STATE
of Wisconsin v. AMERICAN TV & APPLIANCE OF MADISON, INC.
Supreme Court of Wisconsin
146 Wis. 2d 292; 430 N.W.2d 709; 1988 Wisc. LEXIS 82
September 6, 1988, Argued November 2, 1988, Decided
This is a review of a published decision of the court of appeals, State
v. American TV, 140 Wis. 2d 353, 410 N.W.2d 596 (Ct. App. 1987). That
decision reversed an order of the circuit court for Dane county, Judge
P. Charles Jones, granting a motion to dismiss the state's complaint
for failure to state a claim in this forfeiture action. We reverse the
decision of the court of appeals because the state cannot prevail, even
if the facts alleged in the complaint are true.
The state filed a complaint against American TV & Appliance of
Madison, Inc., (American) alleging that in January, 1985, American ran
the following radio advertisement one hundred sixty-four times on
twenty-two radio stations:
"There are lots of good quality washers
and dryers on the market. But when you ask which ones [sic] the best
automatic washers and dryers, well it's simple. There's Speed Queen,
Maytag and all the rest. Sears makes good washers and dryers
there are lots of other good brands. But the best washers and dryers
are made by Maytag and Speed Queen. And at American we have both of
them and they're on sale for our January white sale. A clearance sale
on the finest washers and dryers you can buy. This week a Speed Queen
washer and dryer set is reduced to 499. This week you can buy the
finest for less than $ 500. Both the Speed Queen washer and dryer set
for 499. Speed Queen, the choice of more commercial laundra-mats than
any other washer because they last. Because Speed Queen uses the same
transmission in home washes [sic] as they use in commercial washers.
When it comes to washers and dryers, there's Maytag, Speed Queen and
all the rest. And during American's closeout January white sale you can
buy the best like a Speed Queen washer and dryer pair for 499 at
American. Why pay more at Sears."
The state contends that this advertisement violated secs. 100.18(1) and
(9)(a), Stats. The complaint alleges that American ordered twenty of
these $ 499 Speed Queen sets at a cost of $ 520 per set. In addition,
the complaint alleges that American ordered one hundred thirty-three
more expensive washer and dryer sets. Sixty-five of these sets
contained more features and were "visually more sophisticated" than the
$ 499 sets. American purchased these for $ 518. The other sixty-eight
sets cost American up to $ 604 and were of an even higher quality. The
complaint states that, although American sold only four of the $ 499
sets during the sale, the state "believes that a much larger number" of
the more expensive sets were sold. In addition, American sold a large
number of non-Speed Queen washers and dryers at higher prices.
The complaint also alleges that American employs a commission system
under which a salesperson receives commission only on the sale of items
at a price greater than the wholesale cost. Since American sold these
sets at $ 21 below cost, the salespersons received no commission on
their sale.
The state's complaint alleges that the advertisement is not a bona fide
offer to sell the $ 499 set and that American used the advertisement to
induce potential buyers to come to the store where it discouraged the
purchase of the $ 499 set and tried to sell the more expensive
unadvertised sets. The state alleges that the following eight indicia
reveal American's deceptive intent: (1) the loss of money on sales of
the $ 499 set; (2) the disproportionate number of
unadvertised sets purchased for sale; (3) the disproportionate number
of unadvertised sets sold; (4) the large expense of advertising a set
upon which American would lose money; (5) the plain appearance of the $
499 set and the lack of certain features found in more expensive sets,
even though the $ 499 set was advertised as the "best" and "finest";
(6) the commission structure discouraging sales of the $ 499 set; (7)
the training received by sales persons encouraging them to direct
customers to the more expensive models; and (8) the fact that American
did not permit credit card purchases of the $ 499 set.
Based upon these allegations, the state, in its complaint, makes two
claims for relief. First, it claims that the advertisement is untrue,
deceptive or misleading in violation of sec. 100.18(1), Stats. n1
Second, it claims that the advertisement is a part of a plan or
scheme, the purpose or effect of which is not to sell the merchandise
as advertised, in violation of sec. 100.18(9)(a). n2
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n1 Section 100.18(1), Stats., provides: "Fraudulent representations.
