Full opinion text
MEMORANDUM OF OPINION RENFREW, District Judge. The United States of America brought this action pursuant to the Federal Trade Commission Act, 15 U.S.C. §§ 45 and 49, to recover civil penalties for alleged violations of a Federal Trade Commission Consent Order to Cease and Desist (“Consent Order”). On September 30, 1974, the Court approved a Final Consent Judgment and Order respecting the corporate defendants. The remaining defendant is William E. Bailey. Both parties have moved for partial summary judgment; these motions were argued extensively at hearings held on September 4, 1975, and December 11, 1975. I. Factual Background On July 22,1970, the Federal Trade Commission (“Commission”) notified Bestline Products Corporation and Bestline Products, Inc. (“Bestline”), William E. Bailey, and Robert W. DePew of its intention to issue an administrative complaint against the corporations and against Bailey and DePew, individually and as officers of the corporations. The complaint charged, inter alia, that the multi-level marketing program Bestline utilized in connection with the sale of its household and industrial cleaning products permitted participants to receive compensation for both the sale of Bestline products to the consuming public on a retail basis and in addition — and this was the basis of the Commission’s concern — for recruiting other persons to enter the Bestline distribution network. The complaint further alleged that persons were induced to participate in Bestline’s marketing program by statements and representations that large financial awards would be derived through product sales and recruitment whereas, in truth and in fact, the realization of the represented financial gains contemplated “a virtually endless recruiting of participants into the sales program” and was “necessarily predicated upon, the exploitation of others who [had] virtually no chance of receiving a return on their investment”. For these and other reasons, the complaint concluded and charged that “the use by respondents of the aforesaid program m connection with the sale of their merchandise was and is an unfair act and practice, and was and is false, misleading and deceptive.” In the Matter of Bestline Products Corporation, F.T.C. Docket No. C-1986, Complaint at 5-6. The marketing program described and challenged in the complaint encompassed four levels of distribution personnel: the Retail Distributor, the Sub-Wholesaler, the Direct Distributor and the General Distributor. Participants at each level were entitled to purchase Bestline products at variable discounts. Thus, the Retail Distributor purchased products from a Sub-Wholesaler or Direct Distributor at a 30 to 40 per cent discount; the Sub-Wholesaler received a 30 to 51 per cent discount; the Direct Distributor received a 52 per cent discount; and the General Distributor received a 60 per cent discount. The compensation paid participants for recruiting other persons to enter the Bestline distribution network also varied. For example, a Sub-Wholesaler received a bonus for recruiting a Direct Distributor, and a commission for recruiting another Sub-Wholesaler. He was entitled to overrides on purchases by Retail Distributors below him, as well as commissions and continuing overrides on purchases by persons he recruited. The General Distributor received a commission and continuing overrides on all purchases by a Direct Distributor recruited by him. If a Direct Distributor recruited by the General Distributor ascended to the position of General Distributor, the sponsoring General was entitled to a release fee, commission, and continuing override on all future purchases by the recruited General. A participant ascended the Bestline distribution chain by meeting certain product-purchase requirements. A Sub-Wholesaler was required to purchase products with a $400 “refund volume” value; the comparable purchase requirement for a Direct Distributor was $6,000. Only a Direct Distributor could qualify as a General Distributor. In addition, a Direct seeking to become a General was required to recruit another Direct, and pay $2,750 to Bestline. Following a period of negotiations, the Commission and the proposed respondents agreed to settle the case by entry of a proposed consent order. Although respondents did not admit that the acts and practices condemned in the complaint violated 15 U.S.C. § 45, they did agree that “[t]he complaint may be used in construing the terms of the order.” In the Matter of Bestline Products Corporation, F.T.C. Docket No. C-1986, Agreement Containing Consent Order to Cease and Desist, at 2. They further agreed that “Proposed respondents William E. Bailey and Robert W. DePew are officers and stockholders of the corporate respondents. They formulate, direct and control the acts and practices of the corporate respondents.” Id. at 1. Bailey signed the agreement containing the Consent Order in three capacities: (1) President of Bestline Products Corporation (2) President of Bestline Products, Inc., and (3) “individually and as an officer of said corporations”. Id. at 6-7. On July 22, 1971, the Commission issued the Consent Order, which became final on November 3, 1971. On September 8, 1971, respondents commenced discussions with the Compliance Division of the Commission. By letter dated October 1, 1971, Mr. Henry G. Pons, an attorney with the Commission’s Compliance Division, informed counsel for Bestline that the materials that had thus far been submitted to the Commission failed to establish that respondents were in compliance with the Consent Order. Specifically, Mr. Pons indicated that paragraphs 1, 2, 3, 4, 5, 6(a), 7, 10 and 12(a) of the Consent Order had not been complied with. Counsel for Best-line, Mr. Richard J. Grillo, replied to Mr. Pons’ letter by letter dated October 22, 1971. It is clear from these two letters that significant differences existed between the Commission and the respondents to the Consent Order in the interpretation of the Order, particularly with respect to paragraphs 1 and 3. Negotiations continued and on November 10, 1971 a final compliance report was filed with the Commission. Under the first revised marketing plan described in the November 10, 1971 compliance report, the number of levels in Best-line’s marketing program was reduced from four to three: the Local Distributor, the Direct Distributor, and the General Distributor. As in the original marketing program, all distributors were entitled to retail Bestline products directly to the public, and to sponsor other persons they recruited into the marketing program. Distributors received variable discounts for product pur-, chases depending upon purchase volume: 30 to 52 per cent for a Local Distributor, 52 per cent for a Direct, and 60 per cent for a General. According to the revised marketing program, a Local Distributor who “sponsored” and “assisted” other Local Distributors in making sales received a volume credit for the recruit’s product purchases. In this manner, a Local could increase his product discount up to the 52 per cent level. A Local Distributor could ascend to Direct in one of two ways. He could sell $4,800 retail value of Bestline products in one calendar month, with the product purchases of persons he recruited as Local Distributors counting towards his purchase volume requirements. Alternatively, a Local Distributor could ascend by pre-purchasing approximately $5,500 (retail value) of inventory