The lawsuit says the Bradford Exchange Ltd., created by Roderick MacArthur in 1973 to sell decorative "collector plates" to the masses, has been making inflated claims for years about the investment value of its plates.
In doing so, the suit says, the Bradford Exchange has defrauded untold thousands of customers. The exchange has denied all the accusations and labeled the suit an "unfounded consumer complaint." Comparing itself to the New York Stock Exchange, the Bradford Exchange has advertised plates in national magazines, on cable television and in direct mailings, touting them as "blue chips" and "best sellers."
Some ads suggest a person who buys Bradford plates is like a person who bought IBM stock 25 years ago. "There is no ceiling on the price a plate might command on the secondary market," declares one ad.
But lawyers Donald B. Lewis of Philadelphia and Marvin Miller of Chicago contend in their class-action suit that, far from soaring in value, "the vast majority of plates . . . do not significantly appreciate in price."
The average plate collector, the lawyers argue, would make a better investment depositing money in a low-interest savings account.
The suit also says that the Bradford Exchange fails to disclose the 30 percent commission it charges on every plate traded on the exchange, that a West Virginia china manufacturer whose name Bradford uses on its new-issue plates has not made a plate in nearly 30 years, and that Bradford "limited editions" are not limited at all but sometimes exceed 100,000 plates.
Roderick MacArthur, who died in 1984 at age 63, made millions manufacturing plates adorned with Norman Rockwell paintings, scenes from films such as Gone With the Wind and other art, marketing them through a nationwide advertising blitz.
His son, John R. "Rick" MacArthur, publisher of Harper's magazine,
succeeded him and is now head of the Bradford Exchange. Rick MacArthur, 35, declined to comment on the lawsuit.
In denying the suit's accusations, Bradford Exchange attorneys Anton R. Valukas and David J. Bradford argue in legal papers: "All of the purported misrepresentations and omissions . . ., at worst, constitute 'sales puffery.' ''
The Bradford Exchange is separate from the John D. and Catherine T. MacArthur Foundation, which dispenses the "genius grants."
Documents in the lawsuit include stacks of Bradford advertisements.
One is a 1987 promotion for a plate called "Sitting Pretty?" - a Rockwell painting of a girl seated primly on a couch in a party dress.
A Bradford "market analysis report" about the plate declared breathlessly: "Entire research staff forecasts rapid sellout of Sitting Pretty? We must try to notify our clients about this plate right now - before open-market bidding can drive its price completely out of reach."
Three years later, at the end of 1990, "Sitting Pretty?" was selling for a high bid price of $25 on the Bradford Exchange - 10 cents more than its $24.90 issue price.
An owner of the plate who sold it through the exchange for $25 would get only $17.50 - after Bradford deducted its 30 percent sales commission.
Though many Bradford ads make no mention of that commission, Bradford's attorneys say anyone who tries to sell a plate through the exchange is told of the commission, and it is disclosed in certain Bradford literature.
In a 1988 promotion for a plate called "Baa, Baa Black Sheep," Rick MacArthur wrote to Bradford clients: "Right now, you're in prime position to get Baa Baa Black Sheep at the $32.90 issue price, before demand has a chance to heat up, before supplies are strained, before it can begin rising on the secondary market."
That plate, at the end of last year, was listed by Bradford at $33 - a 10- cent increase in value. An owner who wanted to sell would receive $23.10 after Bradford deducted its 30 percent commission.
Bradford bills itself as "the world's largest trading center for limited- edition collector's plates," but trading is only a small part of its business.
Mostly what Bradford does is sell new plates.
And it sells them in huge numbers.
Operating from glamorous headquarters - featuring an indoor brook and gardens - in Niles, Ill., a suburb of Chicago, the exchange last year had $165 million in sales. It employs 882 people worldwide.
Ginny Sexton, a Bradford publicist, said the exchange conducts 18,000 ''transactions" a day.
But of that number, according to figures supplied by Bradford, less than 2 percent are "secondary market" transactions, or trades of previously issued plates. Ninety-eight percent, or about 17,700 a day, are new plate sales.
With each new plate sale, Bradford guarantees a full refund for one year. Officials of the exchange say the refund policy is extended on an "informal" basis beyond the one year for any customer who becomes dissatisfied with a plate.
