People v. Block & Kleaver, Inc.

• Decision Date: 03 March 1980
• Citation: 427 N.Y.S.2d 133,103 Misc.2d 758
• Parties: The PEOPLE of the State of New York v. BLOCK & KLEAVER, INC., Defendant.
• Court: New York County Court

Page 133

427 N.Y.S.2d 133

103 Misc.2d 758

The PEOPLE of the State of New York v. BLOCK & KLEAVER, INC., Defendant.

Monroe County Court.

March 3, 1980.

Lawrence T. Kurlander, Dist. Atty., for the County of Monroe, for the People; Asst. Dist. Attys. Glenn E. Pezzulo and Elizabeth Hertel, Rochester, of counsel.

Sullivan, Gough, Skipworth, Summers & Smith, Rochester, for defendant; Thomas E. Lenweaver, Rochester, of counsel.

DECISION

MARK, Judge.

This prosecution was apparently one of the first ¹ in the history of this State for the crime of Scheme to Defraud, 1st Degree, in violation of Section 190.65(1) of the Penal Law.

The defendant corporation was also charged with the crime of False Advertising in violation of Section 190.20 of the Penal Law.

At the conclusion of the non-jury trial, ² decision was reserved.

Although the proof as to both crimes was interwoven, the elements of each are not identical. Section 190.65 was designed to prevent consumer fraud and is akin to larceny by false pretenses (Prac. Comm., P.L., Sec. 190.65 ), while Section 190.20 does not require a showing that anyone has been defrauded by the false advertising (People v. Glubo, 5 N.Y.2d 461, 186 N.Y.S.2d 26, 158 N.E.2d 699). Under the federal mail fraud statute, 18 U.S.Code § 1341, from which Section 190.65 is derived (Prac. Comm., P.L., Sec. 190.65 ), it was held that a scheme to attract customers to a store by false advertising, with a view to selling them unadvertised merchandise, was not a scheme to defraud in violation of that statute (Rude v. United States, 10 Cir., 74 F.2d 673).

Since in the sequence of events depicted by the evidence produced, the alleged false advertising preceded the alleged scheme to defraud, these two charges will be discussed in inverse order.

Section 190.20 of the Penal Law, insofar as it is applicable to this case, provides as follows: "A person is guilty of false advertising when, with intent to promote the sale or to increase the consumption of property or services, he makes or causes to be made a false or misleading statement in any advertisement . . . ."

The following evidence was adduced by the prosecution to demonstrate the alleged fraudulent advertising perpetrated by the defendant corporation.

The defendant corporation was engaged in the business of selling retail bulk beef, which it advertised at unusually low prices in the local newspapers. Each customer who responded to the advertisement, regardless of what meat he indicated an interest in, was first shown the sale beef which was fatty, discolored, and unappetizing. An employee would disparage the sale beef, by advising the customer that the loss of fat and bone would make such a purchase unprofitable. After so discouraging the customer, the employee would show the customer much more appetizing meat at a higher price, but represent that there would be minimal loss from the pre-trimmed beef and that it would last for a certain period of time. Except in one instance, each customer was persuaded to purchase the more expensive beef.

Most customers never complained to the defendant corporation and became available to the prosecution only after a local television channel exposed the alleged fraudulent practices. Most customers were generally satisfied with the quality of the meat purchased. Most customers had never seen a side of beef before and made a voluntary decision to purchase the pre-trimmed beef after viewing the sale beef and being informed of its prospective waste. The sale beef was always available for purchase, and each customer expected that he would pay for some loss. All advertisements in small print stated the loss of beef to be between 20 percent and 40 percent but such caveat was not observed by any consumer.

From June 1, 1978, until March 31, 1979, the defendant corporation consistently advertised the sale beef at a price per pound that was less than the price for which it purchased such meat and at a price that was less than two other retail bulk meat businesses were selling the meat for. For example, in June, 1978, the defendant advertised bulk beef for sale at $.89 per pound at the same time it was purchasing such meat at $.94 per pound and at the same time the two said businesses were selling the same at an average of $1.27 per pound; and in March, 1979, the defendant advertised bulk beef for sale at various prices from $.89 per pound to $1.09 per pound at the same time it was purchasing such meat at $1.09 per pound and the same time the two businesses were selling the same at an average of $1.44 per pound.