and sales aids from Bestline at a cost of $2,995. A Direct Distributor was under contract to Bestline, and was charged with the responsibility of maintaining adequate inventory supplies for and training Local Distributors within his organization. A Direct derived profit from his own retail consumer sales, from sales to Local Distributors he recruited, and from sales to recruits sponsored by his Local Distributors. A Direct wishing to ascend to the General Distributorship level was required to recruit another Direct who, in turn, was required to purchase Bestline products of approximately $5,000 retail value. In addition, the ascending Direct Distributor was responsible for the purchase of another $5,000 of Best-line products in one calendar month, and was required to pay $600 (later increased to $700) into Bestline’s General Training Fund, which entitled him to attend a three-day training program at Bestline’s General Distributor School. Because the ascension of a Direct Distributor to a General Distributorship required total product purchases of $10,000, the commission of the sponsoring General Distributor, computed at the rate of 8 per cent, was $800. Thus the ascension of a Direct Distributor to General Distributor always netted the sponsoring General Distributor $800. A General Distributor was also under contract to Bestline, and was responsible for training, supervising and motivating distributors enrolled under him. The General received an 8 per cent commission on sales of Direct Distributors below him, and was also entitled to a variable Special Incentive Bonus on product sales generated in his distribution chain. This bonus ranged from an estimated $1,200 for a sales volume of $36,000 to $30,000 for a volume of , $200,-000. In addition, until February, 1972, a General Distributor received a continuing 3 per cent commission on all sales of a distributor he had sponsored who ascended to General Distributor. In February, 1972, Bestline modified its marketing plan by adding the position of Candidate Direct Distributor. The Candidate was required to purchase $800 of products from a sponsoring General Distributor (for $500); after a minimum of seven days, and upon representation to Bestline that, inter alia, he had commenced a training program, had attended training seminars, and would train and assist new distributors he sponsored, the Candidate could ascend to Direct Distributor by purchasing $5,000 of products and sales aid from Bestline at a cost of $2,995. On these transactions the sponsoring General Distributor received approximately $540 in commission. By letter dated March 17, 1972, the Commission notified Bestline that its compliance report had been rejected. The Commission’s letter expressly stated that Bestline’s compliance report had been reviewed only insofar as it related to paragraphs 1 and 3 of the Consent Order. Further correspondence from Mr. Pons on May 17, 1972, concerned the alleged noncompliance with paragraphs 4, 6, 7, 10 and 12(a). Negotiations continued, and on June 24, 1972, a Supplemental Compliance Report was filed with the Commission. The marketing program was again revised on February 28, 1973. The range of the Local Distributor’s discount was lowered from 30-52 per cent to 25-35 per cent, thereby increasing the Direct Distributor’s maximum profit on sales from 22 to 27 per cent. The Candidate Direct Distributor program was also modified. The Candidate applicant was required to purchase at least $100 of Bestline products, submit retail sales slips totaling $100, and then purchase $5,600 of products and sales aids at a cost of $3,400. A Candidate Direct Distributor was then entitled to purchase Bestline products at a 45 per cent discount, which increased to 52 per cent after 90 days. The recruitment and ascension of a Candidate Direct Distributor netted the sponsoring General Distributor approximately $500 in commission. For convenience, the Court will refer to the marketing program in effect until February, 1972, as the first revised marketing program; the program in effect from February, 1972 to February, 1973, will be referred to as the second revised marketing program; and that utilized after February, 1973, as the third revised marketing program. On March 8, 1973, in a letter sent to the attention of defendant and addressed to Bestline Products Corporation, the Commission informed Bestline that it had rejected Bestline’s compliance report because the post-Consent Order marketing program violated paragraphs 1, 3, 4, 5, 8, 7, 8,10,11 and 12 of the Consent Order. II. Defendant’s Liability Preliminarily, the Court must consider defendant’s contention that he cannot be held personally liable for alleged violations of the terms of the Consent Order, despite the fact that he signed that Order individually and as an officer of Bestline. Defendant has advanced a multi-pronged argument in support of this contention. He argues first that at no time subsequent to January, 1971, when he resigned as President of the Bestline enterprises, did he “exercise control over the decision making functions of other Bestline officers * * [or exercise] the kind of autocratic control necessary to impose individual liability on him for actions carried out by Bestline * * Defendant Bailey’s Memorandum in Opposition to Plaintiff’s Motion for Partial Summary Judgment, at 78-79. Defendant’s legal theory is clear: The Government must prove that he exercised, in his words, “monolithic”, “autocratic” control over Bestline in order for him to be held liable for alleged violations of the Consent Order. Defendant cites no authority in support of that legal theory, and understandably so, for the Court finds it contrary to the weight of judicial authority and to common sense and experience. It is well established that a command to a corporation is binding on those responsible for the conduct of the corporation’s affairs. As stated by the Supreme Court: “A command to the corporation is in effect a command to those who are officially responsible for the conduct of its affairs. If they, apprised of the writ directed to the corporation, prevent compliance or fail to take appropriate action within their power for the performance of the corporate duty, they, no less than the corporation itself, are guilty of disobedience, and may be punished for contempt.” Wilson v. United States, 221 U.S. 361, 376, 31 S.Ct. 538, 543, 55 L.Ed. 771, 777 (1911). The underlying purpose of the rule is obvious: “[I]t would seem in cases of this sort to be a futile gesture to issue an order directed to the lifeless entity of a corporation while exempting from its operation the living individuals who were responsible for the illegal practices.” Pati-Port, Inc. v. F. T. C., 313 F.2d 103, 105 (4 Cir. 1963). Indeed, so clear is the principle enunciated in Wilson that, in the absence of special circumstances, it is error to include in an order or decree directed against a corporation the corporation’s officers in their individual capacities. As the Commission itself has emphasized, “If acts are done as an officer they are done for the corporate respondent, and the order against the corporation will run against the officer as an officer.” The Lovable Co., CCH Trade Reg.Rep. ¶ 17282 (F.T.C. Docket No. 8620, June 29, 1965). Nor can one be heard to argue, as defendant does here, that because one lacked absolute control over a corporation, one cannot be held to account for the corporation’s