FTC v. Patriot Alcohol Testers, Inc., Civ. A. No. 91-11812-C.

Decision Date14 July 1992
Docket NumberCiv. A. No. 91-11812-C.
Citation798 F. Supp. 851
PartiesFEDERAL TRADE COMMISSION, Plaintiff, v. PATRIOT ALCOHOL TESTERS, INC., d/b/a Patriot Industries; Patriot Industries, Inc.; and Anthony J. Prall, a/k/a Jay Prall, individually and as an officer and director of Patriot Alcohol Testers, Inc. and Patriot Industries, Inc., Defendants.
CourtU.S. District Court — District of Massachusetts

COPYRIGHT MATERIAL OMITTED

David M. Newman, F.T.C., San Francisco, Cal., for F.T.C.

Robert G. Clark, III, Office of Robert G. Clark, Jr., Brockton, Mass., Stephen J. Finta, Ft. Lauderdale, Fla., for Patriot Industries.

MEMORANDUM

CAFFREY, Senior District Judge.

This case is before the Court on a motion for partial summary judgment by the Plaintiff, the Federal Trade Commission ("FTC"), against Defendants Patriot Alcohol Testers, Inc. ("Patriot") and Anthony J. Prall ("Prall"). Specifically, the FTC asserts that it is entitled to summary judgment with respect to the following two issues: first, whether certain representations made by or on behalf of Patriot constituted "unfair or deceptive acts or practices" in violation of section 5(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. § 45(a)(1) (1988); and second, whether Defendant Prall can be held personally liable for these alleged violations.1 For the reasons set forth below, the motion for partial summary judgment by the FTC should be granted in part and denied in part.

I.

There is no dispute regarding the following facts. Patriot is a corporation organized and doing business under the laws of the Commonwealth of Massachusetts with a principal place of business in Massachusetts. Prall, a Massachusetts resident, is the president of Patriot and controlled its operations and policies. Beginning in 1988 and continuing thereafter, Patriot has been in the business of manufacturing and selling a coin-operated, blood alcohol measuring device known as the "Model 5000." Patriot marketed the Model 5000 as a business opportunity for potential distributors. Upon purchasing Model 5000s, a distributor could derive income from the devices by placing them in bars, nightclubs and restaurants for use by patrons. To use the device, patrons would deposit fifty cents, blow through a straw into the machine and then receive a reading as to their alcohol level. Patriot has sold these devices to distributors in many different states.

The dispute in the instant case primarily revolves around Patriot's promotional communications regarding its Model 5000. The FTC seeks summary judgment in connection with the following six representations made by or on behalf of Patriot: (1) that distributors' average income from the Model 5000 is $130 per week per device; (2) that distributors reasonably could expect to earn $350 per week per device in busy locations; (3) that the Model 5000 is maintenance-free; (4) that it is easy to place the Model 5000 in bars and other drinking establishments; (5) that bars and other drinking establishments are able to obtain substantial discounts on liability insurance based on their installation of alcohol testing devices like the Model 5000; and (6) that the Model 5000 provides an accurate measure of a user's blood alcohol level. In addition, the FTC seeks summary judgment on the issue of whether Prall can be held personally liable for alleged misrepresentations made by or on behalf of Patriot.

II.
A. Summary Judgment Standard

According to Fed.R.Civ.P. 56(c), summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A material fact is one that "might affect the outcome of the suit under the governing law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). A genuine issue of fact exists if the evidence is such that a reasonable finder of fact could find in favor of the nonmoving party. Id. In determining whether a genuine issue exists, "the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Id. at 255, 106 S.Ct. at 2513.

The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). Once the moving party satisfies this burden, the burden shifts to the opposing party to "present evidence from which a finder of fact might return a verdict in its favor." Anderson, 477 U.S. at 257, 106 S.Ct. at 2514. To satisfy its burden, the nonmoving party must set forth specific facts and may not rely on general denials. United States v. O'Connell, 890 F.2d 563, 565 (1st Cir. 1989). Finally, "a trial judge may freely grant summary judgment on a non-jury issue if no dispute over material fact exists and a trial or hearing would not enhance its ability to decide the issue." Posadas de Puerto Rico, Inc. v. Radin, 856 F.2d 399, 400-01 (1st Cir.1988).

