Opinion
No. CV 04-0832985
May 5, 2009
MEMORANDUM OF DECISION
Plaintiff, State of Connecticut, brings this action against the defendant, American Recycling Technologies, Inc. ("ART"), for alleged violation of the Solicitation of Charitable Funds Act (SCFA), and the Connecticut Unfair Trade Practices Act (CUTPA). The plaintiff seeks an injunction, civil penalties, and the award of legal fees
The facts are as follows:
The plaintiff, acting through the Attorney General of the state of Connecticut, brings this action at the request of the Commissioner of Consumer Protection to enforce the above-mentioned acts. The defendant is a New York corporation authorized to do business in the state of Connecticut and engaged in the business of collecting used clothes from the public and selling them for a profit.
Its mode of operation is to place clothing collection bins, about the size of large dumpsters, at shopping areas or other highly visible locations in Connecticut. The bins are 6' high and on the sides are two 32" in diameter logos of a named charity. Defendant acquires the right to use the charitable logo by contracting with the charity to pay it $700 a year per bin, except if the defendant has to pay the owner of the shopping center or of another location more than $500, the annual payment to the charity is $200 per bin. Among the charities who have entered into this arrangement with the defendant and have their logos on the bins are the following: Darien Volunteer Fire Department, the Narcotics Enforcement Officers Association, the Seymour Police Department, St. Joseph School, the Trumbull Police Department, Valley Amity Safe Kids, Fairfield County Safe Kids, and Pop Warner Association.
Clothing deposited in the bins belong exclusively to the defendant. It either sells the used clothing to recyclers of fabrics, or to industry and the military as rags, or to poor people in third world countries.
The signs and writings on the bins consists of the following: two large circular 32" diameter logos of a single charity; in noticeable large print, the wording, CLOTHING DROP; two red circles with a diagonal line through them and imprinted over the circles in large print, "No tires, furniture, food;" two statements, smaller in print than that of the prohibition of tires, furniture and food, to the effect, "Do not leave anything outside of these containers. Dumping is a fine punishable by law." From November 2003 until April 2004, that statement said "Do not leave any Donations outside of these containers." From 2002 until April 2004 the bins displayed the statement "HELP SUPPORT YOUR COMMUNITY." Then, in font much smaller than the previous statements, appears "These containers have authorization to be here. All other containers will be removed at owner's expense." Finally in print, smaller than all the above, appears the statement: "The owner of this unit makes a guaranteed yearly royalty payment to the name on the front of this container, not represented as a charitable solicitation. All proceeds go to the unit owner. Violators tampering with this container will be prosecuted to the fullest extent of the law."
The disclaimer statement does not identify who is the "owner of the this unit" and defendant's name does not appear on the bin.
Mr. Bruce Binder, defendant's president, testified that the charitable logos were used so people would feel that a charity was receiving a benefit from depositing clothes in the bin. He said, "ART wants to draw people's attention to the bin because it thinks people will be more inclined to deposit clothes in [its] bins if they know that a particular charity will benefit as a result."
From the beginning of 2002 until the end of 2008, there were 1,935 "bin" quarters during which defendant displayed a charitable emblem on its bins in Connecticut. The defendant grossed $2,728,233.63 from its bins in Connecticut in that period. Defendant's total profits for the years 2002 through 2007 in Connecticut were $827,179.50. Defendant paid to Connecticut charities for the years 2002 through 2007, $225,115.
Defendant has never registered as a paid solicitor, provided a bond nor made periodical reports as required by SCFA.
In the first count of the complaint, plaintiff alleges that the defendant failed to register as a "paid solicitor," as that term is defined by § 21a-190a(7) and, in count two, that it wilfully failed to do so.
Section 21a-190a(7) defines "paid solicitor" as "a person who for compensation . . . performs for a charitable organization any service in connection with which contributions are solicited by such person . . ." (Italics added).
That section is part of the SCFA enacted in 1986. At the public hearing before the general law committee, attorney general Corinne N. Riddle testified to the purpose of the act as follows: "Since the state cannot protect charities and donors by placing a maximum limit on how much of the funds a solicitor can keep, this act requires public disclosure to the donor of how much of the donated money will be going to charity at the time of the solicitation. The public has a right to know how much of their money ultimately goes to a charitable purpose." (Conn. Joint Standing Committee Hearings, General Law Committee, p. 2, February 18, 1986.)