The various employees of the defendant corporation quoted the loss of sale beef from a minimum of 30 percent to a maximum of 90 percent to 21 customers. The average of the percentage of loss so quoted was 54 percent. The same employees represented the waste of pre-trimmed beef to 12 customers from a low of 0 percent to a high of 10/12 percent, the percentage most frequently mentioned being 10 percent.

As a result of the actions of the defendant corporation's employees, out of a total of 31 customers, 29 customers ultimately purchased the pre-trimmed beef; one customer could not be dissuaded from buying the sale beef and one imposter had no intention of making any purchase.

Section 190.20 of the Penal Law may be construed in conjunction with Section 396 of the General Business Law (People v. Glubo, supra). The latter section gave the Attorney General the right to seek a civil injunction against false advertising (Electrolux Corp. v. Val-Worth, 6 N.Y.2d 556, 190 N.Y.S.2d 977, 161 N.E.2d 197). Both statutes proscribe the sale promotional practice known as "bait and switch advertising," "bait advertising" or "ficticious bargain claims" (See, Matter of People v. Baumann and Co., 56 Misc.2d 153, 288 N.Y.S.2d 404). This practice consists of advertising a product at a very low price; a pattern of conduct discouraging the purchase of the advertised article by disparaging the same and exhibiting a poor-appearing specimen of the advertised article; and the resulting switch to the purchase of a product costing more than the one advertised (Electrolux Corp. v. Val-Worth, supra; Matter of People v. Baumann and Co., supra; Matter of People v. Levinson, 23 Misc.2d 483, 199 N.Y.S.2d 625).

This is the exact factual predicate in the instant case, as it was in People v. Glubo, supra.

In that case, the defendant advertised via television a sewing machine which cost it $45, for the price of $29.50. A customer who responded was visited by a salesman who would undertake to prove the advertised machine inoperable and point out that it was basically defective and inferior. The salesman would then attempt to persuade the customer to order a better machine at a much higher price. The defendant claimed that it intended only to discourage the sale of the advertised machine and that it always intended to sell the product where the customer could not be switched. Very few of the advertised machines were sold compared to the volume of the better and higher-priced machines.

The question of the true capacities and qualities of the $29.50 machine was not litigated. The sole claim of falsity was that the defendant had no intention whatever of selling the advertised machine for sale. The People's case rested on the fact that the defendant advertised for sale a sewing machine it did not intend to sell in order to obtain leads so that it might sell the higher-priced machine. The defendant made no false representation concerning the machines they did sell and the sewing machines sold by the defendants were worth the money paid therefor.

The Court of Appeals held that the conduct of the defendant constituted false advertising and that it was properly convicted of violating Section 421 of the Penal Law, the predecessor of Section 190.20.

Accordingly, the defendant corporation is found guilty of the crime of False Advertising in violation of Section 190.20 of the Penal Law.

The charge that the defendant corporation committed the crime of Scheme to Defraud, 1st Degree, will now be considered.

Section 190.65(1) of the Penal Law provides as follows: "A person is guilty of a scheme to defraud in the first degree when he (a) engages in a scheme constituting a systematic ongoing course of conduct with intent to defraud ten or more persons or to obtain property from ten or more persons by false or fraudulent pretenses, representations or promises, and (b) so obtains property from one or more of such persons."

The following evidence was produced by the prosecution to demonstrate that the conduct of the defendant corporation violated this section.

Although the employees of the defendant corporation estimated the loss of the pre-trimmed beef from a low of 0 percent to a high of 10/12 percent, the actual weight loss of such meat purchased by 17 customers ranged from a low of 20 percent to a high of 40 percent. Included in these percentages is a 72 percent loss sustained by one customer, ³ and two percentages of 4 percent and 6 percent loss, all three of which were not considered representative. ⁴ The average of the percentage of waste which occurred in the 17 purchases was 31 percent.

A formula was devised by the court to show the relationship between the cost per pound of the sale beef based upon the percentage of loss stated by the employee of the defendant corporation and the cost per pound of the pre-trimmed beef based upon the percentage of loss represented and the actual percentage of loss.

Nine out of 12 customers purchased the pre-trimmed beef at a higher cost per pound than they could have purchased the sale beef despite the claims of the defendant corporation's employees to the contrary. The highest price paid was $8.20 per pound ⁵ and the lowest price paid was $1.20 per pound. The average cost per pound of the pre-trimmed beef was $3.39 while the average price per pound of sale beef would have been $2.27.

Nine customers who were...