People by Lefkowitz v. Ludwig Baumann & Co.

• Court: New York Supreme Court
• Writing for the Court: FRANCIS J. BLOUSTEIN
• Citation: People by Lefkowitz v. Ludwig Baumann & Co., 288 N.Y.S.2d 404, 56 Misc.2d 153 (N.Y. Sup. Ct. 1968)
• Decision Date: 26 February 1968
• Parties: Application of the PEOPLE of the State of New York by Louis J. LEFKOWITZ, Attorney General of the State of New York, Petitioner, for an Order enjoining and restraining LUDWIG BAUMANN & COMPANY et al., Respondents.

Page 404

288 N.Y.S.2d 404

56 Misc.2d 153

Application of the PEOPLE of the State of New York by Louis J. LEFKOWITZ, Attorney General of the State of New York, Petitioner, for an Order enjoining and restraining LUDWIG BAUMANN & COMPANY et al., Respondents.

Supreme Court, Trial Term, New York County, Part XXIII.

Feb. 26, 1968.

Louis J. Lefkowitz, Atty. Gen. (Herbert J. Wallenstein, Michael V. Magro, Harry G. Fromberg, New York City, of counsel), for petitioner.

Robert Schwartz, Huntington Station, for respondents Global, G. B. Prod. and H. Brauner.

Michaels, Michaels & Wigdor, New York City, for respondents J. Michaels, Jules D. Michaels, Robert Michaels, J. Michael's Stores Corp.

FRANCIS J. BLOUSTEIN, Justice.

The Attorney General of the State of New York instituted this proceeding on behalf of the People of the State for an injunction pursuant to Executive Law, § 63(12) and the General Business Law, § 396(1) to restrain the respondents from engaging in certain unlawful and fraudulent business practices involving 'bait advertising'. All twenty-three (23) respondents named in the petition, with the exception of J. Michaels Inc., Jules D. Michaels, Robert Michaels and J. Michaels Stores Corp. (hereinafter called Michaels Group), consented to the entry of judgment restraining them from engaging in such practices (hereafter referred to as consenting respondents) or have defaulted in answering. Only the Michaels Group resisted this proceeding; it entered a general denial and stood trial.

The parties have submitted the case to the court on an agreed statement of facts. The only substantial issues involved in the proceeding are those of law. The first and most important of these is whether a well-known retail business concern, which licenses the use of its name to another is responsible for the deceptive, misrepresentative and fraudulent practices of its licensee, even though it lacks knowledge of those practices. The second question which is raised is whether an injunction may issue under Section 63, subd. 12 of the Executive Law, or Section 396, subd. 1 of the General Business Law against a business firm, which has already desisted from the prohibited activity at the time the proceeding commences.

The pertinent provision of the Executive Law prohibits 'repeated fraudulent or illegal acts' and 'persistent fraud or illegality in the carrying on, conducting or transaction of business'. The relevant section of the General Business Law provides:

'1. No person, firm, partnership, association, or corporation, or agent or employee thereof, shall, in any manner, or by any means of advertisement, or other means of communication, offer for sale any merchandise, commodity, or service, as part of a plan or scheme with the intent, design, or purpose not to sell the merchandise, commodity, or service so advertised at the price stated therein, or with the intent, design or purpose not to sell the merchandise, commodity, or service so advertised.'

Both the Executive Law and the General Business Law empower the Attorney General to apply for an injunction restraining the continuance of the proscribed business practices.

Paragraphs 39 and 40 of the petition generally state the gravamen of the complaint against the respondents.

'39. That said members of the consuming public were falsely and fraudulently led to believe, by virtue of a mass advertising campaign, utilizing the media of radio, the newspapers or other means of communication, that they were dealing directly with a well known reputable department store of long standing.

40. That from 1964 a scheme and plan to defraud the public was formed and carried out by the respondent by means of 'bait advertising' in radio, newspapers and other means of communication to offer for sale home improvements, merchandise, commodities or services, as part of their plan or scheme with the intent, design or purpose of not selling said home improvements, merchandise, commodities or services so advertised at the price stated therein or with the intent, design or purpose of not selling the home improvements, merchandise, commodities or services so advertised.'

