AFP Pays North Carolina $1 Million

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American Family Publishers, Tampa, FL, the magazine clearinghouse and stampsheet marketer, said last week that it will pay $1 million to settle charges in North Carolina that it violated a court order barring misleading mailings.

In 1993, the company, which uses sweepstakes solicitations featuring Ed McMahon and Dick Clark, was ordered by a federal court in North Carolina to stop sending mailings in that state that implied that recipients had won a prize when they had not.

In June, however, District Judge Terrence A. Boyle found AFP in civil contempt because it violated the 1993 court order. The federal court said it sent mailings to many homes in 1998 and in late 1997 that contained the message, "If you have the winning number, please be advised ... [recipient's name] it's down to a 2 person race for $11,000,000 -- you and one other person in North Carolina were issued the winning number [number] -- whoever returns it first wins it all!"

"The company knew the rules and chose not to violate them," said North Carolina Attorney General Mike Easley. "We told them not to use deceptive mailings in North Carolina. They obviously did not take our warning seriously. But this time, there will be a substantial payout and North Carolinans are the prize winners."

In his order, Judge Boyle said that the qualifying language in the statement was "logically inconsistent" with the rest of the statement and did not cure AFP's representation that a recipient would win a prize if he were the first of two in the race to return a sweepstakes entry.

According to recent congressional testimony, at least five people who received the mailing flew to AFP's offices in Tampa, to claim the prize they thought they had won.

"At issue is a piece of mail -- commonly referred to as the two-person race sweepstakes -- that the company mailed in December 1997 and that the company no longer uses," said AFP spokeswoman Jeanne Meyer.

She added that the resolution of this dispute with North Carolina, relating to "mailings sent more than 18 months ago that we no longer do, marks the closing of an unfortunate chapter in the company's relationship with the state."

The mailing also resulted in a March 1988 agreement between AFP and 32 other states to end certain illegal sweepstakes promotion activities. However, North Carolina -- with the 1993 court order in effect -- was the only state that could also seek sanctions for contempt if court. AFP still has to reach an agreement with Connecticut, Michigan and Washington, which has field suit with the company.

The court approved a plan to resolve the sanctions phase of the contempt action, which requires AFP to pay a minimum of $400,000 to a Consumer Fund with guarantees to reimburse each North Carolinian who purchased numerous magazines from AFP. The plan further requires payment of $400,000 in penalties that will go to the public schools and $200,000 that will go to the state to cover the cost of litigation and enforcement. Refunds to consumers will be administered through a pending class action procedure. Those persons entitled to refunds will be notified by federal court in New Jersey where the class actions are pending.
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