In the Matter of the Complaint Against MADAME LEAH, ET AL., at San Francisco, California H.E. Docket No. 5/128; 06/13/58 Ablard, Charles D. POST OFFICE DEPARTMENT WASHINGTON, D. C.
A hearing on the above matter having been held in San Francisco, California, on October 3, 1957, the Hearing Examiner rendered an Initial Decision in which he concluded that the medical testimony introduced by the complainant left "enough equivocation and doubt regarding respondent's advertising representation to apply the rule of Pinkus's case in respondent's favor." The examiner concluded that the complainant failed to establish fraudulent intent on the part of the respondent and recommended against issuance of a fraud order.
Complainant has excepted to two of the findings of the respondent. The first exception is to the finding of the examiner that there was no fraud in fact because of the equivocation of the medical testimony. The respondent relies on the "sebborhea theory" of baldness. This is the theory that dandruff is the cause of baldness and that if dandruff is removed falling hair will stop and new hair will grow. There is testimony in the record that this theory has been discredited by competent medical writers. There is also other evidence to the fact that some writers still believe that this is a possible theory of baldness. However, even assuming that the "sebborhea theory" is correct the testimony of Dr. Barnes (R. 68) indicates that the respondent's product would have no effect on reducing dandruff. That testimony is as follows:
"Q - In your opinion, Doctor, will this preparation adequately treat dandruff conditions?
A - No. I do not believe it will.
Q - Would it actually increase the production of dandruff on the human scalp?
A - It could, inflammatory dandruff is aggravated by the use of an oily or waxy type of preparation."
There is further testimony in the record that the respondent's preparation is oily and waxy. The finding of the examiner that there was insufficient, unequivocal medical testimony as to the inefficacy of the product of the respondent was error and that finding is disaffirmed. The complainant sustained the burden of proving that the respondent's preparation was fraudulent in fact.
The complainant next excepts to the finding of the examiner that there was no proof of an intent to deceive. The examiner based this upon what he believed to be the equivocal testimony of medical witnesses and the affirmative testimony of the respondent that she believed in the efficacy of her product. The complainant relies upon Reilly v. Pinkus, 338 U.S. 269, 276 wherein the Supreme Court said,
"an intent to deceive might be inferred from the universality of scientific belief that advertising representations are wholly unsupportable."
However, the court in that case went on to say,
"conversely, the likelihood of such an inference might be lessened should cross-examination cause a witness to admit that the scientific belief was less universal than he had first testified."
Since the inference of an intent to deceive could be rebutted by cross-examination of the medical witness expressing opinion testimony certainly that inference could be rebutted by testimony of the respondent who sold the product to the effect that she believed in the efficacy of that product and did not intend to deceive.
Complainant also cites Shaw v. Duncan, 194 F.2d 779 (10th Cir., 1952) to the effect that a fraudulent intent may be inferred from the expert testimony that the product marketed is valueless. This case was decided after Reilly v. Pinkus and attempted to apply the doctrine of Pinkus to the facts of that case. However, one glaring distinction exists between the facts of Duncan and the facts of the case at hand. In Duncan the respondent did not testify at the administrative hearing but only submitted an affidavit in support of the efficacy of his product which was rejected by the Hearing Examiner. In the instant case respondent not only testified but produced other witnesses who had apparently used her product with what they believed to be success and who had so informed her. Although this testimony should be given little or no weight for the purpose of showing the efficacy of the product, John J. Fulton Co. v. FTC, 130 F.2d, 85 (9th Cir.), it may properly be used to show a lack of fraudulent intent on the part of the respondent. There was no evidence such as this in Duncan and, of course, the court relied only upon the evidence of
record. The inference of intent, having been raised and not rebutted, stood and the fraud order in that case was upheld. In the instant proceeding, upon a review of the evidence of record, such a conclusion cannot be reached.
The complainant attempts to discredit the testimony of the respondent by the "self-delusion" theory expressed in Estep v. U.S., 140 F.2d 40, (10th Cir. 1943), wherein that court said,
"But no amount of self-delusion will justify an otherwise baseless representation to others, and if there is competent evidence in the record from which the jury is justified in concluding that the representations made were tainted with a fraudulent intent, its verdict will not be disturbed."
The court goes on to say that there was evidence in the record in that case that the defendants had conspired to obtain money by a fraudulent scheme. Thus, there was the required evidence of record that the representations were tainted with fraudulent intent. The court went on to say,
"Often the line between honest belief and purposeful misrepresentation is fine and indistinct, between the two however lies guilt or innocence and where the evidence is evenly balanced between guilt and innocence a conviction cannot stand."
Although the instant proceeding is not a criminal matter the Supreme Court has said that an intent to defraud must be proved before the Postmaster General can issue an order. Thus, we are bound by the decision and where, as in this case, the Hearing Examiner who heard the testimony of the respondent believed that the respondent had no intent to defraud, I do not feel compelled to reverse unless the finding is patently erroneous. Upon a review of the record I cannot so conclude. FCC v. Allentown Broadcasting Co., 349 U.S. 358. Although an inference of intent was raised by the expert testimony it was rebutted by the testimony of the respondent. I therefore conclude that the conclusion reached by Hearing Examiner was proper although allowing the first exception of the complainant to the finding of fraud in fact.
One further point deserves a brief discussion. While the Post Office Department has technical jurisdiction over this and other cases because of use of the mails by the respondent it appears to the Judicial Officer that, in view of the recent reorganization of the Office of the General Counsel, now would be a propitious time to reevaluate and establish criteria for the Department's taking jurisdiction in these cases. With that purpose in mind I would like to point out a few additional facts of this case.
The respondent was conducting a one person enterprise with only incidental mail orders. This was her testimony and it was unrebutted by the Government. The complainant had alleged that "public attention is attracted to the said scheme by means of advertising matter widely distributed to the public." The only evidence of any advertising approximating this allegation was seven small ads inserted in various San Francisco newspapers. Two of these ads did not give a mailing address but only listed a telephone number. In all of he others there is a telephone listing and offers of a "free examination" or "written testimonials on hand for your inspection" indicating that the respondent desired personal calls rather than mail orders.
The Government became first involved with this case through a letter of complaint from a postal patron in Daly City, California, a suburb of San Francisco. His complaint was to the failure of Madame Leah to refund his money in accordance with the promise of her advertisement. Respondent testified that the money had been returned and this was not rebutted. Test correspondence was then initiated and merchandise was mailed to test names by Madame Leah.
It appears to the Judicial Officer that with the great variety of serious problems facing the Federal Government, the expense of transporting a Hearing Examiner, government counsel, a postal inspector, and a chemist to the West Coast for the purpose of conducting this hearing may have been unjustified. If California wants to regulate the sale of hair growers doing business in their state that would seem to be more properly a matter for action by them. If the health authorities of San Francisco desire to take action, that would be properly for their consideration.
As a preliminary to the issuance of any complaint, it would seem that a determination should be made as to the effectiveness of a postal fraud order in suppressing the allegedly fraudulent enterprise. The unrebutted evidence in the record indicates that an order would not have accomplished this result but would have been only somewhat of a "thorn in the side" of the respondent since the bulk of her sales were over the counter. I am not attempting to say that this should be a matter of proof but it should properly be a matter for consideration prior to the issuance of the complaint. Had such been done, I doubt that the complaint would have issued.