around it.

23 COMMISSIONER JONES: Why would this limit your busi-

2 4 less activity? Presumably your customers are happy with your 2^ services and you are not going to be doing any of this deception

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in the future, therefore you will be delivering under your

promises. Why should this limit your activity?

MR. SCHAUMBERG: In answer to the question, I would like to read from some of the proposed findings that we submitted to the Hearing Examiner. There are, indeed, significant savings involved in contracts above not $1500, but just quantity type discounts. In fact, there is a point in one of the staff's briefs, if I may quote:

"While complaint counsel will concede that certain students have been able to obtain a cheaper per-hour rate for lessons by purchasing contracts in excess of $1500, certainly the abundance of adverse effects of such contracts is sufficient to counterbalance any possible monetary advantage."

They were standing up a few minutes ago ridiculing a man who bought $500 worth of lessons because he considered it a bargain. He is a most intelligent man. The record will show he has a B.E. in engineering, he makes $18,000 a year, et cetera. They are saying he didn't know what he was buying.

Of course he knew what he was buying. He was buying a bargain. Look, I would say to you that the economic detri-nent to the complaint is certainly secondary to the protection af the consumer. I think that should be the first concern of he Commission. That is one of the reasons we agreed to this jrder a year and a half ago.

If I may, there were some points made by complaint

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counsel that I would like to have the opportunity to answer

because they went very far. They showed you this chart here.

I saw Commissioner Dixon, for instance, adding up all the numbers here and saying, "My God, these people are selling thousands and thousands and thousands of dollars worth of lessons."

What nobody has mentioned to them — perhaps it is my fault — that we have entered into an agreement here that says that any contract entered into while another contract is still in effect is cancellable for one week after the end of the previous contract.

Now complaint counsel keeps saying that we combine these contract. I am here telling you that that is no way around thatprovision and I have said it in briefs.

COMMISSIONER DIXON: The chart shows an $8,000 figure hip there for the final contract. They must have had some contracts leading up to that.

MR. SCHAUMBERG: It is clear right here, Mr. Dixon, that in fact if you look at most of these students, they don't walk in and buy a $5,000 contract. It never happens that way. They start off with small contracts — $10, $10, $55, pl5. They start off with small contracts.

Now you will see a sudden shift here. Mrs. Lapin, according to this exhibit, started with a $4300 contract. Mrs. Lapin had been taking dance lessons for something like 12 years

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So she knew what she was doing.

The next lady, Mrs. Stambaugh, this contract, dated 1956, was entered into with the previous owners, the respondent in this case had nothing to do with that contract. As we suggested in a footnote, there are many other inaccuracies in the chart because there are contracts here that never went into leffect.

But that is not the point I am trying to make. COMMISSIONER DIXON: You said you were going to

illustrate that a $10 contract progressed to an $8,000-plus contract, that the newest contract, that $8,000 one, was [cancellable one week after the last contract.

MR. SCHAUMBERG: Commissioner Dixon, if you will look lat our reply brief, it makes it very clear, if you want to look at these same individuals here, that the minimum that any of these women would have had to cancel the contract if the present order thatwe have agreed to were in effect would be four months.

t

This is not a seven-day cooling-off period. They lave four months to come back and say, "We don't like your studio. I want to cancel the contract." In fact, the maximum Ls something like 76 weeks, so that this kind of chart would not be possible any more. If it were done, all of these contracts would be cancellable.

So if we are not providing the service to the people

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that they think they are buying, they will cancel the contract.

COMMISSIONER JONES: Let me ask you on cancelability, if you look at Mrs. McKee, she on the 28th of December signed a contract for three hours of dance lessons, $55. The next day she signed a contract for $8,000.

So presumably those three were very successful hours. Then nine days later, having contracted for 350 hours, she signed a contract for a thousand hours. What does that tell us about cancelability? Does this tell us anything in terms of having an opportunity to decide whether you like it or not?

It does not look to me as if these contracts were entered into — within a ten-day period, $8,000, a thousand dollars — were entered into nn any basis of experience or pressure or displeasure with dance lessons. She could not have had that many dance lessons in those ten days.

So what hope does cancelability hold out to us for the kind of, I guess, high pressure tactics as you say happened in the past, which would lead to these kinds of contracts?

MR. SCHAUMBERG: They would be just as neutralized as the high pressure sales tactics of a door-to-door salesman are by the seven-day cooling-off period. If Mrs. McKee is under contract for several hundreds of dollars and that contract is going to run three, four, five months and during that period they sell her an $8,000 contract, that $8,000 contract is not cancellable for just seven days. It is going to be

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cancellable until she finishes with that previous contract.

That is true for every other contract she will sign up for.

COMMISSIONER JONES: The point I make is that cancel-ability does not seem to have much effect on what makes these people enter in an $8,000 contract or the 29th of December, a thousand dollar contract on the ninth of January.

MR. SCHAUMBERG: Two things: No. 1, there was no cancelability provision in effect when these contracts were signed.

COMMISSIONER JONES: Assume they were all cancellable Apparently something led her to take on these two contracts within nine days of each other.

MR. SCHAUMBERG: If that something is relay salesmanship, that is in your order, too. That order says you can't do that any more.

COMMISSIONER DIXON: Is there any evidence in the record that provides you with an answer as to whether or not with the $1500 limitation on the contract if these parties shou be engaged in the dance studio business, that they could make a successful venture out of it? I will put it another way.

Do you think that the $1500 limitation will be such a limitation that it would just predict failure?

MR. SCHAUMBERG: I am not prepared to argue that.

COMMISSDNER DIXON: Nothing in the record.

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MR. SCHAUMBERG: There are certainly things in the

record. People who have had a great experience in the indus

try stated that placing a $1500 limitation on them would have

an adverse effect. I am not saying that nobody can operate

under a $1500 limit.

They did in California, but sales went down dra

matically, employment went down dramatically. People partici

pating in the activity went down dramatically. If I may, I

would Ike to answer some of the points that were raised during

the argument.

CHAIRMAN KIRKPATRICK: You have three minutes.

MR. SCHAUMBERG: O.K.

A great deal of time was spent modifying the order.

It was never shown, No. 1, why the $1500 provision should be

imposed, but, second of all, they never showed how despite

the fact that the Hearing Examiner said that the reopening was

for thelimited purpose of proving this $1500 issue, how all of

a sudden we get into a modification of perhaps 50 percent of

the order.

As to quality of instruction, I just give you two quick quotes from the two expert witnesses. I will go so far as to say now in my opinion, being from another country and being a reputed international dance expert, the Horst-Mara Schools were the best kind of instruction, had the best quality dancers of all the Arthur Murray Studios in that period. It

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was their witness who testified to that. My witness supported that.

You asked, Commissioner Jones, "How do you support 14 days instead of seven days?" I say the same thing: "How do you support $1500 instead of $50 or $5,000?" There is nothing in the record.

As I say, this absorption argument is contrary to fact. We would not consider that contract if it is absorbed as not falling within the ban. The contracts are definitely assignable. We have argued that and we will stick to that.

I think you are quite correct, Commissioner Dixon, that the Hearing Examiner in his Initial Decision, by saying conscionability is irrelevant and by saying that the economic conditions are equally ireelevant, he is saying we held a hearing of four weeks needlessly, and I say to that that all that staff counsel proved during those four weeks of hearing is that we violated Section 5 of the FTC Act.

But we admitted that. We admitted it a long time ago There is no relationship between $1500 and one year of dance lessons. There is nothing in the record to support that. There is nothing whatsoever that ties $1500 to anything at all.

CHAIRMAN KIRKPATRICK: Mr. Schaumberg, your time is up.

Commissioner Maclntyre has a question.

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COMMISSIONER MacINTYRE: I decided to ask my question on my time rather than yours.

MR. SCHAUMBERG: Thank you, sir.

COMMISSIONER MacINTYRE: During the course of your argument you made assertions of your constitutional and legal rights for your client as not countenancing the $1500 limit. But at the same time you appear to be arguing for a $4,000 limit, and that you had offered to agree to the imposition of that.

What I would like to ask you is this: How do you distinguish in your assertions of constitutional and legal rights for your clients between the imposition of the $1500 and the ?4,000 limit?

MR. SCHAUMBERG: Your question is absolutely correct, :ommissioner Maclntyre, but the presumption is not. I am not irguing for a $4,000 limitation.

COMMISSIONER MacINTYRE: You are agreeing to a 18 ?4,000 limit?

MR. SCHAUMBERG: No, I am not, sir.

COMMISSIONER MacINTYRE: I thought you said earlier :oday that you found that acceptable?

MR. SCHAUMBERG: No, I was repeating the history of :he case. I said that we had sent to the Commission a proposed settlement that would have placed the $4,000 limitation on

25 is, but you refused it, you turned it down,

1

2 3 4 5 6 7 8 9 10 U 12 13 14 15 16 17 18 19 20 21 22 23 24 25

63

COMMISSIONER MacINTYRE: But you did not raise any argument, in fact you were proposing a $4,000 limit then.

MR. SCHAUMBERG: A year and a half ago I was.

CHAIRMAN KIRKPATRICK: That was agreed upon in settle ment negotiations?

MR. SCHAUMBERG: Yes, sir.

COMMISSIONER MacINTYRE: My question still goes. Why wouldn't your constitutional and legal rights apply to the $4,000 as much as to the $1500?

MR. SCHAUMBERG: It would, but I would be giving them up if I agreed to it voluntarily.

(Whereupon, at 3:40 p.m., oral argument in the above-entitled matter was concluded.)

DOCKET NO: 8776

CASE TITLE: ARTHUR MURRAY STUDIO OF WASHINGTON, gINC,, et al. HEARING DATE: December 17, 1970

I HEREBY CERTIFY that the proceedings and evidence herein

are contained fully and accurately in the notes taken by me at the

hearing in the above cause before the Federal Trade Commission and

that this is a true and correct transcript of the same.

DATED: December 17, 1970

(Sig at re bf Reporter)

Albert J. LaFrance (Name of Reporter - Typed)

300 - 7th Street. SW. (Address - Typed)

Washington. P. C. 20024

i

a

REPORT OF COMPLIANGE

(All Commissioners voted in the affirmative) x

G

Received and filed December 18, 1972

MAR U 1971

Arthur Murray Studio of Washington* Inc.,

724 14th Street, »♦¥. , Washington* B.C. 20005.

Re* Arthur Murray Studio of Washington, Inc., et al.,

Docket 8776, Gentlemen:

On February 23* X97I, the Commission issued its order to eease and desist and directed you to file a written report of compliance within siaefcy days from the date the order was served upon you,

For your guidance* there is enclosed herewith a brief description of compliance report requirements and general information pertaining to compliance reports.

Your report should be addressed to my attention. If you should have any questions* I will be pleased to discuss the matter wHtth you any time before the order becomes final on May 11, 1971. My telephone number is (20S) 963-6205.

Very truly yours,

(Miss) Janet D. Saxon, Attorney, Division of Compliance.

Enclosure. JDSaxon:cat

cc: Paul P. Hannah, Esquire and Tom M. Schaumberg, Esquire, Gadsby & Hannah, 1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006.

REPORTS OF COMPLIANCE IN bJsumriyg PRACTICE CASES

Form While no particular form is required, reports of

£ Z o i ^ f °Ul? C°??ist of a full statemen?Pshowing the o f ™ r a2d/°fm.in h i c h y o u have complied with the orde? to cease and desist. Mere statements that you are not violating nr ™ ™fccePtable- Y°u should include copies of all forms lLdteTto £ d?™P?rV r 0 r a 0 t i 0 n a l ,items' includingbit no?" wiS,, radioJ ?V> newspaper and magazine advertisements sa?v ?oS^S?ra?HletS a? d raailers> etc., revised wherfSêsl u y-?o ? m e e t the requirements of the order. The pPDort In°auî S iI n e d (1) by e a c h ^dividual respondentr??) by ?espondent and°f?rhv6 °ffiCer l n b e h a l f of e a c h corporate respondent, and (3; by an appropriate person in behalf n-r I™ fUn?^1! 8 n 0 t n a m e d in tne °rd*r which (I) is omed or con y trolled by respondents, or any of them, and (b) lTIneMed on Bn?h r^ r t d a t? J in the activities to'which the orSef delates dSpncaL^^xhi^t/^ a^ t aS h e d e ? h i b i t s should * in Anv ivMM+„ i fSf should be numbered commencing with "1". nêr^rs'lqSe?* 6' a t " UUr ^ Should -nlinue'the1

Confidentiality of Rgpnrt.g as fo??ows?n k'9(f) °f the Cor™issi°n's Rules reads in part,

"Reports of compliance and all supplemental materials in connection therewith, filed pursuant to the rules in this chapter *** shall be SiS ?.i%at th? Principal office of the Commission for inspection and copying by the public *** unless at the time of filing the filing part? requests confidentiality in whole or in lilt and submits satisfactory reasons therefor, and the S o ^ i ? 1 1 ' Wnlth dU? regard for statutory restric-reqSest" r U l S S *** P U b l i C interest, grants the

Any request for confidentiality should not hp ^noî

Duty to Comply Upon Effective Date of Order The Commission has issued the following public

statement: "The Federal Trade Commission emphasizes that

the obligation of firms to comply with its cease and desist orders arises on the effective date of the orders and is not 'suspended or deferred pending the submission of any report of compliance which may be required under the order itself or under the Commission's Rules.

"The Commission's requirement that compliance reports be submitted is designed to facilitate its determination of compliance, but this requirement in no way defers the effective date of its orders. Liability for civil penalties for violation of its orders may be incurred at any time following their effective date.

"Compliance reports must in fact disclose compliance when submitted, and the failure to do so will be immediately reported to the Commission by its compliance staff. Moreover, the failure of the Commission to notify a firm subject to its order as to the adequacy of the firm's compliance report does not defer or suspend obligations which have accrued at the time of the order's effective date."

Penalty for Failure to Comply The Federal Trade Commission Act provides:

"Any person, partnership, or corporation who violates an order of the Commission to cease and desist after it has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $5,000 for each violation/which shall accrue to the United States and may be recovered in a civil action brought by the United States. kach separate violation of such an order shall be a separate offense, except that in the case of a violation through continuing failure or neglect to obey a final order of the Commission each dav of continuance of such failure or neglect shall be deemed a separate offense." (15 U.S C 45(1))

-2-

flitt * ' ^

Mr, Victor P. Horst, Racket Club, 7930 East Drive, Harbour Island* Miami Beach, Florida. 33Hl.

Ret Arthur Murray Studio of Washington, Inc., et al., Docket 8776^ Dear Mr. Horat:

On February 23, 1971, the Commission issued its order to cease and desist and directed you to file a written report of compliance within sixty days from the date the order was served upon you. For your guidance, there is enclosed herewith a brief description of compliance report requirements and general information pertaining to compliance reports. Your report should be addressed to my attention. If you should have any questions, I will be pleased to discuss the matter with you at any time before the order becomes final on May 11, 1971. My telephone number is (202) 963-6205.

Very truly yours,

(Miss) Janet D. Saxon, Attorney, Division of Compliance. Enclosure.

JDSaxonteat

%

cc: Paul F. Sansafc, Esquire and -> lorn H. 3ohaambers, Esquire *

Y 1 Gadsby & Hannah, l_J-«v 17©$ Banofiylvenia Avenue, H.W., >q,7-

REPORTS OF COMPLIANCE IN UkuttmVE PRACTICE CASES

Form While no particular form is required, reports of compliance should consist of a full statement showing the manner and form in which you have complied with the order to cease and desist. Mere statements that you are no? violating it are unacceptable. You should include copies of all forms ? L ? ? S e ? t °r„?rOPSf,ed Promotional items, including but not £ i ^ e d t0 radi°J ?V' newsPaper and magazine advertisements, brochures, pamphlets and mailers, etc.; revised where ntcls-SSr3r^*S m e f t *?•,retirements of the order. The report fn 0^ 6- Sifned (1) by each individual respondent^??) by an authorized corporate officer in behalf of each corporate respondent, and (3) by an appropriate person in behalf of =nV

trolled by respondents, or any of them, and (b) is engaged on £ ? h r f £ ° r t d a t ? ' A5 t h e ac t iv i t i es to'which the orSe? ?e?ates Both the report and any attached exhibits should be in duplicate. Exhibits should be numbered commencing with " 1 " n ^ S S r S q S S S ^ ^ a l 3 t e r d a t e ^ o u l d ^ l i ^ t h e 1 • Confidentiality of Reports

as fonSwsf M C f } ° f t h G Oommiss^^s Rules reads in par t ,

ma+J?f?0 1 \ t S ° f c o n , P l i a n ce and a l l supplemental materials in connection therewith, f i led BUT-suant to the rules in this chapter *** shall be tST™ ?~ -,a t the principal office of the Commis-f X ! I+ ^ P e ? 4 t i 0 n a n l ?°Pying by the public *** unless at the time of f i l ing the f i l ing t>artv requests confidentiality in whole or in ?ar t and submits satisfactory reasons therefor, and the S?o^ S S J? n ' W. i th d U ! r e g a r d f o r s tatutory res?r ic-r e q S l s t " 8 r U l e S *"* P U b l i ° M e r e s t , grants « £


statement:

+h* J l^ 6 Jederal T r a d e Commission emphasizes that ££< ?Jll8Jtlon °f f l r m s *> ^mply with its cease and desist orders arises on the effective date of the orders and is not suspended or deferred pending the submission of any report of compliance which mf y be J K H ? T*e£ nth6 °rder itaelfor ™«« the Y Commission's Rules.

™ !!Thf Commission's requirement that compliance dltermlnSion nf^ 6" i? d e S i S ? e d t o f a c i l i S t e ^ aetermination of compliance, but this reoiilwrnpnt in noway defers the effective da e f ?s or ? «rtli±ty

a r?T ^ V i l P e™"*e» for violation o i ^

so will ,,e immediately reported to the Commas!on by its compliance staff. Moreover, the ?Su?e of the -.oinmisnion to notify a firm n.h »«o+ *„ u order as to the adequacy of the ? T r ^ c ^ p l L ^ f ^ a c c r ^ a t U^l™ T ^ * ^ ^ o ' n ^ M c h date." l m e °f the ord«r's effective.

Penalty for FailureJbo^nnmpj^

The Federal Trade Commission Act provides: "Any person, partnership, or corooratlnn

and E S ^ f p ? 1 - °rdevr ° r t h ° Commission To cease such ordei i I n ef f S t ^ f 0 ? ? f i n a l > a n d w ^ to t h H n l t e d S ? a S s e f c i v

S 1 f Jena°ltffo tfaSotPay

a T ^ S te°Sn0iL°dr S S ^ S S ^ ^ ' ^ in a P1IHI o« + 4 u b t a t e s and may be recovered in a c iv i l action brought by the UnitPrt <z+*+ll Each separate violation of such an ordfr sha?i \ «

be deemed a separate offense." °(!5 U ^ c . ^ ) )

- 2 -

MAR " 1971

Mr. Edward M&randola, 9 West Washington* Chicago, Illinois. 60602.

He J Arthur Murray Studio of Washington* Inc», et al.,

Docket 8776. Dear Mr. Marandola:

On February 23* 1971# the Commission issued its order to cease and desist and directed you to file a written report of eomplianee within sixty days from the date the order was served upon you.

For your guidance, there is enclosed herewith a brief description of complianca report requirements and general information pertaining to compliance reports.

Your report should be addressed to my attention* If you should have any questions, I will be pleased to diacuss the matter with you any time before the order becomes final on May 11* 1973.. My telephone number is (202) 9$3-6"£05*

Very truly yours.*


Enclosure. JDSaxon:eat cc: Paul F. Hannah, Esquire and

Tom M. Schaumberg, Esquire, Gadsby & Hannah, 1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006. «V1'

REPORTS OF COMPLIANCE IN DECEPTIVE PRACTICE CASKS


compliance should consist of a full statement showing the manner and form in which you have complied with the order to cease and desist. Mere statements that you are not violating it are unacceptable. You should include copies of all forms of current or proposed promotional items, including but not limited to radio, TV, newspaper and magazine advertisements, brochures, pamphlets and mailers, etc., revised where neces-Sury-?J

t^ m e ? t the,requirements of the order. The report should be signed (1) by each individual'respondent, (2) bv ^ L ^ ° r i Z e d S°^? r^ t e o f f i c e r ^ behalf of each corporate respondent, and (3) by an appropriate person in behalf of any t ™ ? i £ ^ e n 0 t naraed i n tne o r d e r whic* ^ ) is owned or con-7 trolled by respondents, or any of them, and (b) is engaged on S?h P?£ 0 r t d 3 t ? ' *? the a c t i v i t i*s to'which the order rtlltls. Both the report and any attached exhibits should be in duplicate. Exhibits should be numbered commencing with "1". SSLSft 1?" 8 subraitted a t a lat^r date should continue the numerical sequence. Confidentiality of Reports

as follows?" k'9(f) ° f the Coram:Lssion,s Rules reads in part,

m Q*J? e?° r* S ° f comPliance and all supplemental materials m connection therewith, filed pursuant to the rules in this chapter *** shall be available at the principal office of the Commission for inspection and copying by the public *** unless at the time of filing the filing party requests confidentiality in whole or in part and submits satisfactory reasons therefor, and the ??!SeSSi?n' \ith d u e regard for statutory restric-lin^tU "S r U l 6 S and Public Merest,, grants the

in A^JStftSia^Z 2S&,g£& are, t



the obligation of firms to comply with its cease and desist orders arises on the effective date of the orders and is not suspended or deferred pending the submission of any report of compliance which may be required under the order itself or under the Commission's Rules.

"The Commission's requirement that compliance reports be submitted is designed to facilitate its determination of compliance, but this requirement in no way defers the effective date of its orders. Liability for civil penalties for violation of it? orders may be incurred at any time following tlv*ir effective dato.

"Compliance reports must in fact disclose compliance when submitted, and the failure to do so will i.e immediately reported to the Commission by its compliance staff. Moreover, the failure of the lonimisr.ion to notify a firm subject to its order as Lo the adequacy of the firm's compliance report does not defer or suspend obligations which have accrued at the time of the order's effective date.

Penalty for Failure to Comply The Federal Trade; Commission Act provides:

"Any person, partnership, or corporation who violates an order of the Commission to cease and desist after it has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $5,000 for each violation, which shall accrue to the United States and may be recovered in a civil action brought by the United States. Each separate violation of such an order shall be a separate offense, except that in the case of a violation through continuing failure or neglect to obey a final order of the Commission each day of continuance of such failure or neglect shall be deemed a separate offense." (15 U.S C 45(1))

MAR - i i97i

Arthur Hurray Studio of Baltimore, Inc.,

217 Horth Charles Street* Baltimore, Maryland* 81201*

Re: Arthur Murray Studio of Washington, Inc.* ft &1.*

Docket 8176* Gentlemen;

On February 23, 1971* the Commission issued its order to eease and desist and directed you to file a written report of compliance within sixty days from the date the order was served upon you*

For your guidance, there Is enclosed herewith a brief description of compliance report requirements and general information pertaining to compliance reports.

Your report should be addressed to my attention. If you should have any questions, I will be pleased to discuss the matter with you any time before the order becomes final on May 11, 1971. My telephone number is (202) 963-6206.

Very truly yours,

Janet D. Saxon, Attorney, Division of Compliance.

Enclosure. cc: Paul F. Hannah, Esquire and

Tom M. Schaumberg, Esquire, Qadsby & Hannah, 1700 Pennsylvania Avenue, N.W., Washington, D.C. 20006.

JDSaxon:cat ^ /

REPORTS OF COMPLIANCE IN DECEPTIVE PRACTICE CASES


compliance should consist of a full statement showing the manner and form in which you have complied with the order to cease and desist. Mere statements that you are not violating it are unacceptable. You should include copies of all forms of current or proposed promotional items, including but not limited to radio, TV, newspaper and magazine advertisements, brochures, pamphlets and mailers, etc., revised where necessary, to meet the requirements of the order. The report should be signed (1) by each individual respondent, (2) by an authorized corporate officer in behalf of each corporate respondent, and (3) by an appropriate person in behalf of any enterprise not named in the order which (a) is owned or controlled by respondents, or any of them, and (b) is engaged, on the report date, in the activities to which the order relates. Both the report and any attached exhibits should be in duplicate. Exhibits should be numbered commencing with "1". Any exhibits submitted at a later date should continue the numerical sequence. Confidentiality of Reports

Section ^.9(f) of the Commission's Rules reads in part, as follows: ' "Reports of compliance and all supplemental

materials in connection therewith, filed pursuant to the rules in this chapter *** shall be available at the principal office of the Commission for inspection and copying by the public *** unless at the time of filing the filing party requests confidentiality in whole or in part and submits satisfactory reasons therefor, and the Commission, with due regard for statutory restrictions, its rules and public interest, grants the request."