conduct. Defendant places great emphasis upon what he characterizes as the diffuse, rather informal character of Bestline’s decision-making process, arguing that no person should be held individually liable for decisions reached collectively through informal concensus. Were defendant’s position to prevail, virtually all corporate officers could escape liability — of all kinds — for the acts of their corporation simply by arguing that each individually lacked authority to direct the corporation’s affairs. The Supreme Court has explicitly rejected such a contention: “When one accepts an office of joint responsibility, whether on a board of directors of a corporation, the governing board of a municipality, or any other position in which compliance with lawful orders requires joint action by a responsible body of which he is a member, he necessarily assumes an individual responsibility to act, within the limits of his power to do so, to bring about compliance with the order. It may be that the efforts of one member of the board will avail nothing. If he does all he can, he will not be punished because of the recalcitrance of others. [Citation omitted.] But to hold that, because compliance with an order directed to the directors of a corporation or other organization requires common action by several persons, no one of them is individually responsible for the failure of the organization to comply, is effectually to remove such organizations beyond the reach of legislative and judicial commands.” United States v. Fleischman, 339 U.S. 349, 356-357, 70 S.Ct. 739, 743, 94 L.Ed. 906, 911 (1950). Thus it is clear that if defendant was, in the words of the Supreme Court, “officially responsible” for the conduct of Bestline’s affairs, and if he prevented Best-line from complying with the Commission’s Order or “fail[ed] to take appropriate action within [his] power for the performance of the corporate duty,” Wilson v. United States, supra, 221 U.S. at 376, 31 S.Ct. at 543, 55 L.Ed. at 777, then he is liable for Bestline’s alleged noncompliance with the Commission’s Order. It is undisputed that from 1966 to 1970 defendant was President of the Bestline corporations and Chairman of their boards of directors, and that during that period he did “formulate, direct and control the acts and practices” of the corporations. Agreement Containing Consent Order to Cease and Desist, supra, at 1. It is also undisputed that in January, 1971, Mr. David L. Eastis was promoted from Special Assistant to the President to President of Bestline. Thereafter, defendant continued in Best-line’s employ as “Founder” and Chairman of the Board, for which he received $1,432,-367 in wages and salaries during the period January, 1971 through July 31, 1973. Defendant’s responsibilities during that period were described by him at length in a deposition taken on December 17 and 18, 1973, and, more briefly, in an affidavit executed on November 26, 1975. Defendant characterizes his role at Bestline as that of a relatively uninvolved “elder statesman”, serving as “an image of goodwill for the corporation”. But his own testimony belies that characterization. His testimony shows unmistakably that subsequent to January, 1971, although he ceased to participate in the day-to-day management of the corporation, he remained active in the formulation, direction and review of major corporate policies. His testimony also shows that he was actively involved in discussing and approving the specific changes in Bestline’ marketing programs undertaken in response to the Commission’s Consent Order; indeed, defendant has admitted that between November 3, 1971, and August 31, 1973, he “was aware of and approved each and every change, amendment, modification, or alteration of the Bestline Products, Inc., marketing program.” Defendant’s Answers to Plaintiff’s Request for Admissions, No. 56. In the opinion of the Court, defendant’s own testimony and admissions, as set forth above, clearly show that from the time defendant resigned as President of Bestline until he left the company’s employ in August, 1973, he continued to function within the corporate hierarchy as a senior executive who participated in the formulation of major corporate policies, and who helped to revise and ultimately approved Bestline’s post-Consent Order marketing programs. This is not a case where a formerly controlling corporate officer withdrew so substantially from on-going participation in the conduct of the corporation’s affairs that the responsibility for compliance with the Commission’s Order necessarily fell on the shoulders of others. In short, defendant’s own testimony establishes that he was among those Bestline executives who were “officially responsible for the conduct of [the corporation’s] affairs.” Wilson v. United States, supra, 221 U.S. at 376, 31 S.Ct. at 543, 55 L.Ed. at 777. Defendant cannot escape the consequences of that responsibility simply by arguing that he chose to remain uninvolved in the day-to-day operations of the corporation and did not personally redesign Bestline’s marketing programs. Also significant, in the opinion of the Court, is the fact that defendant was one of only two corporate officers who signed the Consent Order in an individual capacity. The Court is, of course, aware that the primary reason the Commission names a corporate officer individually in an Order directed to the officer’s company is to prevent him from attempting to evade the Order in his individual capacity, that is, outside the corporate structure. However, it does not then follow, as defendant argues, that as long as the officer does not seek to operate outside the corporation he remains immune from liability under the Order. As an individual signatory to the Order, defendant was personally bound by its terms and would remain so until such time as either the Commission or the courts saw fit to modify the obligations the Order placed upon him. The conduct expected of defendant as an individual was thus, at a minimum, coextensive with that demanded of him as a corporate officer responsible for Bestline’s affairs. The law is clear that defendant, as a corporate official responsible for the conduct of Bestline’s affairs and as an individual signatory to the Consent Order, was under an affirmative obligation to act to insure compliance by Bestline with the Commission’s Order, In re Dolcin Corporation, 101 U.S.App.D.C. 118, 247 F.2d 524, 534 (1956), cert. denied, 353 U.S. 988, 77 S.Ct. 1285, 1 L.Ed.2d 1143 (1957); United States v. Greyhound Corporation, 363 F.Supp. 525, 572 (N.D.Ill.1973), and can be held liable for failure to fulfill that obligation adequately. As the court explained in In re Dolcin Corporation, supra, 247 F.2d at 534, with reference to a decree of the court, “ * * * [T]his court did not impose an obligation on Shimmerlik and Wantz that they could discharge by remaining inert. We imposed an affirmative obligation upon them, individually and as officers of Dolcin, to take all reasonable steps to effect compliance with this court’s order. Those steps included, at least, that they become currently informed of the advertising conduct of Dolcin. That their ‘articulations’ to van der Linde might have been unavailing does not relieve them of the responsibility to make those articulations. And we are not prepared to predict that such efforts, had they been made, would have been ‘meaningless.’ Whatever the order of this court directed Shimmerlik and Wantz to do, it did not permit them to stand idly by while the Dolcin Corporation — their corporation — continued to flout our order. . “Were we to take the opposite view, we would be putting a premium on ignorance and offering a sanctuary for those remiss in performing their duties as corporate officers. See Fleischman, supra, 339 U.S. at page 364, 70 S.Ct. at page 746 [94 L.Ed. 906]. Shimmerlik and Wantz should not be permitted to use their own inertia as a shield against the force of this court’s decree.” See also United States v. Greyhound Corporation, supra, 363 F.Supp. at 572-573. The Court is unpersuaded by either of defendant’s affirmative defenses. He asserts that he cannot be held personally liable for alleged violations of the Consent Order because he signed the Order under a mistake of fact, “believing that his signature bound him to Bestline’s activities only in his official capacity.” He further argues that he signed the Order under a mistake of law, “in that he believed that his individual signature would not bind him to strict liability for any and all activities of the Best-line corporations which might be found violative of the order.” Defendant Bailey’s Memorandum in Opposition to Plaintiff’s Motion for Partial Summary Judgment, at 82. Both of these purported defenses focus exclusively upon the circumstances surrounding defendant’s decision to sign the Consent Order in his individual capacity. However, the Court has stated that, in its opinion, defendant can be held liable for alleged violations of the Consent Order solely by virtue of his position as a senior officer responsible for Bestline’s affairs and irrespective of his status as an individual signatory to the Consent Order. Even were this not the law, the Court finds no merit in defendant’s affirmative defenses. None of the affidavits before the Court in any way suggests that the Commission induced defendant to sign the Consent Order, either as a corporate officer or individually, under an express or implied promise of immunity from civil penalties. In essence, defendant asks this Court to relieve him of liability under the Consent Order because he misunderstood the nature and extent of that liability. This the Court will not do. As explained by the Court of Appeals for the Eighth Circuit with reference to a consent decree issued in an antitrust ease, “Simply because a party misconstrues its lawful obligations under such decrees, it is not afforded a legal defense if in law that interpretation turns out to be erroneous. Misunderstanding of the law is no more an excuse under the Clayton Act than anywhere else. In effect, the argument proffered here is similar to the defendant’s contention, urged more emphatically in the district court under Count II, that it acted in good faith. We think, as did the district court, that if this has any relevancy at all it is a factor to be considered by the trial court only in measuring or mitigating the penalty.” United States v. Beatrice Foods Co., 493 F.2d 1259, 1269 (8 Cir. 1974), cert. denied, 420 U.S. 961, 95 S.Ct. 1350, 43 L.Ed.2d 438 (1975). The Court holds that, based solely on the facts to which defendant has testified, the law charged defendant with the responsibility of insuring that Bestline’s marketing program complied with the Commission’s Order, and that defendant can be held liable for the failure of Bestline’s marketing program so to comply. III. Compliance with the Consent Order The cross motions for partial summary judgment presently before the Court are directed only to the first of the 142 counts contained in the First Amended Complaint. Count One charged defendant with violations of paragraphs 1, 3, 4, 5, 6(a) and 12(a) of the Consent Order. Each of these alleged violations will be considered separately, except that the Court will follow the parties’ lead in discussing paragraphs 1 and 3 together. A. Paragraphs 1 and 3 As set forth in footnote 2 herein, paragraph 1 of the Consent Order directed the respondents to cease and desist from operating a multi-level marketing program wherein the financial gains to the participants “are dependent upon the continued, successive recruitment of other participants.” Paragraph 3, in turn, proscribed the payment of any consideration to any participant in Bestline’s marketing program unless that participant “performs a bona fide and essential supervisory, distributive, selling or soliciting function in the sale and delivery of such products to the ultimate consumer.” As noted in Part I of this Memorandum, the parties negotiated at length concerning the precise language to be included in the Consent Order. The parties disagree sharply on whether those pre-Consent Order negotiations are admissible for the purpose of construing the Consent Order and determining whether defendant has complied therewith. The Government argues, with citation to United States v. Armour & Co., 402 U.S. 673, 682, 91 S.Ct. 1752, 1757, 29 L.Ed.2d 256, 263 (1971), and United States v. Beatrice Foods Co., supra, 493 F.2d at 1264, that the commands of a consent order must be found “within its four corners”, Armour, supra, 402 U.S. at 682, 91 S.Ct. at 1757, 29 L.Ed.2d at 263, and that when, as here, the language of the Consent Order is unambiguous, inquiry into extrinsic matters is clearly improper. Defendant, on the other hand, maintains that paragraph 1, and in particular the word “dependent”, is ambiguous and requires reference to parol evidence. The Court is permitted to resort to such evidence, defendant argues, in light of the Supreme Court’s recent decision in United States v. ITT Continental Baking Co., 420 U.S. 223, 95 S.Ct. 926, 43 L.Ed.2d 148 (1975). In that case, the Court sanctioned reference to the parties’ negotiated “Agreement Containing Consent Order to Divest and to Cease and Desist”, to an appendix incorporated by reference in that agreement, and to the complaint, as “aids to the construction of the order and of the agreement of which it is part.” Id. at 238, 95 S.Ct. at 935, 43 L.Ed.2d at 163. The Court explained: “Since a consent decree or order is to be construed for enforcement purposes basically as a contract, reliance upon certain aids to construction is proper, as with any other contract. Such aids include the circumstances surrounding the formation of the consent order, any technical meaning words used may have had to the parties, and any other documents expressly incorporated in the decree. Such reliance does not in any way depart from the ‘four corners’ rule of Armour. In the instant case a key issue — and one which the parties have exhaustively briefed and argued — is the construction to be accorded the phrase in paragraph 1, “dependent upon the continued, successive recruitment of other participants.” The Government contends that “dependent” means “dependent in any manner” (emphasis in original), Plaintiff’s Memorandum in Opposition to Defendant Bailey’s Motion for Partial Summary Judgment, at 11, and includes “both ‘partially dependent’ and ‘wholly dependent,’ ” Plaintiff’s Reply Memorandum in Support of Its Motion for Partial Summary Judgment, at 3. Defendant, however, argues that when paragraphs 1 and 3 are construed together, “dependent” must be taken to mean “necessarily dependent”, that is, “where the fortunes of the investor are necessarily dependent on a system of recruiting and there is no way for him to recoup his investment and make a profit.” Defendant Bailey’s Memorandum in Opposition to