F.T.C. v. Amy Travel Service, Inc.

• Citation: 875 F.2d 564
• Decision Date: 05 May 1989
• Docket Number: No. 88-1997,88-1997
• Parties: , 1989-1 Trade Cases 68,549, 1989-1 Trade Cases 68,584, 13 Fed.R.Serv.3d 1088, 27 Fed. R. Evid. Serv. 1214 FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. AMY TRAVEL SERVICE, INC., Resort Performance, Inc., Resort Telemarketing, Inc., Thomas P. McCann, II, and James F. Weiland, Defendants-Appellants.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 564

875 F.2d 564

57 USLW 2676, 1989-1 Trade Cases 68,549,

1989-1 Trade Cases 68,584, 13 Fed.R.Serv.3d 1088,

27 Fed. R. Evid. Serv. 1214

FEDERAL TRADE COMMISSION, Plaintiff-Appellee, v. AMY TRAVEL SERVICE, INC., Resort Performance, Inc., Resort Telemarketing, Inc., Thomas P. McCann, II, and James F. Weiland, Defendants-Appellants.

No. 88-1997.

United States Court of Appeals Seventh Circuit.

Argued Nov. 9, 1988.

Decided April 19, 1989.

Opinion on Dismissal of Appeal

May 5, 1989.

Melvin H. Orlans, Office of Gen. Counsel, Washington, D.C., for plaintiff-appellee.

Ben Broocks, Bennett & Broocks, H. Victor Thomas, Houston, Tex., for defendants-appellants.

Before CUMMINGS, WOOD, Jr., and CUDAHY, Circuit Judges.

HARLINGTON WOOD, Jr., Circuit Judge.

The defendants in this case are three corporations and two individuals. The corporations are Amy Travel Service, Inc. ("Amy"), Resort Telemarketing, Inc. ("RTI"), and Resort Performance, Inc. ("RPI"). The individuals, Thomas P. McCann II ("McCann") and James F. Weiland ("Weiland"), were the owners and directors of the defendant corporations. These companies market discount vacations through the sale of "vacation certificates" or "vacation passports." The Federal Trade Commission ("FTC") filed suit to enjoin defendants' allegedly deceptive trade practices. The FTC also asked for rescission of contracts and restitution to consumers. The case was tried by consent to a magistrate, who found for the FTC. The magistrate entered a permanent injunction, ordered restitution, and imposed personal liability on the individual defendants. Defendants filed this appeal, questioning the power of the court to order such remedies and alleging other errors below.

I. FACTUAL BACKGROUND

This is an appeal from a final judgment and this court has jurisdiction under 28 U.S.C. Sec. 1291. The district court had jurisdiction pursuant to 28 U.S.C. Secs. 1331, 1337(a), 1345 and 15 U.S.C. Sec. 53(b). We will detail the findings of fact made by the district court to present the necessary backdrop for this appeal.

A. "This is not a sales call, so please relax ..."

The defendant corporations and defendants Weiland and McCann were in the business of selling travel certificates (also known as "vacation passports" or "vacation vouchers"). In 1985, Weiland and McCann incorporated RPI as an Illinois corporation to market travel certificates. In 1986, McCann, Weiland, and two others opened a "telemarketing" sales room in Indianapolis, Indiana to sell "vacation passports" over the telephone. This business operated under the name of RTI, an Indiana corporation. As their business increased, McCann and Weiland opened eight other phone sales rooms in Texas, Illinois, Colorado, and Kentucky. ¹ All of the businesses were wholly-owned subsidiaries of RTI. McCann and Weiland managed all the businesses and they were all operated as a single entity. Defendant Amy was purchased in 1985 to fulfill vacation certificate travel obligations.

The defendants used telemarketing to sell vacation packages. The service provided was similar to that performed by a conventional travel agent--the assembly of a vacation package that included air transportation and lodging at a resort area--but the method used to sell the packages was quite different than the norm in the travel industry. Defendants assembled written materials that they called a "vacation passport" and sold the passports to consumers for $289 to $329. The passport consisted of two pages of written material and it contained written descriptions of the vacation package being offered. The passport listed nine resort destinations and identified RPI and Amy as the presenters of the offer. The passport stated This Passport entitles the adult holder(s) to receive two round-trip air tickets plus lodging for 8 days and 7 nights for the price not to exceed one unrestricted round-trip, standard, all-year, full-economy (Y-class) airfare. Single adult travelers are entitled to the identical benefits for 50 per cent of the unrestricted Y-class fare.