Any request for confidentiality should not be general in nature. You should identify with particularity each part of,th!.êporJ f o r w h i c h confidentiality is claimed and submit a justification for each.



the obligation of firms to comply with its cease and desist orders arises on the effective date of the orders and is not suspended or deferred pending the submission of any report of compliance which may be required under the order itself or under the Commission's Rules.

"The Commission's requirement that compliance reports be submitted is designed to facilitate its determination of compliance, but this requirement in no way defers the effective date of its orders. Liability for civil penalties for violation of its orders may be incurred at any time following their effective dato.

"Compliance reports must in fact disclose compliance when submitted, and the failure to do so will re immediately reported to the Commission by its compliance staff. Moreover, the failure of the •:ommiar.ion to notify a firm subject to its order as to the adequacy of the firm's compliance report does not defer or suspend obligations which have- accrued at the time of the order's effective date."


"Any person, partnership, or corporation who violates an order of the Commission to cease and desist after it has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $5,000 for each violation, which shall accrue to the United States and may be recovered in a civil action brought by the United States. Each separate violation of such an order shall be a separate offense, except that in the case of a violation through continuing failure or neglect to obey a final order of the Commission each day of continuance of such failure or neglect shall be deemed a separate offense." (15 u.S.C 45(1))

-2-

O 2-4 1971

Arthur Murray Studio of Bethesda, Inc.,

4923 B&ao Drive, Bethesda, Maryland. 216*09.

Re: Arthur Murray studio of Washington, Inc.n at al.,

Bocfcst 8776. Gentlemen;

On February 23, X97I, the Commission issued its order to cease and desist and directed you t© file a written resort ojp oompli&aoe ifithin sixty days from the date the order was served upon yon*

For your guidance, there is enclosed herewith a brief description of compliance report requirements and general information pertaining to compliant reports *

Your report should be addressed to my attention. If you simuM have any questions, I will be pleased to discuss the mantes? «ith you any time before the order becomes final on May 131, X9fX: My telephone number is (2G2) 963-62015.

Very truly yours,


Enclosure. JDSaxom cat


Form

While no particular form is required, reports of compliance should consist of a full statement showing the manner and form in which you have complied with the order to cease and desist. Mere statements that you are not violating it are unacceptable. You should include copies of all forms of current or proposed promotional items, including but not limited to radio, TV, newspaper and magazine advertisements, brochures, pamphlets and mailers, etc., revised where necessary, to meet the requirements of the order. The report should be signed (1) by each individual respondent, (2) by an authorized corporate officer in behalf of each corporate respondent, and (3) by an appropriate person in behalf of* any enterprise not named in the order which (a) is owned or controlled by respondents, or any of them, and (b) is engaged, on the report date, in the activities to which the order relates. Both the report and any attached exhibits should be in duplicate. Exhibits should be numbered commencing with "1". Any exhibits submitted at a later date should continue the numerical sequence. Confidentiality of Reports

Section h.9(f) of the Commission's Rules reads in part, as follows: '

"Reports of compliance and all supplemental materials in connection therewith, filed pursuant to the rules in this chapter *** shall be available at the principal office of the Commission for inspection and copying by the public *** unless at the time of filing the filing party requests confidentiality in whole or in part and submits satisfactory reasons therefor, and the Commission, with due regard for statutory restrictions, its rules and public interest, grants the request." &

Any request for confidentiality should not be general in nature. You should identify with particularity lach part a 1«?1??S»?<V°S v h i c h confidentiality is claimed and submit a justification for each.


statement:

*H» !!T?6 f? d e r4 T r a d e conunission emphasizes that ^ • S l i S f l 0 n °f f ± r m s t o ^ " P ^ w i t h " s cease and desist orders arises on the effective date of the orders and is not suspended or deferred pending the submission of any report of compliance which may be required under the order itself or under the Commission's Rules.

"The Commission's requirement that compliance reports be submitted is designed to facilitate its determination of compliance, but this requirement in no „ay defers the effective date of its ord^r, Liability for civil penalties for violation or'ii-' e??lc?iveydat;!nCUrreiJ ** "^ ^ f o l l o w i n« " ^

"Compliance reports must in fact disclooe compliance when submitted, and the failure to do so will he immediately reported to the Commission by lU compliance staff. Moreover, the failure of the '.ommianion to notify a firm subject to its order as to the adequacy of the firm's compliance report does not defer or suspend obligations wMch

Penalty for Failure to Comniv The Federal Trade Commission Act provides:

"Any person, partnership, or corporation ?nS X 1 0 ^ ? 6 0 ^ ° r d e r o f t h c Commission to cease and desist after it has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $5,000 for each violation, which shall accrue to the United States and may be recovered in a civil action brought by the United S ^ f Each separate violation of such an order shall'be a separate offense, except that in the cale of a violation through continuing failure or nlSleet to obey a final order of thi Commission eafh Say of continuance of such failure or neglect shall be deemed a separate offense." (15 5.S C 45(1))

-2-

MAR £4 1971

Arthur Murray Studio of Silver Spring, Ine»,

9ffc Ei3aworth Drive,* Silver spring* Maryland. 20910,

He: Arthur Murray Studio of Washington, Inc., et al*,

Docket 8776. Gentlemen:

On February 2% 1971, the Commission issued its order to cease and desist and directed you to file a written report of compliance within sixty days from the date the order was served upon you,

For your guidance, there is enclosed herewith a brief description of compliance report requirements and general information pertaining to compliance reports,

your report should be addressed to ay attention. If you should have any questions, 1 will be pleased to discuss the matter with you any time before the order becomes final on May H, I97I. My telephone number is (202) 963-6205,

Very truly yours,

(Miss) Janet D. Saxon* Attorney, Division of Compliance

Enclosure. JDSaxon:cat cc: Paul F. Hannah, Esquire and

/-) Tom M. Schaumberg, Esquire,

/M i 11 ' Gad sby & Hannah, ~ 1$' 17°° Pennsylvania Avenue , N.W., '2> Washington, D.C. 20006.



compliance should consist of a full statement showing the manner and form in which you have complied with the order to cease and desist. Mere statements that you are not violating it are unacceptable. You should include copies of all forms of current or proposed promotional items, including but not limited to radio, TV, newspaper and magazine advertisements, brochures, pamphlets and mailers, etc., revised where necessary, to meet the requirements of the order. The report should be signed (1) by each individual respondent, (2) by an authorized corporate officer in behalf of each corporate respondent,^ and (3) by an appropriate person in behalf of any enterprise not named in the order which (a) is owned or controlled by respondents, or any of them, and (b) is engaged, on the report date, in the activities to which the order relates. Both the report and any attached exhibits should be in duplicate. Exhibit's should be numbered commencing with "1". Any exhibits submitted at a later date should continue the numerical sequence. Confidentiality of Reports

Section **.9(f) of the Commission's Rules reads in part. as follows: ' "Reports of compliance and all supplemental

materials in connection therewith, filed pursuant to the rules in this chapter *** shall be available at the principal office of the Commission for inspection and copying by the public *** unless at the time of filing the filing party requests confidentiality in whole or in part and submits satisfactory reasons therefor, and the Commission, with due regard for statutory restrictions, its rules and public interest, grants the request."

Any request for confidentiality should not be general in nature. You should identify with particularity each part

<thf.£epor!: f o r w h i c h confidentiality is claimed and submit a justification for each.


statement:

"The Federal Trade Commission emphasizes that the obligation of firms to comply with its cease and desist orders arises on the effective date of the orders and is not suspended or deferred pending the submission of any report of compliance which may be required under the order itself or under the Commission's Rules.

"The Commission's requirement that compliance reports be submitted is designed to facilitate its determination of compliance, but this requirement f? ?°-,^y d e f e r s t h e effective date of its orders. Liability for civil penalties for violation of its orders may be incurred at any time following their effective date.

"Compliance reports must in fact disclose compliance when submitted, and the failure to do so will be immediately reported to the Commission by its compliance staff. Moreover, the failure of the Commission to notify a firm subject to its order as to the adequacy of the firm's compliance report does not defer or suspend obligations which have accrued at the time of the order's effective


''Any person, partnership, or corporation iSS ^ 1 0 } a ! e S ^ n o r d e r o f t h e Commission to cease and desist after it has become final, and while such order is in effect, shall forfeit and pay to the United States a civil penalty of not more than $5,000 for each violation, which shall f S T ^ V ^ y * " 6 * S t a t e s « * may'be recovered £ L a X a c t i o n brought by the United States. Each separate violation of such an order shall be 5iSiS;fate

+Sffen5e* 6XCept that in the ca*e of a violation through continuing failure or neglect to obey a final order of the Commission each day of continuance of such failure or neglect shall be deemed a separate offense." (15u.SC 45(1))

http://15u.SC

APR 4 1972

Mr. Victor F. Horst , Racket Club, 7930 Bast Drive, Harbour Island, Miami Beaoh, Florida. 331^1

Re: Arthur Murray Studio of Washington, Inc., et al.,

Docket 8776. Dear Mr. Horst:

fn„ ^ i*?5?£ 21, 1972. the United States Court of Appeals ir +£ h e/ i f4 t h p1*?*1* directed affirmance and enforcement or the Commission's order of February 23, 1971. It is therefore requested that you submit a compliance report.

^«»^fÎ 0 u r*. s u i d a n? e' t h e r e i e ^closed herewith a brief inXEKJ"°U ° f 2°?P}lan2e report requirements and general information pertaining to compliance reports. Your report should be addressed to my attention. If

f£J ™ J? d hiTw a n y questions, 7 win b e p i e a s e d to d i s c u s s (20^96^-2791 7 ° U a a n y time* M y ' t e l eP h o n e number is

Very truly yours,

(Miss) Janet D. 8axon, Attorney, Division of Compliance,

Enclosure. cci Paul F. Hannah, Esquire and

Tom M. Schaumberg, Ssauire, Gedsby & Hannah, 1700 Pennsylvania Avenue, N.w.. Washington, D. C. 20006

CP: JDSaxon:eras

% .f-7"

REPORTS OF COMPLIANCE IN DECEPTIVE PRACTICE"CASES

\

Form

j While no particular form is required, reports of ^compliance should consist of a full statement showing th« I manner and form in which you have complied with the order to j cease and desist. Mere'statements that you are not vioiatinp ! it are unacceptable. You should include copies of all forms ' of current or proposed promotional items, including but not limited to radio, TV, newspaper and magazine advertisements, brochures, pamphlets and mailers, etc., revised where necessary, to meet the requirements of the order. The report should be signed (1) by each individual respondent, (2) bv an authorized corporate officer in behalf of each corporate respondent, and (3) by an appropriate person in behalf o<* anv enterprise not named in the order- which (a) is owned or con-' trolled by respondents, or any of them, and (b) is engaged, on the report date, in the activities to which the order rel?*-^ Both the report and any attached exhibits should be in duplicate. Exhibits should be numbered commencing with "1" Any exhibits submitted at a later date should continue the numerical sequence. Confidentiality of Reports

Section k.9(f) of the Commission's Rules reads in part. as follovs: '

"Reports of compliance and all supplemental materials in connection therewith, filed pursuant to the rules in this chapter *** shall be available at the principal office of the Commission for inspection and couving by th» public *** unless at the time of filing the filinr party requests confidentiality in whole or in part and submits satisfactory reasons therefor, and the Commission, with due regard for statutory restrictions, its rules and public interest, grants tê -request." " • ;

Any request for confidentiality should not be general in nature. You should identify with particularity each part of the report for which confidentiality is claimed and submit a justification for each.


statement:

r?."16 J'?deral T r a d e Commission emphasizes'that the obligation of firms to comply v/ith its cease and desist orders arises on the effective date of the orders and is not suspended or deferred pendinp the submission of any report of compliance which may bp required under the order itself or under the ' Commission's Rules. "The Commission's requirement that compliance

. reports be submitted is designed to facilitate its determination of compliance, but this requirement £±aMl?ft r r- Hie e f f e c t l v e date ot its ordow. nidî ,V \° r ?lvl1 Penal*iea for violation or its ef?eclLveyda?o!'nCUrred ** t±ne f o l l o w i ^ their

"Compliance reports must in fact diacJo-se S H n T f 6 V h e n,? u^«ed, and the failure "?o do bv ? \ J^diately reported to the Commission

-- ^ f.tb ^"'l'Uanco staff. Moreover, the fajlurp of tne '.ommiur.ion to notify a firm subject to it-order as to the adequacy of the firm's'conpl'Lnce report does not defer or suspend obligation^ which have accrued at the time of the orderK e??eetivf

Penalty for Failure i.r. rv,.,;pVy The Federal Trade Commission Act provides:

"Any person, partnership, or corporation who violates an order of the Commission So cease and desist after it has become final, and while such oner is in effect, shall forfeit and pay .to the United States a civil penalty of not more than $5,000 for each violation, which shall accrue to the United States and may'be recovered

• in a civil action brought by the United stat^ Each separate violation of such an o"rder ahali'lie ;in??;~te^rfenfe* e x C e p t t h a t ^ the caX of a violation through continuing failure or neglect to obey a final order of the Commission each day of continuance of such failure or neglect shal? be deemed a separate offense." (15 U s C 5(1))

. -?-

CABIC ADDRESS GAOHAN

G A D S B Y & H A N N A H 1700 PENNSYLVANIA AVENUE, N. W. 75 FEDERAL STREET

WASHINGTON, D. C. 2 0 0 0 6 BOSTON, MASS. 0 2 I I O S I 7 - 4 0 2 - I 7 0 O

2 0 2 - 2 2 3 - S I O O

July 20, 1972

Walter Gross, Esquire Federal Trade Commission Washington, D. C. 20580 Dear Mr. Gross:

A fur Re; Arthur Murray, Inc. *C/ * **

Enclosed please find Mr. Mara's compliance report in accordance with Paragraph 15 of the Commission's Order. I hope that you will find the letter self-explanatory. In the event, however, that you have any questions, please do not hesitate to get in touch with me or Mr. Mara directly.

I shall assume, unless I hear otherwise, that Mr. Mara's submission constitutes compliance with the Commission's Order.

Sincerely yours,

Y**~ A * * m+*4m. a-Tom M. Schaumberg

Enclosure

cc: Edward Mara

Fed6ra] £ » * Oommf3..: .

3 " * » of ComPtonce

Chapman Road Boxford, Massachusetts Ot)n July 3. 1972

Federal Trade Comm. Miss Janet D. Saxon Washington, D. C. 20580 Dear Miss Saxon:

According to the attorney representing the Arthur Murray Studios of Washington, Victor P. Horsty and myself, I am required to send a compliance report. To begin with, I am no longer connected with any dance studio, so many of the orders no longer apply. I am at the moment employed at the Magic Carpet, 1 W, 57 Street, New York City, which is a private Club and is handled more like a retail business. There are no contracts or pre-payments for services to be rendered.

Order no. It Most advertising is by word of mouth. Enclosed however, is a copy of our ad which is currently running.

Order no 2: Does not apply. Order no. 3* " " Order no. « " ** Order no. 5* Order no. 6* Order no. 7* Order no. 8» Order no. 9» Order no. 10i Order no. 11t Order no. 12t

Fe<teral TrQde n^

CotnPlianCe

• . • . Continued

RECEIVED AND F I L E D / 4 ^ * A / £ y ? 7 ^ AS REFOHT 03? COMPLIANCE..

Miss Janet D. Saxon Page 2 July 3t 1972

Order no. 13t Does not apply. Order No. 14» Does not apply Order no. 15* There have been no complaints

of unauthorized representations.

Sincerely,

^ ^ ^ ^ ^ ^ ^ ^ ^ ^

Mr. Edward Mara

G A D S B Y & H A N N A H 1700 PENNSYLVANIA AVENUE, N. W.

WASHINGTON. D. C. 2 0 0 0 6 CABLE ADDRESS CADHAH

ZOZ-Z23-OIOO

August 2, 1972

Walter Gross, Esquire Federal Trade Commission Washington, D. C. 20580 Dear Mr. Gross:

Re: Arthur Murray, Inc. - Docket 8776

Enclosed please find a compliance report submitted on behalf of all of the respondents in the above-captioned matter with the exception of Edward Mara whose report was furnished under cover of my letter to you of July 20, 1972. There is attached to the compliance report an Agreement dated July 31, 1972, whereby Victor P. Horst, as an individual, has sold his dance business in the New England area.

I shall assume, unless I hear otherwise, that the enclosed submission constitutes full compliance with the Commission's Order.

Sincerely yours,

Tom M. Schaumberg

Enclosure

cc: Victor P. Horst

7 5 FEDERAL STREET BOSTON, MASS. 02110

6 1 7 - 4 8 2 - 1 7 0 0

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VICTOR F. HORST P.O. BOX 176

MIAMI SHORES. FLORIDA 33153

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RECEIVED AND JIIÎi/Mc^cAet/Fy^pÂS REPORT 0? COMPLIANCE..


MIAMI SHORES. FLORIDA 331 S 3

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AGREEMENT made this 3 \ *— day of July 1972, by and between Ruby H. Bourg of OrleanB Parish, New Orleans, Louisiana, hereinafter referred to as "Buyer", and Victor P. Horst formerly of Boston, Massachusetts, presently residing in Miami, Florida, hereinafter referred to as "Seller"

WITNESSETH WHEREAS, on October 1, 1939, Arthur Murray, individually,

entered into a franchise agreement with Seller providing for the operation by Seller of Arthur Murray Dance Studios in Boston, Massachusetts, and in the other territory set forth in said agreement; and

WHEREAS, on November 25, 19*6 Arthur Murray and Kathryn Murray, individually and as co-partners doing business under the name of "Arthur Murray" and Seller entered Into a franchise agreement, effective as of October 1, 1939, in the place and stead of the aforementioned agreement between Arthur Murray, individually and Seller dated October 1, 1939j and

WHEREAS, the aforementioned agreement which was executed on November 25, 19*6, has heretofore been transferred and assigned by said Arthur Murray and Kathryn Murray, individually and as co-partners doing business under the name ?Arthur Murray" to Arthur Murray, Inc., a Delaware Corporation with principal place of business in Coral Gables, Florida, and ,

WHEREAS, the aforementioned agreement dated November 25, j 19*6 has heretofore been amended by agreements between the parties thereto dated April 27, 1955, August 6, 1963, and June 3, 1965 respectively, '"

NOW THEREFORE, in consideration of the premises and of the mutual covenants and agreements of the parties hereto said parties do hereby agree as-follows: ' 4

I. Seller does hereby assign, sell,'and convey to Buyer, »

the, aforementioned franchise agreement dated November 25, 19*6,' effective as of October 1, 1939 as heretofore amended, and all

if''*

1:" ~ ' ' i rights appurtenant thereto, together with Seller's right, title, and Interest In and to any leasehold for the premises located at 393 Boylston Street, Boston, Massachusetts, and to all existing employment contracts between Seller and current employees at his Boston Arthur Murray Studio, and to all furniture, fixtures, equipment, and student course records belonging to the Seller at the Boston Arthur Murray Studio, and to all claims

i or equity which Seller may have In any Installment contract or "bank plan" reserve or guarantee fund, and to the telephone numbers and listings currently used by Seller in connection with|said Boston Arthur Murray Studio, for the total sum of

to be t ^ w . . , w . „ . „ „ . . — » — » . .i ii. i..— — ■ . ,, , ■ — — ^ ■ ■ — ■ ■ i f — « v —

paid by Buyer to Seller in the manner hereinafter prescribed. II. Buyer hereby agrees to assume any and all liabilities

of the Seller in connection with or arising from Seller's operation of the Boston Arthur- Murray Studio up to the date hereof, and to indemnify Seller against any and all claims, bills, expenses, causes of action, law suits or payments of any kind arising from said operation. Buyer shall not however be responsible for any amounts claimed by Arthur Murray, Inc. to be owed to it by the Seller up to the date of this agreement, nor 8hall Buyer be responsible for the liability of the expenses involved in teaching to students lessons which have been paid for but which remain still untaught as of the date of this agreement; Buyer however agrees upon request of Seller to cause such lessons as requested, to be taught in Buyer's studio, and Seller agrees to pay Buyer for the expenses of such teaching in the amount and in the manner hereinafter provided in paragraph XVI.

III. Buyer agrees to pay to Seller the total purohaBe sum of and to pay said sum in the following manner:

On the Monday immediately succeeding each calendar week, Buyer shall pay to Seller an amount equal to nine percent (9<) of the gross receipts of the Arthur Murray Studio or

-2-

i! .

1 !

studios in metropolitan Boston. The term "gross receipts" as used herein shall include all monies received from customers, whether directly or indirectly as advances, loans, or proceeds from customer's notes, and all other monies paid to the said Boston Arthur Murray Studio or studios. If at the end of any oalendar year the nine per cent (9J5) of gross receipts herein-above referred to for that year totals less than three hundred dollars ($300.00) multiplied by the number of preceding weeks of operation in that calendar if less than a full calendar year, or totals less than three hundred dollars ($300.00 multiplied by fifty-two (52) if a full calendar year, then in either of said events Buyer shall pay to Seller within one week the amount by which three hundred dollars ($300.00) multiplied by the total number of weeks in either the part or full calendar year as the case may be exceeds the nine per cent (9%) of gross receipts for the same period. In addition, Buyer shall pay to the Seller upon receipt from the Providence, Rhode Island sub-licensee, an amount equal to one half of the monies paid to Buyer by said sub-licensee in excess of the royalty amounts required to be paid to Arthur Hurray, Inc. on account of the Providence Arthur Murray Studio operation.

IV. Any amounts required to be paid by Buyer to Seller under this agreement shall be paid in full promptly when due notwithstanding any defenses or claims by Buyer against Seller, and the amount of such payments shall not be subject to any set-off and shall not be reduced or in any manner affected by any defense or claim of Buyer. Any failure to pay the full amount of any payment within ten (10) days of the day such payment is due hereunder shall be deemed to be a default of this agreement by the Buyer.

V. As of the date hereof, and continuing juntll the total » purchase sum of ' has been paid by Buyer to Seller, Buyer agrees to be fully bound by the and obligations cast upon the 'Licensee' under the ;

i

aforesaid Arthur Murray franchise agreement, and to adhere

1939 as heretofore amended. Until such time, Buyer also agrees to not enter Into any modification changing the terms or provisions of said agreement without the prior consent in writing of the Seller first had and obtained. Until such time as the total purchase sum has been paid by Buyer, he specifically agrees to not cause or permit any action or omission of action or other circumstance or condition which results in a valid and legal termination or cancellation of the aforesaid franchise agreement as amended. In the event of a default by the Providence sub-licensee under the Providence sub-license, Buyer agrees to take all legal recourse to enforce correction of the default. In the event that he terminates and cancels the Providence sub-license under Its appropriate provisions because of default on the part of the sub-licensee, Buyer agrees to use all reasonable efforts to obtain a successor sub-licensee

i

under the same or similar sub-license provisions. VI. Until the total purchase price has been paid to

Seller, Buyer shall not assign, sell, or convey the aforesaid franchise agreement as amended or the other items detailed in paragraph I, without the consent of the Seller in writing first had and obtained. Said consent shall be given only If the prospective purchaser or assignee has, in the opinion of the Seller, the experience, ability, and financial stability to make the payments and meet the other obligations required of Buyer hereunder. No such assignment shall be construed to be a novation, and the Buyer hereunder. Ruby H. Bourg, shall remain personally liable and responsible for the performance of the obligations of the Buyer hereunder.

VII. Buyer shall keep in full continuous operation at least one Arthur Murray studio in a central location in the city of Boston, Massachusetts, unless prevented from doing so by fire or other unavoidable casualty, in which event a sus-

-<4-

or consequential damages caused by Buyer's breach. } Seller shall be further entitled to receive and Buyer

-5-

hereby covenants and agrees to deliver a reassignment of the aforesaid Arthur Murray License Agreement, all leases, contracts, an assignment of all accounts receivable, and in general, all other rights and interests assigned to Buyer by Seller under the terms of this Agreement, and to transfer and deliver to Seller by Bill of Sale all of Buyer's right, title and interest in and to any furniture, fixtures and equipment then located in the Boston studio.