(1) No person, firm, corporation or association, or agent or employe
thereof, with intent to sell, distribute, increase the consumption of
or in any wise dispose of any real estate, merchandise, securities,
employment, service, or anything offered by such person, firm,
corporation or association, or agent or employe thereof, directly or
indirectly, to the public for sale, hire, use or other distribution, or
with intent to induce the public in any manner to enter into any
contract or obligation relating to the purchase, sale, hire, use or
lease of any real estate, merchandise, securities, employment or
service, shall make, publish, disseminate, circulate, or place before
the public, or cause, directly or indirectly, to be made, published,
disseminated, circulated, or placed before the public, in this state,
in a newspaper, magazine or other publication, or in the form of a
book, notice, handbill, poster, bill, circular, pamphlet, letter, sign,
placard, card, label, or over any radio or television station, or in
any other way similar or dissimilar to the foregoing, an advertisement,
announcement, statement or representation of any kind to the public
relating to such purchase, sale, hire, use or lease of such real
estate, merchandise, securities, service or employment or to the terms
or conditions thereof, which advertisement, announcement, statement or
representation contains any assertion, representation or statement of
fact which is untrue, deceptive or misleading."
n2 Section 100.18(9)(a), Stats., provides: "It is deemed deceptive
advertising, within the meaning of this section, for any person or any
agent or employe thereof to make, publish, disseminate, circulate or
place before the public in this state in a newspaper or other
publication or in the form of book, notice, handbill, poster, bill,
circular, pamphlet, letter, sign, placard, card, label or over any
radio or television station or in any other way similar or dissimilar
to the foregoing, an advertisement, announcement, statement or
representation of any kind to the public relating to the purchase,
sale, hire, use or lease of real estate, merchandise, securities,
service or employment or to the terms or conditions thereof which
advertisement, announcement, statement or representation is part of a
plan or scheme the purpose or effect of which is not to sell, purchase,
hire, use or lease the real estate, merchandise, securities, service or
employment as advertised."
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The circuit court dismissed both counts set forth in the complaint. It
concluded that the advertisement is not deceptive under sec. 100.18(1),
Stats., because the advertisement, reasonably read, promotes a sale on
Maytag and Speed Queen washers and dryers generally. The advertisement
does not say that the "best" washer and dryer set in the world is the
particular Speed Queen model sold for $ 499. Further, the use of the
words "best," "finest," and "clearance" are merely examples of
hyperbole and puffery.
With regard to sec. 100.18(9)(a), Stats., the circuit court concluded
that the pleaded facts did not give rise to a reasonable inference that
the advertisement was part of a plan or scheme to bait customers into
the store and switch them to more expensive models. "Absent some
pleaded facts that this in fact occurred to a consumer" the complaint
fails, the circuit court concluded.
The court of appeals reversed. With regard to sec. 100.18(1), Stats.,
it disagreed with the circuit court about the reasonable reading of the
advertisement. It concluded that the advertisement can be read to
represent that the $ 499 set is the "best" or "finest" model made by
Speed Queen; and the truth or falsity of that assertion can be
determined by examining other models in the product line. Further, the
court of appeals held that it was possible for a finder of fact to
conclude that the use of the words "clearance" and "closeout" was
misleading. American TV, 140 Wis. 2d at 361-63.
The court of appeals also reversed the circuit court's dismissal of the
claim under sec. 100.18(9)(a), Stats. It rejected the circuit court's
assertion that the claim must allege that a bait and switch occurred to
a particular customer. Instead, it held that the facts alleged lead to
a "reasonable inference that American's purpose was not to sell the $
499 sets but to sell the more expensive sets. That is enough to
establish a violation of sec. 100.18(9)(a), Stats." American TV, 140
Wis. 2d at 367.
I. False, Deceptive, or Misleading
Advertisements.
We first address the legal sufficiency of the claim based upon sec.
100.18(1), Stats. There are two elements to this offense: There must be
an advertisement or announcement, and that advertisement must contain a
statement which is "untrue, deceptive or misleading." The state
maintains that American violated this provision both by the use of the
terms "best" and "finest" and by the use of the words "clearance"
and "closeout" in describing the sale on washers and dryers.