Plaintiff’s Motion for Partial Summary Judgment, at 22. Defendant, in effect, contends that paragraphs 1 and 3 prohibit participants from receiving “financial gains from recruiting others without performing a useful function in distributing or selling a product to the ultimate consumer.” Id. at 22. But where they perform “a bona fide and essential supervisory, distributive, selling or soliciting function in the sale and delivery of such products to the ultimate consumer,” Consent Order, paragraph 3, then, defendant maintains, the marketing program complies with the Consent Order even if the participants also are compensated for performing a recruiting function. In its briefs and during oral argument, the Government construed defendant’s position to be that “dependent” means “solely” or “exclusively” dependent. The Court feels that this is a fair reading of defendant’s argument. The Court has carefully considered the arguments advanced by the parties in support of their alternative constructions to paragraph 1 and concludes that even when that paragraph is read in light of the Consent Ordér as a whole and the complaint incorporated by reference therein, its language remains reasonably susceptible to any of the interpretations — dependent “in any manner,” “partially” dependent, “wholly” dependent, “necessarily” dependent, or “exclusively” dependent — the parties have proposed. Simply put, the Court agrees with defendant that on its face paragraph 1 is ambiguous and that that ambiguity cannot be resolved without the aid of extrinsic evidence. As originally drafted, paragraph 1 of the proposed Consent Order directed the respondents to cease and desist from “1. Operating or, directly or indirectly, participating in the operation of any multi-level marketing program wherein the financial gains to the participants are dependent in any manner upon the continued, successive recruitment of other participants.” (Emphasis added.) By letter dated October 23, 1970, Bestline’s counsel requested deletion of the words “in any manner” from that paragraph. Counsel’s letter read in pertinent part: “In paragraph 1 of the Order (page 3), the phrase ‘in any manner’ has been deleted. We have agreed that no financial gains shall be dependent upon recruiting nor, as in paragraph 2, shall any compensation be paid for recruiting. The phrase ‘in any manner’ is surplusage at best and affords. the Commission no additional powers. At worst, however, the phrase could be interpreted as emphasis designed to connote an absolute prohibition of recruiting, including the necessary, proper and uncompensated recruitment of replacement sales personnel. We merely ask the Commission to take notice of the fact that sales personnel in all industries are somewhat temporary and mobile. No company can long survive without recruitment. The proposed language was intended, and the proposed change herein is equally designed, to prohibit the alleged practice of compensating investor-salesmen personnel (‘participants’) for any recruiting function they may perform.” (Emphasis in original.) Letter from Micah H. Naftalin of Elliott & Naftalin to Hon. Joseph W. Shea, Secretary, Federal Trade Commission, October 23, 1970, at 3. Following receipt of that letter, the Commission acquiesced in the deletion of the words “in any manner”. The Court believes that Mr. Naftalin’s letter establishes beyond doubt that the deletion of the phrase “in any manner” from paragraph 1 of the proposed Consent Order — a phrase that Mr. Naftalin himself termed “surplusage” — effectuated no substantive change in the scope of the Order and was designed solely to eliminate the possibility that Bestline’s “necessary, proper and uncompensated recruitment of replacement sales personnel” might later be found to violate the terms of the Consent Order. The clear thrust of Mr. Naftalin’s comments is that compensation would not be paid for recruitment. As he wrote, “The proposed language was intended, and the proposed change herein is equally designed, to prohibit the alleged practice of compensating, investor-salesmen personnel (‘participants’) for any recruiting function they may perform.” (Emphasis added.) In the opinion of the Court, Mr. Naftalin’s letter shows that he was concerned, and legitimately so, that the Consent Order not prohibit Bestline from continuing its routine replacement of personnel, a necessary and vital activity for any company and particularly for a company engaged in consumer sales. As Mr. Naftalin emphasized, no business organization can long survive if prevented from hiring replacement personnel, or from hiring personnel needed for legitimate expansion. Thus the continued financial rewards of all employees are, in a sense, indirectly and remotely “dependent” upon “recruitment” of new personnel. It was the right to undertake that type of innocent, uncompensated recruitment, and only that type, that Mr. Naftalin sought to preserve, and succeeded in preserving, for Bestline. But as Mr. Naftalin’s letter makes explicit, with the exception of that kind of recruitment, “no financial gains shall be dependent upon recruiting * * .” (Emphasis added.) In light of these negotiations, the Court finds defendant’s proposed interpretation of paragraph 1 incredulous. Having secured the Commission’s agreement to delete the phrase “in any manner” from the Consent Order on the express representation that it was “surplusage” and that retaining that phrase would afford the Commission “no additional powers”, defendant now attempts to persuade the Court that for the Government “to read ‘in any manner’ back into the order, notwithstanding its express deletion * * * ” is “incredible”. Reply Memorandum of Points and Authorities in Support of Bailey’s Motion for Summary Judgment, at 4, and Memorandum of Points and Authorities in Support of Bailey’s Motion for Summary Judgment, at 21. On the contrary, the Government’s construction of paragraph 1 is in all respects consistent with both the language of the Consent Order and the history of the parties’ negotiations. In particular, when the language of paragraph 1 is interpreted as the Government suggests to prohibit the payment of compensation which is directly dependent in any manner upon recruitment, then that paragraph tracks smoothly and logically with the requirement set forth in paragraph 3 that compensation can be paid only for a bona fide and essential supervisory, distributive, selling or soliciting function. Accordingly, the Court concludes that paragraphs 1 and 3 prohibit the operation of a marketing program wherein participants are directly compensated for any recruiting functions they may perform, irrespective of whether they are also compensated for performing a useful function in the distribution or sale of product to the ultimate consumer. The Consent Order, however, does not proscribe the payment of compensation for the performance of such a bona fide and essential distributive or selling function, nor does it proscribe the un compensated recruitment of marketing program personnel or the indirect, remote financial gain that may accrue as a result of routine hiring of personnel. The Court has reviewed the evidentiary materials submitted by the parties, in particular the Bestline Business Opportunity Booklets, the Bestline Information Manuals, and the opportunity meeting scripts. We now turn to several features of the post- • Consent Order marketing programs described in those materials which may possibly violate paragraphs 1 and 3 of the Order: 1. As set forth in Part I of this Memorandum, in each of the post-Consent Order marketing programs the discount at which a Local Distributor bought from Bestline varied according to the total volume of product purchased each month. That volume was composed of his own direct sales to consumers plus the sales orders of all other Local Distributors he had “sponsored” and “assisted”. Similarly, a Direct Distributor received commission on product orders of all Local Distributors whom he had sponsored and assisted, and a General Distributor, in turn, earned an 8 per cent commission on all product orders of those in his chain of distribution. 