In the Matter of the Complaint Against OWEN LABORATORIES, and H. L. OWEN at Chicago, Illinois P.O.D. Docket No. 1/49; 04/10/59 Ablard, Charles D.
On August 20, 1958, a complaint was filed by the General Counsel charging the Respondent with obtaining remittances of money through the mails by false and fraudulent pretenses for a product "Enerjol". The product is advertised as a cure for the ills of human beings and offers to combat the "ills of old age". An answer was filed by the Respondent on September 12, 1958, admitting the use of the mails and that the advertisement attached to the complaint was the advertising employed by the Respondent. By an amended answer the Respondent neither admitted nor denied the allegations that the representations were false. All other material allegations were denied.
On September 15, 1958, the Respondent filed a motion to dismiss upon the grounds that a former complaint against the same Respondent had been settled by an affidavit of agreement dated September 26, 1957, and that the disposition of the former proceeding constituted "res administrata" prohibiting the Complainant from proceeding again against the Respondent. The Hearing Examiner denied the motion to dismiss. The Respondent requested the Judicial Officer to permit an interlocutory appeal from this ruling. The request was denied. 1/
On October 30, 1958, the Complainant moved to consolidate these proceedings with that of two other departmental proceedings against other Respondents, U.S. Bio-Genics, POD Docket 1/55 and Jenasol, POD Docket 1/54. On November 10, 1958, the Hearing Examiner ordered these three proceedings consolidated. A hearing was held on November 13, 1958, during the course of which the examiner dismissed the proceeding against U.S. Bio-Genics. Proposed findings were filed by the Complainant on December 12, 1958, and by the Respondent on December 19, 1958. An Initial Decision was rendered by the Hearing Examiner on December 24, 1958, finding that the allegations in the complaint were true and recommending the issuance of a fraud order. Exceptions were filed by the Respondent on January 14, 1959, and the Complainant replied on January 26, 1959. On January 28, 1959, the Respondent requested leave to file a supplemental Memorandum of Law on Borg-Johnson Electronics Corp. v. Christenberry (U.S.D.C., S.D.N.Y., January 19, 1959) and it was submitted February 18, 1959. On March 2, 1959, the Complainant replied to the memorandum.
The first exception of the Respondent is to the ruling of the examiner on the motion to dismiss because of a prior fraud proceeding, H.E. Docket 5/143, against this same Respondent, which was first disposed of by an affidavit of agreement signed by the
Respondent and accepted by the Complainant. The Complainant later charged that the affidavit had been breached, a hearing was held, and an Initial Decision was rendered finding no breach. No exceptions were filed but the Complainant moved to dismiss without prejudice since a similar decision had been rendered by the Department in Jenasol, H.E. Docket No. 5/29. The motion was granted over the objection of the Respondent. The Respondent contends that this proceeding is barred by "res administrata". This novel doctrine was firmly rejected in U.S. v. 42 Jars of Bee Royale Capsules, (C.A. 3, decided March 12, 1959). Churchill Tabernacle v. F.C.C., 160 F.2d 244 (C.A.D.C., 1947) held that res judicata was ordinarily not applicable to administrative proceedings. If the doctrine is to be extended to administrative proceedings, as was indicated in Bee Royale that it might be, it will probably be along narrow lines. Professor Kenneth C. Davis, an acknowledged authority on administrative law, says:
"Res judicata prevents an Agency from prosecuting a second time for the same act or acts but it does not prevent a second prosecution for a continuing practice; at the same time the doctrine may be applied in a relaxed form to prevent undue harassment by repeated prosecutions. 2/ "
The Respondent relies on the decision of this Department in U.S. Bio-Genics, H.E. Docket No. 5/122, in which it was held that an affidavit signed by the Respondent and accepted by the Complainant may not be unilaterally voided by the Complainant when a procedure was provided by that affidavit whereby a proceeding may be instituted to obtain the issuance of a fraud order for breach of the affidavit. That procedure must be followed. 3/
In the prior proceeding involving this Respondent, the Complainant sought to obtain a fraud order based on the breach of the affidavit. The affidavit signed by the Respondent which was the basis of disposition for the prior proceeding provided:
"That the acceptance of this affidavit by the Assistant General Counsel, Fraud and Mailability Division of the Post Office Department, as a basis for disposing of the pending charges now involved herein shall not be construed as an approval of any business which the said affiant has conducted or may hereafter conduct under the name aforesaid set forth in the caption hereof, or any other name or names." (Emphasis supplied).
The advertising of the Respondent is the same as that upon which the first proceeding against Owen Laboratories was based. However, the complaint is not the same since it makes new charges.
The Complainant contends that it is the advertisement of the Respondent which constitutes the "res of the proceeding". It is the complaint which initiates the proceeding and the allegations in the two complaints are different. The enterprise is of a continuing nature and the Complainant may make new charges on the same advertisement. The former charges were adjudicated; the instant charges have not been.
