Zale Corporation and Corrigan-Republic, Inc. v. FTC

Decision Date09 March 1973
Docket NumberNo. 71-2633.,71-2633.
Citation473 F.2d 1317
PartiesZALE CORPORATION AND CORRIGAN-REPUBLIC, INC., Petitioners, v. FEDERAL TRADE COMMISSION, Respondent.
CourtU.S. Court of Appeals — Fifth Circuit

Sam G. Winstead, Jack Pew, Jr., Dallas, Tex., for petitioners.

Ronald M. Dietrich, Gen. Counsel, Harold D. Rhynedance, Jr., Asst. Gen. Counsel, Robert E. Duncan, Atty., F.T.C., Washington, D. C., for respondent.

Before GEWIN, COLEMAN and INGRAHAM, Circuit Judges.

INGRAHAM, Circuit Judge:

The issues on this petition to review an order of the Federal Trade Commission, requiring the petitioners to cease and desist from violations of Regulation Z1 promulgated under the Truth in Lending Act,2 are (1) Whether the parent corporation shall be held accountable for its own and its subsidiary's violations of the Regulation; (2) whether an injunction against future violations of the Regulation is appropriate where the parent corporation has conceded the violation but asserts their non-recurring nature; and (3) whether the cease and desist order entered in this case was overly broad in its prohibition of violating sections of the Regulation assertedly not violated.

Petitioners are the Zale Corporation and its owned or controlled subsidiaries (the Zale Corporate Enterprise). Zale itself is a combination operating and holding company, and as a holding company controls a network of 1056 wholly owned subsidiaries, including the subsidiary, Corrigan-Republic, Inc. The Corporate Enterprise engages in a nationwide business of selling retail jewelry and other merchandise, generating a large volume of consumer credit transactions.3

The consumer credit transactions of the Zale Corporate Enterprise were the subject of FTC's inquiry. Specifically, the Commission attacked the Enterprise's uniform retail installment contract as used in the subject period, July 1, 1969 to December 31, 1969. Zale has conceded this form's violation of Regulation Z in thirteen particulars by failing to:

1. Properly disclose the "dollars finance charge per $100 of unpaid balance;"
2. properly disclose the term "finance charge" more conspicuously than other required terminology;
3. exclude the amount of the "finance charge" in the computation of the "amount financed;"
4. properly disclose the term "finance charge" in proper meaningful sequence;
5. properly include the charge for credit life insurance in the term "amount financed."
6. disclose the amount of the "dollars finance charge per year per $100 of unpaid balance" with an accuracy to the nearest quarter of one percent 7. use the term "cash downpayment" when the downpayment was in money;
8. properly use the term "unpaid balance of cash price;"
9. treat an existing consumer obligation as a new transaction when the obligation was increased;"
10. clearly identify the property in which a security interest was retained;
11. accurately identify the method used for computing any charge that is deducted from the amount of any rebate of unearned finance charge;
12. include the proscribed notice when required disclosures are made on both sides of the document; and
13. make the required disclosures on the reverse side of the contract in the necessary clear, conspicuous and meaningful sequence.

Zale, however, contends that the offending form has been remedied to comply with the Regulation. The Commission disagrees, finding still other violations such as the new form's notice provision. See 12 C.F.R. 226.6(a). Additionally, it should be noted that certain of the admitted violations involve incorrect amounts or rates in the actual transactions rather than in the use of terminology or disclosure sequence which is preprinted on those forms. Whether or not such practices have actually been abandoned can only be determined through subsequent enforcement procedures. Hence, while respecting the good corporate name of the Zale Enterprise, there is no valid assurance that if Zale were free of the Commission's restraint it would not continue its former course. Compare Sears, Roebuck & Co. v. FTC, 258 F. 307 (7th Cir., 1919), and Clinton Watch Co. v. FTC, 291 F.2d 838 (7th Cir., 1961). "Courts properly leave to the Commission's non-abusive discretion the question whether the public interest requires the protection of an order in cases where unlawful practices have been discontinued." Cotherman v. FTC, 417 F.2d 587, 594 (5th Cir., 1969). Zale's statement that it has amended its form and no longer will violate the Act was unpersuasive before the Commission and is insufficient to convince us that the Commission abused its discretion in entering a cease and desist order.

