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Kugler v. Romain

Decided: June 10, 1970.


Mintz, J.s.c.


This proceeding is brought by the Attorney General pursuant to N.J.S.A. 56:8-1 et seq. , hereinafter referred to as the "Consumer Protection Act." He alleges defendant's business operation to be violative of N.J.S.A. 56:8-2, which in part provides:

The act, use or employment by any person of any deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise or with the subsequent performance of such person as aforesaid, whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice; * * *.

N.J.S.A. 56:8-8 in part reads as follows:

Whenever it shall appear to the Attorney General that a person has engaged in, is engaging in or is about to engage in any practice declared to be unlawful by this act he may seek and obtain in an action in the Superior Court an injunction prohibiting such person from continuing such practices or engaging therein or doing any acts in furtherance thereof * * *. The court may make such orders or judgments as may be necessary to prevent the use or employment by a person of any prohibited practices, or which may be necessary to restore to any person in interest any moneys or property, real or personal which may have been acquired by means of any practice herein declared to be unlawful.

Plaintiff seeks (1) injunctive relief pursuant to N.J.S.A. 56:8-8 as to the specific practices allegedly violative of N.J.S.A. 56:8-2; (2) a declaration that the price terms of the contracts in question are fraudulent per se and unconscionable, being violative of N.J.S.A. 56:8-2 and N.J.S.A. 12A:2-302; (3) restoration orders pursuant to N.J.S.A. 56:8-8 for the benefit of the purchasers who testified with respect to the allegedly fraudulent practices of defendant's

representatives; (4) rescission of all contracts between purchasers listed on the schedule attached to the complaint and defendant, notwithstanding some of these purchasers did not testify in these proceedings; (5) assessment of civil penalties against defendant, as provided for in N.J.S.A. 56:8-13, 14, and (6) an order enjoining defendant from doing business in New Jersey until registration of his trade name is effected in accordance with N.J.S.A. 56:1-2.

Defendant Romain, a member of the bar of the State of New York, operates a business principally in the States of New York and New Jersey known as Educational Services Co. The office of this company is in New York. The business consists of solicitation and sale of certain educational books and related materials effected through sales personnel selected and trained by defendant or his office manager in New York. The sales contracts used by these sales people refer to "a complete ten-year educational program." Defendant commenced operation in New Jersey in January 1965. A "crew leader," presumably a representative who has been with defendant for some period of time, transports a group of sales representatives by car to New Jersey. Defendant's sales force fluctuates. He engages a greater number in the summer months, during which the sales force approximately 30 to 35 persons. The geographical area where sales are solicited is selected by the crew leader. Upon arrival at a designated point in New Jersey, the salesmen or women undertake to canvass the selected area by a house-to-house solicitation without any prior notice to the prospects. At the end of the day they meet at a designated spot for their return trip to New York. Actual sales solicitations are effected primarily in urban areas of this State and directed towards low income families.

The basic "Educational Package" offered by defendant consists of the following materials:

1. "Questions Children Ask" (1 vol.);

2. "Child Horizons" (4 vols.);

3. "New Achievement Library" (5 vols.);

4. "High School Subjects Self-Taught" (4 vols.);

5. "Science Library" (1 Vol.);

6. "Play-Way" French and Spanish records, and

7. Flash card set.

In many of the contracts there is also included a volume entitled "Negro History." Additionally, certain bonus volumes are afforded the purchaser upon final payment. Ten annual supplementary volumes are integral parts of the sales package. The total cash sales price for the above stated package is $249.50, and the time sales price is $279.95. No one purchases for cash. The cost of the ten annual supplements is passed on directly to the purchaser via a $2.94 annual charge paid along with the submission of certain coupons. The time sales price includes a delivery charge of $17.99 and a credit service charge of $12.46. The contract calls for the down-payment of $9 with the balance of the time sales price payable in 24 equal monthly installments of $11.50.

There was some dispute with respect to the base cost of the entire package. Defendant testified that the cost to him of the basic package came to $38.35; that the average cost of the bonus item furnished the customer who paid in full was $8, and that the annual loss experience over a ten-year period in furnishing the annual supplements based upon a 40% exercise of this privilege came to $7, making a total base cost for the "package" of approximately $53.35. The figure is high, and considering all the testimony presented it would appear that a figure of perhaps $35 to $40 is more accurate.

Defendant pays its salesmen strictly on a commission basis. The amount of the commission paid on each sale ranges from $16.50 to $33.00, depending upon whether the following four points are satisfied: (1) securing of a down payment of $9.00; (2) securing a consumer's home phone number; (3) securing a consumer who is not self-employed, and (4) securing a consumer who has been employed for 1 I/2 years. In order to qualify for the full commission, the salesman must satisfy three of the four points. In the vast

majority of cases the commission paid on each sale averaged about $16.50. The crew leader also works on a commission basis and additionally receives an over-ride commission of $5 on every approved order submitted by a member of his crew.

The proofs abundantly support the finding that deceptive and fraudulent practices prohibited by N.J.S.A. 56:8-2 have been perpetrated by the defendant's sales representatives upon each of the 24 consumers who testified. The cited statute specifically provides that a showing of damage is not a prerequisite for the finding of a ...

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