It clearly appears from the express language of the affidavit that it disposed only of those charges and not other charges which might be filed against the same Respondent. The second complaint cannot reasonably be deemed an undue harassment. The exception is disallowed.
By failing to deny the allegations of the complaint that the representations in the advertisement were false, the Respondent admitted those allegations. (Rule 201.8(c), 23 F.R. 2794) The
Respondent excepts to the finding of an intent to deceive. Dr. Kenneth C. Campbell, a medical doctor with the Food and Drug Administration, Department of Health, Education and Welfare, testified on behalf of the Complainant. While the product contains some vitamins, Royal Jelly and oyster concentrate are the ingredients advertised as those which accomplish the representations for the product. It is testimony concerning these ingredients which is material. He testified that the product of the Respondent was worthless for the purposes advertised and that this was the consensus of modern scientific medical opinion. The Respondent challenges the medical testimony on four bases.
The Respondent did not deny that the representations were false and did not except to the finding of the examiner that they were deemed admitted. The Complainant showed that there was a universality of scientific opinion that the product was worthless for the claimed purposes for which it was sold. This was a sufficient basis upon which to find an intent to deceive. Reilly v. Pinkus, 338 U.S. 269. The exception is disallowed.
The third exception of the Respondent is to the ruling of the Hearing Examiner excluding from evidence a document which Dr. Campbell testified he read in reaching his conclusion that the consensus of modern scientific opinion was that the ingredients would not accomplish the purposes for which the product is advertised. (Tr. 67) The witness testified that he studied certain articles in evaluating the consensus of scientific opinion. These lead him to his conclusion that there is no reputable scientific authority that Royal Jelly or oyster concentrate are efficacious for treatment of humans. The Respondent did not offer the document, an excerpt from the South African Bee Journal, for the purpose of showing the truth of the statements contained therein but only for the purpose of challenging the credibility of the witness. The question is now whether substantial justice was denied the Respondent because of the ruling of the examiner. In Reilly v. Pinkus, supra, the Court said:
"The power to refuse enforcement of orders for error in regard to evidence should be sparingly exercised. A large amount of discretion in the conduct of a hearing is necessarily reposed in an administrative agency. And what we have said is not to be taken as removing this discretion or as a compulsory opening of the gates for floods of medical volumes, even where shown to be authoritative."
There is no doubt that the Respondent could cross-examine the witness of the Complainant by reference to other reputable works in his field. Dolcin Corp. v. F.T.C., 219 F.2d 742 (C.A.D.C., 1954). There was no showing that the work was reputable and the efforts of the Respondent to cross-examine were at best minimal. (Tr. 65) The Supreme Court in Reilly v. Pinkus invalidated a postal fraud order for failure to permit cross-examination on a salient point. That is not the case here. Although the Respondent did not identify the document for the record and submit it as a rejected exhibit, I requested and received a copy of it from the Department of Health, Education and Welfare. It has been incorporated into the official record. From a reading of it, the testimony concerning it, and the comments in the exception, I conclude that the writing in question was not vital to the Respondent's case since it did not indicate any efficacy of Royal Jelly for humans. What it does for the bee is totally immaterial. The ruling of the Hearing Examiner did not deny the Respondent substantial justice. Dolcin Corp. v. F.T.C., supra, at 749.
At the hearing the Respondent charged that the doctor relied on a nonreputable journal to reach his conclusion citing his reading of the Bee Journal and moved to strike his testimony. (Tr. 60). The motion was denied. There is no showing that the Bee Journal was in fact relied upon by the witness. He testified that he read everything he could find, which apparently included reports of little value, and could find no reputable authority for any of the representations of the Respondent as to the efficacy of the product on humans. If the Journal was neither authoritative nor reputable yet indicated that the claims of the Respondent were true, it would not be admissible for that purpose. Nor should it be admissible for impeachment if it is not reputable and the doctor did not rely upon it. There was no showing of either scientific reputability or reliance. The exception is disallowed.
The fourth exception of the Respondent is to the ruling of the Hearing Examiner refusing to direct the production of prior opinions submitted by Dr. Campbell. The Respondent relies upon Jencks v. U.S., 353 U.S. 65, and Communist Party of United States v. Subversive Activities Control Board, 254 F.2d 314, (C.A.D.C., 1958). The sole question of the Respondent preliminarily to the demand for production was:
"did you at any time prior to this case, issue an opinion to this Department with respect to the product in the case which we are now conducting?
A. Yes, sir.
Q. I would like to ask for the production of that opinion."
(Tr. 60) G. J. Howard v. Cassidy, 162 F.Supp. 568 (U.S.D.C., E.D.N.Y., 1958) distinguished a similar situation from that presented in Communist Party on the basis that in that case it was an event long past upon which credibility had been challenged. In G. J. Howard and here it is an opinion and there is no indication of a lack of credibility or inconsistency on the specific point. Not even an effort was made on cross-examination to lay a foundation for the demand for production.