"Even though Sullivan and Cotherman promised never to re-enter the lending business, the Commission is not bound `simply by the promises of the petitioners\'. C. Howard Hunt Pen Co. v. FTC, 3 Cir. 1952, 197 F.2d 273, 281; see Eugene Dietzgen Co. v. FTC, 7 Cir. 1944, 142 F.2d 321, 330-331; Stanley Laboratories Inc. v. FTC, 9 Cir. 1943, 138 F.2d 388, 390. A promise to go and sin no more is merely one of the circumstances that the Commission should consider in determining how the public interest in stopping the deceptive practices can best be accomplished. On the record as a whole we cannot say that the Commission abused its discretion in issuing the cease and desist order against Cotherman and Sullivan."

Cotherman v. FTC, supra.

Zales next questions the scope of the Commission's order and the Commission's power to look to the parent Zales for all violations occurring in the daily use of the credit forms in the Enterprise — to Zales the latter vests review in the district court.

We conclude that the FTC appropriately entered its decree against the Zale Enterprise due to the presence in the record of the following factors:

1. The source of the majority of violations is the form prepared by the parent Zale and distributed by it to its subsidiary and division stores alike.

2. Accountability for the use of the form lies with the parent Zale.

3. The advertising done is in the Enterprise name vis-a-vis the names of specific stores.

4. The Enterprise organization denies recognition of the separate corporate infra structure employed.

The following facts supported by this record are borrowed from the government's brief:

The parent Zale Corporation and its subsidiaries have consistently maintained common or overlapping officers and directors. A meeting of all the directors and officers of Zale and its 1,056 subsidiaries would consist of only forty-one individuals. Of these, thirty-two are directors or officers of the Zale Corporation, and of these thirty-two individuals, thirteen are directors or officers in one or more subsidiaries. Thus, there are only nine individuals holding positions as officers or directors in the 1,056 subsidiaries who are not also officers or directors of the parent Zale.
The following table shows the overlapping of directors and officers of the parent and its subsidiaries:
                Zale's Divisions Zale's
                Zale except Butler Butler Shoe
                Name Corporation Shoe Division Division
                Ben A. Lipshy        President, Director     President, Director   Director and President
                                                                                   of one corporation
                Donald Zale          Exec. Vice President,   Director              Director of one
                                     Director                                      corporation
                Leo Fields           Group Vice President,   Director or officer   Director of one
                                     Director                or both               corporation
                John P. Dickens      Vice President,         Vice President or     Vice President and
                                     General Counsel         Asst. Secretary       Asst. Secretary of
                                                             or both               one corporation
                Lew Zale             Group Vice President,   Director or Vice      Vice President of
                                     Director                President for all     one corporation
                                                             except subsidiaries
                                                             in three divisions
                Esir Wyll            Secretary               Secretary             Secretary of one
                                                                                   corporation
                Clarence Feuer       Vice President          ______________        Vice President
                                                                                   of 193 corporations
                Sidney Flanzbaum     Vice President          ______________        President of 54
                                                                                   corporations
                Shearn Robinsky      Treasurer               Treasurer             Treasurer of one
                                                                                   corporation
                Marvin Rubin         Senior Vice President   Vice President
                                                             Zale Store
                                                             Division only         ________________
                I. D. Shapiro        Vice President,         ______________        President of 193
                                     Director                                      corporations
                                                                                   Director of 247
                                                                                   corporations
                                                                                   Vice President
                                                                                   of 54 corporations
                Albert Greenfield    Senior Vice President   ______________        Director, Vice
                                                                                   President in 247
                                                                                   corporations
                George Heard         Vice President,         ______________        Director in 247
                                     Director                                      corporations,
...

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