The state contends that American used the words "best" and "finest" to
assert that the $ 499 washer and dryer set is the single finest set in
the world. It then concludes that this is a statement of fact which can
be shown to be false simply by comparing the set to better models in
the Speed Queen line. This is not a reasonable interpretation of the
advertisement. It is clear that the words "best" and "finest" refer to
the brands of Maytag and Speed Queen. The first half of the
advertisement does not mention the $ 499 set. Instead, it asserts that,
although there are many good brands of washers and dryers, Speed Queen
and Maytag are the "best." The advertisement goes on to tell consumers
that they can buy one model of these fine brands for $ 499. "This week
a Speed Queen washer and dryer set is reduced to $ 499." (Emphasis
added.) The conclusion drawn by the state is not reasonable.
Given that the advertisement asserts that Maytag and Speed Queen are
the best brands, we must conclude that the state cannot state a claim
for relief based upon sec. 100.18(1), Stats. The assertion is not a
statement of fact which can be proven false. Rather, it is an example
of puffery, long considered an acceptable advertising technique. As no
Wisconsin cases have addressed this issue, we turn for guidance to
federal law.
The Federal Trade Commission (FTC) defined puffery in Better Living,
Inc., et al., 54 F.T.C. 648 (1957), aff'd., 259 F.2d 271 (3d Cir.
1958). "Puffing, as we understand it, is a term frequently used to
denote the exaggerations reasonably to be expected of a seller as to
the degree of quality of his product, the truth or falsity of which
cannot be precisely determined." A general statement that one's
products are best is not actionable as a misrepresentation of fact. The
FTC made this clear in a case very similar to the present one. In
Sterling Drug, Inc., et al., 102 F.T.C. 395, 752 (1983), the FTC held
that Bayer's claim that it produced "the world's best aspirin" was not
capable of being substantiated or refuted and thus was an example of
lawful puffery. Similarly, in Marcyan v. Nissen Corp., 578 F. Supp. 485
(N.D. Ind. 1982), aff'd, 725 F.2d 687 (7th Cir. 1983), the court held
that statements such as defendant's claim that its exercising machines
were the best of their type were "not actionable as false
advertisement. These are, at worst, merely considered as 'puffing.'"
Id. at 507 (citation omitted).
Just as the use of the words "best" and "finest" cannot form the basis
for a claim under sec. 100.18(1), Stats., in this case, neither can the
use of the words "clearance" and "closeout." The court of appeals
concluded that, because American ordered merchandise specifically for
this sale, the representation that the sale was a "closeout sale" is
false or deceptive. This conclusion does not follow from the evidence
alleged. As Judge Eich urged in his dissent, "[w]hether some or all of
the sale merchandise was already on hand, or whether some or all was
ordered for the sale, does not, in my opinion, make the ad's use of the
words 'clearance' or 'closeout' a lie." American TV, (Eich, J.,
dissenting) 140 Wis. 2d at 370. American's advertisement suggests that
it had stock on hand which it was attempting to sell during the sale.
It does not matter under sec. 100.18(1), when that stock was purchased.
There is nothing deceptive about this use of these words in this case.
With regard to the use of both the terms "best" and "finest" and the
terms "closeout" and "clearance," the state simply has not stated a
claim upon which relief can be granted. Even if all of the allegations
pleaded are taken as true, it is quite clear that the state cannot
prevail under sec. 100.18(1), Stats.
II. Bait and Switch.
The state's second claim for relief is based upon sec. 100.18(9)(a),
Stats. There are three elements which must be alleged to state a claim
under this provision. First, there must be an advertisement. Second,
there must be a plan or scheme of which the advertisement is a part.
Third, the purpose or effect of this plan must be to not sell the
product as advertised.
The state insists that American violated this provision because its
advertisement induced customers to visit the stores and then it
switched them from the $ 499 set to more expensive models. The state
bases its claim on the eight indicia of intent which, it claims, reveal
a purpose not to sell the $ 499 set as advertised.