XII. In the event that Buyer receives a written notice of default captioned "Notice of Violation of License Agreement" from 'Licensor' pursuant to the provisions of the aforesaid Arthur Murray franchise agreement as amended, Buyer shall Immediately notify Seller of receipt of said notice. If within fifteen (15) days after receipt of said notice Buyer has not cured the alleged default and notified 'Licensor' and Seller of said cure, Seller may at his own discretion and on behalf of Buyer act to cure the default at Buyer's expense, or act to submit the alleged default to arbitration and to Join with Buyer and act for Buyer in the arbitration proceedings, and Buyer does hereby irrevocably authorize and empower Seller to take said acts as Buyer's Attorney-In-Pact (coupled with an interest), and to comply pn behalf of Buyer with the terms of an award by the Board of Arbitrators. The entire 'Licensee's' share of the costs of arbitration proceedings and compliance with an award, if any, shall be borne by the Buyer.

XIII. Nothing hereinbefore contained shall preclude Seller's right to obtain damages for breach or default by the

i Buyer under this agreement.

XIV. This agreement shall be binding and inure to the benefit of the respective heirs, distributees, executors, administrators, successors, and assigns of the parties hereto.

XV. If any part, clause, provision pr paragraph of this agreement shall at any time be declared or adjudged to be invalid,

' -6-

illegal, or unenforceable, the same shall not affect the validity of any other part, clause, provision, or paragraph hereof, or constitute any cause of action in favor of either party against the other.

XVI. Upon request by the Seller, Buyer shall cause to be taught out in his Boston studio or studios, all Boston student's lessons paid for but remaining untaught as of the date of this agreement. Seller will pay Buyer for such teaching, an amount equal to seventy percent (70S) of the original tuition price paid by student for each lesson. Payment shall be made yearly by Seller to Buyer no later than December 31, for all such lessons taught during that calendar year. Buyer shall furnish to Seller weekly a list of all such lessons taught during each week, containing also the original tuition price of said lessons.

XVII. Buyer shall provide Seller with detailed weekly reports of total gross receipts, and with a copy of the required weekly reports from the Providence sub-licensee. Buyer shall also authorize and cause hl3 bookkeeper and accountants to make available for the inspection of Seller during business hours, all Btudio records, for the purpose of verifying that the payments Seller receives are correct.

XVIII. This instrument contains all of the agreements, representations I and conditions made by or between the parties hereto. Neither party shall be liable for any representations or agreements made unless set forth herein and therein. Any modifications or amendments hereof or thereof, must be in writing and signed by the parties before becoming binding or effective.

XIX. This agreement, the terms thereof and the parties' performance thereunder, shall in all respects be interpreted,

construed, and governed by the laws of the Commonwealth of Massachusetts.

IN WITNESS WHEREOF the parties have hereunto set their hands and seals the day and year first above written.

RHBC i^k/ 7/-(Z0JU*^f , Buyer

, Seller

-8-

yfr>/&ur*L*~'

G A D S B Y & H A N N A H 1700 PENNSYLVANIA AVENUE, N. W. 75 FEDERAL STREET

WASHINGTON, D. C. 2 0 0 0 6 BOSTON, MASS. OSIIO 6 l 7 - a 0 2 - l 7 O O

2 0 Z - S 2 3 - 9 I O O

September 8, 1972

Walter Gross, Esquire Federal Trade Commission Washington, D. C. 20580

Dear Mr. Gross:

Re: Arthur Murray, Inc. - Docket 8776

With reference to your telephone call this morning, I am enclosing herewith a copy of a letter dated August 8, 1972, wherein the license agreement between the Arthur Murray Studio of Baltimore, Inc. and B. J. Johnson, Inc. has been terminated.

If you have any further questions in this regard, I shall be happy to attempt to respond thereto.

Sincerely yours,

Tom M. Schaumberg

Enclosure

Foaeral Truce Commit-., -i-RECEIVED

see 12 8fc Division pi Compliance

Y VICTOR F. HORST

PiOi BOX 170 ■

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RECEIVED AND FILED , ^ L * A / ^ # A S REPORT 0? COMPLIANCE.

-:1 DEC i s ran-

Ir, Victor F. Horst P.O. Box 176 Miami Shores, Florida 33153

Re: Arthur Murray Studio of Washington, Inc., et al. Docket No, 8776

D-sar Mr» Horst: The Commission is in receipts of your communication dated July

31> I972> with attached exhibit* which you have filed as. a report showing the manner and. form of ?/our compliance with the order" to cease and desist Issued on February 23, 1971, in the above case.

The Commission na»- reviewed the report of compliance and has concluded, on the assumption that the information submitted iB accurate and complete, that no compliance action by the Commission i3 indicated at this time* The Commission will not be precluded, however, from instituting appropriate action should it subsequently appear that such information is inaccurate or incomplete. In addition, the- Commission may at any tiae reconsider, revoke, or rescind such determination, should it subsequently appear that such, infdrn»tieoi;i?-inacctarat« or incomplete, or if action had been taken in violation oT the* terms of the order. You are further reminded that should you subsequently acquire orreacquire any interest, direct or indirect, in a dance studio, your obligations under paragraph If? concerning annual reports as well as all other obligations of the order come into effect.

By direction ox tha. Commission.

Charles A•«. Tobin ,* Secretary '-i co; Torn U, Schaunbers, Hsquirs « GcdLby end Hannah

1700 Pennsylvania Avenue, '$..■:. '•'aKhin ton, D.C. £000o

: *v;;V

i

I

HEC 1 s 'c-7-

Mr. Edward Kara Gmptaan Road Eoxford, Massachusetts 01921

Be: Arthur Hurray of Washington r Inc., e& al. Docket Ho. 8776 Dear Mr. Marar

The Cccaaisaicn is in receipt of your cooEaxaication. dated July 3, 1972, which you have filed as a report showing the oaxmer and form of your compliance, with the order to csasa and desist issued on February 23, 1971, in to* above case. ■-.::-, ,.^..~.,

; 5ha GonroJitiOtt hag reviewed the report of compliance And has concluded, «8 tit* aaeuspticathat the iafornatioa submitted is accurate and complete, tha*: no. compl itmca action by the Cossaissioa is indicated at this titae, The eojasissioa; iriLll not be precluded, however, from instituting appropriate scrips should it subsequently appear that such information is inaccurate «r inc«Bwle*«* 1ft addition^ the Coaadsslon way at any time reconsider, revoke, or rescind aaach deteradnation should it subsequently appear that such; iaxbxoatioa- i*inaccurate or incomplete, or if aetioci had been taken ^•?jUAs^to--«*-.thirt^^ ^ .-,.!:...;;■,..■., .,'.u':..*.:.-'•

,.' »y dtreatiw or' && Commission, ■^*':&h'-':''~'J£ '$&^ ~r

.'A: ^^^s'JM&'i •• "•" QarleaVA^ Tobin^ ^mmm: Secretary cai, Tea H, Scbantn&arg,. Squire "; "

Gadsby and Bannah : 1700 Pennsylvania Avenue, H.U,-Washington, B.C. 20006

7 ^

•;y /

OFFICE OF THE SECRETARY

Counsel Supporting FEDERAL TRADE COMMISSION Complaint: D.H. Oglesby

WASHINGTON 25. D. c. E , D * Steiaman APR 1 6 1969

Arthur Murray Studio of Washington, Inc., 72h - l^th Street, N. W., Washington, D. C. 20005

DOCKET NO. 8776 Gentlemen:

There is enclosed herewith, by registered mail, a complaint issued by the Federal Trade Commission charging a violation of law and stating its charges in that respect.

The statutes which the Commission is charged with enforcing provide that mailing complaints in this manner constitutes lawful service. Copies of the statutes which you are charged with violating are enclosed, together with two blank forms for "Notice of Appearance."

Also enclosed is a copy of the Commission's Rules of Practice for the guidance of yourself or your attorney. You will note that you have thirty <30) days from the day the complaint is served to file an answer if you desire. If you do file answer, Section 4.2 of the Rules provides that twenty (20) copies, the usual letter size, bound on the left side, are needed.

The hearing is scheduled for 10a.m., May 20 , 19^9, at Federal Trade Commission Offices, 1101 Building, 11th & Pa. Ave., N. W., Washington, D. C.

Your failure to file answer within the time provided shall be deemed to constitute a waiver of your right to appear and to authorize the Hearing Examiner, without further notice to you, to find the facts to be as alleged in the complaint and to enter an initial decision containing such findings, appropriate conclusions and order.

If there is any question involving any procedure which you or your counsel may wish to discuss with the Commission, the Secretary's Office will be glad to be of assistance.

It is understood, of course, that this letter is only for the purpose of being of as much help to you as we can under the Rules and does not in any way limit either your rights in the premises or limit in any way the full force and effect of the notice in the complaint or any provisions of law or regulations applicable to the case.


Enclosures

fd&<-


WASHINGTON 25. D. c. E.D. Steinman OFFICE OF THE SECRETARY /\PR 1 6 1968

Victor F. Horst, officer, Arthur Murray Studio of Washington, Inc, Racket Club, 7930 East Drive, Harbour Island, Miami Beach, Fla. 33169

DOCKET NO. 8776

Dear Sir: There is enclosed herewith, by registered mail, a complaint issued

by the Federal Trade Commission charging a violation of law and stating its charges in that respect.


Also enclosed is a copy of the Commission's Rules of Practice for the guidance of yourself or your attorney. You will note that you have thirty (30) days from the day the complaint is served to file an answer if you desire. If you do file answer, Section 4.2 of the Rules provides that twenty (20) copies, the usual letter size, bound on the left side, are needed.

The hearing is scheduled for 10 a.m. , May 20 , 19 69 at Federal Trade Commission Offices, 1101 Building, 11th & Penna. Ave., N. W., Washington, D. C.





/ / Secretary.

Enclosures V


Counsel Supporting FEDERAL TRADE COMMISSION Complaints D. H. Oglesby

WASHINGTON 25. D. C. E. D. S te lMian APR 1 6 1969

Edward Marandola, officer, Arthur Murray Studio of Washington, Inc., 9 West Washington. Chicago, 111. 60602 (also known as: Edward Mara)

DOCKET NO. 8776





The hearing is scheduled for 10a.m., May 20 ^ 69 at Federal Trade Commission Offices, 1101 Building, 11th S Pehna. Ave., N. W., Washington, D. C.





Enclosures



WASHINGTON .25. D. c. E.D. Steinman APR 1 6 1 9 6 9

Arthur Murray Studio of Baltimore, Inc., 217 North Charles Street, Baltimore, Md. 21201





The hearing is scheduled for 10 a.m., May 20 19 69 at Federal Trade Commission Offices, 1101 Building, 11th & Penna. Ave., N. W., Washington, D. C.





y# TosephJ Sfi'e'a, / / Secretary.

Enclosures

Counsel Supporting Complaint: D.H. Oglesby

E.D. Stelnman

Victor F. Horst, officer, Arthur Murray Studio of Baltimore, Inc., Racket Club, 7930 East Drive, Harbour Island, Miami Beach, Fla. 33169

DOCKET NO. 8776





The hearing is scheduled for 10 a.m., May 20 , 19 69, at Federal Trade Commission Offices, 1101 Building, 11th & Penna. Ave., N. W., Washington, D. C.





^y JosephJ0^"5nea, i / / Secretary.

Enclosures \S

FEDERAL TRADE COMMISSION WASHINGTON 25, D. C.

OFFICE OF THE SECRETARY T U P H '«M» WHfV


FEDERAL TRADE COMMISSION C o S S u i n t ? P P D r t H ? 8 0 g l e a b y WASHINGTON 25. D. C. E . D . S t e i n m & n

APR 1 6 1969

Edward Marandola, officer, Arthur Murray Studio of Baltimore, Inc., 9 West Washington. Chicago, 111. 60602

DOCKET NO. 8776 Dear Sir:




The hearing is scheduled for u_Qa.ni., J^y 20 > 19 69, at Federal Trade Commission Offices, 1101 Building, 11th & Penna. Aveft, N. W., Washington, D. C.

Ydur failure to file answer within the time provided shall be deemed to constitute a waiver of your right to appear and to authorize the Hearing Examiner, without further notice to you, to find the facts to be as alleged in the complaint and to enter an initial decision containing such findings, appropriate conclusions and order.




Enclosures

frJ^C*-\*

http://u_Qa.ni



WASHINGTON 25. D. C. E * D * S t e i M i a n

APR 1 6 1969

Arthur Murray Studio of Bethesda, Inc. *r923 Elmo Drive, Bethesda, Md, 2001^





The hearing is scheduled for ICa.m., May 20 IG 69 at Federal Trade Commission Offices, 1101 Building, 11th & Pehna. Ave., N. W., Washington, D. C.





Enclosures

6>M"-hea,


Counsel Supporting FEDERAL TRADE COMMISSION Complaints D. H. Oglesby

WASHINGTON 25. D. c. E. D. Steinman

APR i 6 1969

Victor F. Horst, officer, Arthur Murray Studio of Bethesda, Ino., Racket Club, 7930 East Drive, Harbour Island, Miami Beach, Fla. 33169





The hearing is scheduled for 10 a.m., May 20 ^ 69 at Federal Trade Commission Offices, 1101 Building, 11th & Penna. Ave., N. W., Washington, D. C.





Enclosures

6>Jk«-


Counsel Supporting FEDERAL TRADE COMMISSION Complaint: D. H. Oglesby

WASHINGTON 25. D. c. E. D. Steinman APR 1 6 1969

Edward Marandola, officer, Arthur Murray Studio of Bethesda, Inc., 9 West Washington. Chicago, 111. 60602





The hearing is scheduled for 10a.m., May 20 19 69 at Federal Trade Commission Offices, 1101 Building, 11th & Penna. Ave., N. W., Washington, D. C.





Enclosures



WASHINGTON 25, D. c. ^.D. Steinman

APR U -1969

Arthur Murray Studio of Silver Spring, Inc., 931!- Ellsworth Drive, Silver Spring, Md. 20910

DOCKET NO. 8776

Gentlemen: There is enclosed herewith, by registered mail, a complaint issued



Also enclosed is a copy of the Commission's Rules of Practice for the guidance of yourself or your attorney. You will note that you have thirty (30) days f rom the day the complaint is served to file an answer if you desire. If you do file answer, Section 4.2 of the Rules provides that twenty (20) copies, the usual letter size, bound on the left side, are needed.

The hearing is scheduled for 10 a.m., May 20 , 19 69, at Federal Trade Commission Offices, 1101 Building, 11th & Penna. Ave., N. W., Washington, D. C.





Enclosures

6>M*<-


FEDERAL TRADE COMMISSION Counsel Supporting WASH.NGTON 25. D. c. Complaint: D. H. Oglesby

APR 1 6 1968 B* D* Steinman

Viotor F. Horst, officer, Arthur Murray Studio of Silver Spring, Inc., Racket Club, 7930 East Drive, Harbour Island, Miami Beach, Fla. 33169





The hearing is scheduled for 10a.m., May 20 , 19 69, at Federal Trade Commission Offices, 1101 Building, 11th & Penna. Ave., N. W., Washington, D. C.





Enclosures

£>Jk<-


Counsel Supporting FEDERAL TRADE COMMISSION Complaint« D. H. Oglesby

WASHINGTON 25. D. c. E. D. Steinman

Edward Marandola, officer. Arthur Murray Studio of Silver Spring, Ino., 9 West Washington. Chicago, 111. 60602

DOCKET NO. °776 Dear Sir:


The statutes which the Commission is charged with enforcing provide that mailing complaints in this manner constitutes lawful service. Copies of the statutes which you are charged with violating are enclosed, together with two blank fo rms for "Notice of Appearance."

Also enclosed is a copy of the Commission's Rules of Practice for the guidance of yourself or your attorney. You will note that you have thirty (30) days f rom the day the complaint is served to file an answer if you desire. If you do file answer, Section 4.2 of the Rules provides that twenty (20) copies, the usual letter size, bound on the left side, are needed.

a t Fe4erha^rirW! tfommSsesdionrOffices', 1101 Building, 11th k9Penna. Ave., N. W., Washington, D. C.





Enclosures

6>M*<-


FEDERAL TRADE COMMISSION J01"1?6?- ^ P P O ' t i n g WASHINGTON 25. D. c. Complaint: D. H. Oglesby

«n n , „ E. D. Steinman APR 1 6 1969

Cahi l l , Gordon, Reindel & Ohl. Sui te 1002, '

r 1000 Vermont Avenue, N. W., \ Washington, D, C. 2000?



The statutes which the Commission is charged with enforcing provide that mailing complaints in this manner constitutes lawful service. Copies of the statutes which you are charged with violating are enclosed, XB5fiXKB@5X»KBKX


The hearing is scheduled for 10 a.m., May 20 19 69

AVeTrS.fS^hinTo"^ ? m " S ' 1101 BUllding' lltk * P9nM-Your failure to file answer within the time provided shall be deemed

to constitute a waiver of your right to appear and to authorize the Hearing Examiner, without further notice to you, to find the facts to be as alleged in the complaint and to enter an initial decision containing such findings, appropriate conclusions and order.




Enclosures

6>M**-


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., S DOCKET NO 8776 ARTHUR MURRAY STUDIO OF BALTIMORE, INC., * * ARTHUR MURRAY STUDIO OF BETHESDA, INC., AND ARTHUR MURRAY STUDIO OF SILVER SPRING, INC.,

corporations, and VICTOR F. HORST and EDWARD MARANDOLA, also known as EDWARD MARA, individually and as

officers of said corporations.

AFFIDAVIT OF RETURN OF SERVICE OF COMPLAINT ON EDWARD MARANDOLA. ALSO KNOWN AS EDWARD MARA

I hereby certify that the Commission's COMPLAINT in Docket 8776, In the Matter of Arthur Murray Studio of Washington, Inc.*, et al was duly served by the undersigned on May 2, 1969 by personally handing said COMPLAINT to Edward Marandola, also known as Edward Mara, at the offices of Hilton-Stauffer Salon, 393 BoyOston Street, Boston, Mass.

Q$*SVT!J( CO j(h~7L<udc< David W. DiNardi, Attorney,

_ . w . Boston Office, Boston, Massachusetts. Federal Trade Commission. Subscribed and sworn to before me th^ J5-fth £ay oft? May/ 1968.

fohn F. McCarty, 'Attorney in Charge^ Boston Field Offic> Federal Trade Commission.

FEDERAL TRADE COMMISSION WASHINGTON 25. D. C.

p

OFFICE OF THE SECRETARY JUL^8 1970

Arthur Murray Studio of Washington, Inc. 72*f l*fth Street, N. W. Washington, D. C. 20005


There is enclosed herewith, by registered mail, an initial decision by Hearing Examiner E, p. Sohrup

I wish to call your attention to the Commission's Rules of Practice relating to initial decisions by the Hearing Examiner, which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the parties unless prior thereto (1) an appeal Is perfected under the provisions of Section 3.52 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.

Any party intending to appeal from the Hearing Examiner's initial decision is allowed ten (10) days under Section 3.52 within which to file with the Commission a notice of intention to appeal. Please take note of these and other requirements applicable to the proceeding.


JjpVosephyR. Shea, / y Seapetary.

Enclosure / /

/


OFFICE OF THE SECRETARY JUL28 1970*

Victor P. Horst, officer Arthur Murray Studio of Washington, Inc. Racket Club, 7930 East Drive, Harbour Island Miami Beach, Fla. 33169


There is enclosed herewith, by registered mail, an initial decision by Hearing Examiner E. P. Schrup.

1 wish to call your attention to the Commission's Rules of Practice relating to initial decisions by the Hearing Examiner, which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the parties unless prior thereto (1) an appeal is perfected under the provisions of Section 3.52 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.



Enclosure

Shea,



Edward Marandola, offioer Arthur Murray Studio of Washington, Inc. Hilton-Stauffer Salon 393 Boylston Street Boston, Mass 02167

' DOCKET NO. 8776 Dear Sir-:

There is enclosed herewith, by registered mail, an initial decision by Hearing Examiner £. p. Schrup,

I wish to call your attention to the Commission's Rules of Practice relating to initial decisions by the Hearing Examiner, which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days ftqra service thereof upon the parties unless prior thereto (1) an appeal is perfected under the provisions of Section 3.52 of the rules, or('2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.

Any party intending to appeal from the Hearing Examiner's initial decision is allowed ten (i.0) days under Section 3.52 within which to file with the Commission a notice of intention to appeal. Please take note of these and other requirements applicable to the proceeding.


Shea,

Enclosure

k)dL+.



JUL.$:9IP Arthur Ifarray Studio of Baltimore, Inc. 217 North Charles Street Baltimoret Md. 21201

DOCKET NO. 8776 Gentleman:

There is enclosed herewith, by registered mail, an initial decision by Hearing Examiner g# p^ SchrUT).

I wish to call your attention to the Commission's Rules of Practice relating to initial decisions by the Hearing Examiner, which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the parties unless prior thereto (1) an appeal is perfected under the provisions of Section 3.S2 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.

Any party intending to appeal from the Hearing Examiner's initial decision is allowed ten (10) days under Section 3.S2 within which to file with the Commission a notice of intention to appeal. Please take note of these and other requirements applicable to the proceeding.


Enclosure

i^M^.


OFFICE OF THE SECRETARY juj-2aig70 Victor F. Horst, officer Arthur Murray Studio of Baltimore, Inc. Racket Club, 7930 East Drive, Harbour Island Miami Beach, Fla. 33169

DOCKET NO. 8776 Dear S i r :


I wish to call your attention to the Commission's Rules of i Practice relating to initial decisions by the Hearing Examiner, I which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the parties unless prior thereto (1) an appeal is perfected under the provisions of Section 3.52 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.



Enclosure

Shea,

f~*'


FEDERAL TRADE* COMMISSION WASHINGTON 25. D. C. JUL28 1970

Edward Marandola, officer, Arthur Murray Studio of Baltimore, Inc. 9 West Washington, Chicago, 111 60602

DOCKET NO. 8776 Dear Sit't

There is enclosed herewith, by registered mail, an initial decision by Hearing Examiner 3. P. Schrup.

I wish to call your attention to the Commission's Rules of Practice relating to initial decisions by the Hearing Examiner, which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the parties unless prior thereto (1) an appeal is perfected under the provisions of Section 3.52 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.



Enclosure

CJjiL^.


OFFICE OF THE SECRETARY JUL 28 1970

Arthur Murray Studio of Bethesda, ^923 Elmo Drive Bethesda, Md. 2001*+

Inc.

DOCKET NO. 87/6

Gentlemen: There is enclosed herewith, by registered mail, an initial

decision by Hearing Examiner g, pt Schrup.




Enclosure

i*)Mx^

i


OFFICE OF THE SECRETARY $JL2{8$3p Victor F. Horst, officer Arthur Murray Studio of 3ethesda, Inc. Racket Club, 7930 East Drive, Harbour island Miami Beach, Fla. 33169

DOCKET NO. 8776

Dear Sir: There is enclosed herewith, by registered mail, an initial

decision by Hearing Examiner £. p. Schrup. I wish to call your attention to the Commission's Rules of

Practice relating to initial decisions by the Hea^6 Examiner,

^ e ^

Jssues an order placing the case on its own docket for review.

Any party intending to appeal from the Hearing Examiner's initial decision is allowed ten (10) days under Section 3.52 within which to file with the Commission a notice of intention to appeal Please take note of these and other requirements applicable to the proceeding.


Enclosure


OFFICE OK THE SECRETARY ; - _ ^ ^ ,

JUL 28 1970 :>

Edward Marandola, officer Arthur Murray Studio of Bethesda, Inc. 9 West Washington, Chicago. 111.

6 ' DOCKET NO. Q 7 « 6

Dear Sir: There is enclosed herewith, by registered mail, an initial

decision by Hearing Examiner ^ p Sohrup. I wish to call your attention to the Commission's Rules of

Practice relating to initial decisions by the Hearing Examiner, which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the part unless prior thereto (1) an appeal is perfected under the provisic of Section 3.52 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.



