United States v. Reader's Digest Ass'n, Inc.

464 F. Supp. 1037
CourtDistrict Court, D. Delaware
DecidedMarch 20, 1979
DocketCiv. A. 75-184
StatusPublished
Cited by7 cases

This text of 464 F. Supp. 1037 (United States v. Reader's Digest Ass'n, Inc.) is published on Counsel Stack Legal Research, covering District Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Reader's Digest Ass'n, Inc., 464 F. Supp. 1037 (D. Del. 1979).

Opinion

OPINION

LATCHUM, Chief Judge.

This is an action brought by the United States of America (the “Government”) against Reader’s Digest Association, Inc. (“Reader’s Digest”) to obtain injunctive relief and recover civil penalties pursuant to sections 5(7) and 16(a)(1) of the Federal Trade Commission Act (the “Act”), 1 for al *1043 leged violations of a consent order. The order required Reader’s Digest, which regularly uses a promotional device known as a “sweepstakes” in its business of selling and distributing magazines, books and other products, to cease and desist from engaging in various practices in connection with any sweepstakes or other similar promotional device. Among the practices proscribed were the use or distribution of “simulated checks” or “any confusingly simulated item of value.” 2 The complaint alleges that Reader’s Digest violated the order by distributing an item labeled a “TRAVEL CHECK” and another item labeled a “CASH-CONVERTIBLE BOND” in connection with two different sweepstakes.

The principal issues in a civil penalty action are whether the defendant violated the FTC order in question and, if so, what amount of money should be assessed as a penalty. 3 This case is presently before the Court on Reader’s Digest’s motion for summary judgment and the Government’s motion for partial summary judgment on the issue of liability and to strike two affirmative defenses raised by Reader’s Digest in its answer. 4 The challenged defenses are: (1) that the FTC violated Reader’s Digest’s constitutional right to substantive and procedural due process by implementing and interpreting the consent order in an arbitrary and capricious manner and (2) that the Government’s claims are barred by laches, waiver and estoppel. 5 The defendant also denies that it violated the consent order.

To the extent that Reader’s Digest’s affirmative defenses do not overlap with its more general denial of liability, the Court concludes that they do not provide a basis for avoiding liability in this case. 6 The defendant has cited no authority for the proposition that the due process clause requires the FTC to afford those subject to a consent order notice and a hearing prior to instituting a civil penalty action, and the Court has found none. The courts that have addressed the issue have refused to impose such a requirement. 7 The equitable defenses of laches, waiver and estoppel have no application here, because they are based on actions taken in the public interest by members of the Commission’s staff. See FTC v. Algoma Lumber Co., 291 U.S. 67, 80, 54 S.Ct. 315, 78 L.Ed. 655 (1933); United States v. Vulcanized Rubber & Plastics Co., 178 F.Supp. 723, 726 (E.D.Pa.1959). Similarly, Reader’s Digest’s good faith or lack of intent has no bearing on the question of *1044 liability in this civil penalty action. United States v. Ancorp National Services, Inc., 516 F.2d 198, 202 (C.A.2, 1975); United States v. Vitasafe Corp., 212 F.Supp. 397 (S.D.N.Y.1962); United States v. Karns, 1963 Trade Cases ¶ 70,950 (S.D.N.Y.1963).

The Court will deny the motion to strike the affirmative defenses, however, for two reasons. First, the good faith of the defendant and the alleged lack of notice are among the factors to be considered by the Court in determining the penalty, if any, to be imposed. See United States v. Papercraft Corp., 540 F.2d 131, 141 (C.A.3, 1976); United States v. Ancorp National Services, Inc., supra, 516 F.2d at 202; United States v. Wilson Chemical Co., 1962 Trade Cases ¶ 70,478 (W.D.Pa.1962), aff’d, 319 F.2d 133 (C.A.3, 1963). Second, this case is not unduly complicated and the Government has not shown that it is prejudiced in any way by the presence of the challenged defenses. See Tivoli Realty, Inc. v. Paramount Pictures, Inc., 80 F.Supp. 800, 803 (D.Del.1948); 2A Moore’s Federal Practice ¶ 12.21, p. 2431 & n. 30 (2d ed. 1975).

The Court now turns to the sole issue presented by the pending cross-motions for summary judgment; that is, whether the distribution by Reader’s Digest of the Travel Check or Cash-Convertible Bond or both violated the terms of the consent order.

BACKGROUND

Congress has directed the FTC “to prevent persons, partnerships, or corporations from using unfair methods of competition in or affecting commerce and unfair or deceptive acts or practices in or affecting commerce.” 8 Acting pursuant to this mandate, the FTC conducted an investigation in 1970 of the practices employed by Reader’s Digest and several other corporations in connection with various promotional sweepstakes. Ultimately, the Commission notified Reader’s Digest that it intended to issue a complaint against the company alleging that some of its practices were unfair or deceptive and therefore in violation of section 5 of the Act. Settlement negotiations ensued and resulted in a consent order in which Reader’s Digest agreed to cease and desist from most of the practices mentioned in the complaint. The consent order together with the proposed FTC complaint were issued on November 2, 1971. 9 The order became final on January 15, 1972 and, except for a modification on March 5, 1974 in respects not material to this action, the order has been in full force from that date to the present time. 10

Paragraph II.C(3) of the consent order provides:

II
IT IS ORDERED that Reader’s Digest Association, Inc., a corporation, and its officers, agents, representatives and employees, directly or through any corporate or other device, in connection with the publication, advertising, offering for sale, sale or distribution of magazines, books, or other products in commerce as “commerce” is defined in the Federal Trade Commission Act, cease and desist from:
C.....
(3) Using or distributing simulated checks, currency, “new car certificates;” or using or distributing any confusingly simulated item of value.

The Government contends that two different items distributed by Reader’s Digest in connection with the offering for sale of Reader’s Digest magazine contravened *1045 Paragraph II.C(3). The first item, a “TRAVEL CHECK”, was distributed during the first half of 1973 as part of a twelve-page promotional pamphlet called a “Sweepstakes Passport.” 11

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464 F. Supp. 1037, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-readers-digest-assn-inc-ded-1979.