It is alleged that the respondents engaged in a scheme, plan and artifice to repeatedly defraud home owners and the general public in the State of New York by means of deception, concealment and unconscionable contractual provisions contained in contracts made with home owners upon fraudulent representations and promises that were never intended to be kept.

Typical of the bait advertising is a transcript of a broadcast script used by the respondents over the air on April 9, 1966, which is contained in the footnote herein. ¹

The respondents in the Michaels Group have operated a well-known and reputable department store for some 75 years under their own name. In 1958, they bought the remaining assets--including the good will, business name and style--of C. Ludwig Baumann, an old established and responsible furniture chain store, which, it is alleged, bore an excellent reputation and they thereafter operated one of their stores as the C. Ludwig Baumann Division of J. Michaels, Inc. and otherwise used the C. Ludwig Baumann name in the conduct of their business.

On February 11, 1966, the Michaels Group entered into a contract with Harvey Associates, Inc. (a consenting respondent in this proceeding) under the terms of which Harvey Associates was given the right to 'operate a department for the sale of Home Improvements' and to 'use * * * the name of C. Ludwig Baumann Co.' in consideration of payment of $400 a month to the Michaels Group (Exhibit C, attached to petition). Actually, the operation of the so-called 'department for the sale of Home Improvements' entailed no more than the use of the Baumann name to advertise home improvements; there was no other connection between the contracting parties.

Moreover, it turned out that, without the Michaels Group's knowledge, Harvey Associates sub-contracted the operation of different phases of the C. Ludwig Baumann Home Improvement Department to a number of sub-contractors, all of whom are consenting respondents herein. All of these sub-contractors operated from sites outside and independent of any branch or store--owned, operated or managed by the Michaels Group.

By an agreement made on February 15, 1966 following its agreement with the Michaels Group, Harvey Associates sub-contracted the use of the name C. Ludwig Baumann for a consideration of $500 a month to another of the respondents.

One of the consenting respondent sub-contractors was engaged in the aluminum siding business, another in patio construction, still another in playroom conversion and others in similar 'home improvement' activities. The fraudulent scheme of operation of all the sub-contractors was similar and is adequately reflected in the agreed upon statement submitted at the trial concerning the activities of the Armstrong Aluminum Co., another consenting respondent herein.

Armstrong entered into an agreement with a group of advertisers and public relations people (all of whom are consenting respondents herein) to purchase at $45 each the names of 'leads', persons who had responded to the 'bait' carried in radio and newspaper ads prepared by the advertisers. A lead is a prospect, a name and address of a home owner in need of or interested in improving his home. These advertisements epitomize what is the worst in contemporary advertising and are so painfully familiar that it is unnecessary to reproduce more than the one already set forth in the footnote. Combining the techniques of repetition, emphasis and exaggeration, they prey in unconscionable fashion on the ignorant and the gullible and appeal to the universal urge for a bargain.

The 'bargain' or 'bait', the ads involved in this proceeding held out, was that, 'for a limited time only', a householder could have his 'whole house, a giant 1200 square feet' re-sided (with aluminum) for an unbelievably cheap price of $349. It was suggested that the true value of the siding being offered was $2000 to $3000. The credibility of the offer was established by making skillful allusion to the fact that the offer came from 'Famous C. Ludwig Baumann, with over 90 years of department store reliability'. All one had to do was 'call Murray Hill 7--9000'; 'no money down'; low weekly payments and you might even get 'a new TV set with your siding. Lucky you'.

Those who were 'lucky' enough to respond to these masterful exercises in the manipulation of human cupidity, soon found themselves confronted with an Armstrong salesman; the 'bait' having been taken, the cleverly trained salesman came to pull in the fish. The sales technique was a simple one; the advertised product, the 'great bargain' which had induced the customer to invite the salesman into his home, was roundly denounced and denigrated; dented, 'beat up' samples of the siding...