Enclosure

u>M^.

i

/

0


OFFICE OF THE SECRETARY JUL 281970

Arthur Mirray Studio of Silver Spring, Inc. 93^ Ellsworth Drive Silver Spring, Md. 20910






Shea,

Enclosure

fa)v4b+~


OFFICE OF THE SECRETARY JUL 28 1970

Victor F. Horst, officer Arthur Murray Studio of Silver Spring, Inc. Racket Club, 7930 East Drive, Harbour Island Miami Beach , Fla. 33169

DOCKET NO. 8776 Dear Sir!

There is enclosed herewith, by registered mail, an initial decision by Hearing Examiner E, P. Schrup.


Any party intending to appeal from the Hearing Examiner's initial decision is allowed ten (10) days under Section 3.52 within which to file with the Commission a notice of intention to appeal. Please take note of these and other requirements applicable to the proceeding. f


Enclosure

FEDERAL TRADE COMMISSION WASHINGTON 25. p. C.

OFFICE OF THE SECRETARY J i l t 2'6*1970

Edward Marandola, officer Arthur Murray Studio of Silver Spring, Inc. 9 West Washington Chicago, 111. 60602 _

& ' DOCKET NO. 8776 Dear Sir:

There is enclosed herewith, by registered mail, an initial decision by Hearing Examiner E p # Schrup.

I wish to call your attention to the Commission's Rules of Practice relating to initial decisions by the Hearing Examiner, I which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the parties unless prior thereto (1) an appeal is perfected under the provisions of Section 3.52 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.



Enclosure


J4IL 28 1970 OFFICE OK THE SECRETARY »*▼*- ~ v """w

Cahill, Gordon, Sonnett, Reindel & Ohl 1819 E Street, N. W. Washington, D. C. 20006


There is enclosed herewith, by registered mail, an decision by Hearing Examiner E, P. Schrtsp.

I wish to call your attention to the Commission's Rules of Practice relating to initial decisions by the Hearing Examiner, which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the parties unless prior thereto (I) an appeal is perfected under the provisions of Section 3.52 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.



Enclosure

l*)o4L*_


OFFICE OF THE SECRETARY t pWL 2 0" J970

Snyder, Tepper & B e r l i n 73 Tremont S t r e e t Boston, Mass. 02108

DOCKET NO. 8776

Gentlemen:

There i s enclosed herewith, by regis tered mail , an i n i t i a l dec i s ion by Hearing Examiner S . P . S c h r u p .

I wish to c a l l your a t t ent ion to the Commission's Rules of Pract ice re la t ing to i n i t i a l dec i s ions by the Hearing Examiner, which, among other prov is ions , include the requirements- to the e f f e c t that such an i n i t i a l dec i s ion shal l become the dec i s ion of the Commission th ir ty (30) days from serv ice thereof upon the part i e s unless prior thereto (1) an appeal i s perfected under the provis ions of Section 3.52 of the r u l e s , or (2) the Commission by order stays the e f f e c t i v e date of the dec i s ion , or (3) unless the Commission i s s u e s an order placing the case on i t s own docket for review.

Any party intending to appeal from the Hearing Examiner's i n i t i a l dec is ion i s allowed ten (10) days under Sect ion 3.52 within which to f i l e with the Commission a not ice of in tent ion to appeal. Please take note of these and other requirements appl icable to the proceeding.

By d irec t ion of the Commission.

JpôaephpR. Shea, y^/ Se^petary.

Enclosure / /



J4JL28 1970

Ton M. Schaumberg l?OC Pennsylvania Avenue, N. W. Washington, D. c. 20006


There/is enclosed herewith, by registered mail, an initial decision by Hearing Examiner 2. P. Schrup.

I wish to call your attention to the Commission's Rules of Practice' relating to initial decisions by the Hearing Examiner, which, among other provisions, include the requirements to the effect that such an initial decision shall become the decision of the Commission thirty (30) days from service thereof upon the parties unless prior thereto (1) an appeal is perfected under the provisions of Section 3.52 of the rules, or (2) the Commission by order stays the effective date of the decision, or (3) unless the Commission issues an order placing the case on its own docket for review.

Any party intending to appeal from the Hearing Examiner's initial decision is allowed ten (10) days under Section 3.52 wi;thin which to file with the Commission a notice of intention to appeal. Please take note of these and other requirements 'applicable to the proceeding.


Enclosure

b)<A£t+-


In the Matter of ARTHUR MURRAY STUDIO OF WASHINGTON, INC., et al MR. EDWARD MARANDOLA, individually and as officer of said corporations

Docket No. 8776

AFFIDAVIT OF RETURN OF SERVICE OF THE INITIAL DECISION ON ARUTHUR MURRAY STUDIO OF WASHINGTON» INC., ET AL AND EDWARD MARANDOLA.

I hereby certify that copies of the Initial Decision In the Matter of Arthur Murray Studio of Washington, Inc., et al and Edward Marandola, individually and as an officer of said corporations, were duly served by the affiant on August 28, 1970 by personally handing said copies to Mr. Edward Marandola, also known as Mr. Edward Mara, at the offices of Hilton Stauffer Salon of Boston, 393 Boylston Street, Boston, Massachusetts.

David W. DiNardi, Attorney, Boston Office, Federal Trade Commission.

Boston, Massachusetts. Subscribed and sworn to before me this ninth day of September, 1970.

onn F. McCai Attorney in Charg* Boston Office, Federal Trade Commission.

Dear Mr. Horsti Pursuant to your request made during out telephone conversatl<m on August 28, 1970. enclosed herewith are copies o* the Initial Decision Jn the Matte* of ArthurKtoay SSsadio of Washington* Inc. and Jn the Matter of Arthur Murray Studio of Bathesdo^ .;,#&e. Your cooperation In this matter is appreciated.

Very truly yours,

David W. DINardi Attorney Boston Office Enclosures Certified Mail Return Reoelpt Requested DWDtmc RECEIPT FOR CERTIFIED MAIL—30^ (plus postage)

oo o CO

0 0

o ©

SENT TO

Mr. Vic tor Horst STREET AND NO.

Strong Island P.O., STATE AND ZIP CODE

Chatham, Massachusetts_Q2633 OPTIONAL SERVICES FOR ADDITIONAL FEES,

RETURN RECEIPT SERVICES

1 . Shows to whom and date delivered 10< With delivery to addressee only — 60f

2. Shows to whom, date and where delivered .. 35c With delivery to addressee only 85<

DELIVER TO ADDRESSEE ONLY - 5<X SPECIAL DELIVERY (2 pounds or less)

POOTorm 3800 Sep. 1968

30*

POSTMARK | OR DATE*

NO INSURANCE COVERAGE PROVIDED— NOT FOR INTERNATIONAL MAIL

(See other side)




DOCKET NO. 8776

AFFIDAVIT OF RETURN OF SERVICES OF ANSWER AND REPLY BRIEFS ON TOM M. SCHAUMBERG, ESQ.

I hereby certify that the Answer and Reply Briefs of Counsel in Support of the Complaint in the Matter of Arthur Murray Studio of WasB&ig'feon, Inc., Docket No. 8776, were duly served by the undersigned on December 3, 1970 by personally handing said Briefs to Mrs. Barbara Beach, recepitionist in the law firm of Gadsby and Hannah, located at 1100 Pennsylvania Avenue, N.W., Washington, D.C.


Edward D. Steinman, Attorney, Bureau of Consumer Protection, Federal Trade Commission.

Washington, D.C. Subscribed and sworn to before me tharSk fourth day of December, 1970.

Arthur R. Woods, Notary Public, My Commission Expires, March 14, 1971.


WASHINGTON


MAR 11197J

Arthur Murray Studio of Washington, Inc., Hilton Stauffer Salon of Boston, 393 Boylston Street, Boston, Mass. 02167


There Is enclosed herewith, by registered mall, an Order entered by the Federal Trade Commission In the above-indicated matter.

The statutes under which the Commission functions provide that Its orders and other processes may be served by registering and mailing copies to parties concerned. You will take notice, therefore, that mailing the enclosed order In this manner constitutes due service.

By direction of the Commiesion.

QJL. QTO^-Charles A. Tobin Secretary

Enclosure


WASHINGTON

OfflCE OF THE SECRETARY

MAR a 1371

Victor F. Horst, officer, Arthur Murray Studio of Washington, Inc., Strong Island, Chatham, Mass. 02633


There is enclosed herewith, by registered mall, an Order entered by the Federal Trade Commission In the above-Indicated matter.

The statutes under which the Commission functions provide that its orders and other processes may be served by registering and mailing copies to parties concerned. You will take notice, therefore, that mailing the enclosed order In this manner constitutes due service.


Charles A. Tobin Secretary

Enclosure

FEDERAL TRADE COMMISSION WASHINGTON


MR 11 1971

Edward Marandola, officer, Arthur Murray Studio of Washington, Inc., Hilton Stauffer Salon of Boston, 393 Boylston Street, Boston, Mass. 02167


There is enclosed herewith, by registered mail, an Order entered by the Federal Trade Commission in the above-indicated matter.

The statutes under which the Commission functions provide that its orders and other processes may be served by registering and mailing copies to parties concerned. You will take notice, therefore, that mailing the enclosed order in this manner constitutes due service.


QJL.Q.TJ^-Charles A. Tobin Secretary

Enclosure


OPPICE OP THE SECRETARY

MAR 111921 Arthur Murray Studio of Baltimore, Inc.,

c/o Edward Marandola, Hilton Stauffer Salon of Boston, 393 Boylston St., Boston, Mass. 02167





QJLQ. To^-Charles A. Tobin Secretary

Enclosure


OFFICE OF THB SECRETARY

mm 11 i97i

Victor F. Horst, officer, Arthur Murray Studio of Baltimore, Inc., Strong Island, Chatham, Mass. 02&3'3'






Enclosure


OFflCS OP THE SECRETARY

MAR 1 1

Edward Marandola, officer Arthur Murray Studio of Baltimore, Inc. Hilton-Stauffer Salon 393 Boylston Street Boston, Maes. 02167

DOCKET NO. 3776

Dear Sir: There is enclosed herewith, by registered mail,

an Order entered by the Federal Trade Commission in the above-indicated matter.




/ Enclosure


i

OP,K»OPTH.«C«T«V i m m

1

Arthur/Murray Studio of Bethesda, Inc, c/o Ecjward Marandola Hilto«i-S-batiffer Salon 393 Bfiylston St. Boston, Mass. 02167

DOCKET NO.8776 •Gentlemen:

." There Is enclosed herewith, by registered mall, an Order entered by the Federal Trade Commission In the above-Indicated matter.

4 The statutes under which the Commission functions

provide that Its orders and other processes may be '' I served by registering and mailing copies to parties . ( concerned. You will take notice, therefore, that ■ mailing the enclosed order In this manner constitutes

due service. By direction of the Commission.

dL.Q Charles A. Tobin Secretary

(

Enclosure



MAR 1 1 1 9 7 1

Victor F. Horat, officer, Arthur Murray Studio of Bethesda, Inc. Strong Island Chatham, Maes. 02633

DOCKET NO. 8776

Dear Sir:




Charles A. Tobin Secretary-

Enclosure


OFFICE OP THE SECRETARY n \m

Edward Marandola, officer Arthur Murray Studio of Bethesda, Inc. Hilton-Stauffer Salon 393 Boylston Street Boston, Mass 02167





QJLQL Charles A. Tobin Secretary

Enclosure


OFFICE OF THE SECRETARY p

i

■jftrthur Murray Studio of Silver Spring, Inc. , jc/o Edward Marandola

iHilton-Stauffer Salon .393 Boylston Street ifeoston, Mass. 02167 H , i : 1

DOCKET NO. 8776

Gentlemen:





NA*U

Enclosure



Victor F. Horst, officer Arthur Murray Studio of Silver Spring, Inc. Strong Island Chatham, Mass. 02633

DOCKET NO. 8776

Dear Sin

There Is enclosed herewith, by registered mail, an Order entered by the Federal Trade Commission in the above-indicated matter.



QJL.Q. To^-Charles A. Tobin Secretary

Enclosure

MARllWfl


OFFICE OF THE 8ECRETARY 11

/ f

/ Edward Marandola, officer / Arthur Murray Studio of Silver Spring,/ Inc. Hilton-Stauffer Salon , • 393 Boylston Street Boston, Mass. 02167

DOCKET NO.8776 Dear Sir:




CJL.Q 7 Charles A. Tobin Secretary-

Enclosure

r ' FEDERAL TRADE COMMISSION

WASHINGTON

OFFICE OP THE 8ECRETARY

MAR 1 1 1 3 7 1

Cahill, Gordon, Sonnett, Reindel & Ohl 1819 H Street, N. V, Washington, D. C. 20006

DOCKET NO. 8776

Gentlement

There is enclosed herewith, by registered mall, an Order entered by the Federal Trade Commission in the above-indicated matter.

The statutes under which the Commission functions provide that Its orders and other processes may be served by registering and mailing copies to parties concerned. You will take notice, therefore, that mailing the enclosed order in this manner constitutes due service.



Enclosure

« r -



MAR 1 1

Synder, Tepper & Berlin 73 Tremont Street Boston, Mass 02108

DOCKET NO. 8776

Gentlemen:

There is enclosed herewith, by registered mail, an Order entered by the Federal Trade Commission in the above-Indicated matter.

The statutes under which the Commission functions provide that Its orders and other processes may be served by registering and mailing copieB to parties concerned. You will take notice, therefore, that mailing the enclosed order in this manner constitutes due service.



Enclosure

V" "TgpF'



! i ' !

Tom M. Schauaberg 1700 Pennsylvania Washington, D. C.

Avenue, N. /20006

v.

\ i

\ / i1

/ [DOCKET NO. 8776

i Dear Sir:

There Is enclosed herewith, by registered mall, an Order entered by the Federal Trade Commission In the above-indicated matter.

The statutes?under which the Commission functions provide that its orders and other processes may be served by registering and mailing copies to parties concerned. You will take notice, therefore, that mailing the enclosed order in this manner constitutes due service.


/! A Charles A. Tobin (

I Secretary-

Enclosure / •'

/ • 1 / i

I

i 4 i i

408 FEDERAL TRADE COMMISSION DECISIONS

Initial Decision 78 F.T.C.

INITIAL DECISION BY ELDON P. SCHRUP, HEARING EXAMINER

JULY 16, 1970

STATEMENT OF THE PROCEEDINGS

The complaint in this matter issued April 3,1969, and. charges certain alleged acts and practices by the named respondents were all to the prejudice and injury of the public and of respondents' competitors and constituted and now constitute, unfair 'methods of competition in commerce and unfair and deceptive acts and practices in commerce, in violation of Section 5 of the Federal Trade Commission Act.

Respondents filed answers on May 16, 1969, and a prehearing conference was held on June 16, June 27 and ,July 3,1969. Subsequently to the preheating conference of July 3, 1969, a joint motion by respective counsel, that the matter be withdrawn from adjudication and a settlement agreement containing a consent order to cease and desist be accepted, was certified to the Commission recommendation on July 11, 1969.

The principal difference between the order to cease and desist in the proposed consent settlement and the form of the order to cease and desist set forth in the Notice of the complaint was as to Paragraph 9 of the complaint order which prohibited the respondents from entering into one or more contracts or written agreements under which a student or other party is obligated to pay a total amount which at any one time exceeds $1,500. In contrast, the order to cease and desist in the proposed consent settlement read in this regard as follows:

9. Entering Into one or more contracts or written agreements for dance Instruction or any other service provided by respondents dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $4000.

The matter was contingently withdrawn from Adjudication by Commission order of August 11, 1969, which stated an acceptable order to cease and desist for settlement purposes would following:


Motions filed by respective counsel for Commission reconsideration of Paragraph 9 of the order to cease and desist in the proposed con-

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ET AL. 409

401 Initial Decision

sent settlement were denied by Commission order of October 9, 1969, and the matter was directed to be returned to adjudication.

The preheating conference was reconvened on November 5, 1969, and a stipulation of facts between the parties encompassing Paragraphs One through Fifteen of the complaint was entered on the record.1 The form of an order was jointly agreed upon by the parties except for the inclusion of the words "or other services" contained in the preamble and the $1,500 indebtedness limitation contained in Paragraph 9 of the order to cease and desist proposed by complaint counsel.2 Legal briefs were filed by the parties and oral argument was held thereon following which the record for the reception of evidence was ordered to. be, closed at the preheating conference on December 19, 1969.

Complaint counsel on January 5, 1970, moved to reopen the record for the reception of further evidence in support of and confined to the above proposed Paragraph 9 of the order to cease and desist. Said motion by complaint counsel stated in part:

Complaint counsel will introduce evidence through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts in excess of $1500. Evidence will be adduced from Members of the dance industry to show that $1500 is a fair balance between the practical business need of an operator of a dance studio and an equitable and fair amount which a person should be indebted for dance instruction.

Respondents', application for permission to file an appeal from the order reopening the record for such limited purpose was denied b y Commission order of February 17,1970. On February 20,1970, the preheating conference was ordered reconvened on March 2, 1970, and the hearing was set I-or March 23,1970. Upon the unopposed request of counsel for the respondents the hearing was reset for March, 30, 1970.

The hearing on the case-in-chief was held March 30, 31, April 2, 3, 7, 9, 10, 13 and complaint counsel rested their case, at the hearing on April 14,1970. The hearing on the defense was held April 16,17,21, 22,23 and defense counsel rested his case at the hearing on April 23,1970." Nu rebuttal hearing was held and the record for the reception of evidence was closed by order of the hearing examiner entered April 27, 1970.

The names, addresses and occupations of the various type witnesses and the transcript location of their testimony are as follows,

Tr. 102-113 of the preheating conference of November 5,1969. Tr. 113-121 and 123 of the prehearing conference of November 5, 1969.



1. Mrs. Eleanor Lee Templcman, 3001 Pollard Street, Arlington, VA., Writer and Publisher (Dance Student) Tr. 347463.

2. Mrs. Dorothy A. Lockhart-Muminery, 134 Chanel Terrace, Falls Church, Va., Librarian (Dance Student) Tr. 463-610.

3. Mrs. Elise McKee. 3601 Connecticut Avenue, Washington, D.C., Retired (Dance Student) Tr.610-660. 4. Mrs. Katherine Hailman, 800 4th street, S.W., Washington, D.C., Retired (Dance Student) Tr. 660-697. 5. Mrs. Winifred Lapin, 2121 Virginia Avenue, N. W., Washington, D.C., Retired (Dance student) Tr. 697-767. 6. Mrs. Gertrude M. Stambaugh, 3900 Connecticut Avenue, Washington, D.C., Retired (Dance Student) Tr.

768-814. 7. Mr. David G. Crocco, 336 Eastside Avenue, Ridgewood, New Jersey, Claims Attorney, Tr. 818-984. 8. Mr. Perry S. Gregory, 4373 Lee Highway, Arlington, Virginia, Dance Studio Operator and Professional Dance

Instructor, Tr. 1109-1172. 9. Mr. Billy Orvis Shelton, 1810 Midlothian Court, Vienna, Virginia, Dance Studio Operator and Professional

Dance Instructor, Tr. 1173-1221. 10. Mrs. Beatrice H. Riddle, 2908 Naylor Road, S.E., Washington, D.C., Secretary (Dance Student), Tr. 1225-

1314. 11. Miss Kathleen Bare, 2461 Wisconsin Avenue, Washington, D.C., Professional Dance Instructor, Tr. 1345-

1493. 12. Mr. John Wells, 3511 Lancer Drive, Hyattsville, Maryland, Accountant, Tr. 1496-1512. 13. Mr. James Graham, 101 Kennedy Street, Alexandria, Virginia, Dance Studio Operator and Professional Dance

Instructor, Tr. 1515-1607. 14. Mr.JosephJ.Koman.Jr., 118Hazel Drive, Manassas, Virginia, F.T.C. Investigation Attorney, Tr. 1611-1673.

DEFENSE

1. Mr. Frank Regan, Wayne, Pennsylvania, Professional Dance Instructor, Tr. 986-1107. 2. Miss Kathleen Bare, 2461 Wisconsin Avenue, Washington, D.C., Professional Dance Instructor, Tr. 1493-

1495. 3. Mrs. Francis Diane Shane, 500 N. Roosevelt Blvd., Falls Church, Virginia, Administrative Assistant (Dance

Student), Tr. 1689-1768. 4. Mr. John Saionz, 100 Truesdale Drive, Croton on the Hudson, New York, N.Y., Dance Studio Operator, Tr.

1769-1910. 5. Mr. Ward Thomas Chapman, 4505 Brentwood Drive, Kansas City, Missouri, Dance Studio Operator, Tr.

1913-2020. 6. Mr. James E. McCormick, 4166 Fleethaven Road, Lakewood, California, Dance Studio Operator, Tr. 2021-

2046. 7. Mr. Philip A. Trout, 11215 Oakleaf Drive, Silver Spring, Maryland, Electronics Engineer (Dance Student).

Tr. 2049-2099. 8. Mrs. Olive Carr, 305 Redding Avenue, Rockville, Maryland, Retired (Dance Student), Tr. 2101-2172. 9. Mrs. Margaret J. Leary, 1204 Oakview Drive, Silver Spring, Maryland, Secretary (Dance Student), Tr. 2193-

2211.



Mr. Richard J. Lurito, 4814 North 20th Place, Arlington, Virginia, Assistant Professor Economics, Tr. 2233-2349

The record, in addition to such testimony, embraces a substantial number of documentary exhibits, all of which have been considered in this initial decision, together with the proposed findings of fact, conclusions, briefs and the replies thereto by respective counsels. Proposed findings of fact, conclusions and order as submitted by respective counsel and not hereinafter adopted or found in substance or form are rejected as being irrelevant, immaterial or not supported by the facts of record.

Following a thorough review of the record in this proceeding and based upon both observation of all witnesses testifying and consideration of their overall testimony, the following Findings of Fact, Conclusions and Order are hereby made and issued.

FINDINGS OF FACT

1. Respondent Arthur Murray Studio of Washington, Inc., is a corporation organized, existing and formerly doing business under and by virtue of the laws of the District of Columbia, with its principal office and place of business formerly located at 724 14th Street, Northwest, in the city of Washington, district of Columbia.

Respondent Arthur Murray Studio of Baltimore, Inc., is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 217 North Charles Street, in the city of Baltimore, State of Maryland.

Respondent Arthur Murray Studio of Baltimore, Inc., is a corporation organized, existing and formerly doing business under and by virtue of the laws of the state of Maryland, with its principal office and place of business formerly located at 4923 Elmo Drive, Bethesda, Maryland.

Respondent Arthur Murray Studio of Silver Spring, Inc., is a corporation organized, existing and formerly doing business under and by virtue of the laws of the State of Maryland, with its principal office and place of business formerly located at 934 Ellsworth Drive, Silver Spring, Maryland.

Respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, are individuals and are officers of all the corporate respondents. They formulated, directed, and controlled the acts and practices of the corporate respondents, including the acts and practices hereinafter set forth. Respondent Victor F. Horst's business address is the Racket Club, 7930 East Drive, Harbour Island, Miami



Beach, Florida. Respondent Edward Marandola, also known as Edward Mara, maintains his business address at 9 West Washington, Chicago, Illinois.3

2. The individual respondents are now, and for some time last past have been, engaged in the operation of dance studios and in :the advertising, offering for sale, and sale of courses of dancing instruction to the public. The corporate respondents for some time last past have been engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public.4

3. In the course and conduct of their business as aforesaid, respondents for some time last past have, caused their advertising matter to be published in newspapers of interstate circulation and their promotional materials to be sent or otherwise conveyed to various prospective customers residing in the States of Maryland and Virginia and the city [of Washington in] of the District of Columbia. Advertising matter, contracts, letters, checks or other written instruments and communications have been sent and have been received between the respondents at their former places of business located in Washington, D.C., and in various other States of the United States. In addition, written communications and instruments, including payroll records, contracts, payment records and other documents, have been passed between the aforesaid studios and a bookkeeping firm located in the State of Florida, owned by the individual respondents. As a result of said interstate advertising and promotion and as a result of said transmission and receipt of said written instrument, and communications, respondents have maintained a substantial course of trade in said courses of dancing instruction in commerce, as "commerce" is defined in the Federal Trade Commission Act.5

4. In the course and conduct of their aforesaid business, respondents have made certain representations in newspaper advertisements, and by other means, including social security number contests, "special selection" offers, and "Can You Spell" contests, in which the winner is awarded a gift certificate entitling him or her to a specified number of Arthur Murray lessons purportedly worth from $35-$65. The representations made in newspaper advertisements have included those which relate to special or introductory offers purporting

3 Paragraph One of the complaint admitted by stipulation between counsel at Tr.98-103. 4 Paragraph Two of the complaint admitted by stipulation between counsel at Tr. 103. s Paragraph Three of the complaint admitted by stipulation between counsel at Tr. 103-104.



to furnish the first lessons of a course of dance instruction or a short course in dancing either at a reduced price or free of charge.