Missing from the complaint are allegations tending to prove that, apart
from any purpose not to sell the merchandise as advertised, there was a
plan or scheme to carry out such a purpose. The state's complaint is
more conspicuous by what it does not allege than by what it does
allege. It does not allege that the $ 499 sets were not available to
customers. It does not allege that the $ 499 sets were not sold to
customers. To the contrary, it acknowledges four sets were sold. It
does not allege that the sets displayed were defective. It does not
allege that salespersons discouraged any actual customers from buying
the $ 499 model and then switched them to more expensive models. The
complaint does not allege any improper overt act.
The complaint does not allege anything except that there were
incentives for American to try to sell the more expensive models and
that, in fact, it stocked and sold more of those models. All profit
motivated retailers recognize these incentives and hope to sell their
more profitable items, if possible. Section 100.18(9)(a), Stats.,
cannot be interpreted to make unlawful such an incentive. The statute
requires a plan or scheme which is not demonstrated in this complaint.
Notwithstanding this deficiency in its complaint, the state attempts to
rely upon FTC cases and guides for support of its position. It does so
to no avail. The cases upon which the state relies do not find the
existence of bait and switch merely from the kind of indicia of intent
listed by the state. Indeed, the state recognizes that the federal
cases often focus on disparagement of the advertised product, and it
argues that disparagement occurred in this case. It contends that the $
499 set was "plain" and lacked many features found in the more
expensive models, and thus disparaged itself.
This contention is without merit. The federal cases relied upon by the
state, in which the merchandise was found to be self-disparaging,
involve defective or poor quality merchandise. In Household Sewing
Machine Co., 52 F.T.C 250, 263-64 (1955), the advertised sewing machine
would not perform certain advertised functions and was exceptionally
noisy. Similarly, in Carpets "R" Us, Inc., et al., 87 F.T.C. 303,
320-21 [*305] (1976), the carpet was of a "poor" quality
and appearance. In both cases there was also verbal disparagement by
salespersons. Id. at 320; Household Sewing, 52 F.T.C at 263. By
contrast, the state alleges neither verbal disparagement nor defective
merchandise. "Plainness" does not constitute defectiveness. The federal
cases simply do not support the state's claim.
The state further contends that American disparaged the set by
displaying it next to the more sophisticated models. This argument,
too, must be rejected. The state points to Southern States Distributing
Co., et al., 83 F.T.C. 1126, 1166 (1973), in which swimming pool
salespersons induced customers to switch from an economy pool to a
deluxe pool by exhibiting two models side by side. However, the FTC's
opinion makes it clear that the side-by-side exhibition itself was not
the deceptive act. It was that Southern States had constructed the two
models in such a way as to misleadingly embellish the expensive model.
Id. at 1167.
The state also relies upon Carpets "R" Us, 87 F.T.C at 320, 321, and
Wilbanks Carpet Specialists, Inc., et al., 84 F.T.C. 510, 520 (1974),
claiming that side-by-side exhibitions of products disparaged the lower
priced items. However, unlike the perfectly functional, albeit plain,
washer and dryer set in this case, the lower priced carpets in those
cases were of poor quality and disparaged themselves.
Sec. 100.18(9)(a), Stats., does not require a retailer to display
different items in a product line in separate areas of the store out of
fear that the less expensive models will compare unfavorably.
Side-by-side exhibition, far from being evidence of a bait and switch
plan, is helpful to consumers. It enables them to balance price
differences with feature differences in order to arrive at the most
efficient decision for them, given their tastes and resources.
Failing in its attempt to show disparagement, the state also argues
that a showing of disparagement is not needed. Instead, it insists that
a finding of bait and switch may be inferred from the advertisement
itself and minimal sales resulting from it. It relies upon cases such
as Central Carpet Corp., Inc., 85 F.T.C 1022 (1975), and Tashof v.
Federal Trade Commission, 437 F.2d 707 (D. C. Cir. 1970). What these
cases conclude, however, is that, in addition to minimal sales of the
product, the court must find bait advertising. Id. at 710; Central
Carpet, 85 F.T.C at 1037-38.
The cases demonstrate that a bait advertisement is one which is false
or misleading. In Tashof, 437 F.2d at 709, an advertisement offering
glasses "complete" for $ 7.50 was misleading bait advertising
because this price applied only to customers who had their own
prescriptions. The supposedly "complete" package did not include a free
eye examination as some signs and flyers indicated. Id. Similarly, in
Central Carpet, 85 F.T.C at 1031, the advertisement itself was
deceptive as "the carpeting was not suitable for the uses for which
advertised."