"It's just had a terrific record of keeping its customers happy," said lawyer David Bradford, who has no family tie to the company.
Happy or not, Bradford Exchange customers are cast in the lawsuit as victims of consumer fraud and deceptive business practices.
The suit was filed in November on behalf of Julie Eszlinger, a nurse from St. Paul, Minn., who is supposed to represent "a broad class of unsophisticated plate collectors" who have bought plates from Bradford.
The lawsuit says Eszlinger has been "inundated" with mail solicitations
from Bradford since 1982 urging her to buy limited-edition plates as
Eszlinger has testified in a deposition that she bought several plates expecting that they would rise in value and become "heirlooms." According to the lawsuit, the plates went down instead.
Bradford attorneys argue that the plates Eszlinger bought all went up at one time or another, even if they later went down.
One of the plates she bought, "Twinkle, Twinkle, Little Star," was promoted in a 1987 mailing that said a price increase on the secondary market was "a virtual sure thing."
Eszlinger bought the plate for $29.50. Its resale value, according to Bradford's price list at the end of 1990, was $25 - a $4.50 decline. Bradford's 30 percent commission would have reduced the price to $17.50.
Eszlinger testified in her deposition that she believed the exchange would sell 250 to 500 of the limited-edition plates she bought.
Edition sizes actually ranged from 8,500 to 113,000, according to numbers disclosed by the exchange in the lawsuit.
Bradford has sold more than 200 plates under the name of the Edwin M. Knowles China Co. It uses a slogan calling Knowles "America's oldest name in fine china."
The Edwin M. Knowles China Co., however, has not made anything in nearly 30 years. The company, which formerly operated in Newell, W. Va., went out of business in 1963.
Roderick MacArthur, according to Bradford attorneys, bought the Knowles name in the 1970s. Knowles now has its offices with the Bradford Exchange in Illinois.
Documents in the lawsuit show that Knowles plates consist of porcelain discs, bought more than 100,000 at a time from Japan and Thailand, with decal art baked onto them by various china companies in the Midwest.
The Bradford Exchange and the Knowles name are privately held by members of the MacArthur family.
Bradford officials, in disputing charges in the lawsuit, contend that most plates sold by the exchange go up in value at some point. And they say all Knowles plates have increased in value at one time or another.
Bradford's December 1990 price list showed fewer than 25 percent of 200 Knowles plates selling above the original price when the exchange's 30 percent
commission was subtracted.
The Bradford Exchange had its beginnings - quite colorful ones by news accounts of the day - as part of John D. MacArthur's Chicago mail-order business.
The elder MacArthur, who made a fortune selling mail-order insurance in the 1930s, was busy in the early 1970s buying and selling huge tracts of Florida real estate and had little interest in his son's plate venture. That is, until it began to make money. Then the elder MacArthur demanded a 51 percent share of the profits.
Rod MacArthur refused, insisting that the plate business was his.
To underscore the point, the son hired a fleet of tractor-trailers and in May 1975 hijacked the entire inventory of 250,000 plates from his father's warehouses. Chicago police were called. Newspapers reported the story. But Rod MacArthur got away with it.
Declaring himself independent, he became a multimillionaire. He cornered the market on collector plates. And he guarded his turf aggressively.
Ralph Gadiel, a business adversary in Chicago, recalls Roderick MacArthur's pressuring him in 1979 to stop making figurines of Norman Rockwell images that the Bradford Exchange had used on several plates. Gadiel says MacArthur told him with a warning tone: "I'm the goose that lays the golden eggs in this industry."
Among the brightest of those golden eggs, according to Bradford Exchange advertisements, were three plates with Rockwell images issued in the late 1970s: "The Toy Maker," "The Cobbler" and "The Lighthouse Keeper's Daughter."
At their peak, those plates - all issued for less than $20 - sold for $282, $200 and $210, respectively.
But at the end of 1990, the plates had dropped far below those highs and were selling for $100, $85 and $35.
A 1990 Bradford brochure promoting Rockwell plates did not list the lower, current prices. Instead, it itemized the all-time highs along with a graph showing a profit line - the word "profit" written in huge capital letters - climbing off the chart.
"Buy low," the brochure trumpeted, "and sell HIGH."