In the floor debate in the Senate on the bill, Senator Upson said, "The intent of this bill, Mr. President, is to make a paid solicitor, who solicits either orally or in writing, explain how much they are soliciting and how much they are paid . . . so there is a requirement of disclosure." (Senate Proceedings, Volume 29, Part 7, p. 2290.)
In the House debate on the bill on May 7, 1986, Representative Lyons stated: "It's a bill which addresses a serious problem in Connecticut. It does put more controls on solicitors in terms of identification. It provides protection for the public by allowing them to know where there contributions will be going. (House Proceedings, Volume 29, Part 22, p. 8194-95 (May 7, 1986).)
Plaintiff argues that the defendant is "a paid solicitor" because it receives compensation in the form of the use of the charity's name. However, it is clear from the legislative history of the bill that that was not the intent of the legislature. The compensation the legislature was concerned with was the portion of the public's charitable contributions that the solicitor retained. In short, the purpose of the statute was to inform the public what portion of its contributions went to the charity and what portion to the solicitor.
Further evidence that the legislature intended compensation to be of a monetary nature is that § 21a-190f provides there must be a contract between the charity and the paid solicitor, and that contract must, "state the minimum amount that the charitable organization shall receive as a result of the solicitation campaign, which minimum amount shall be stated as a percentage of the gross revenue." § 21a-190f(d).
Moreover, the definition of "paid solicitor" states that the compensation is to be for services performed " for a charitable organization." In the instant case, the defendant,\ does not perform a service for the charitable organization, but for itself because it keeps the clothing and sells it for a profit.
Thus, the court concludes that the defendant is not a paid solicitor within the meaning of § 21a-190a(7) and consequently, the plaintiff's first and second count of its complaint must fail.
The third count of the plaintiff's complaint alleges that the defendant violated § 21a-190h(1) by misrepresenting "the purpose or beneficiary of a solicitation," and in the fourth count, did so wilfully. Section 21a-190a(3) defines "solicitation" as "any request directly or indirectly for . . . property on the . . . representation that such . . . property is to be used for a charitable purpose or benefit a charitable organization." (Emphasis added).
The evidence in this case reveals the most prominent signs on the defendant's six-foot high clothing bins are the two 32 circular charitable emblems. There was no other name on the bin. These charitable logos on the side of the bin clearly convey the overall message to donors that the clothing placed in the bins will go to support the charity pictured and named on the front of the bin. This is confirmed by the testimony of Mr. Bruce Binler, defendant's president who admitted that the charitable logos are used to induce people to feel that the charities were receiving a benefit from the depositing of clothes. Those logos constitute an indirect request for the clothes on the implied representation that it will be used to benefit a charitable organization. It thus, constitutes solicitation within the meaning of § 21a-190a(3).
Defendant violated § 21a-190h(1) by misrepresenting the beneficiary of the solicitation. The impression its bins gives is that the donated clothing benefits the named charitable organization on the bin when, in fact, it benefits only the defendant profit-making organization.
Defendant argues there is no misrepresentation because the charities do benefit by being paid an annual fee of $700 or $200 per bin for the use of their name. But that fee is not realistically related to the clothes the public reasonably believes it donates to the charity. Defendant impliedly represents that the donations directly benefits the charity, not that the donations are remotely connected to a fixed fee received by the charity from the use of its name.
Thus, the court concludes that the plaintiff has established that the defendant violated § 21a-190h(1) and did so wilfully.
Finally, the plaintiff contends in count five that the defendant violated the Unfair Trade Practices Act, Section 42-110m, by its aforesaid misrepresentations and in count six, that the violation was wilful.
Section 42-110b(a) provides: "no person shall engage in unfair . . . deceptive acts or practices in the conduct of any trade or commerce." Subsection (b) provides, "It is the intent of the legislature that in construing subsection (a) of this section, the commissioner and the courts of this state shall be guided by interpretation given by the Federal Trade Commission and the federal courts to Section 5(a)(1) of the Federal Trade Commission Act ( 15 USC 45(a)(1)), as from time to time amended."
In Caldor v. Heslin, 215 Conn. 590, 597 (1990), our Supreme Court looked to federal courts for the meaning of "deceptive acts" prohibited in Section 42-110b(a).
The federal courts have determined that an act or practice is deceptive if three requirements are met. "First there must be a representation, omission or other practice likely to mislead the customers. Second, the consumer must interpret the message reasonably under the circumstances. Third, the misleading representation, omission or practice must be material — that is, likely to affect consumer decisions or conduct . . ."