B. Alleged Misrepresentations

Section 5 of the FTC Act provides that "unfair or deceptive acts or practices in or affecting commerce are declared unlawful." 15 U.S.C. § 45(a)(1) (1988). To establish that an act or practice is "deceptive" under Section 5, the FTC must establish three required elements. First, The FTC must establish that there is a representation, omission, or practice. In re Cliffdale Associates, Inc., 103 F.T.C. 110, 165 (1984). Second, the FTC must establish that the representation, omission or practice is likely to mislead consumers acting reasonably under the circumstances. Id. Third, the FTC must establish that the representation, omission or practice is material. Id.

The first element simply requires a showing that the defendant made some representation. With respect to the second element, a court must consider whether the representation is likely to mislead a reasonable consumer "`by viewing it as a whole, without emphasizing isolated words or phrases apart from their context.'" Removatron Int'l Corp. v. FTC, 884 F.2d 1489, 1496 (1st Cir.1989) (quoting Beneficial Corp. v. FTC, 542 F.2d 611, 617 (3d Cir.1976)). In addition, a court must focus on "the impression created by the advertisement, not its literal truth or falsity...." Id. (quoting American Home Prods. Corp. v. FTC, 695 F.2d 681, 686 (3d Cir.1982)). With respect to the third element, a material representation is one that "involves information that is important to consumers and, hence, likely to affect their choice of, or conduct regarding, a product." Cliffdale Associates, 103 F.T.C. at 165. Express representations that are shown to be false are presumptively material. See id. at 168, 182.

Assuming the plaintiff satisfies the three elements, the fact that an advertiser may have acted without an intent to deceive is not a defense to a violation of 15 U.S.C. § 45(a)(1). FTC v. World Travel Vacation Brokers, Inc., 861 F.2d 1020, 1029 (7th Cir.1988) (citing Beneficial Corp. v. FTC, 542 F.2d 611, 617 (3d Cir.1976)). Nor is an advertiser's good faith a defense to a violation of 15 U.S.C. § 45(a)(1). Id. (citing Chrysler Corp. v. FTC, 561 F.2d 357, 363 n. 5 (D.C.Cir.1977)).

Having thus set forth the standard for determining whether a given representation is deceptive under 15 U.S.C. § 45(a)(1), the Court now will consider each of the representations allegedly made by the defendants.

1. Average Weekly Income

With respect to the first prong of the standard, there is no genuine issue as to whether the defendants made the representation that distributors' average weekly income from the Model 5000 is $130 per device. The affidavits and exhibits submitted by the FTC reveal that the defendants ran an advertisement in Entrepreneur Magazine which claimed that the average machine earns $130 per week. In addition, the record shows that the defendants provided purchasers with a chart that projects earnings to distributors based on weekly revenues per device of twenty-five dollars to $160. The chart states explicitly that the "reported national average" revenue per device is $130. Thus, with respect to the alleged representation that the average weekly income from the Model 5000 is $130 per device, the FTC has satisfied the first prong of the three-pronged standard, which, as noted above, requires a showing of a representation, omission or practice.

The second prong of the standard requires the FTC to show that the representation is likely to mislead consumers acting reasonably under the circumstances. Cliffdale Associates, 103 F.T.C. at 165. Based on the record before this Court, the claim that the Model 5000 earns an average of $130 per week per device appears to have been an exaggeration. Even if the Court were to disregard the affidavits submitted by the FTC and take into consideration only the affidavits submitted by the defendants, and even viewing those affidavits in the light most favorable to the defendants,2 the Court finds that the average income derived from the Model 5000 would be approximately forty-nine dollars per week per device. No affidavit submitted by the Defendants reported an average weekly income per device of greater than $100. If the FTC's affidavits were taken into consideration, the average would drop substantially lower; the highest average weekly income per device reported in the FTC's affidavits was twenty dollars. Thus, given the wide disparity between Defendants' representations regarding the device's average weekly income and the actual earnings of distributors who submitted affidavits, the only conclusion that a reasonable finder of fact could reach is that the representations were false and likely to mislead consumers acting reasonably under the circumstances. Accordingly, the FTC has satisfied the second prong of the standard.

The third element,...

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