CAN YOU SPELL

WIN A $65.00 DANCE COURSE IF YOU CAN FIND THE MISSPELLED WORDS

* * * * * * *


WIN PRIZES WORTH $300 $250 $200 $150 $100 $75

PLAY THE EXCITING NEW SOCIAL SECURITY

GAME

WINNERS EVERY WEEK

SOCIAL SECURITY GAME RULES.

Every week there will be WINNERS in each prize category. The winning number will be selected from among social security numbers sent to us . . . . 6

5. By and through the use of the aforesaid statements and representations, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by implication, that:

(1) Said contests are based on abilities and skills of the contestants, or upon chance and that a winner will be chosen on one of these bases.

(2) The winner of said contests will receive a gift certificate worth a stated amount or, either without charge or at a reduced price, a bona fide course of dancing instruction or a specified number of bona fide dancing lesson.7

6. In truth and in fact: (1) Said contests are not based on skills or abilities of the contestants or upon chance, nor are

winners chosen on any of these bases. The purported contests are so simple of solution or the winning thereof so easy, as to remove them from the categories of competition, skill, or special selection, and are such that substantially everyone, if not all, can qualify and win. Rather the purported

Paragraph Four of the complaint admitted by stipulation between counsel at Tr. 104-105.

7 Paragraph Five of the complaint admitted by stipulation between counsel at Tr. 106.



quizzes, puzzles, and contests are designed to attract members of the purchasing public for the purpose of obtaining leads to prospective purchasers of dance instruction.

(2) The winners of said contests do not receive a gift certificate worth the stated amount, or a bona fide course of dancing instructions or a specified number of bona fide dancing lessons. Although they receive some dance instruction in the beginning of the specified time, the balance of the course is devoted to sales talk designed to induce the purchase of further dancing lessons or the signing of a long term dancing instruction contract.

Therefore, the statements, representations and practices as set forth in Findings 4 and 5 hereof were and are false, misleading and deceptive.8

7. In the course and conduct of their aforesaid business, respondents have made certain representations on postal cards sent through the United States mail.


Your Telephone Number was selected today, and this entitles any adult to a Wonderful Gift, fully paid for by our Advertising Department...No obligation or charge to you.

Please call 783-0880 between 3:00 p.m. and 9:00 p.m., Monday through Friday, to tell us the name and address of the person entitled to the gift.9

8. By and through the use of the aforesaid statements and representations, and others of similar import and meaning but not expressly set out herein, respondents have represented, directly or by implication, that the recipient has been selected to receive a valuable and unconditional gift.10

9. In truth and in fact the recipient has not been selected to receive and will not receive a valuable or unconditional gift. After dividing the local telephone directory into certain sections, respondents' representatives send cards to each name listed therein, for the purpose of obtaining leads to prospective purchasers of dancing instruction. The recipient of respondent's "gift" is lured into one of respondents' studios under the guise of receiving a "dance certificate" supposedly entitling him to a number of free dancing lessons. Instead, he is thereupon subjected to a sales talk to induce the purchase of a course of dancing instruction.

Paragraph Six of the complaint admitted by stipulation between counsel at Tr. 106-107. Paragraph Seven of the complaint admitted by stipulation between counsel at Tr. 107-108. Paragraph Eight of the complaint admitted by stipulation between counsel at Tr.



Therefore, the statements and representations as set forth in Findings 7 and 8 herein were and are false, misleading and deceptive.11

10. In the course and conduct of their aforesaid business, respondents have, made representations concerning adult social clubs in newspaper advertisements appearing in the Washington, D.C., area of which the following appearing in the pictured advertisements at pages 7, 8 and 9 of the complaint are typical and illustrative, but not all inclusive thereof.l2

11. By and through the use of the aforesaid statements and representations, and others of similar import not specifically set out herein, respondents have represented, directly or by implication, that the Party Time Club and the Holiday Club were bona fide adult social clubs, offering members ii program of activities such as daily and weekly social events and gala night club parties.13

12. In truth and in fact, the Party Club and the Holiday Club were not bona fide adult social clubs offering members a program of activities such as daily and weekly social events and gala night club parties. These clubs were devices used as a means of obtaining the names of prospective students and of luring prospects into the studios where the sales presentation for dancing instruction purchases may be made. Unless a member contracted to purchase a substantial amount of dance instruction usually between $450-$5,000, there were no activities in which he might participate irrespective of any club registration which he may have paid.

Therefore, the statements and representations as set forth in Findings 10 and 11 hereof were and are false, misleading and deceptive. 14.

13. In the course and conductor their aforesaid business, respondents, directly or through their representatives and employees, have used various unfair deceptive techniques and practices as a means of selling initial or supplemental courses of dance instruction. Typical and illustrative, but not all inclusive, of such techniques and practices are the following:

(1) The use of sham "dance analysis tests" for the alleged purpose of evaluating the student's ability, progress or proficiency, when in fact all students and prospective students are given the same test results regardless of dancing ability, aptitude or proficiency.

11 Paragraph Nine of the complaint admitted by stipulation between counsel at Tr. 108-109. 12 Paragraph Ten of the complaint admitted by stipulation between counsel at Tr. 109. 13 Paragraph Eleven of the complaint admitted by stipulation between counsel at Tr. 109. 14 Paragraph Twelve of the complaint admitted by stipulation between counsel at Tr. 109-110.



(2) Respondents represent to students or prospective students that upon completion of a given course of dancing instruction the student will have achieved a specified standard of proficiency, whereas, in fact, before the given course of dance instruction is completed and before the specified standard of proficiency has been achieved, the prospect or student is subjected to further coercive sales efforts toward the purchase of additional instruction in dancing.

(3) The use of "relay salesmanship," involving successive efforts of a number of different Arthur Murray representatives who, in a single duty by force of number and unrelenting sales talks, and aided occasionally by hidden listening devices monitoring conversation with the prospect or student, attempt to persuade and do persuade a lone prospect or student to sign a contract for dancing instruction.

(4) The use of intense, emotional, and unrelenting sales pressure to persuade a prospect or student to sign a contract obligating such person to pay for a substantial number of dancing lessons at substantial cost without affording such person a reasonable opportunity to consider and comprehend the scope and extent of the contractual obligations involved. Such contracts often provide for more than 100 hours of dancing instruction with a cost to the prospect or student in excess of $1,500, and such person is insistently urged, cajoled, and coerced to sign such a contract hurriedly and precipitately through the use of persistent and emotionally forceful sales presentations which are often of several hours duration.

Therefore, these statements, representations and practices as hereinabove set forth were and are unfair and deceptive.15

The evidence of record discloses the following as to: (1) The sham "dance analysis tests." Persons responding to the various advertising and promotional devices disseminated by

respondents or prospective students coming to the studio other than in response to such advertising and promotional material were directed to studio personnel known as "analysts" (Tr. 820,826,918). The function of the analysts was to give the prospect a test allegedly for the purpose of evaluating the prospect's initial dancing capability (Tr. 826-827). In reality, the analyst would be reciting from an elaborate script from which the analyst was required to memorize quotations to be used on each and every prospective student (Tr. 820; CX 58 A-58 B).

15 Paragraph Thirteen of the complaint was admitted by the stipulation between counsel at Tr. 110-112. Upon the reopening of the case for further evidence, counsel for the respondents over objection by complaint counsel made a disclaimer of the stipulation as to Paragraph Thirteen. See Tr. 358-362,373-374,474-480,529-539,1327-1328.Absent the stipulation, however, the evidence herein introduced by complaint counsel amply supports the allegations of the said paragraph.



After approximately one-half hour of purportedly evaluating the prospect's dancing ability, the analyst would introduce the prospect to a dance studio employee known as a supervisor (Tr. 827). The function of the supervisor was to sell the, prospect a moderately expensive dance instruction program (Tr. 896). Once the prospect purchased a dance instruction program, the new student would be assigned to an interviewer or junior who would schedule the student for the four hour junior procedure (Tr. 828; CX 59 A-59 H).

During the four hour junior procedure, the interviewer would attempt to find out personal background information which would form the basis of an emotional appeal to sell instruction (Tr. 839). Mr. David G. Crocco, a former interviewer at respondents' studio in Baltimore, Maryland, testified that he was able to discover the prospect's background by responses to questions posed to the prospect concerning her "social life," "contacts," "attitudes toward people" and "attitudes toward dancing" (Tr. 838). This fact finding was facilitated by having, the prospect fill out a background questionnaire (Tr. 847, 855).

The interviewer prepared a plan of instruction for the individual and introduced the student to a number of dance steps which had to be mastered and demonstrated to the satisfaction of the supervisor prior to approval of the dance instruction program (Tr. 847-849,853-862). The approval test was allegedly given to determine whether the student could achieve the planned dance standard within the hours set forth by the interviewer.

Upon being advised of passing the approval test, the student would be taken into the "closing room" to secure an executed contract. Mr. Crocco described the physical and mental appearance of the students at closing as follows:

Most of them were emotionally drained at that time. I had built up the test to such an importance in the prospect's mind that they often told me it had assumed the importance of an appearance before a judge and jury. (Tr. 869.)


Students were also given alleged dance analysis tests at other times during the course of instruction, such as prior to a proposed extension of an existing dance instruction program or as a prerequisite to qualifying to be a member of respondents' purportedly elite clubs respectively termed the "500 Club" and the "Tiffany Club"



(Tr.. 373,375,378,395,437,471-472,500,506,658,703,853,1124,1235). Messrs. Crocco and Perry S. Gregory both former employees of respondents' dance studios, described such tests as a "sham" and "of no importance" (Tr 853,1124). Mr. Marandola advised his employees that "nobody flunks" the tests (Tr. 1126).

It is noted that respondent's use of sham "dance analysis tests" is to prohibited by identical language in Paragraph 6 of the order to cease and desist proposed by complaint counsel and Paragraph 6 in the order to cease and desist proposed by counsel for respondents. This paragraph of the order reads as follows:

6. Using "dance analysis" tests or any other device purportedly designed to evaluate dancing ability, progress, or proficiency when such test or device is not so designed and so used; or misrepresenting in any manner a student's or prospective student's dancing ability, or the progress made or proficiency achieved by a student during the course of or as a result of taking respondent's courses of instruction.

(2) The sales of additional dance instruction before the current contracted for course of instruction is completed.

The twenty-eighth proposed finding by complaint counsel asks for a finding that: 28. Respondents have regularly and systematically obtained dance instruction contracts from

students who had outstanding contracts with untaught hours of dance instruction. The reply by counsel for the respondents to this proposed finding states:

While respondents have obtained contracts from students who had contracts outstanding, the agreed-to order makes such further contracts unconditionally cancelable.

The controversy between respective counsel arises over the modification of Paragraph 11 in the order to cease and desist submitted by complaint counsel in their proposed findings of fact filed June 5, 1970. Respondents' reply filed June 19,1970, contains in Appendix A. a letter from complaint counsel dated August 29,1969, forwarding a draft of a proposed Paragraph 11 to be adopted in the non-contested provisions of the proposed order to cease and desist agreed upon between respective counsel. This provision was adopted in complaint counsel's brief before the hearing examiner filed November 18,1969." The same provision is also submitted in the proposed order to cease and desist in the respondent's Proposed Findings of Fact and Brief filed June 8,1970. The provision as originally agreed

16 Tr. 113-121 of the prehearing conference on November 5, 1969.



upon between respective counsel will be adopted in the order to cease and desist hereinafter being entered.

It will here be further noted that complaint counsel have also departed from the form of other of the noncontested provisions agreed upon and further have submitted several new provisions in their proposed order to cease and desist which are not related to the limited purpose for which the proceeding was reopened.17 The paragraphs in questions are 1, 10, 12, 13, 14, 15, 18 and 19. Paragraphs 1, 10,18 and 19 will be adopted in their original agreed upon form in the order to cease and desist hereinafter being entered. New Paragraphs 12, 13, 14 and 15 will be rejected. It will be observed as to proposed new Paragraphs 12 and 13 that the complaint makes no allegation nor do the terms therein set forth find adequate record support.18 As to new proposed Paragraph 14 the complaint contains no allegation as to such a limitation and it is also apart from the $1,500 limitation herein specifically litigated. The, same can also be said as to the proposed new Paragraph 15 for inclusion in the, order to cease and desist being entered.

(3) The use of "relay salesmanship." The use of "relay salesmanship", involved the consecutive sales .efforts of a number of different

Arthur Murray representatives who by force of number and continuing sales talks attempted to persuade and did persuade prospective and actual student to sign contracts for dance instruction. Hidden listening devices were utilized by respondents to assist in persuading prospective and actual students to execute dance instruction contracts. (Tr. 861-862,888,1357). "Relay salesmanship" was a common device used by respondents to procure dance instruction contracts from prospective and actual students (Tr. 379-382, 506,897-898,1235-1236).

It is noted that respondents' use of "relay salesmanship" is to be prohibited by identical language in Paragraph 8 of the order to cease and desist proposed by complaint counsel and Paragraph in the order to cease and desist proposed by counsel for the respondents. This paragraph of the order reads as follows:

8. Using in any single day "relay salesmanship," that is, consecutive sales talks or efforts of more that one representative to induce the purchase of dancing instruction.

(4) Respondents' sales pressures relating to the entry into dance instruction contracts aggregating in excess of $1500 owing at any one time.

17 See pages 1-6 of respondent's reply filed June 19, 1970. 18 Proposed Paragraph 13 appears intended to correspond with Section 1812.97 of Title 2.5 of

the California Civil Code entitled Contracts for Health or Dance Studio Services.



The first complaint witness a divorcee age 57 at the time period herein concerned19 testified at length is to the various representations made to her to induce her to join the respondents' 500 Club and the sales pressures exerted to cause her to join, together with the excuses made for the refusal of the allowance to her of any time for consideration of the financial obligations involved. A particular inducement according to the witness was that "if I joined the 500 Club they would include at no extra expense a trip to Acapulco with the staff, with my teacher going along as my escort, for a wonderful week in Mexico. 11 (Tr. 377-382.) According to the witness she paid out approximately $11,000 to the respondents during the course of the year 196-1 (Tr. 387-390).20

The second complaint witness a divorcee age 47 at the time period herein concerned, testified that from the first dance instruction contract with the respondents in March 1964 to her last in August 1965 she had signed for 696 hours of dance instruction and paid a total amount of from $12,000 to $13,000 (Tr. 468-469 and CX 15-CX 27). The witness quite vividly described her sales pressure ordeal and the results obtained by the respondents (Tr. 482-484, 499-517, 587). As regard CX 19 in the amount of $1,332.80 the witness recognized that it provided for "a weekend trip to the World Fair, with dinner at the Tavern of the Green and the Roseland Ballroom dancing * * * I was importuned by my instructor to do this. As with all the other importunings I agreed." (Tr. 482.) According to the witness her trip expenses and those of her instructor were included in the contract amount paid (Tr. 483-484).

As to CX 26 signed August 24, 1965, in the amount of $6,377 and paid for in cash, the witness entered a strong protest as to the sales pressures causing her to sign such contract for a 500 Club membership which the respondents refused to cancel (Tr. 524-527 and CX 29 and 30). As to CX 20 in the amount of $1,803 the witness also recognized it provided for membership in respondents' 500 Club and inclusion in its social activities (Tr. 486). Under cross-examination the witness testified "As a rule of thumb, I would say that every contract for a sizeable sum was entered under extreme pressure or what I interpreted as extreme pressure. To me it was extreme pressure" (Tr. 547) and "I did not of my own volition sign any of these sizeable contracts without extreme pressure being exerted upon me. I resisted every step of the way." (Tr. 548.)

The third complaint witness a widow age 69 at the time period concerned entered into 7 dance contracts with the respondents be-

See tabulation of witnesses in order of appearance at page 410, supra. See CX 1-14 and Tr. 363-364, 373-382, 394-400.



tween December 1964 and December 1965 which totaled approximately $17,820 (Tr. 613-614 and CX 33-CX 39). At Tr. 620 the witness testified that CX 34 entered in December 1964 in the amount of $8,033.50 represented $6,033.50 for dance lessons and a $2,000 overcharge for a sponsored trip by the respondents to Hawaii. Commission Exhibit 34 discloses on its face that it wits for 350 hours of dance instruction and a membership in the 500 Club. Commission Exhibit 34 bears the morbid statement "Hours may be willed in case of death." As to entering into this contract the witness testified "Well, it was hard not to sign on the dotted line, because I was more or less pressured into doing it. It was to take a trip to Hawaii, plus the 350 hours of lessons. And it was a combination of wanting to go, but not wanting to buy as many hours as that." (Tr. 620.) As to the "Hours may be willed in case of death," the witness testified "Well, I had been very ill, very bad operation, a year and a half or so before that, and didn't really know whether I would get through with these number of hours. So I was determined that. I would at least be able to will them to somebody. And I specified that I wouldn't sign unless I did and they wrote that in." (Tr. 621.) As to the $2,000 overcharge the witness testified "It paid my way, a teacher's way, an escort to Hawaii, and back, plus the expenses for meals and hotels and entertainment. It covered everything except some small items." (Tr. 625.) Testifying as to another of the contractual arrangements with the respondents involving a European trip, the witness stated that the $4,734.10 paid by her represented $2,734.10 for 150 hours of dance instruction and a $2,000 overcharge covering the expense of the trip for the teacher and herself. The witness stated the 150 hours of dance instruction was not used on the trip and when asked why she signed up for additional hours when she already had 467 unused hours outstanding, the witness replied "Well, its the same story, to go on the trips they required to buy some hours. That is what I was told, that if I Went on the trip I would have to, purchase this amount of hours." (Tr. 632-633.)

The fourth complaint witness a widow age 62 at the time period herein concerned, testified to having entered into 8 different dance contracts between January 1967 and November 1967 with the respondents. The contracts totaled approximately $ 11,000 which the witness testified to having paid (Tr. 669-670 and CX 40-CX 47). Her testimony in such connection is succinct and graphic "No matter how long you danced, they always said you weren't good enough and you needed all of these lessons. So I had to keep on paying money to take more lessons." (Tr. 670.) Commission Exhibit 45 in the


Initial Decision 78 F.T.C

amount of $4,428 provided for membership in the respondents' 500 Club. As to this contract and why she signed it, the witness stated "I just get kind of hypnotized by the whole thing. And I kept on wanting to go on." (Tr. 678.)

The witness also testified to having signed still a ninth contract in November 1967 in the amount of $7,710 paid by check (CX 48) on, which she stopped payment. The circumstances, surrounding the induction of the witness in respondents' Tiffany Club and the stop page of payment on the $7,740 check, are set forth in the testimony of the witness at Tr. 685-688,695. Further see, Tr. 688-693 44d CX 49. As to the sales pressures directed by respondent Horst in connection with the Tiffany Club. see Tr. 394-399,447-451.

A fifth complaint witness and a divorcee for some 29 years pasts testified as to her entry during October 1963 into CX 50, a 500 club dance contract, calling for the payment of $4,390 to the respondents. At Tr. 700-701 the following appears:

Well, at that time, I had been asked to, invited to join the 500 Club, which involved 500 hours and 12 special parties at the studio-I mean with studio teachers. But I found that I couldn't possibly raise that amount for 500 hours, which was about $7,000. So I decided I couldn't do it. Then I came into the studio and I was asked to have a talk with Mr. Mara. So he talked to me in one of the small offices and tried to persuade me and impress on me how, what a wonderful opportunity this was and that I would be very foolish not to do it and I would be sorry for the rest of my life if I didn't sign up.

I tried to say no and get our of it and I got very, very upset because I got frightened at paying out all that money and having nothing to fall back on. I remember I started crying and couldn't stop crying. All I thought of was getting out of there.

So finally after -1 don't know how much time, Mr. Mara said, well, I could sign up for 250 hours, which was half the 500 Club, which would amount to $4300.

So I finally signed it, because I was-*r *r *!* n* ■!■ »l* T^

HEARING EXAMINER SCHRUP: Go ahead. Finish your statement. THE WITNESS: I had entered into that contract for $500 -500 hours, I mean - at the end of

September before I actually found out whether I could raise the money. After that, I tried to raise the money from the bank and found I couldn't get a loan for that amount and I didn't have any savings and I had to get a bank loan to pay for it. That was when I went back and asked him to cancel that contract. But Mr. Mara said that he couldn't cancel it, but they did agree to make it just half of it, the 250 hours.

HEARING EXAMINER SCHRUP: The Mr. Mara you speak of, do you recognize him as being present in the hearing room?

THE WITNESS: Yes. See the further testimony of the witness as to the "closing" of her contract with respondent mara

at Tr. 706 and the corroborating



testimony of the witness Gregory in this and other contract "closings" of like nature at Tr. 1124-1128. The sixth complaint witness age 70 at the time period herein concerned, testified as to the

circumstances of her joining the respondents' 500 Club (Tr. 775-784). Commission Exhibit 54 is the letter of recommendation by her instructor to Mr. Mara and Staff and CX 55 is the congratulatory letter to the witness from Mr. Mara on her acceptability. Commission Exhibit 53 is her 215-hour contract in the amount of $4,000 entered into on September 20, 1963, and paid with a $100 down payment, $2,700 on September 24, 1963, and the balance of $1,200 in 60 days according to the witness (Tr.786). The witness further described the circumstances of her entry originally proposed to her as being for 100 hours as a cost to her of $2,600 but reduced to 50 hours at a term price of $1,332,80 when she demurred to signing. The witness testified she finally settled for and paid a cash price in the amount of $1,248.84 (Tr.787-790). The contract was for additional dance instruction hours for a proposed exhibition movie including the witness allegedly to be used by the respondents on TV plus a sponsored weekend dance student group visit to New York and the World's Fair with dance instructor escorts. The witness stated as to payment of the expenses of the instructor escorts, "I presume it came out of what we paid for these contracts." (Tr. 791)

The seventh complaint witness who was single and age 42 at the time period herein concerned, testified as to the circumstances surrounding her signing and paying for CX 64 dated January 4,1965, being a Holiday Club membership purchased for $438 and CX 65 dated January 9,1965, in the amount of $5,118.18 for a 500 Club membership (Tr. 1232-1242). At Tr. 1236 the witness testified as to her entry into the 500 Club:

Q. Can you tell us why you characterized it as an unpleasant experience? A. First of all, I did not want the lesson, and I think it was unpleasant because I had three, maybe

four, people, as I say, pressuring me to buy something by a certain time, and I do recall asking that I be let to think, let me think it over, and I was told that the contest would end at 6 o'clock or something to that effect and if I did not sign by a certain time it would be too late.

Q. Did you sign by that time? A. I think we got under the deadline by maybe a minute or two. Under cross-examination the witness reiterated her direct testimony that she signed dance

instruction contract CX 65 under ad-

470-536-28



verse circumstances and that she had wanted time to think it over. At Tr. 1299-1300 the following appears in this connection:

Q. I am now asking you if your wish had been granted, how do you believe this would have affected that contract and your signing of It?

THE WITNESS: If I had been given time to think, I would not have signed that contract. At the hearing of April 7, 1970, a ruling was entered upon the record that the remaining dance

studio customer witnesses designated by complaint counsel who would be cumulative to the testimony of the preceding dance studio customer witnesses called by complaint counsel and accordingly that the testimony of the said remaining witnesses would not be heard (Tr. 1320-1325).

Contested Paragraph 9 proposed for inclusion in the order to cease and desist to be entered herein reads as follows:


It will be noted that the above prohibition is not limited to dance instruction alone but includes any other service provided by respondents' dance studios.

