|B. TODD JONES
United States Attorney
Assistant United States Attorney
IN THE UNITED STATES DISTRICT COURT
UNITED STATES OF AMERICA, Plaintiff
SOUTHDALE KAY-BEE TOY, INC., and
Civil Action No.
COMPLAINT FOR CIVIL PENALTIES, INJUNCTIVE AND OTHER RELIEF
Plaintiff, the United States of America, acting upon notification and authorization to the Attorney General by the Federal Trade Commission ("Commission"), for its Complaint alleges that:
1. Plaintiff brings this action under Sections 5(a)(1), 5(m)(1)(A), 13(b), and 16(a) of the Federal Trade Commission Act ("FTC Act"), 15 U.S.C. §§ 45(a)(1), 45(m)(1)(A), 53(b), and 56(a), to obtain monetary civil penalties and injunctive and other relief for defendants' violations of the Commission's Trade Regulation Rule Concerning the Sale of Mail or Telephone Order Merchandise (the "Mail Order Rule" or "Rule"), 16 C.F.R. Part 435.
JURISDICTION AND VENUE
2. This Court has jurisdiction over this matter under 28 U.S.C. §§ 1331, 1337(a), 1345, and 1355 and under 15 U.S.C. §§ 45(m)(1)(A), 53(b), and 56(a). This action arises under 15 U.S.C. § 45(a)(1).
3. Venue in the District of Minnesota is proper under 15 U.S.C. § 53(b) and under 28 U.S.C. §§ 1391(b-c) and 1395(a).
4. Defendant Southdale Kay-Bee Toy, Inc. is a Minnesota corporation with its office and principal place of business located at 33 S. 6th Street, Minneapolis, Minnesota 55402. Defendant Southdale Kay-Bee Toy, Inc., a subsidiary of Consolidated Stores Corporation, through its subsidiaries, operates the KB Toy Stores chain and owns 80% of KBkids.com LLC. Defendant Southdale Kay-Bee Toy, Inc. transacts business in the District of Minnesota.
5. Defendant KBkids.com LLC is an Ohio limited liability company with its office and principal place of business located at 1099 18th Street, Denver, Colorado 80202. Defendant KBkids.com LLC operates the KBkids.com website and transacts business in the District of Minnesota.
DEFENDANTS' COURSE OF CONDUCT
6. In 1999, Southdale Kay-Bee Toy, Inc., through its ownership of KBkids.com LLC, began offering and selling toys and collectibles via the KBkids.com LLC Internet website found at www.KBkids.com. (Hereinafter the defendants shall collectively be referred to as "KBkids.com"). Customers who access the website are able to, inter alia, search and browse for toys, collectibles, and videos by popular and specialty categories, brand names, age groups, or characters. Customers who want to place orders select a particular product and place it into a "shopping cart."
7. During October, November and December 1999, KBkids.com posted various shipping representations on its website that were tied to the method of delivery (standard shipping, second day air or next day air). In connection with its shipping representations, the company also posted the following information on its website: "Please note that we have to include a 48 hour processing time for ALL orders" and "KBkids.com makes every effort to process your order within 48 hours. The number of days to ship depends on the shipping option you choose. Therefore delivery times will be determined based on the shipment service you choose plus the 48-hour processing time."
8. In numerous instances during October through December 1999, KBkids.com failed to ship merchandise within the stated 48 hour processing time period and either failed to send customers notifications about delays in a timely fashion or sent notices that did not properly inform customers about their rights.
9. In numerous instances during October through December 1999, KBkids.com also did not permit buyers the right to cancel their delayed orders prior to shipment.
10. After circumstances regarding KBkids.com's fulfillment capabilities eliminated their reasonable basis for the 48 hour shipping representation, KBkids.com continued to make these shipping claims.
THE MAIL ORDER RULE
11. The Mail Order Rule was promulgated by the Commission on October 22, 1975, under the FTC Act, 15 U.S.C. § 41 et seq., and became effective February 2, 1976. The Commission amended the Rule on September 21, 1993, under Section 18 of the FTC Act, 15 U.S.C. § 57a, and these amendments became effective on March 1, 1994. The Rule applies to orders placed by telephone, facsimile transmission, or on the Internet.
VIOLATIONS OF THE MAIL ORDER RULE
12. Beginning in 1999, defendants have engaged in the mail order sale and telephone order sale of merchandise in commerce, as "commerce" is defined in Section 4 of the FTC Act, 15 U.S.C. § 44.
13. In numerous instances during the period October 1, 1999 through December 31, 1999, after having solicited mail orders and telephone orders for merchandise and received "properly completed orders," as that term is defined in Section 435.2(d) of the Mail Order Rule, 16 C.F.R. § 435.2(d), and having been unable to ship some or all of the ordered merchandise to the buyer within the Mail Order Rule's applicable time, as set forth in Section 435.1(a)(1) of the Mail Order Rule, 16 C.F.R. § 435.1(a)(1) (the "applicable time"), defendants have:
14. Defendants have violated Section 435.1(a)(1) of the Rule by soliciting orders for the sale of telephone or mail order merchandise when they had no reasonable basis to expect that they would be able to ship some or all of such merchandise within the time stated in their solicitations.
15. Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), provides that "unfair or deceptive acts or practices in or affecting commerce are hereby declared unlawful."
16. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. § 57a(d)(3), a violation of the Mail Order Rule constitutes an unfair or deceptive act or practice in violation of Section 5(a)(1) of the FTC Act, 15 U.S.C. § 45(a)(1).
CIVIL PENALTIES AND INJUNCTION
17. Defendants have violated the Mail Order Rule as described above with knowledge as set forth in Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A).
18. Each sale or attempted sale, during the period October 1, 1999 through December 31, 1999, in which defendants have violated the Mail Order Rule in one or more of the ways described above constitutes a separate violation for which plaintiff seeks monetary civil penalties.
19. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A), as modified by Section 4 of the Federal Civil Penalties Inflation Adjustment Act of 1990, 28 U.S.C. § 2461, and Section 1.98(d) of the FTC's Rules of Practice, 16 C.F.R. § 1.98(d), authorizes this Court to award monetary civil penalties of not more than $11,000 for each such violation of the Mail Order Rule.
20. Under Section 13(b) of the FTC Act, 15 U.S.C. § 53(b), this Court is authorized to issue a permanent injunction against defendants' violating the FTC Act.
WHEREFORE, plaintiff requests this Court, pursuant to 15 U.S.C. §§ 45(a)(1), 45(m)(1)(A), and 53(b), and to the Court's own equity powers to:
FOR THE UNITED STATES OF AMERICA:
DAVID W. OGDEN
B. TODD JONES
Assistant U.S. Attorney
EUGENE M. THIROLF
ELAINE D. KOLISH
HEATHER A. HIPPSLEY
JANICE PODOLL FRANKLE