2. If a Local Distributor who had originally been sponsored by a General Distributor chose to ascend to a Direct Distributorship by pre-purchasing approximately $5,500 worth of inventory and sales aids, the sponsoring General received an 8 per cent commission, ranging from approximately $400 to $540, depending upon the marketing program in effect at the time. 8. A Direct Distributor could not ascend to a General Distributorship without first finding another individual to replace him as a Direct; that individual was required to generate $5,000 of product orders in one month, netting the sponsoring General $400 commission. 4. Under the first revised marketing program, a General Distributor continued to receive a continuing 3 per cent commission on the sales volume of any of his Direct Distributors who advanced to the position of General Distributor. That participants at all levels of the marketing program gained financially from sponsoring and assisting other participants is undisputed; what remains in contention is whether that gain stemmed from the kind of “recruitment” proscribed by paragraph 1 of the Consent Order, as the Government maintains and defendant denies. In support of his position, defendant points to the obligations placed upon all participants in the marketing program to train, supervise, motivate and assist those in their chain of distribution in the sale of product. For example, a Local Distributor who sponsored another Local Distributor acted as an intermediary between that Local and their Direct Distributor, collecting product order forms from the sponsored Local, forwarding them to the Direct, and channeling product from the Direct to the Local. The Direct Distributor, in turn, was required by contract “to maintain a sufficient inventory of the various products so as to be able to meet the requirements of his [local] distributors and customers.” Bestline Direct Distributor Agreement, utilized prior to February, 1972, ¶26; later contracts obligated the Direct “to provide such management, inventory, supplies, training and assistance as is reasonably required by any and all local distributors with whom he has contracted.” Bestline Direct Distributor Agreement, utilized February, 1972 tov February, 1973, ¶ 6. A General Distributor, although not directly involved in the distribution of product, was similarly obligated. Bestline General Distributor Agreement, utilized February, 1972 to February, 1973, ¶8. He was also bound “to conduct sales courses designed to assist his distributors, both Direct and local, in the best use and application of Bestline products and the methods of salesmanship most appropriate to accomplish the sale of these products to the ultimate consumer.” Id. ¶ 7. In short, defendant argues that these obligations to supervise, train and maintain inventory for those in one’s chain of distribution clearly show that any financial gain received was for the performance of a bona fide and essential function in the distribution and sale of product to the ultimate consumer, and not for recruitment. The Government, on the other hand, argues that these purported obligations existed on paper only and were but a sham to disguise the fact that participants continued to be rewarded for recruiting others into Bestline’s marketing structure. Indeed, it is the Government’s position that recruitment remained the main thrust of Bestline’s marketing program and the principal objective and source of remuneration for participants therein. The Government urges the Court to reject defendant’s argument that all financial gains were earned for the performance of bona fide and essential marketing functions. In the Government’s view, the purported existence of those functions cannot correct the marketing programs’ continuing failure to eliminate the accrual of financial gain to participants which was dependent upon recruitment. Moreover, the Government maintains that those supervisory and training functions would not even satisfy the requirement of paragraph 3 since they were not essential to the sale and delivery of product to the ultimate consumer. The Court agrees with the Government. As the Court has already concluded, paragraph 1 of the Consent Order prohibited participants from receiving financial gains which were directly dependent in any manner upon recruitment. Here the undisputed facts of record show that a participant, whether a Local, Direct or General Distributor, benefitted financially from persuading others to join the Bestline marketing structure and enter his chain of distribution. Particularly egregious, in light of the requirements of the Consent Order, was (1) the $400 to $500 commission paid to a General when a Local he had originally sponsored chose to ascend to Direct by prepurchasing approximately $5,500 worth of inventory and sales aids and (2) the additional $400 commission a General received because a Direct wishing to ascend to General was required to locate another individual responsible for the purchase of $5,000 of product in one month. Also directly violative of the terms of paragraph 1 was the continuing 3 per cent commission payable under the first revised marketing program to a General when any participant previously within his chain of distribution ascended to General Distributor. Moreover, the Court is not persuaded by defendant’s argument that all participants regularly and actively supervised, trained, motivated and assisted those that they “sponsored.” The Court repeats that, even were that in fact the case, it would not serve to excuse noncompliance with paragraph 1 of the Consent Order. However, the Court doubts strongly whether participants in Bestline’s marketing program viewed their supervisory and training responsibilities as seriously as defendant maintains. To be sure, this question is one of fact, incapable of final resolution within the context of cross motions for partial summary judgment. There are several factors, though, contributing to the Court’s doubts. For example, as the Government has emphasized, Bestline had no mechanism to enable it to determine routinely whether a participant performed the required supervisory and training functions, nor would one who failed to perform those functions be terminated by the corporation. Deposition of David L. Eastis in People of the State of California v. Bestline Products, Inc., No. 952969 (Sup.Ct.Cal., June 20, 1972), at 74. Furthermore, there were no limits on the number of Local Distributors an individual Local Distributor could sponsor, or on the number of Local Distributors a Direct Distributor could sponsor. Nor was there any geographic limitation on the location of participants one sponsored. As stated in Bestline’s Information Manual at page 28, and in later editions at