The FTC and federal courts have not made a finding of bait and switch
simply on the basis of a low number of sales resulting from a true
advertisement. As we stated above, American's advertisement is not
false or misleading and, hence, is not bait advertising. These cases
are not applicable to this case.
The FTC Guides in 16 C.F.R. sec. 238.3 (1988) likewise do not support
the state's position. As this court noted in State v. Amoco Oil Co., 97
Wis. 2d 226, 243, 293 N.W.2d 487 (1980), the Guides are interpretive
rules which "do not carry the force and effect of law." Section 238.3
of the Guides reads as follows:
Discouragement of purchase of
advertised merchandise.
No act or practice should be engaged in
by an advertiser to discourage the purchase of the advertised
merchandise as part of a bait scheme to sell other merchandise. Among
acts or practices which will be considered in determining if an
advertisement is a bona fide offer are:
(a) The refusal to show, demonstrate,
or sell the product offered in accordance with the terms of the offer,
(b) The disparagement by acts or words of the advertised product or the
disparagement of the guarantee, credit terms, availability of service,
repairs or parts, or in any other respect, in connection with it,
(c) The failure to have available at all outlets listed in the
advertisement a sufficient quantity of the advertised product to meet
reasonably anticipated demands, unless the advertisement clearly and
adequately discloses that supply is limited and/or the merchandise is
available only at designated outlets,
(d) The refusal to take orders for the advertised merchandise to be
delivered within a reasonable period of time,
(e) The showing or demonstrating of a product which is defective,
unusable or impractical for the purpose represented or implied in the
advertisement,
(f) Use of a sales plan or method of compensation for salesmen or
penalizing salesmen, designed to prevent or discourage them from
selling the advertised product.
The circuit court correctly determined that the first five acts listed
in sec. 238.3 are the very type of overt acts which the state, in its
complaint, has not alleged. Only subparagraph (f), referring to the use
of a commission system, applies to this case.
The existence of a commission system is not determinative evidence of a
bait and switch plan or scheme. Commission systems merely reflect the
general profit motivation which governs all retail operations.
Consequently, the federal cases which discuss a commission plan as
evidence of bait and switch also rely upon many other evidences of a
plan or scheme which are not present in this case. For example, in
Southern States, 83 F.T.C at 1166, in addition to the commission
system, there was actual product disparagement. See also Carpets "R"
Us, 87 F.T.C at 320-21 (finding both verbal disparagement and
self-disparagement of the product). Neither the federal cases nor
Guides support the state's position.
The state's allegations are not sufficient to state a claim under sec.
100.18(9)(a), Stats. While it has demonstrated that American had an
incentive to sell the more expensive items, it has not made any
allegations supporting the existence of a plan or scheme.
For the reasons set forth, we conclude that the state's complaint fails
to state a claim upon which relief can be granted.
By the Court. -- The decision of the court of appeals is reversed.
DISSENT BY: STEINMETZ
I would affirm the decision of the court of appeals which reversed the
trial court's order of dismissal and remand for further proceedings. I
would hold that the state's complaint states a cause of action under
secs. 100.18(1) and 100.18(9)(a), Stats.
First, the ad directly stated that the "finest" and "best" Speed Queen
set could be bought for under $ 500. Secondly, the complaint set forth
facts which indicated American's sale was not a clearance or closeout
sale. Both of these assertions in the ad could be viewed as untrue,
deceptive and misleading.
The ad directly stated that the finest and best Speed Queen could be
bought for under $ 500. The ad did not, as the majority asserts, "tell
consumers that they can buy one model of these fine brands for $ 499."
Majority at 301.
The radio advertisement stated: "This week you can buy the finest for
less than $ 500." Later the ad stated, "And during American's closeout
January white sale you can buy the best like a Speed Queen washer and
dryer pair for 499 at American." The complaint alleged that American
also sold other Speed Queen washer and dryer sets. These other sets
contained more features and were visually more sophisticated than that
which American advertised as the best and finest. In fact, the sets
American called the best and finest cost American $ 84 less than
another set it sold.