As to the first requirement that the representation is likely to mislead consumers, "the entire advertisement, transaction or course of dealing will be considered. The issue is whether the act or practice is likely to mislead, rather than whether it causes actual deception." F.T.C. Policy Statement on Decision. P. 2, appended to Cliffdale Associates, Inc., 103 F.T.C. 110, 174 (1984). As this court has above determined, the representations on the defendant's bins, particularly the large charitable emblems, convey the misleading message that the clothing donations made by the public will benefit the charitable organization pictured and named on the bin. However, those misrepresentations are false because the donated clothing becomes the property of the defendant not the charity.
The defendant contends there is no misrepresentation because in small letters on the bin there appears this disclaimer: "The owner of this unit makes the guaranteed yearly royalty payment to the name on the front of this container, not represented as a charitable solicitation. All proceeds go to the unit owner."
The disclaimer is artistically and deliberately vague. A member of the public reading it would not know who "the owner of this unit" is. The word "unit" itself does not clearly mean the container in which the clothing is placed. The phrase, "the owner makes a guaranteed yearly royalty payment to the name on the front of this container" is also vague. The word "royalty" is far from clear. Likewise, the tag line phrase, "not represented as a charitable solicitation" is the model of ambiguity. Finally, the phrase "all proceeds go to the unit owner" contains the ambiguity of what the word "proceeds" mean and what the words "unit owner" mean.
Thus, the court concludes these disclaimers do not cure the misrepresentation of the large charitable logos on the bins.
The second requirement of the deceptive act is that the consumer must interpret the message reasonably under the circumstances. In the instant case, the court finds that the large charitable emblems on the clothing bins lead the public reasonably to believe that their contribution of clothing benefits the charities named on the bins.
The third element of this deception is materiality which, according to the FTC, means that the representation is likely to affect the choice of the public (FTC Policy Statement on Deception, p. 6). Defendant's president conceded that the public are more inclined to deposit clothes in his bins if they know that the particular charity will benefit as a result. Thus, defendant itself, by the use of charitable emblems on its bins, was deliberately inducing the public to contribute its clothes for the misleading benefit of the charity.
Moreover, CUTPA is violated when, in applying the "cigarette rule," a particular state statute is breached. Seligson v. Brower, 109 Conn.App. 749, 756 (2008); Centimark Corp. v. Village Manor Associates, Ltd. Partnership, 113 Conn.App. 509, 523 (2009). In this case, as indicated above, defendant has breached § 21a-190h(1) by misrepresenting that the beneficiary of its solicitation is a charitable charity.
Thus, on all the facts, the court determines that the plaintiff has proven that defendant violated § 42-120b(a) and did so wilfully.
As to remedies, the court first turns to the matter of an injunction. Both the SCFA at § 21a-1901(b) and the Connecticut Unfair Trade Practices Act at § 42-110m(a) provide for injunctive relief when the state prevails in either of those actions. It is well established that when the state seeks injunctive relief, pursuant to a specific statutory grant of authority to restrain a violation of the statute, it need not prove irreparable harm or inadequacy of other remedies. Conservation Commission v. Price, 193 Conn. 414, 429 (1984).
The court, having found the defendant has violated the aforesaid acts, issues a permanent injunction enjoining the defendant from soliciting used clothing from the public in bins displaying large charitable emblems on them in the manner evidenced in this case.
The SCFA, at § 21a-1901(c), provides that if the court finds a person has wilfully engaged in conduct prohibited by the act, "the Attorney General . . . may recover on behalf of the state, a civil penalty of not more than two thousand five hundred dollars for each violation." A party's action is wilful when "the party committing the violation knew or should have known that such conduct was prohibited by § 21a-1901(d)." Similarly, under CUTPA, at Section 42-110o(b), a wilful violation entitles the Attorney General to recover on behalf of the state a civil penalty of not more than $5,000 for each violation.
The defendant has been operating its business in Connecticut from 2002 to the present. It grossed $2,728,233.63 in Connecticut from 2002 until the end of 2008, and realized profits for the years 2002 through 2007 of $827,179.50, amounting to approximately $165,000 per year. The court also notes, however, that this is the first case in Connecticut construing the SCFA, and that defendant conceivably could have been uncertain of the applicability of some of its provisions to it. Taking all of these factors in consideration, including the important public policies reflected in SCFA and CUTPA, the court imposes a civil penalty upon the defendant of $50,000. The court declines to give an award for counsel fees under CUTPA.
A judgment may enter enjoining the defendant from conducting its business of soliciting used clothes from the public by using on its bin large charitable organization logos, and further imposes on the defendant a civil penalty of $50,000 for wilful violations of SCFA and CUTPA.