14. Mr. Frank Regan, professional dance instructor and consultant to Arthur Murray, Inc.,21

testified as a defense witness and explained the Arthur Murray dance instruction brochures entitled "Bronze Intermediate and Bronze Medal Standard" (RX 1); "Silver Intermediate and Silver Medal Standard" (RX 2); "Gold Intermediate and Gold Medal Standard" (RX 3); "Gold Bar Intermediate and Gold Bar Medal Standard" (RX 4). According to the witness the Bronze type instruction brochure (RX 1) embraces the popular social dances, such as the, fox trot, waltz, swing, morang, rhumba, cha-cha, tango and samba. The witness stated a degree of proficiency in these dances to the extent that one can execute them in time to the music and lead a partner efficiently on the floor represents the Bronze Medal Standard. As to the hours of dance instruction that might be necessary to be taken, the witness stated it would be somewhere in the region of about 25 to 30 hours to perform each dance to a level where one might be socially adequate on the dance floor (Tr. 1004). The following appears at Tr. 1010-1011:

Q. Mr. Regan, you gave the example before of the young lady that might come in and ask you to teach her the waltz because she is planning to get

21 The expert qualifications ofMr. Regan appear at Tr. 986-1000 and his connection with Arthur Murray, Inc., appears at Tr. 1022-1023.



married at some time in the future. Is It typical for a student to want to learn how to dance to come In and ask about only one dance, or are the students typically Interested In learning a number of dances when we are speaking about this social level of dancing?

A. Yes, yes, it Is quite a common occurrence, I would say. Some people come in who perhaps just want to be able to dance a little bit of foxtrot because that

is all that is played at their country club affairs, you know. Or perhaps they have been exposed to some of the Latin rhythms and In their dancing environment cannot execute them, so they want to learn a little cha-cha, rumba, samba, whatever. Or perhaps they Just come in and want to learn discotheque dancing.

The witness testified that the "Bronze Intermediate and Bronze Medal Standard" as employed by both the Arthur Murray Studio system and other dance studio systems had the same characteristics and that a pupil who could dance the Bronze Medal system proficiently could go into another school, not an Arthur Murray School, and dance with pupils who were proficient in their own Bronze Medal system (Tr. 1013). The witness stated that he personally could get a student with average ability satisfactorily through a Bronze Medal test in less than 100 hours of dance lessons but that he would not attempt to do so in a 50-hour period. A 50-hour time period according to the witness would result in only a minimum passing grade and as to a 75-hour time period the witness stated "Well, you see, you can pass an examination with a 65 percent score or pass it with a 90 percent score" (Tr. 1093-1094).

In explaining what RX 2 the next higher Silver Intermediate and Silver Medal Standard of dance instruction seeks to accomplish, the witness stated the following at Tr. 1025:

A. We now get out of the realm of social dancing and we now start to involve ourselves In something that is not social dancing as such, but is really in the Silver Medal Standard, the beginnings of an art form which eventually will evolve through the medium of the Gold Medal, Gold Bar and Gold Star, into an art form on a very high level.

We are now discussing the type of dancing that is executed by couples who compete in competitions, not dancing that is suitable for the night club floor, but dancing that Is geared toward competitive or exhibition style dancing, dancing of a more extroverted, interpretive nature.

Mr. Perry S. Gregory, a dance studio operator and professional dance instructor,22 formerly employed at respondents' Washington Dance Studio, testified that his present studio operated under student dance instruction contracts not in excess of 50 hours at one time and that depending on the ability of the student, from 50 to 200 hours would allow sufficient time to teach the Bronze Medal Standard of

Mr. Gregory's expert qualifications appear at Tr. 1110-1117.



dancing proficiency. According to Mr. Gregory 200 hours would represent a very slow learner and the student average would be between 125 and 150 hours. Mr. Gregory further testified that the method of payments for dance lessons would not affect his ability to teach a student to achieve a Bronze Medal Standard of proficiency. (Tr. 1135-1136, 1139).

Mr. Billy Orvis Shelton, a dance studio operator and professional dance instructor,23 formerly employed at respondents' so-called 500 Club operation was merely a money making operation. The witness described the procedure used by the respondents to induce students to join this allegedly exclusive membership club "was simply to enroll as many people as you could, get the cash as fast as you could, with no real regard as to what the person would get for the amount of money they were spending. The test itself was not a real test." (Tr. 1174-1175.)

Mr. Shelton testified to the following at Tr. 1184:

Q. Then, would it be accurate for me to say that a student who has agreed to take 25 hours toward a Bronze level proficiency-that that would not affect your ability to teach him to reach that ultimate proficiency?

A. No, we would teach them each hour as through they were working towards the Bronze. Mr. James Graham, a Washington, D.C., dance studio operator and professional dance

instructor,24 formerly employed at respondents* Washington, D.C. Dance Studio25 testified that the financial arrangement or method of payment by a dance studio customer would not affect the ability of the student to achieve the Bronze Medal standard of proficiency nor the effectiveness of the dance instruction being given. Mr. Graham's dance studio would accept customers willing to contract for only 25 hours of dance lessons at one time (Tr. 1537-1540). Mr. Graham's dance studio overall contracts average around $400 to $500 owing by a student at any one time with the average sale being S347, some more some less, and according to the witness "It is whatever the persons want to take." (Tr. 1542,1594). The studio had less than ten contracts outstanding on which the students were obligated in excess of $1500 and these were special contracts combining the Bronze and Silver standards. (Tr. 1542-1543, 1592-1594.)

Mr. Shelton and the witness, Mr. Gregory, are partners in the operation of an Arlington, Virginia, dance studio.

24 Mr. Graham's expert qualifications appear at Tr. 1515-1523. 25 Mr. Graham's comments on hi employment appear at Tr. 1529-1530 of his testimony.



The studio sponsored weekend trips to dance contests and in 1969, a 2-week trip to England. The students paid their own expenses and Mr. Graham paid the accommodations and expenses of the instructors for the weekend contests and the international trip. (Tr. 1543, 1595.) According to Mr. Graham the students did not have to purchase additional hours of instruction for such purposes, stating "No, they already had those" (Tr.1543).

Mr. Graham testified that the hourly rate for dance instruction at his studio was approximately $20 and that the hourly rate decreases as the student progresses from the Bronze standard to the higher standards of Silver, Gold Medal, Gold Bar and so on because they have been continuous customers and thus get a rate reduction. According to Mr. Graham a student being taught the Bronze program would not currently also be solicited by the studio to enroll in the higher Silver standard program (Tr. 1570-1571). At Tr. 1571-1572, the following colloquy occurred:

HEARTNG EXAMINER SCHRUP: Mr. Graham, in your opinion, would the course of instruction which encompasses just the Bronze category, would that type, give a person sufficient dance proficiency for a normal everyday social life?

THE WITNESS: Yes, Bronze would. It would not be exciting dancing; it would not be professional-looking dancing or exhibition-type dancing, by good, comfortable, all-around competent dancing anywhere in the world. That is what we represent, a solid foundation of dancing.

Mr. John Saionz, a dance studio operator and defense witness, testified that he was formerly associated with the Arthur Murray, Toledo, Ohio, school of dancing about 10 years ago and since then had purchased three Fred Astaire franchised schools of dancing located in New York City, White Plains, New York, and Philadelphia, Pennsylvania (Tr. 1769-1770).

This defense witness testified that approximately 90 percent of the students entering his studios came primarily for dance instruction and about 10 percent additionally came to attend social activities (Tr. 1784). The witness estimated about 40 percent of his dance studio contract limit of $1,500,26 and that there was a self imposed contract limit of $5,000 (Tr. 17990. The remaining 60 percent of dance studio contracts would not be anywhere near $1,500 (Tr. 1801-1802) and according to the witness most of his studio customers stopped half-way through the Bronze standard category.

The record does not show the acts and practices of the studios of the witness in obtaining dance instruction contracts in excess of $1,500 to be the same as the unfair and deceptive acts and practices employed by the respondents in such regard. (Tr. 1834-1844).



Most students interested in fully achieving the final Bronze standard of dancing proficiency would buy and pay for successive 50-hour dance lesson units rather than pay for all dance lessons as some ,others have in advance, but in making part payments according to the witness they did, however, obtain logical units for completion of their dance instruction such as would be comparably obtained by successive school semesters (Tr. 1908-1909). The monetary advantage to a student in purchasing a full dance instruction program rather than a contract for a lesser amount of hours would be a decrease in the hourly rate charged for the fuller program. (Tr. 1891, 1904-1905.)

Mr. Ward Thomas Chapman, a dance studio operator and defense witness, testified to being an Arthur Murray, Inc., franchise holder operating dance schools in Kansas City, St. Louis, Phoenix and Scottsdale, Arizona (Tr. 1913). The witness stated he was the largest operator in the Arthur Murray chain (Tr. 1960). Mr. Chapman testified that his studios tried to sell the new student being initiated a program of about 40 to 45 hours of dance instruction not to exceed $1,000 in cost, and that about halfway during the course of such instruction an attempt would be made to sell a Bronze program (Tr. 1932-1933). According to the witness to teach a beginner the entire Bronze program would run between 150 hours for a person of excellent ability to about 350 hours for a person with poor ability (Tr. 1931).

The witness stated his studios do not have a sliding rate scale but a flat rate of S22 per hour of instruction and that the purchase cost of the entire Bronze program would run somewhere between $3,200 to $7,000 depending on the individual and based on private hours of instruction (Tr. 1934-1935). The witness testified that a 50-hour unit of instruction would cost the student $1,100 (Tr. 1937), and that out of a student body of 1,000 a little over 100 in number would have entered into dance contracts in excess of $1,500 27 and the, balance of approximately 900 student contracts remaining would range from $55 up to $1,000 (Tr. 1949-1950). When questioned as to student customers who cannot afford to buy a full Bronze program and pay in advance, the witness testified at Tr. 2019-2020:

A. The fortunate ones we are talking about are roughly 28 to 35 people a year that buy a bronze program and pay cash, and the rest of them are not

27 Under cross-examination by complaint counsel the following appears at Tr. 2001 : Q. During your testimony several questions have been propounded relating to a 1500 contract.

Are you aware that this $1500 contract limitation or provision has no bearing upon your operations at this point?

A. Yes, I am.



that fortunate, they buy It in many stages or don't buy it at all and the school is geared to service all types of dancing, not just the people that can afford the medal programs.

His dance studios according to the witness established a 300 Club to encourage enrollment in the Bronze program and still further dance instruction. Club membership entitles the students to certain privileges paid for by the studios. These include hotel dance parties every 6 weeks for which the studio pays the first two years after which the students each contribute $10 per year in club dues. According to the witness the cost of these hotel dance parties are not incorporated in the charge to the students for dance instruction but the student must have enrolled for a full Bronze program to be a 300 Club member. The witness estimated that if the students were paying for these parties on their own, it would cost each student about $100 the first two years. (Tr. 1938-1939.)

The witness testified his dance studios sponsored student vacation trips to glamorous vacation places where dancing is available Puerto Rico, Hawaii and coming up were Mexico City, Guadalajara and Puerto Vallarta. The trip is elective to the student. The student pays the entire amount charged by the studio to him or her which includes the expenses of the escort instructor plus a week's salary paid by the studio to the instructor for such service. (Tr. 1968-1971.)

15. In the course and conduct of their aforesaid business, and at all times mentioned herein, respondents have been in substantial competition, in commerce, with corporations, firms and individuals in the sale of dancing lessons of the same general kind and nature as those sold by respondents.28

16. 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 mislead members of the purchasing public into the erroneous and mistaken belief that said statements and representations were true and into the purchase of substantial quantities of dancing instruction by reason of said erroneous and mistaken belief.29

CONCLUSIONS

1. The Federal Trade Commission has jurisdiction of the subject matter of this proceeding and over the respondents.

2. The complaint herein states a cause of action and the proceeding is in the public interest.

28 Paragraph Fourteen of the complaint admitted by stipulation between counsel at Tr. 112-113. 29 Paragraph Fifteen of the complaint admitted by stipulation between counsel at Tr. 113.


Initial Decision 78 FTC.

3. The aforesaid acts and practices of the respondents as found in the foregoing Findings of Fact were and are to the prejudice and injury of the public and constituted, and now constitute, unfair and deceptive acts and practices in commerce in violation of Section 5 of the Federal Trade Commission Act.

FOREWORD TO ORDER

In Luria Brothers and Company v. Federal Trade Commission, 389 F. 2d 847, cert, denied, 393 U.S. 829 (1968), the United States Court of Appeals for the Third Circuit in its opinion relative to the Commission's order to cease and desist stated in part at pp. 861-862 as follows:

In reviewing the propriety of the various provisions of the order, we are mindful of the language of the Supreme Court in Federal Trade Commission v. National Lead Co., 352 U.S. 419,428, 77 S.Ct. 502, 509, 1 L.Ed. 2d 438 (1956): "The Court has held that the Commission is clothed with wide discretion in determining the type of order that is necessary to bring an end to the unfair practices found to exist. In Jacob Siegel Co. v. Federal Trade Commission, 327 U.S. 608 [66 S. Ct. 758, 90 L.Ed. 888] (1946), the Court named the Commission "the expert body to determine what remedy is necessary to eliminate the unfair or deceptive trade practices which have been disclosed. It has wide latitude for judgement and the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist.' id. [327 U.S.], at 612-613 [66 S.Ct. at 760]. Thereafter, inFederal Trade Commission v. Cement Institute, 333 U.S. 683,726 [68 S.Ct. 793, 815,92 L. Ed. 1010] (1948), the Court pointed out that the Congress, in passing the Act, 'felt that courts needed the assistance of men trained to combat monopolistic practices in the framing of judicial decrees in antitrust litigation'. In the light of this, the Court reasoned, it should not lightly modify' the orders of the Commission. Again, the Federal Trade Commission v. Ruberoid Co., supra [343 U.S. 470], at 473 [72 S.Ct 800, at 803, 96 L.Ed. 1081], we said that 'if the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity.' We pointed out there that Congress had placed the primary responsibility for fashioning orders upon the Commission. These cases narrow the issue to the question: Does the remedy selected have a 'reasonable relation to the unlawful practices found to exist'?"

Petitioners contention that the language "exclusive or substantially exclusive" is too vague cannot be accepted. The order, when interpreted in light of the record, is clear and not subject to attack on that ground.

It is necessarily general. Anything more specific would be subject to evasion. E.B. Muller & Co. v. Federal Trade Commission, 142 F.2d 511, 520 (6 Cir. 1944). Furthermore, the Commission's order is not required to "chart a course for the petitioner." Zenith Radio Corp. v. Federal Trade Commission, 143 F.2d 29, 31 (7 Cir. 1944).

Petitioners raise several hypothetical situations in their attack on the Commission's order. However, this avenue has been closed by the Supreme Court.



"Respondents pose hypothetical situations which they say may rise up to plague them. However, 'we think it would not be good judicial administration,' as our late Brother Jackson said in International Salt Co. v. United States, 332 U.S. 392,401 {68 S.Ct. 12,17,92 L.Ed. 20] (1947), to strike the contested paragraph of the order to meet such conjectures. The Commission has reserved jurisdiction to meet just such contingencies. As actual situations arise they can be presented to the Commission in evidentiary from rather than as fantasies. And we might add, if there is burden that cannot be made lighter after application to the Commission, then respondents must remember that those caught violating the Act must expect some fencing in. United States v. Crescent Amusement co., supra [323 U.S. 173], at 187 [65 S.Ct. 254, at 261,89 L.Ed. 160]." Federal Trade Commission v. National Lead Co., supra, 352 U.S. at page 431, 77 S.Ct. at page 510.

Further and as appropriately stated in the Commission opinion of April 1,1969, in D. 8738 In the Matter of All-State Industries of North Carolina, Inc., et al., affirmed, 423 F. 2d 423 (1970), at page 11 [75 F.T.C. 465, 491]:

The Commission, in short is expected to proceed not only against practices forbidden by statute or common law, but also against practices not previously considered unlawful, and thus to create a new body of law-a law of unfair, trade practices adapted to the diverse and changing needs of a complex and evolving competitive system.16 [See footnote below]

The words "or other services" contained in the preamble of the order to cease and desist being entered, make the provisions of the order applicable (except the $1,500 limitation) to any other type business activities entered into by the individual named respondents. See the opinion of the Commission and final order entered February 23, 1968, in Docket 8713, In the Matter of General Transmissions Corporation of Washington, et al. [73 F.T.C. 399], sustained on ap-

16 "Courts have always recognized the customs of merchants, and it is my Impression that under this act the Commission and the courts will be called upon to consider and recognize the fair and unfair customs of merchants, manufacturers and traders, and probably prohibit many practices and methods which have, not heretofore been clearly recognized as unlawful." 51 Cong. Rec. 11593 (1914) (remarks of Senator Saulsbury). See, e.g., F.T.C. v. Texaco, Inc., 393 U.S. 223,89 S.Ct. 429 (1968); F.T.C. v. Brown Shoe Co., 384 U.S. 316 (1966); Atlantic Refining Co. v. F.T.C, 381 U.S. 357 (1965); F.T.C. v. R.F. Keppel & Bro, Inc., 291 U.S. 304 (1934); F.T.C. v. Algoma Lumber Co., 297 U. S. 67 (1934). In the words of Judge Learned Hand, describing the Commission's power in the field of deceptive and unfair practices: "The Commission has a wide latitude in such matters; its powers are not confined to such practices as would be unlawful before it acted; they are more than procedural; its duty in part at any rate, is to discover and make explicit those unexpressed standards of fair dealing which the conscience of the community may progressively develop" F.T.C. v. Standard Education Society, 86 F.2d 692, 696 (2d Cir., 1936), rev'd on other grounds, 302 U.S. 112 (1937).



peal in Walter Dlutz v. Federal Trade Commission, 406 F. 2d 227, cert, denied, 395 U.S. 936 (1969). A disputatious question posed in this matter is whether or not the rescission provisions of

Paragraph 10 in the proposed order to cease and desist eliminates the need for or prevents the inclusion of the provisions of Paragraph 9. The answer is that the inclusion of Paragraph 9 in the order is not to be made dependent on conjecture as to the sufficiency of the rescission opportunities of Paragraph 10 to effect an adequate cure. Paragraph 10 does not eradicate the root of the evil and comes into play only after the purposes of the respondents' unfair and deceptive acts and practices have been perpetrated. Paragraph 9 is a necessary and reasonable safeguard to forestall and stop in their incipiency the respondents' unfair and deceptive acts and practices before their purposes become fulfilled. Particularly apt under the record facts herein is the old adage - "An ounce of prevention is worth a pound of cure."30

As recently stated in the June 17,1970, opinion of the Commission in D. 8810, In the Matter of Zale Corporation and Corrigan-Republic, Inc. [77 F.T.C. 1635, 1636]:

The selection of an appropriate remedy, and the admissibility of evidence with regard thereto, are governed by the unlawful practices actually found to exist, and not by the allegations of the complaint. Cf. Federal Trade Commission v. National Lead Co., et al., 352 U.S. 419,427 (1957). An appropriate remedy is one which bears a reasonable relation to the unlawful practices found to exist. Jacob Siegel Co. v. Federal Trade Commission, 327 U.S. 608 (1946).

Further, Paragraph 9 cannot be held to unreasonably impinge on the contractual rights of either the respondents or their prospective or actual student customers in the presence of the overriding public interest that an adequate protective order to cease and desist be entered in this matter. The answer to the question of whether or not the respondents' contracts in excess of $1,500 are "unconscionable" upon the facts of record herein and within the meaning of the interpretative tests to be applied under the few decided legal precedents is not necessary of being reached under the disposition of this matter hereinbefore made. Still another question arising herein was whether or not the respondents' dance studios could profitably operate under the provisions of Paragraph 9. This is beside the point. Economic feasibility does not act to insulate or excuse the respondents' chal-

For an example, see the attempt at recession by complaint witness No. 2, supra, at Tr. 524-527 and CX 29 and CX 30. This witness at Tr. 596 testified:

I did consult counsel. I did enter a suit. I did receive two judgments against Arthur Murray. HEARING EXAMINER SCHRUP: Were those judgments satisfied? THE WITNESS: No, they were not. I received not one penny.



lenged acts and practices from the requirements of the law nor allow the respondents to obtain the ill-gotten gains of their unfair and deceptive acts and practices.

ORDER

It is ordered, That respondents Arthur Murray Studio of Washington, Inc.; Arthur Murray Studio of Baltimore, Inc.; Arthur Murray Studio of Bethesda, Inc.; and Arthur Murray Studio of Silver Spring, Inc.; corporations, and their officers, and respondents Victor F. Horst and Edward Marandola, also known as Edward Mara, individually and as officers of said corporations, and respondents' agents, representatives and employees, directly or through any corporate or other device, in connection with the advertising, solicitation, offering for sale, or sale of dancing instruction, or other services, in commerce as "commerce" is defined in the Federal Trade Commission Act, do forthwith cease and desist from:



3. Representing, directly or by implication, by means of social security number contests, "special selection offers" "Can you Spell" contests, or any other promotion offer or contest or any certificates relating thereto, or by any other method or mean, that a course of dancing instruction or a specified number of dancing lessons, or any other service or thing of value will be furnished free of charge, at a reduced price, or for any price, unless the entire period or periods of bona fide dancing instruction or other service or thing of value is in fact furnished in every instance as represented.

4. Representing on any postal cards sent through the United States mail or in any other manner, that the recipient has been selected to receive a gift unless in every instance the gift is in



fact given without the imposition of any condition or limitation, and there is clear and conspicuous disclosure at the outset in immediate conjunction with any such representation of:

(a) The nature of the gift the representation of: (b) The full name and address of the offeror of the gift, and (c) The manner in which such recipient has been selected. 5. Representing, directly or by implication, that the Party Time Club or the Holiday club, or any

other club, group or organization offers members a program of activities such as daily or weekly social events or gala night club parties, or any other activities, unless there is clear and conspicuous disclosure in connection with each offer that such activities are available only upon the purchase of a substantial amount of dancing lessons and the total cost of such lessons is disclosed.

6. Using "dance analysis" tests or any other device purportedly designed to evaluate dancing ability, progress, or proficiency when such test or device is not so designed and so used; or misrepresenting in any manner a student's or proficiency achieved by a student during the course of or as a result of taking respondents' courses of instruction.


8. Using in any single day "relay salesmanship," that is, consecutive sales talks or efforts of more thin one representative to induce the purchase of dancing instructions

9. Entering into one or more contracts or written agreements for, dance instruction or any other service provided by respondents' dance studios when such contracts or written agreements obligate any party to pay a total amount which at any one time exceeds $1,500.

10. Entering into any contract or written agreement for dance instruction or any other service provided by respondents' dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-point, bold type:

"Notice: You may rescind (cancel) this contract, for any reason whatever, by submitting notice in writing of your



intention to do so within seven (7)days from the date of making this Agreement. "If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons

or services actually furnished during the period prior to rescission, and all moneys due will be promptly refunded." 11. Contracting with a student or prospective student for a specific course of dancing

instruction and thereafter, prior to the completion of the given course, subjecting such student or prospective student to sales effort toward the purchase of additional dance lessons, unless:

(a) Any additional contract for lessons shall expressly state herein that such contract is subject to cancellation by such student or prospective student, with or without cause, at any time up to and including one week after the completion of the units of dancing instruction previously contracted for, without cost or obligation, except of two additional lessons furnished during such week; and

(b) Any additional contract for lessons shall expressly state that any moneys or other consideration, except as exempted in subparagraph (a) hereof, tendered to the respondents for additional dance lessons will be promptly returned when such contract is canceled within the time period specified in subparagraph (a) hereof; and


(d) Any additional contract for lessons shall expressly state the number of lesson hours remaining under the existing contract. 12. Failing to deliver to each party a copy of every contract entered into by such party

providing for dancing instruction or other services. 13. Failing to deliver a copy of this order to cease and desist to all present and future

employees, instructors, or other persons engaged in the sale of respondents' services, and failing to secure from each employee or other person a signed statement acknowledging receipt of said order.

14. Failing to post in a prominent place in each studio a copy of this cease and desist order, with the notice that any student or prospective student may receive a copy on demand.


Opinion of the Commission 78F.T.C.

15. Failing, after the acceptance of the initial report of compliance, to submit a report to the Commission once every year during the next three years describing all complaints of which respondents have notice respecting unauthorized representations, all complaints of which respondents have notice respecting representations by salesmen which are claimed to have been deceptive, the facts uncovered by respondents in their investigation thereof and the action taken by such respondents with respect to each such complaint.

OPINION OF THE COMMISSION

FEBRUARY 23, 1971

By DIXON, Commissioner:

This matter is before the Commission on cross appeals of respondents and counsel supporting the complaint from an initial decision holding that respondents had violated Section 5 of the Federal Trade Commission Act.