page 23, “you may sponsor people anywhere in the country, and regardless of where they are you will make a profit on their activities, by your continued supervision.” Common sense would seem to indicate that the nature and extent of the supervision rendered would become increasingly tenuous and ephemeral as a participant’s sales organization became larger and more diffuse. The question is really one of degree. Even were the Court to have adopted defendant’s position, at a certain point those purported “bona fide and essential” functions would have become so insignificant that, as a matter of law, they would have been deemed de minimis and incapable of supporting even the argument advanced by defendant. If, for example, Local A sponsored Local B, who in turn sponsored Local C and so on to Local G, quaere the nature and extent of supervision and assistance rendered by Local A to Local G, or the degree of supervision provided by their Direct or General. Quaere also the kind of “necessary and continuing supervision, and sales assistance” a General Distributor provided to another General formerly within his own distribution network so as to justify the continuing 3 per cent commission permitted the former on the latter’s sales in the first revised marketing program. An even more fundamental flaw in defendant’s argument — and one more readily cognizable in the present procedural posture of this case — is the fact that the supervisory and training functions purportedly rendered by participants in Bestline’s marketing program were not necessarily essential in the sale and delivery of product to the ultimate consumer, as required by paragraph 3 of the Consent Order. When, for instance,, an individual opted to become a Direct Distributor by pre-purchasing $5,000 worth of inventory and sales aids, the sponsoring General received a commission of 8 per cent. Yet at that stage in the transaction, no product has yet been sold or delivered to the ultimate consumer. The sale was transacted entirely by persons within Bestline’s own marketing structure. Further, it is conceivable that the process would continue on a lower level when the pre-purchase Direct re-sells his inventory to Locals he has sponsored, still without a sale to an ultimate consumer. Despite the lack of such a sale, the General has received $500 in commission. This is not to say that Bestline did not emphasize the sale of its product to the consuming public. The record clearly shows that the Bestline enterprises generated millions of dollars in retail sales annually. Rather, Bestline’s post-Consent Order marketing programs failed to comply with paragraph 3 of the Consent Order by continuing to permit sponsoring distributors to receive consideration in the absence of the sale and delivery of product to the ultimate consumer. Alternatively phrased, sales and delivery of product to the ultimate consumer was not a necessary condition for either the pre-purchase Direct Distributor or the General Distributor to receive financial gain. Accordingly, the Court holds that defendant violated paragraphs 1 and 3 of the Consent Order during the period November 3, 1971, to July 31, 1973. B. Paragraph 4 Paragraph 4 of the Consent Order directed respondents therein, inter alia, to cease and desist from “Requiring prospective participants or participants in respondents’ said program to purchase the product or pay any other consideration, other than payment for the actual cost of necessary sales materials, in order to participate in any manner therein; * * *.” The Government contends that Bestline’s post-Consent Order marketing programs violated the quoted portion of that paragraph by 1. Requiring Direct and General Distributors to pay $25 and $50 a month, respectively, to belong to a marketing co-op; 2. Requiring a Direct Distributor to pay $600 (later increased to $700) to a General Training Fund upon ascending to General Distributor; 3. Requiring new Local Distributors to pay an initial entrance fee of $5; and 4. Allocating $969 of the $2,995 paid by a pre-purchase Direct Distributor for the sponsoring Distributor’s discount ($528) and administrative costs ($441), thereby leaving only $2,026 for the purchase of inventory and sales aids. Defendant argues that 1. Co-op dues were at all times voluntary; 2. The required General Training Fund payment does not come within the scope of paragraph 4 since “it was not required of one desiring to participate in the Bestline marketing program” (Defendant Bailey’s Memorandum in Opposition to Plaintiff’s Motion for Partial Summary Judgment, at 50); 3. The $5 entrance fee is de minimis, and in any event comes within the express exception in paragraph 4 for “actual cost of necessary sales materials”; 4. The $528 discount was not prohibited by paragraph 4; and 5. Administrative and processing costs incurred in the operation of the pre-purchase Direct Distributor program merely reflect cost of product. First, with respect to the monthly co-op dues, the evidentiary materials submitted by the parties clearly establish that these dues were obligatory for Direct Distributors under the first revised marketing program. The Bestline Business Opportunity Booklet utilized while that program was in effect, that is, until February, 1972, explained to prospective participants that: “Your monthly operating expenses are minimal in Bestline. Almost all our distributors use their home as their place of business. You most likely will require a car, a telephone and should comply with local and state sales laws. Direct Distributors are required to pay $25 per month CO-OP dues which defer expenses for hotel meeting and training rooms.” Id. at 8 (emphasis added). A Direct Distributor was explicitly bound by the terms of that booklet by paragraph 33 of the contemporaneous Direct Distributor Agreement, which provided as follows: “Distributor acknowledges that he has heretofore received a copy of the Bestline Business Opportunity Booklet and has signed a written receipt for the same. Said booklet is hereby referred to and by such reference incorporated herein and made a part hereof. The terms of said booklet are binding upon the parties hereto as a part of this contract.” In the opinion of the Court, these materials establish beyond doubt that, at least until February, 1972, a Direct Distributor was contractually obligated to pay $25 per month co-op dues “in order to participate” in Bestline’s marketing program. Under the first revised marketing program these dues were not voluntary as Defendant has argued; nor were they paid for the purchase of product or “necessary sales riiaterials”. Therefore, the Court holds that the $25 monthly co-op dues required of a Direct Distributor under the first revised marketing program constituted a violation of paragraph 4 of the Consent Order. In all other respects, however, the Government has failed to persuade the Court that participation in Bestline’s marketing program was conditioned upon the payment of co-op dues. Subsequent to February, 1972, the Bestline Business Opportunity Booklet was revised, stating only that “Distributors usually join a local Co-Op, paying monthly dues of $25 for a Direct Distributor and $50 for a General Distributor.” Id. at 8 (emphasis added). In its brief, the Government points to the following language included in the opportunity meeting scripts in support of its contention that the payment of co-op dues remained compulsory: “We, as General Distributors, belong