The passport also detailed reservation procedures, including a requirement that all travel arrangements be made through Amy. On the back side of the passport, under the caption "Amy Travel Service Inc.," there was a form allowing the purchaser of the passport to select three alternate destinations and departure dates. Finally, the passport included a statement that Amy "guarantees the lowest price of your itinerary or will pay you triple the difference in cash."

To facilitate sales of the passports over the phone, McCann and Weiland developed a "script" to be used by the telephone salespeople. The basic script ² includes language intimating that the offer was being made to only a few special customers. The customer must "qualify" for the offer by answering yes to a few simple questions. While the price of the voucher varied from $289 to $329, the price of the airfare that the prospective traveler also needed to purchase was never given. Customers were only told that the cost of the voucher entitled them to a fully paid vacation for eight days and seven nights plus two round trip airfares for a cost not to exceed one "unrestricted round trip (Y-class) full economy airfare." Customers were asked to provide with your credit card purchase ... for the vacation passport voucher, you are entitled to receive a fully-paid vacation for two at a cost not to exceed that of one round-trip standard, all-year, full economy ("Y" class) airfare, which you agree to purchase from the travel agency named in the voucher. ³

their Mastercard or Visa numbers. After the script was read, the salesperson gave the phone to a supervisor who then read a document known as the "Purchaser's Acknowledgement Agreement" over the phone to the customer. This "agreement" purported to explain the details of the purchase and included a statement that

A copy of this agreement was sent to the customer along with the vacation voucher.

The magistrate found that the procedure we have described was not always followed to the letter. The magistrate examined other exhibits provided by the FTC that showed how the defendants and their sales staff had departed from the standard script. Plaintiff's Exhibit 2, for example, begins:

Hi! My name is ________, I'm calling you with T.C. & T., I'm calling from Texas. This is not a sales call so please relax. The reason I am calling Mr./ Mrs./Ms. ________, is this, you have been computer selected thru a major credit card company to be offered a fully paid vacation to Hawaii, for only $289.90.... We are testing the feasibility of telephone marketing for an INTERNATIONAL TRAVEL AGENCY. While we are doing this pilot program, they have given us a VERY LIMITED AMOUNT OF these SPECIAL priced vacations to offer.

Defendants conceded that there was no limit on the number of vouchers available. The magistrate noted that while McCann claimed he ordered the "this is not a sales call" line dropped, McCann had said in a deposition that he saw nothing wrong with the line. Salespersons were given canned responses to recurring customer questions. For example, salespersons were directed to respond to customer reluctance about giving out credit card numbers over the phone by stating that "... we contact MC/VISA to varify [sic] your credit.... If we misused any credit card number, not only would we lose that merchant number but no doubt, our bank would freeze our account for a complete audit of all business on MC/VISA." Some scripts also failed to make clear that the customer, by giving the salesperson a credit card number, would be charged for the voucher.

B. "At that price, I'm sure you'd like to go...."

The defendants were quite successful at marketing their vacation vouchers. Defendants claim that approximately 35,000 certificates were sold wholesale to other companies and 25,000 were sold directly to consumers. Twelve thousand to 13,000 trips were taken by 25,000 people and some 17,000 customers were waiting for trips when the operation was shut down by the FTC. Gross revenues were around $1.5 million in 1986 and $4.5 million in 1987.

Consumer complaints about the defendants resulted from a number of the defendants' practices. Many consumers complained that the defendants misused their credit card numbers. A number of witnesses testified that when contacted by the salesperson, they were not told that they would be charged for a purchase--the witnesses claim the salesperson asked for a credit card number for the sole purpose of verifying the customer's credit worthiness.

Defendants ran into other troubles with banks handling defendants' credit card transactions. The difficulties arose because of the high number of consumers who disputed the charges made to their accounts by the defendants. These disputes resulted in chargebacks to the defendants' accounts when consumers refused to pay. The magistrate took note of one bank that eventually suffered over $700,000 in consumer chargebacks. A number of banks terminated defendants' accounts due to consumer complaints.

The main consumer complaint about the defendants' pitch was a misunderstanding about the true cost of the vacation package. The vacation passport itself was sold for $289 to $329. Printed on the passport was an explanation of the passport's worth--the bearer was entitled to two round trip airplane tickets and lodging for eight days and seven nights for a price "not to exceed one unrestricted round-trip, standard, all-year, full-economy (Y-class) airfare." Defendants could therefore charge consumers any amount up to the cost of a Y-class airfare in addition to the cost of the passport itself. The magistrate determined that "the use of the word 'economy' suggested a low cost fare." FTC v. Amy Travel, No. 87 C 6776, slip op. at 27 (N.D.Ill. Feb. 10, 1987). The Y-class airfare, although described as a "full-economy" fare, is actually the highest-priced coach fare available. This was...