The complaint charges four corporations and two individuals with numerous unfair and deceptive practices in connection with the sale of dance instruction courses. The alleged unlawful conduct includes the following practices: obtaining leads to prospective purchasers of dance instruction by awarding gift certificates for such instruction either through the use of so-called "contests" in which all participants can win or by falsely representing that a person has been "selected" to receive a free course of instruction; failing to provide the full number of "free" hours of dance instruction promised but instead devoting much of the time to promoting the sale of dancing lessons; representing that certain clubs sponsored by respondents are bona fide adult social clubs when in fact such clubs are devices used to obtain leads to prospective students and to lure prospects into respondents' studios where a sales presentation could be made; using sham "dance analysis tests" where all prospective students are given passing grades regardless of dancing ability, aptitude or proficiency; using "relay salesmanship" which involves successive efforts by a number of different salesmen in a single day to persuade a prospective student to sign a contract for dancing instruction; and using "intense, emotional, and unrelenting" sales pressure to persuade a prospective student to sign a contract for a substantial number of dancing lessons without affording the prospect a reasonable opportunity to consider and comprehend the scope and extent of the contractual obligations involved.


401 Opinion of the Commission

Answers to the complaint were filed by the respondents who averred, inter alia, that the corporate respondents are no longer in business. Thereafter, at a preheating conference held on November 5, 1969, counsel for both sides entered into a stipulation of facts which encompassed allegations I through 15 of the complaint and, except for two of the provisions thereof, counsel also agreed upon a form of order to cease and desist. Respondents would not agree to include the words "or other services" in the preamble of the order nor would they consent to the prohibition contained in Paragraph 9 of the order to cease and desist set forth in the notice of the complaint which would prevent respondents from "entering into one or more contracts or written agreements under which a student or other party is obligated to pay a total amount which at any one time exceeds $1500."

After briefs had been filed and oral argument held, the hearing examiner on December 19, 1969, ordered that the record be closed for the reception of evidence. On January 5, 1970, complaint counsel moved to reopen the record for the reception of evidence in support of the order provision placing a $1,500 limitation on respondents' contracts for dance instruction. This motion stated in part:

Complaint counsel will Introduce evidence through consumer and expert witnesses to demonstrate the unconscionable nature of respondents' contracts In excess of $1500. Evidence will be adduced from members of the dance industry to show that $1500 Is a fair balance between the practical business need of an operator of a dance studio and the equitable and fair amount which a person should be Indebted for dance Instruction.

The examiner granted this motion over respondents' objection and the Commission subsequently denied respondents' application for permission to file an interlocutory appeal from the examiner's order reopening the record. Hearings were then held to permit counsel supporting the complaint to introduce evidence supplementing the stipulation of facts in support of the requested prohibition against contracts in excess of $1,500.

The hearing examiner, in an initial decision based upon the stipulated facts and the evidence adduced in support of the $1,500 contractual limitation, found that the charges in the complaint had been sustained and issued his order to cease and desist. This order is the same as that originally agreed to by counsel, except that it includes the words "or other services" in the preamble and also contains the $1,500 limitation on respondents' contracts.

In their appeal from the initial decision respondents do not contest the examiner's findings or This conclusions that the challenged


Opinion of the Commission 78 F.T.C.

practices are illegal. They address themselves only to two aspects of the order to cease and desist. The first and by far the more important of the two major issues raised by their appeal is whether the order may properly prohibit respondents from entering into contracts for an amount in excess of $1,500 for dance instruction or any other service provided by respondents' dance studios.

Respondents argue in this connection that counsel supporting the complaint did not prove either the unconscionability of respondents' contracts in excess of $ 1,500 or the fairness of such a limitation when the economics of operating the dance studio are balanced against a "fair amount which a person should be indebted for dance instruction." In the absence of proof of the illegality of such contracts, according to respondents, the Commission has no authority to issue an order banning their use. Respondents further contend that the hearings added very little, if anything, to the case-in-chief in support of the complaint-that respondents had stipulated to all facts upon which the essential findings of the initial decision were based. They further argue that despite the examiner's statement that he did no reach the issue of unconscionability, his holding that the $ 1,500 contractual limitation is necessary to prevent recurrence of the practices is tantamount to saying that contracts in excess of $1,500 are unconscionable because their negotiation is dependent upon the use of illegal selling acts and practices.

We agree with respondents that most of the evidence adduced by counsel supporting the complaint does not go beyond the facts originally stipulated by counsel. Certainly much of this evidence is redundant. We also agree that counsel supporting the complaint did not prove that all contracts for dance instruction in excess of $ 1,500 are unconscionable. We do not agree however that the evidence adduced is not relevant to the question of whether a $1,500 contractual limitation should be imposed; nor do we agree that the record does not support the imposition of such a limitation.

It should be emphasized first of all, contrary to the arguments advanced by respondents, that the Commission's remedial powers under Section 5 are not restricted to the prohibition of only those acts and practices found to unlawful. The purpose of a Commission order is to prevent the continuance of such practices but, to accomplish this end, the Commission may, if it deems necessary, forbid acts lawful in themselves. In Jacob Siegel Co. v. Federal Trade Commission, 327 U.S. 608 (1946) the Supreme Court held that the Commission has wide discretion in determining what remedy is necessary to eliminate unfair or deceptive practices which have



been disclosed, and in Federal Trade Commission v. Ruberoid Co., 343 U.S. 470,473 (1952) the Court stated that "if the Commission is to attain the objectives Congress envisioned, it cannot be required to confine its roadblock to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be by-passed with impunity." the Court also upheld the Commission's order suppressing the use of a "lawful device" for the purpose of preventing the continuation of a price fixing conspiracy in Federal Trade Commission v. National Lead, 352 U.S. 419, 510 (1959) concluding that "the Commission was justified in its determination that it was necessary to include some restraint in its determination that it was necessary to include some restraint in its order against the individual corporations in order to prevent a continuance of the unfair competitive practices found to exist."1

It is apparent from a review of the initial decision that the hearing examiner believed that the $1,500 limitation should be imposed, not because contracts in excess of that amount are unconscionable or perse illegal, but because a restriction of this type would be necessary to prevent a recurrence of unfair acts and practices employed by respondents to induce members of the public to execute long-term contracts. Having found that the order without the $1,500 limitation "does not eradicate the root of the evil," he concluded that such a limitation "is a necessary and reasonable safeguard to forestall and stop in their incipiency the respondents' unfair and deceptive acts and practices before their purposes become fulfilled." (Initial decision, p.432).

We agree with this conclusion. Without the $1,500 limitation the order will not, in our opinion, effectively deter respondents from engaging in many of the unfair practices which they have used to sell dancing lessons. It is important to note, in this connection, that the order contained in the initial decision does not specifically prohibit all the practices alleged as unfair in the complaint, as respondents contend. The complaint charges in Paragraph 13 that respondents have used "intense, emotional and unrelenting sales pressure" to persuade a prospect or student to sign a long-term contract and that "such person is insistently urged, cajoled, and coerced to sign such a contract hurriedly and precipitatedly through use of per-

In arguing that the Commission cannot prohibit a practice, such a contract in excess of $1,500, which it has not specifically found to be unlawful, respondents quote passages from the Circuit Court's opinions in Cotherman v. F.T.C., 417 F. 2d 589 (5th Cir. 1969) and The Sperry & Hutchinson Company v. F.T.C, 432 F. 2d (5th Cir. 1970). Respondents' reliance on these cases is misplaced, however. Neither of them is in point since neither addresses itself to the question of whether legitimate practices may be prohibited by the Commission for the purpose of curing the ill effects of unlawful conduct or of preventing the continuance of other practices found to illegal.

470-536-73-29



sistent and emotionally forceful sales presentations which are often of several hours' duration." The record fully supports this charge. The unfair pressure tactics used by respondents to persuade students to sign contracts for dance instruction are disclosed in the testimony of students and former employees of respondents' studios. However, except for "relay salesmanship," these unfair pressure tactics, some of which are described below, are not prohibited either specifically or in general terms.

A former employee of respondents' Baltimore studio testified with respect to a procedure used routinely by respondents to exert pressure on the prospective student. This witness testified that in his capacity as interviewer and dance analyst he would attempt to gain the confidence of a student for the purpose of obtaining information about the student's past which could be used to persuade her to sign a contract. According to him, the sales approach or technique used by respondents assumed that many of the people who come to dance studios do so for some more deep-seated reason than simply a desire to learn to dance. Respondents referred to this reason as the "X-Factor" and assigned to the interviewer the task of discovering it. This factor could be loneliness, marital difficulties, or some unpleasant experience or unhappiness in the prospect's past which could be exploited for the purpose of selling dance instructions. The information obtained by the interviewer would be passed on to the studio manager, who would sometimes eavesdrop on the interview and instruct the interviewer by telephone how to conduct the interrogation. Thereafter, the student would be given a sham dance analysis test and then brought to a small room where the studio manager would close the deal. Prior to closing, members of the staff would attempt to make the student as nervous and confused as possible. Also prior to closing, the interviewer would extract a promise from her that she would not tell the studio manager that she needed or wanted time to think about signing the contract. The interviewer would then stand beside the student at the closing, sometimes holding her hand, and would pretend to speak in her behalf, leading her to believe that he was persuading the studio manager to accept her as a student. By making this feigned appeal to the manager and by appearing extremely solicitous of her welfare, the interviewer would attempt to bring the student to a highly emotional state. Often the student would break down and cry and on one occasion a young woman actually "dropped down on one knee and asked the studio manager to please let her enroll" (Tr. 866.)

To apply additional pressure the more recalcitrant students the studio manager would falsely state at the closing that the decision

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., Et AL. 441


to enter into the contract must be made immediately and that the student would not be permitted to sign after a specified hour. Sometimes the studio manager would block the door to prevent the student from leaving, and once respondent Mara pushed a chair in front of the door. In some cases, the closing would last three to four hours.

Even after a student had obligated herself for lessons costing thousands of dollars she was still constantly harassed and badgered to sign up for more hours. One student, a woman 62 years old, who had over 300 unused hours of dance instruction testified that she was under considerable pressure to take a test to determine whether she would qualify to join respondents' "Tiffany Club" which would cost an additional $8000. She testified that she had no intention of buying more hours but that she took the test because she had learned that a student was "practically ostracized at the studio" (Tr. 395) if she refused to do so. Although she "insisted through the entire thing that [she] was not going to make any further investment" she nevertheless signed a contract for the additional lessons "to relieve the pressure." (Tr. 397)

Another student described her closing experience as follows:

I tried to say no and get out of It and I got very, very upset because 11 got frightened at paying out all that money and having nothing to fall back on. I remember I started crying and couldn't stop crying. All I thought of was getting out of there.

So finally after-I don't know how much time, Mr. Mara said, well, I could sign up for 250 hours, which was called the 500 Club, which would amount to $4300.

So I finally signed it ***"(Tr. 700.)

Another testified, "I was confused, I was confounded, I was beset, I was frantic, I didn't want it, and I couldn't get out of it, and I signed this contract and practically went off the deep end after it. . . ." She further stated that she had "begged and pleaded with these people to leave [her] alone " (Tr 506-508.)

The difficulty in fashioning an order which will effectively stop respondents from engaging in practices of the type described above is apparent. Respondents suggest that "The remedy . . . is clearly to outlaw the pressure." But this is not easily done. An order which would enjoin the particular acts and practices previously used by respondents could be avoided by a change in tactics, and one which would prohibit generally the use of excessive or unfair pressure would be virtually impossible to enforce. Since the selling practices involved here almost invariably take the form of oral representations made privately to a student, violations of an order addressed to such practices would be extremely difficult to discover and prove.


Opinion of the Commission 78F.T.C.

In view of respondents demonstrated proclivity to utilize such sales methods, we have no doubt that they-would continue to use them if the, believed they could do so without detection. They would, however, have considerably more difficulty circumventing an older which would prohibit them from entering into contracts in excess of $1,500.2 Respondents argue, however, that there is no reasonable relation between the prohibition and the practice found to be unlawful-that a bar on contract size bears no reasonable relationship to the unfair and deceptive practices used to secure such contracts. We do not agree. Human nature being what it is, we think that respondents are far more likely to apply excessive pressure to secure a large contract that a small one. The greater the gains or rewards respondents will reap, the greater their incentive will be to engage in these practices or to devise new and more elaborate methods to accomplish the desired end. There is, moreover, testimony in the record indicating that such is the case. As one witness testified, "As a rule of thumb, I would say that every single contract for a sizable sum was entered into under pressure..."(Tr.547) and that "The more sizable ones would have, in my interpretation, more pressure than the lesser size."3 (Tr. 548) But if we are wrong on this point, and we later leam that respondents are engaging in the objectionable practices despite the $1500 limitation, we can consider at that time what monetary limitation will have the desired effect on their behavior.

Respondents also content that the public is adequately protected by the provision in the order which requires them to include in all

There is other evidence of record which strongly supports an order imposing a monetary limitation on respondents' contracts with students. Several witnesses testified that after a student had executed a long-term contract the quality of service provided by respondents to that student deteriorated. The prohibition may well have the added salutary effect therefore of deterring respondents from taking advantage of "captive" students.

3 There is some testimony, however, that respondents use equally objectionable methods to make a small sale. The following testimony was given by one woman student concerning a related technique:

" There were many things that I found objectionable. The unremitting, relentless pressure of the sales tactics, first and foremost, was objectionable.

"Secondly, the rude ridicule that occasionally was used to help make a sale was objectionable... ". . .1 was on the dance floor with my instructor, Raymond McCurdy, at one time when a carnival was

coming up. I did not join the carnival. I did not wish to join the carnival, and while it was only as additional $55,1 had no desire to join. There were a great many pupils on the dance floor dancing with their teachers. He went over and switched off the record player and there was dead silence, and he asked everyone in the room to sit down and he stood up in a circle around me and stood me up in that circle, in the middle of the circle, and said, 'Everybody, I want you to look at this woman here who is too cheap to join the carnival. Here she is, a 500 club member and working on her Bronze Medal,' and so forth, and so forth, 'and she is too cheap to join the carnival. I just want you to look at a woman like that. Isn't it awful?

"Well, that was an objectionable feature, and I was absolutely horrified." (Tr.515, 516).



contracts a statement to the effect that the student may rescind the agreement for any reason by submitting written notice of their intention to do so within seven days from the date of execution thereof. While this provision will of course be of value, we have no reason to believe that all students who succumb to respondents' unfair practices will demand within seven days to be released from the contract merely because there is a notation in the contract that they may do so. Moreover, it is quite apparent from the testimony that many of the students are in such a confused and highly emotional state when they execute the contract that it is unlikely that they are even aware of the notation.

We turn next to respondents' contention that the prohibition under consideration will impose upon them dire economic hardship. The hearing examiner, having found that the prohibition is necessary to prevent unfair practices, held that whether or not respondents can operate profitably under this provision of the order is beside the point - that "Economic feasibility does not act to insulate or excuse the respondents' challenged acts and practices from the requirements of the law nor allow the respondents to obtain the illgotten gains of their unfair and deceptive acts and practices." (Initial decision, pp. 432-3.) We find no error in this ruling. As the Supreme Court stated in United States v. E.I. du Pont de Nemours & Co., 366 U.S. 316,327, with respect to an order requiring divestiture, "the Government cannot be denied the latter remedy because economic hardship, however severe, may result. Economic hardship can influence choice only as among two or more effective remedies."

In any event we find no substance to respondents' contention that the evidence shows that the imposition of a contractual limitation is tantamount to denying the individual respondents the opportunity to engage in the dance business in the future. Testimony of studio owners called by respondents that they could not exist without long-term contracts is for the most part based on the assumption that they would lose all the income they were receiving from students under such contracts.4 This of course an unfounded assumption since

4 For example, one Arthur Murray franchisee testified as follows: Q. Could you tell us what percentage of your total sales in your most recent, either calendar or fiscal year,

were accounted for by contracts which exceeded $1500? "A. I would say very close to 50 percent.

* * * * * * *

"Q. The examiner asked you what effect a $ 1500 limitation would have on your profit. Do you recall what your response was?

* * * * * * *

"A. Well, I think if you start out with the fact that 50 percent of our volume is over, then you have to reduce our volume 50 percent, is that right? ***" (Tr. 1941-1956.)

444 FEDERAL TRADE COMMISSION DECISIONS 93


there is no reason to believe that this income would be lost if the students were released from the long-term contracts or if they had not signed them in the first place.5

Other witnesses called by respondents failed to give a plausible explanation of why it is necessary to the successful operation of a dance studio for the student to be obligated to take hundreds of hours of dancing instruction. The principal advantage to the studio may well be that the student who has executed a long-term contract is less likely to drop out, even though he may desire to do so, than one who has not so obligated himself. Understandably, respondents do not make this argument.

Respondents also try to establish that the student will suffer if he is denied the right to enter into a long-term contract. The gist of the testimony on which they rely is that a student must sign up for a complete program of several hundred hours in order to achieve a certain proficiency, e.g., the Bronze Medal which may take more than three hundred hours. It appears from the testimony of respondents' witnesses, however, that the only reason the student cannot achieve the same proficiency by obligating himself for fewer hours at a time is that the studio would not permit it. The testimony of complaint counsel's witnesses on the other hand reveals quite clearly that from the standpoint of the student long-term contracts are wholly unnecessary.

One final point on this phase of respondents' appeal should be mentioned. Respondents suggest that the Commission act on an industry wide basis under its trade regulation rule procedure to impose the $1,500 limitation on dance studios. This suggestion would have merit only if we would hold that contracts for dance instruction in excess of $ 1,500 are unlawful. We do not so hold, however. We have not found that other firms are engaging in the type of practices used by respondents and we would not impose the restriction in question except on the basis of a record showing circumstances similar to those existing here.

Respondents have also appealed from the examiner's inclusion of the words "or other services" in the preamble of the order, contending that the initial decision does not provide an adequate basis for this extension of the order. This argument is also rejected. First of all, the order is not as broad as respondents indicate. Most of the provisions, including that imposing the $ 1,500 contractual limitation, are so worded that they apply only to the sale of dancing

5 Under the prohibition in question, respondents will be free to renew a student's contract Indefinitely so long as the student's obligation does not exceed $1,500 at any time.



instructions or other services provided by dance studios. Secondly, the unfair or deceptive practices prohibited by the remaining provisions of the order can be readily adapted to the advertising and sale of other services. The hearing examiner apparently believed that on the basis of their past conduct respondents might well engage in the prohibited practices in some other field of endeavor and should be prevented from doing so. It is not essential that he make separate findings on this point as respondents' brief suggests. Certainly respondents have given no valid reason why the scope of the order should not have been so broadened.

Counsel for the complaint have appealed from the hearing examiner's ruling denying their request to modify the agreed-to order to cease and desist by changing certain of the provisions thereof and by adding others. Complaint counsel contend in this connection that after the record had been reopened to permit them to introduce evidence supplementing the stipulation of fact in support of the provision in the order prohibiting contracts in excess of $1,500, respondents were permitted to withdraw that part of the stipulation which encompassed the allegations of Paragraph 13 of the complaint. They argue, therefore, that by permitting this withdrawal or disclaimer of part of the stipulation, the hearing examiner "released complaint counsel from their acceptance of provisions of the agreed-to-order evolving from the withdrawal of stipulated facts." Thus, according to complaint counsel, they were free to propose more stringent prohibitions than those originally agreed to.

Respondents' counsel contend, however, that they sought to withdraw from the stipulation solely because complaint counsel had insisted on examining witnesses with regard to matters that had already been stipulated and that they considered it "almost unethical" to cross-examine witnesses on these points. They further contend that they had no intimation that evidence was being introduced by complaint counsel for any purpose other than for the limited purpose of showing the need for the $1,500 contractual limitation.

We concur in the examiner's ruling. Respondents were not placed on notice that evidence introduced by complaint counsel which amplified previously stipulated facts would be used as a basis for expanding the order. Moreover, we do not interpret the hearing examiner's ruling as releasing complaint counsel from the non-contested provisions of the agreed-to order. The examiner was correct in refusing to adopt complaint counsel's proposed modification.

The appeals of respondents and counsel supporting the complaint are denied. The hearing examiner's initial decision is adopted as


Final Order 78 F.T.C.

the decision of the Commission. An appropriate order will be entered.

For RELEASE: IMMEDIATE, Thursday, April 17, 1969

ADVERTISING COMPLAINT (D. 8776) (Courses

UNFAIR PRACTICES in Dancing Instruction)

The Federal Trade Commission has issued a complaint charging violations of law by four firms and

two individuals. Named as respondents are: Arthur Murray Studio of Washington, Inc., formerly located at 724-14th St., N. W., Washington, D.

C; Arthur Murray Studio of Baltimore, Inc., formerly located at 217 North Charles St., Baltimore, Md.; Arthur Murray Studio of Bethesda, Inc., formerly located at 4923 Elmo Drive, Bethesda, Md.; Arthur Murray Studio of Silver Spring, Inc., formerly located at 934 Ellsworth,"Drive, Silver Spring,

Md.; and Victor F. Horst and Edward Marandola, also known as Edward Mara, officers of all the concerns.

(NOTE—A complaint is issued whenever the Commission has found "reason to believe" that the law has been violated and that a proceeding is in the public interest. It is emphasized that the issuance of a complaint simply marks the initiation of a formal proceeding in which the charges in the complaint will be ruled upon after a hearing and on the record. The issuance of a complaint does not indicate or reflect any adjudication of the matters charged.)

The complaint says that, "The individual respondents are now, and for some time last past have been engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public. The corporate respondents for some time last past have been, engaged in the operation of dance studios and in the advertising, offering for sale, and sale of courses of dancing instruction to the public."

The complaint alleges that "respondents have made certain representations in newspaper advertisements, and by other means, including social security number contests, especial selection' offers, and 'Can You Spell' contests, in which the winner is awarded a gift certificate entitling him or her to a specified number of Arthur Murray lessons purportedly worth from $35-$65. The representations made in newspaper advertisements have included those which relate to special or introductory offers purporting to furnish the first lesson of a course of dance instruction or a short course in dancing either at a reduced price or free of charge."

Contrary to such representations, the complaint charges: " 1. Said contests are not based on skills or abilities of the contestants or upon chance, nor are winners

chosen on any of these bases. The purported contests are so simple of solution or the winning thereof so easy, as to remove them from the categories of competition, skill, or special selection, and are such that substantially everyone, if not all, can qualify and win. Rather the purported quizzes, puzzles, and contests are designed to attract members of the purchasing public for the purpose of obtaining, leads to prospective purchasers of dance instruction.

-2-

"2. The winners of said contests do not receive agift certificate worth the stated amount, orabonafide course of dancing instruction or a specified number of bonafide dancing lessons. Although they receive some dance instruction in the beg inning of the specified time, the balance of the course is devoted to salcstalk designed to induce the purchase of further dancing lessons or the signing of a long term dancing instruction contract." The complaint also charges that, contrary to representations made on postal cards mailed by respondents,

the recipients of the cards have not "been selected to receive and will not receive a valuable or unconditional gift. After dividing the local telephone directory into certain sections, respondents' representatives send cards to each name listed therein, for the purpose of obtaining leads to prospective purchasers of dancing instruction. The recipient of respondents' 'gift' is lured into one of respondents' studios under the guise of receiving a 'dance certificate' supposedly entitling him to a number of free dancing lessons. Instead, he is thereupon subjected to a sales talk to induce the purchase of a course of dancing instruction."

The complaint alleges further that the respondents have represented in newspaper advertisements that their "Party Time Club and *** Holiday Club were bona fide adult social clubs offering members a program of activities such as daily and weekly social events and gala night club parties."

Actually, the complaint charges, these clubs "were not bona fide adult social clubs offering members a program of activities such as daily and weekly social events and gala night club parties. These clubs were devices used as a means of obtaining the names of prospective students and of luring prospects into the studios where the sales presentation for dancing instruction purchases may be made. Unless a member contracted to purchase a substantial amount of dance instruction, usually between $450-$5,000, there were no activities in which he might participate irrespective of any club registration which lie may have paid."

The complaint further charges that, "respondents, directly or through their representatives and employees, have used various unfair and deceptive techniques and practices as a means of selling initial or supplemental courses of dance instruction. Typical and illustrative, but not all inclusive, of such techniques and practices are the following:

" 1 . The use of sham 'dance analysis tests' for the alleged purpose of evaluating the student's ability, progress or proficiency, when in fact all student are given the same test results regardless of dancing ability, aptitude or proficiency.