The complaint alleged facts sufficient to show that the ad may be
considered untrue, deceptive and misleading. If all reasonable
inferences are viewed as true, it becomes even more clear that the
motion to dismiss should have been denied.
In addition, the ad should be considered as a whole. Avis Rent A Car
System, Inc. v. Hertz Corp., 782 F.2d 381, 385 (2d Cir. 1986).
American's advertisements were broadcast over the radio. Consumers do
not have time to closely scrutinize the ad and therefore the ad must be
read as a whole, as it would be heard by the average radio listener.
Each line of the ad cannot be viewed as a separate statement.
The majority also asserts that the words "clearance" and "closeout"
cannot be the basis of a claim under sec. 100.18(1), Stats. The
majority reasoned that it did not matter under sec. 100.18(1), when the
stock was purchased, and, therefore American's use of the words
"clearance" and "closeout" was not untrue, deceptive or misleading. The
majority is correct insofar as it states that it does not matter when
the stock was purchased. But what does matter is whether the complaint
alleged facts from which it could be reasonably inferred that this was
not a clearance or closeout sale. Stated another way, the only issue is
whether the complaint alleged facts sufficient to reasonably infer that
the ad was false. Many merchants have sales, but a clearance or
closeout sale is a specific type of sale, at which customers expect a
better than normal sale price. Such prices are the result of the
merchant's desire to no longer handle that line of product.
In this case, either the sale was a clearance or closeout sale or it
was not. It defies logic for a merchant to specifically purchase items
for the clearance or closeout sale. Although the facts alleged in the
complaint indicate the advertisement was untrue, deceptive and
misleading, this is a question of fact and therefore not appropriately
dismissed by this court. Even though the state is entitled to all
reasonable inferences from the facts in the complaint, the majority
concluded that in the future merchants can use these terms as they
please, with no regard for the every day meaning of these words.
Next, the majority believed that the complaint was legally deficient in
alleging a cause of action under sec. 100.18(9)(a), Stats. The majority
then sets out three elements which must be pled, one of which is a
"plan or scheme" of which the advertisement is a part. The majority
concludes by stating that the complaint does not allege any "improper
overt act."
A cause of action based on sec. 100.18(9)(a), Stats., does not require
facts to show the defendant's improper overt act. In light of
Wisconsin's rules of notice pleading, sec. 100.18(9)(a) only requires
that a plaintiff allege facts from which it can be reasonably inferred
that such a plan or scheme exists. It is inconceivable that such a plan
or scheme cannot be reasonably inferred from the complaint which
alleged: (1) American's purchase of only 20 washers while running the
advertisement 164 times; (2) American's cost was $ 21 over the selling
price; (3) American's purchase of 133 more expensive washer-dryer sets;
(4) American sold only four of the sets in its four stores; and (5) the
salesperson's commission structure which provided no commissions on
these sets. The majority incorrectly concludes that no plan or scheme
could even reasonably be inferred from the complaint.
The majority also mentions that the FTC Guides, 16 C.F.R. sec. 238.3
(1988), aid in determining whether a certain practice is violative of
sec. 100.18(9)(a), Stats. The majority concedes that sec. 238.3(f) of
the Guides was alleged by the state. However, 238.3(c) provides:
(c) The failure to have available at
all outlets listed in the advertisement a sufficient quantity of the
advertised product to meet reasonably anticipated demands, unless the
advertisement clearly and adequately discloses that supply is limited
and/or the merchandise is available only at designated outlets.
American's advertisement contained no limitation. American ran 164
advertisements on 22 radio stations, yet American ordered only 20 of
the advertised sets. The question of whether American ordered a
sufficient quantity of the washer-dryer sets to meet reasonably
anticipated demands is a matter of proof.
Because the allegations in the complaint do provide sufficient facts
from which it could be reasonably inferred that secs. 100.18(1) and
100.18(9)(a), Stats., were violated, I would affirm the court of
appeals which reinstated the complaint.
I am authorized to state that CHIEF JUSTICE NATHAN S. HEFFERNAN and
JUSTICE SHIRLEY S. ABRAHAMSON join this dissenting opinion.