to the Co-op and pay $50 per month dues (a Direct pays only $25) which pays for the expenses of our meeting rooms and training sessions which is truly an economical expense for overhead. We conduct meetings like you saw last night and this morning on a continuous basis right here in _. And, because you are a member of the Co-op, you use this way to introduce your guests to Bestline, attend Saturday training sessions, retail schools, local schools and our family night functions and it’s quite effective. “So, let’s say that you do that.” Although that language is strongly suggestive and may have induced a prospective participant into believing that co-op dues were mandatory, the Court is unwilling to hold as a matter of law that that necessarily occurred and, therefore, that paragraph 4 was further violated. Second, with respect to the $600-$700 payment to the General Training Fund, it is defendant’s position that that payment did not violate paragraph 4 since a Direct Distributor could continue to participate indefinitely in Bestline’s marketing program as a Direct, thereby avoiding having to attend Bestline’s General Distributor School. To be sure, only when a Direct voluntarily chose to become a General was the $600-$700 Training Fund payment required. But defendant’s argument really begs the question. Paragraph 4 of the Consent Order explicitly prohibits Bestline from requiring participants to pay any consideration, other than for the actual cost of necessary sales materials in order to participate in any manner in Bestline’s marketing program. The Court cannot imagine any more inclusive language than that used in the Consent Order. Participation as a General Distributor is clearly encompassed by the phrase “in order to participate in any manner.” Defendant’s interpretation of paragraph 4 is thus totally inconsistent with the plain language of that paragraph. Accordingly, the Court holds that the $600-$700 payment to the General Training Fund admittedly required of a Direct who wished to ascend to General Distributor violated paragraph 4 of the Consent Order. Third, the Court agrees with defendant that the $5 initial fee required of new participants, purportedly for an Associate Membership in Bestline’s Distributors’ Association, is de minimis. However, the Court wishes to make clear that it expresses no opinion on whether that payment was in consideration for “necessary sales materials” as defendant maintains. There is nothing before the Court that would justify such a finding, save for defendant’s own declarations and the similar representation of Bestline in the corporation’s Supplemental Compliance Report, submitted to the Commission on June 24, 1972. The fourth alleged violation of paragraph 4 of the Consent Order — the allocation of $929 of the $2,995 paid by a pre-purchase Direct Distributor for administrative and processing costs and the General Distributor’s commission — presents some difficulty. The Court is inclined to agree with defendant that the $528 commission paid to the sponsoring distributor does not properly fall within the scope of paragraph 4. If, as the Government contends, the commission payable upon the purchase of product by a pre-purchase Direct violated paragraph 4 of the Order, then it would seem to follow logically that all commissions paid — either directly, as here, or indirectly in the form of variable discount rates — whenever a Local or Direct Distributor purchased product from Bestline, were equally violative of paragraph 4, for all would be “consideration [paid] in order to participate in any manner” in Bestline’s marketing program. The Court believes, however, that when the Consent Order is taken as a whole, the payment of commissions, discounts and the like is a matter dealt with more directly, and in considerable more detail, in paragraph 3 of the Order. Therefore, the Court declines to stretch the general language of paragraph 4 to prohibit the payment of commission upon the purchase of product. With respect to the $441 paid for “administrative and processing costs”, it is defendant’s position that these costs merely reflected a portion of total product cost, “the necessary costs of processing, handling, shipping, and bookkeeping, which are normally incidental to the distribution of products.” Defendant Bailey’s Memorandum in Opposition to Plaintiff’s Motion for Partial Summary Judgment, at 52. The circumstances surrounding the administration of the pre-purchase Direct Distributor program, however, belie that contention. Paragraph 4 of the Consent Order provided, inter alia, that “respondents may require or may suggest the purchase of specific and reasonable inventories only, by any distributor, on the express condition that respondents at the same time agree to repurchase any unused and undamaged portion of an initial inventory from any purchaser thereof at full cost less reasonable shipping costs, if any, within 90 days from the delivery of the product at the option of the purchaser * * *.” It is undisputed that from May, 1971 until February, 1972 Bestline operated a 90-day refund program, and that a pre-purchase Direct Distributor requesting a refund automatically received $2,026, less the value of any product used. However, neither the $441 paid for administrative and processing costs nor' the $528 commission paid to the General Distributor were refunded. Affidavit of James Hisler, at 2, attached to Defendant’s Supplemental Memorandum in Opposition to Plaintiff’s Motion for Partial Summary Judgment. The Government has not charged defendant with a violation of paragraph 4’s 90-day refund requirement and, for the purposes of this discussion, the Court assumes that the refund program operated by Bestline complied with the Consent Order. Given that assumption, and given the requirement in paragraph 4 that Bestline refund the full cost of initial inventory (less reasonable shipping costs and the value of product used or damaged), the only conclusion logically permissible is that the amount refunded— $2,026 — represented the full cost of product inventory. In that case, defendant’s contention that the $441 charge was but a part of product cost necessarily fails. Accordingly, the Court concludes that the requirement that a pre-purchase Direct Distributor pay $441 for “administrative and processing costs” violated paragraph 4 of the Consent Order in that that payment was consideration required for participation in Bestline’s marketing program. The Court holds that for the reasons set forth above, defendant failed to comply with paragraph 4 of the Consent Order during the period November 3, 1971, to July 81, 1973. C. Paragraph 5 As set forth in footnote 2 herein, paragraph 5 of the Consent Order prohibited respondents from using a multi-level marketing program wherein the compensation or profit inuring to participants was “dependent on the element of chance dominating over the skill or judgment of the participants”; or where “no amount of judgment or skill exercised by the participant has any appreciable effect” upon his compensation; or where “the participant is without that degree of control over the operation of such plan as to enable him substantially to affect the amount” of his compensation. The Government charges a violation of paragraph 5 in that, as Best-line’s marketing programs were structured, “Two factors, over which the participant exercises no control, are vitally significant in assessing one’s chanc