"2. Respondents represent to students or prospective students that upon completion of a given course of dancing instruction the student will have achieved a specified standard of proficiency, whereas, in fact, before the given course of dance instruction is completed and before the specified standard of proficiency has been achieved, the prospect or student is subjected to further coercive sales efforts toward the purchase of additional instruction in dancing.

"3. The use of 'relay salesmanship,' involving successive efforts of a number of different Arthur Murray representatives who, in a single day by force of number and unrelenting sales talks, and aided occasionally by hidden listening devices monitoring conversation with the prospect or student, attempt to persuade and do persuade a lone prospect or student to sign a contract for dancing instruction.

"4. The use of intense, emotional, and unrelenting sales pressure to persuade a prospect or student to sign a contract obligating such person to pay for a substantial number of dancing lessons at substantial cost without affording such person a reasonable opportunity to consider and comprehend the scope and extent of the contractual obligations involved. Such contracts often provide for more than 100 hours of dancing instruction with a cost to the prospect or student in excess of $1500, and such person is insistently urged, cajoled, and coerced to sign such

-3-

a contract hurriedly and precipitately tlirough the use of persistent and emotionally forceful sales presentations which are often of several hours duration." The respondents are granted 30 days within which to file answer to the complaint.

- 0 O 0 -

-2-

several years, has been retired, and has committed no acts or practices which have been injurious or prejudicial to the public or to competitors of the corporate Respondents; and this Respondent respectfully represents that no occasion exists for the issuance of any order or relief as far as the individual respondent is concerned."

Respondent Marandola contends that "none of the corporate Respondents are now, or for some time, have been engaged in the business of dance instruction; and that he has not been engaged in the dance business in the matters referred to in the Complaint except as an officer of the corporate Respondents." And he maintains that since the companies are now out of business, "they are not in competition with corporations, firms or individuals and are carrying on no activities to the prejudice and injury of the public."

- 0 O 0 -

For RELEASE: IMMEDIATE, Tuesday, May 27, 1969

ADVERTISING UNFAIR PRACTICES ANSWERS (D. 8776) (Courses in Dancing Instruction)

Four former Arthur Murray dance studios in the Washington, D. C. - Baltimore, Md. area have denied

Federal Trade Commission charges that they used false advertising and other unfair and deceptive techniques

and practices to sell courses in dancing instruction to the public.

The former studios and two of their officers filed answers to the Commission's complaint of last April 3, in which the respondents in the FTC's proceeding were described as:

Arthur Murray Studio of Washington, Inc., formerly located at 724 - 14th St., N. W., Washington, D. C. Arthur Murray Studio of Baltimore, Inc., formerly located at 217 North Charles St., Baltimore, Md; Arthur Murray Studio of Bethcsda, Inc., formerly located at 4923 Elmo Drive, Bethesda, Md.; Arthur Murray Studio of Silver Spring, Inc., formerly located at 934 Ellsworth Drive, Silver Spring, Md.; and Victor F. Horst and Marandola, also known as Edward Mara, officers of all the concerns. The studios assert that they went out of business during the last three years and have not engaged in the

dancing instruction business since. They state, therefore, that: They do not "conduct any contests such as are described [in the complaint]" They are now "making no representations on postal cards ***"; They have not "made any representations concerning adult social clubs and newspaper advertising

appearing in the Washington, D. C. area, or anywhere," since the dates on which they ceased operations. While they state that they do "not now do any newspaper advertising or make any representations as alleged

[in the complaint]," since they are out of business, they admit "that while engaged in the dance business [they] advertised certain contests and games, substantially as alleged ***."

They also deny that the challenged statements and representations were false, misleading and deceptive, and maintain that "no problem exists with respect to allegedly unfair acts, practices or methods."

The former Washington, Silver Spring and Bethesda studios say they have given up their Arthur Murray franchises, and the former Baltimore studio states that it has sublicensed all its operations.

Denying other allegations, the concerns state that, since they are no longer in business, the "public interest and the protection of the public docs not require issuance of any Orders or relief***."

Respondent Horst says that he "has not been actively engaged in the business for

i

260 STATUTES AND COURT DECISIONS

unnecessary because of the other provisions in the order, or because petitioners are subject to fines for violations of the order. Nor can we say that the rights of petitioners to contract have been improperly accommodated.

The petition to review and set aside the cease and desist order of the Commission is denied, and the order will, pursuant to statute, be enforced. 15 U.S.C.A., § 21 (c).

Enforcement ordered.

ON PETITION FOR REHEARING AND PETITION FOR REHEARING En Banc

PER CURIAM.

The Petition for Rehearing is denied and no member of this panel nor Judge in regular active service on the Court having requested that the Court be polled on rehearing en banc, (Rule 35 Federal Rules of Appellate Procedure; Local Fifth Circuit Rule 12) the Petition for Rehearing En Banc is denied.

ARTHUR MURRAY STUDIO OF WASH. INC. v F.T.C. 259

tactics added up to cajolery and coercion. Many were reduced to tears. One woman begged from her knees to be allowed to contract. Another woman testified:

The constant battering, it never let up. Two weeks at a time was about all they would let you go without being approached for some little additional something, not a big one, the big ones were about every two months and the little ones were about every two weeks. I was a nervous wreck there most of the time.

It was commonplace for contracts to be outstanding for several hundred hours of lessons which would take several years to complete. In one case, an elderly woman was signed up over a period of slightly more than a year for 696 hours of lessons. One of her contracts was in excess of $6,000. Many of the customers were placed in financial straits due to the contracts. The sales pitch for more contracts was based on the different levels of accomplishment offered-bronze, silver, gold, gold star and gold bar are illustrative. In addition, there were clubs to be joined by invitation and trips to be taken.

It can be said for petitioners that they offered activities and companionship for the lonely and the socially insecure. Some customers testified that they were completely satisfied. We can infer that many others were satisfied.

[626] Petitioners contend that the no monetary limitation was necessary, given the fines which could be imposed under the Act for violations of the order. 15 U.S.C.A., § 45 (1). They also urge that other provisions of the order, such as the seven day cooling off period i. e., the contract may be canceled within seven days, render the monetary limitation unnecessary. An alternative approach would be to report all contracts in excess of $1,500 to the Commission. The Commission could then check for violations of its order. We find no merit in these suggestions.

The record makes out a case that a contractual limitation was indicated and that the limitation selected by the Commission bore a reasonable relationship to the unfair and deceptive practices found. It is clear from the record that the $1,500 line of demarcation was reasonable from the standpoint of alleviating the practices in question. This limitation is adjusted to the prices usually charged by petitioners and other dance studios for the number of lessons ordinarily needed to reach a basic stage of accomplishment.2

We cannot say that the limitation is overbroad in amount, or

2 On the other band, the California and Illinois legislatures have set a limitation on such dance contracts of $2,500.


gress envisioned, it cannot be required to confine its road block to the narrow lane the transgressor has traveled; it must be allowed effectively to close all roads to the prohibited goal, so that its order may not be bypassed with impunity." We pointed out there that Congress had placed the primary responsibility for fashioning orders [625] upon the Commission. 352 U.S. at 428-429, 77 S.Ct. at 509.

[3] And, as is also stated in National Lead, the Commission has the authority to restrict otherwise lawful practices and activities when they are likely to be used to carry out an unlawful purpose. 352 U.S. at 430, 77 S.Ct. 502. On 5 cases involving fact posture, see also Jacob Siegal Company, supra; S & S Pharmaceutical Company v. Federal Trade Commission, 5 Cir., 1969,408 F.2d 487; Slough v. Federal Trade Commission, 5 Cir., 1968, 396 F.2d 870; All-State Industries of North Carolina, Inc. v. Federal Trade Commission, 4 Cir. 1970,423 F.2d 423.

[4] The right of petitioners to contract must be accommodated by the Commission if at all possible with its statutory duty to formulate a remedy to eliminate unfair and deceptive trade practices, once such practices have been found. Jacob Siegal Company, supra, teaches this principle in the context of protecting an asset consisting of a trade name. Moreover, the remedy should be no broader in restricting legitimate acts than is reasonably necessary under the circumstances obtaining. See Cotherman v. Federal Trade Commission, 5 Cir., 1969,417 F.2d 587, where we found the order overbroad to the extent that petitioners were prohibiting from actually lending money on lawful representations.

[5] Turning to the facts underlying the $1,500 limitation here, we find an abundance of evidence showing a multitude of transactions where customers of petitioners were overreached in executing contracts. One example was seven contracts totalling $17,820, made in a period of twelve months by a 69 year old widow. Examples of other totals for dance lessons, trips, club memberships, parties and the like, extracted from various individuals, were in ranges from $4,300 to $13,000. Many attempted without success to withdraw from the contracts.

The charge against petitioners out of which the $ 1,500 limitation arose was the petitioners' contracts were the product of intense, emotional and unrelenting sales pressure. The evidence more than supports this charge. The record is replete with trick advertisements to draw prospects, sham dancing analysis tests, relay-salesmanship, some under secret electronic supervision by management, promises of social status and companionship, psychological sales techniques based on past unpleasant experiences (described as X-Factor or "past is black" technique). In many instances these

ARTHUR MURRAY STUDIO OF WASH. INC. v F T C . 257

vests in the hearing examiner the authority in his discretion to reopen the record for the reception of evidence at any time prior to filing his initial decision. Here the examiner added "the good cause shown" requirement which was otherwise not necessary. The good cause shown was sufficient. It was the need for a record centering on the unconscionable activities of petitioners in their trade practices which might indicate the propriety of the monetary limitation to protect the public. Second, there is no showing of prejudice to petitioners by the reopening of the record. In order to make out a case of denial of procedural due process, there must be a showing of substantial prejudice. Cf. Pacific Molasses Co. v. Federal Trade Commission, 5 Cir., 1966, 356 F.2d 386.

We therefore hold that there was no error in reopening the record for the introduction of evidence on the $1,500 limitation.

II.

The more difficult question is presented by the argument that it was improper to limit petitioners' contracts with individual dance students to an amount not exceeding $ 1,500 at any one time. Basically, they argue that this aspect of the remedy does not have a reasonable relationship to the unlawful practices found to exist and thus fails to meet the standard established by Federal Trade Commission v. National Land Company, 1957, 352 U.S. 419,77 S.Ct. 502, 1 L.Ed.2d 438. see also Jacob Siegal Company V. Federal Trade Commission, 1946, 327 U.S. 608, 613, 66 S.Ct. 758, 90 L.Ed. 888.

Our determination of the question presented must be made in light of the authority of the Commission to eliminate unfair methods of competition and unfair or deceptive acts or practices, as this authority has been construed by the Supreme Court. No better statement on the subject can be found than that of Justice Clark, speaking for an unanimous court, in Federal Trade Commission v. National Lead Company, supra:

The Court has held that the Commission is clothed with wide discretion in determining the type of order that is necessary to bring an end to the unfair practices found to exist. In Jacob Siegal Co. v. Federal Trade Com., 327 U.S. 608, 66 S.Ct. 758,90 L.Ed. 888 (1946), the Court named the Commission "the expert body to determine what remedy is necessary to eliminate the unfair or deceptive trade practices which have been disclosed. It has wide latitude for judgment and the courts will not interfere except where the remedy selected has no reasonable relation to the unlawful practices found to exist." id. 327 U.S. at [pages] 612-613, [66 S.Ct. at page 760]. * * * Again, in Federal Trade Com. v. Ruberoid Co., supra, 343 U.S. at [page] 473 [72 S.Ct. at page 803], we said that "if the Commission is to attain the objectives Con-


members of the public into entering dance lesson contracts at exorbitant prices. Attached to the complaint was a proposed order which, inter alia, would prohibit petitioners from entering into contracts which would obligate any individual to pay a total amount which exceeds $ 1,500 at any one time. (The only portion of this order in dispute is the monetary limitation.)

The petitioners answered, denying any illegality, and thereafter entered into a proposed settlement agreement with Commission counsel. Under the proposed settlement, the limit on indebtedness was raised to $4,000. However, the Commission rejected this provision, indicating that any acceptable consent order would require the $1,500 limitation.

Stipulations of fact were entered and the record closed to the reception of evidence, subject however, "to a motion by complaint counsel if they so wish to reopen the record on good cause shown for the introduction of further evidence." Shortly thereafter, and over objection of petitioners, the record was reopened for the reception of evidence on the $ 1,500 limitation. Hearings were then held, [624] and the hearing examiner found that the charges against petitioners had been sustained. The examiner's cease and desist order incorporated the $1,500 limitation and his order was affirmed on appeal to the Commission.

I.

[1,2] Petitioners' contention that it was error to reopen the record for the introduction of evidence on the $1,500 limitations is without merit for at least two reasons. First, as stated, the record was closed subject to a motion by Commission counsel to reopen it on good cause shown for the introduction of further evidence. This order was well within the authority of the hearing examiner under the Commission rules, 16 C.F.R. § 3.51 (d), which

1 In pertinent part: § 5 (a) (1) Unfair methods of competition in commerce, and unfair or deceptive acts or practices in

commerce, are hereby declared unlawful. § 5(a) (6) The Commission is hereby empowered and directed to prevent persons, partnerships, or

corporations * * * from using unfair methods of competition in commerce and unfair or deceptive acts or practices in commerce.

§ 5(b) Whenever the Commission shall have reason to believe that any such person, partnership, or corporation has been or is using any unfair method of competition or unfair or deceptive act or practice in commerce, and if it shall appear to the Commission that a proceeding by it in respect thereof would be to the Interest of the public, it shall issue and serve upon such person, partnership, or corporation a complaint stating its charges in that respect. * * * If upon such hearing the Commission shall be of the opinion that the method of competition or the act or practice in question is prohibited by this Act, it * * * shall issue * * * an order * * * to cease and desist * * * See Federal Trade Commission v. Sperry and Hutchinson Co., 1972,405 U.S. 233, 92 B. Ct. 898, 31 L.Ed. 2d 170.

ARTHUR MURRAY STUDIO OF WASH. INC. V. F.T.C. 255

for dancing instruction in an amount in excess of $ 1,500 was proper despite contention that such provision was not necessary in view of fines which could be imposed for violations, other provisions of the order, including seven-day period during which contracts could be canceled, and proposed alternative of reporting all contracts in excess of $ 1,500 to the Commission, where the limitation was adjusted to the prices usually charged by dance studios for the number of lessons [623] ordinarily needed to reach a basic stage of accomplishment.

(The syllabus, with substituted captions, was taken from 458 F.2d 622.)

On appeal, Court ordered dance studio to limit its individual contracts to $1,500 despite various contentions by the studio. Order enforced.

Tom M. Schaumberg, Washington, D.C., for petitioners; Gadsby & Hannah, Washington, D. C , of counsel.

Joseph Martin, Jr., Ronald M. Dietrich, Gen. Counsels, Harold D. Rhynedance, Jr., Asst. Gen. Counsel, Robert E. Duncan, Thomas F. Howder, Federal Trade Commission, Washington, D. C, for respondent.

Before BELL, DYER and CLARK, Circuit Judges.

BELL, Circuit Judge:

This is a petition to review and set aside a cease and desist order of the Federal Trade Commission entered against four Arthur Murray dance studio corporations and two individuals who were officers of each of the corporations. The primary issue before this court is whether the Federal Trade Commission may properly prohibit these dance studio petitioners from entering into contracts for dance instruction in an amount in excess of $1,500. A second issue is whether it was error for the hearing examiner to reopen the record for reception of evidence on the $ 1,500 limitation after the parties agreed that it be closed and the issues determined on their stipulations of fact. The petition will be denied and the order enforced.

The complaint in this matter was issued by the Commission on April 3,1969, charging the petitioners with unfair methods of competition in commerce and deceptive acts and practices in commerce in violation of § 5 of the Federal Trade Commission Act, 15 U.S.C.A., § 45.' More specifically, petitioners were charged with various misleading and deceptive acts intended to induce unwary


ARTHUR MURRAY STUDIO OF WASHINGTON, INC. v. FEDERAL TRADE COMMISSION*

No. 7-1807-F.T.C. Docket 8776

(United States Court of Appeals, Fifth Circuit, March 21, 1972)

1. NO ERROR IN REOPENING RECORD TO DEAL WITH $ 1,500 LIMIT ON DANCE CONTRACTS WHEN CLOSED SUBJECT TO REOPENING FOR GOOD CAUSE.

In proceeding against dance studios before the Federal Trade Commission, there was no error in reopening record for introduction of evidence on proposed $1,500 limitation on dance contracts, where record was initially closed subject to motion to reopen on good cause shown, such conditional closing was within authority of hearing examiner, sufficient good cause was shown in need for record on the propriety of the monetary limitations, which was only portion of proposed order in dispute after Commission's rejection of higher figure in proposed settlement agreement, and where there was no showing of prejudice in the reopening.

2. SUBSTANTIAL PREJUDICE MUST BE SHOWN TO MAKE OUT CASE OF DENIAL OF PROCEDURAL DUE PROCESS.

In order to make out case of denial of procedural due process in administrative proceeding, there must be showing of substantial prejudice.

3. REMEDIES OF COMMISSION SHOULD BE No BROADER IN RESTRICTING LEGITIMATE ACTS THAN NECESSARY UNDER CIRCUMSTANCES.

Federal Trade Commission has authority to restrict otherwise lawful practices and activities when they are likely to be used to carry out an unlawful purpose, but the remedy should be no broader in restricting legitimate acts than is reasonably necessary under the circumstances.

4. RIGHT TO CONTRACT MUST BE ACCOMMODATED CONSISTENT WITH COMMISSION'S DUTY TO FORMULATE REMEDY TO ELIMINATE UNFAIR TRADE PRACTICES.

Right to contract of persons subject to regulation by the Federal Trade Commission must be accommodated if at all possible consistent with Commission's statutory duty to formulate a remedy to eliminate unfair and deceptive trade practices.

5. ORDER PROHIBITING CONTRACTS IN EXCESS OF $1,500 WAS PROPER DESPITE CONTENTIONS BY RESPONDENTS THAT OTHER PROVISIONS AND SAFEGUARDS MADE SUCH PROVISION UNNECESSARY.

In light of evidence showing multitude of transactions in which customers of dance studios were overreached in executing contracts in large amounts, portion of FTC cease and desist order prohibiting contracts

* Reported in 458 F. 2d 622 (1972). Rehearing denied May 11, 1972. For case before Commission see 78F.T.C. 401.

INTERLOCUTORY ORDERS, ETC. 1063

ARTHUR MURRAY STUDIO OF WASHINGTON, INC., ET AL.

Docket 8776. Order, Aug. 6, 1969

Order contingently withdrawing case from adjudication if respondent accepts the new paragraph 10 in a consent order relating to customer's right to rescind dance contracts.

ORDER CONTINGENTLY WITHDRAWING MATTER FROM ADJUDICATION

This matter is before the Commission upon the examiner's certification of July 10 of a joint motion by complaint counsel and counsel for respondent dated July 8,1969, that the above-captioned matter be withdrawn from adjudication and the settlement agreement with consent order be accepted.

The Commission is of the opinion that Paragraph 9 of the consent order does not afford an adequate basis for settlement. An acceptable order for settlement purposes would require respondents to cease and desist from:


To avoid confusion, the last sentence of existing Paragraph 9 should be redrafted as new Paragraph 10 as follows:

10. Entering into any contract or written agreement for dance instruction or any other service provided by respond-ents dance studio unless such contracts or written agreements, regardless of the obligation incurred, shall bear the following notation in at least 10-point bold type:

Notice: You may rescind (cancel) this contract, for any reason whatever, by submitting notice in writing of your intention to do so within seven (7) days from the date of making this agreement.

If you rescind (cancel) this contract, the only cost to you will be a fair charge for any lessons or services actually furnished during the period prior to rescission, and all moneys due will be promptly refunded.

All paragraphs following should be renumbered to reflect these changes. In the event counsel submit an executed consent agreement, including the foregoing revision of Paragraphs 9 and 10 within 30 days of the date of this order,

It is ordered, That upon receipt of such agreement, the matter be withdrawn from adjudication. It is further ordered, That unless an amended executed consent agreement be received in

accordance with the foregoing this matter not be withdrawn from adjudication.

-2-

Using "relay salesmanship" which involves successive efforts by a number of different salesmen in a single day to persuade a prospect to sign a contract for dancing instruction. Using "intense, emotional, and unrelenting" sales pressure to persuade a prospect to sign a contract for a substantial number of lessons without giving the prospect a reasonable opportunity to consider and comprehend the scope and extent of the contractual obligations involved.

In its opinion by Commissioner Paul Rand Dixon the FTC held that the $1,500 contractual limitation is necessary to prevent a recurrence of the unlawful practices. Noting that not all the unfair pressure tactics used are specifically prohibited by the order, the Commission said, "An order which would enjoin the particular acts and practices previously used by respondents could be avoided by a change in tactics, and one which would prohibit generally the use of excessive or unfair pressure would be virtually impossible to enforce. Since the selling practices involved here almost invariably take the form of oral representations made privately to a student, violations of an order addressed to such practices would be extremely difficult to discover and prove. In view of respondents demonstrated proclivity to utilize such sales methods, we have no doubt that they would continue to use them if they believed they could do so without detection. They would, however, have considerably more difficulty circumventing an order which would prohibit them from entering into contracts in excess of $1,500."

Commissioner Dixon described various unfair pressure tactics used to get students to sign long-term contracts. "Often the student would break down and cry and on one occasion a young woman actually 'dropped down on one knee and asked the studio manager to please let her enroll.'

"To apply additional pressure to the more recalcitrant students the studio manager would falsely state at the closing that the decision to enter into the contract must be made immediately and that the student would not be permitted to sign after a specified hour. Sometimes the studio manager would block the door to prevent the student from leaving, and once respondent Mara pushed a chair in front of the door. In some cases, the closing would last three to four hours.

"Even after a student had obligated herself for lessons costing thousands of dollars she was still constantly harassed and badgered to sign up for more hours. One student, a woman 62 years old, who had over 300 unused hours of dance instruction testified that she was under considerable pressure to take a test to determine whether she could qualify to join respondents' Tiffany Club' which would cost an additional $8000. She testified that she had no intention of buying more hours but that she took the test because she had learned that a student was 'practically ostracized at the studio* if she refused to do so. Although she 'insisted through the entire thing that [she] was not going to make any further investment' she nevertheless signed a contract for the additional lessons 'to relieve the pressure.'"

Copies of the Commission opinion may be obtained by addressing: Division of Legal and Public Records, Federal Trade Commission, Washington, D.C. 20580.

FINAL ORDER (D.8776)

FOR RELEASE After 8:30 A.M., Monday, March 15, 1971

FTC ORDERS A HALT TO PRESSURE TACTICS AND DECEPTION BY FOUR ARTHUR MURRAY STUDIOS

The Federal Trade Commission has ruled that four affiliated and formerly operating Arthur Murray dance

studios have used sham contests and dance analysis tests, unfair pressure tactics and other unlawful means to

sell dance instruction courses.

The four studios were formerly located at the following addresses: 724 14th St., N.W., Washington, D.C. 217 N. Charles St., Baltimore, Md., 4923 Elmo Drive, Bethesda, Md., and 934 Ellsworth Drive, Silver Spring, Md.

The FTC's order against the studios and their officers-Victor F. Horst and Edward Marandola, also known as Edward Mara—halts the unlawful sales practices, imposes a $ 1,500 limitation on future contracts, and gives customers a seven-day cooling-off period during which they may cancel the contracts.

Adopting an initial decision by Hearing Examiner Eldon P. Schrup, the Commission upheld his findings that the studios have used these unlawful activities:

Obtaining leads to prospective purchasers of dance instruction by awarding gift certificates for lessons either through so-called "contests" in which all participants can win or by misrepresenting that a person has been "selected" to receive a free course. Not providing the full number of "free" hours of instruction promised but instead devoting much of the time to promoting the sale of dancing lessons. Representing that studio-sponsored clubs are bona fide adult social clubs when in fact they are devices used to obtain leads and to lure prospects into the studios where a sales presentation could be made. Using sham "dance analysis tests" where all prospects arc given passing grades regardless of dancing ability, aptitude or proficiency.

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Federal Trade Commission v. Arthur Murray Studios (key documents, 1969-70)

Documents

place of business

aforesaid business

respondents victor

corporate respondents

individual respondents

respondent edward marandola

states of maryland

state of maryland