The fifth exception is to the alleged limitation of the cross-examination of Doctor Campbell. (Tr. 46) A review of this portion of the record indicates that it was only improper questions which were excluded by the examiner. The Respondent was given rather broad latitude in questioning the witness. The Respondent contends that he was questioning the witness concerning periodicals listed by an official publication of the Department of Health, Education and Welfare. However, no effort was made to identify this report nor to offer it into evidence. I find no substantial error in the ruling of the examiner. The exception is disallowed.
The Respondent excepts to the conclusion of the Hearing Examiner that the Rules of Practice are valid. The Respondent sets forth five specific grounds. The first challenges the delegation of authority to the Judicial Officer to render agency decisions. (23 F.R. 2817) The Respondent in his supplemental Memorandum of Law relies on Borg-Johnson Electronics Corp. v. Christenberry, (U.S.D.C., S.D.N.Y., decided January 19, 1959).
The facts in that case are distinguishable from those of the instant proceeding since in Borg-Johnson the Judicial Officer presided at the reception of evidence while in this proceeding the Judicial Officer is reviewing the Initial Decision of the Hearing Examiner who presided. A delegation of authority similar to the delegation to the Judicial Officer was held valid in Parker v. Summerfield (C.A.D.C., decided March 19, 1959). The exception is disallowed.
The second challenges the fact that the Department did not publish its Rules of Practice in the Federal Register thirty day prior to the date on which they are to become effective. (5 U.S.C. 1003c) The Post Office Department has contended that it was exempt from the statute based upon the exception for "any matter relating to ... public property, loans, grants, benefits or contracts" (5 U.S.C. 1003), 4/ but assuming, arguendo, that the provision is applicable, the Respondent has no cause to complain since the rules were published on April 26, 1958, and the instant proceeding was not instituted until August 25, 1958. 5/ The third contention is that the fact that the Judicial Officer exercises administrative supervision over the Hearing Examiners renders the proceeding void. The delegation of authority to the Judicial Officer, supra, delegated such responsibility. While Hearing Examiners are independent of the agency and are controlled directly by the Civil Service Commission, some administrative supervision, e.g. approval of leave, maintenance of adequate offices and secretarial assistance, is required to be performed by the agency. This supervision and administration in no way detracts from their independence as Hearing Examiners. The Respondent also contends that Rule 201.17 (23 F.R. 2794) which provides that the Judicial Officer may preside at the hearing violates the Administrative Procedure Act as to rotation of cases. Strict rotation is not required by the Act, Ramspeck v. Federal Trial Examiners Conference, 345 U.S. 128. Rule 201.18 of the Rules of Practice provides that:
"Proceedings shall be assigned to a Hearing Examiner by the Docket Clerk on rotation."
The fourth contention of the Respondent is that the rules permit the Hearing Examiner to preclude the filing of proposed findings and conclusions of law. This contention obviously has no merit in view of the fact that in this particular proceeding the Respondent was permitted to file twenty-four pages of proposed findings and a seventy page brief on appeal.
The last contention of the Respondent is that the rules are defective and denyprocedural due process. The Respondent in this proceeding has been offered every procedural opportunity contemplated by the Administrative Procedure Act in such a proceeding. He was permitted to file a supplemental memorandum after his brief on appeal had been submitted and the Complainant had replied. He has been permitted to file every pleading offered. He was offered the opportunity of a hearing before an independent Hearing Examiner and independent review by this office. I find no merit in the contention. The exception is disallowed.
The reliance by the Respondent in the supplemental memorandum on Borg-Johnson is misplaced. The Respondent contends that because the court held one rule invalid that all other are invalid. The particular rule held to be invalid was not invoked in this proceeding. Assuming, arguendo, that the decision is correct and that the rule is invalid there is no merit to the contention here because where the rules are not so inter-dependent as to be inseparable they should be deemed separable. 6/
The Initial Decision of the Hearing Examiner is affirmed and a fraud order will be issued pursuant to 39 U.S.C. 259 and 732.
1/ The question of interlocutory appeal was decided in the Departmental Decision in T.R. Productions, H.E. Docket No. 5/230, June 20, 1958.
2/ Davis, Administrative Law, Sec. 181, p. 612.
3/ The first is that the doctor did not test the product. U.S. v. One Device, 160 F.2d 195 (C.A. 10, 1947), held that testing is not a prerequisite to expert testimony when the witness shows familiarity with the product. The witness had studied reports on the ingredients, Royal Jelly and oyster concentrate, and showed familiarity with their composition and use.
The second is that the product contains an unknown ingredient. Charles of the Ritz v. F.T.C., 143 F.2d 676 (C.A. 2, 1944), held that the Respondent may not stand upon his refusal to divulge the true formula of a preparation. If the Respondent was not aware of its true nature then substance is added to the proof of an intent to deceive for the fact that the Respondent admits that its claims are false, that it does not know the nature of the essential ingredient, and yet made the admittedly false representations, is cogent evidence of an intent to deceive.
The third is that upon cross-examination the witness admitted not having read certain articles in certain foreign journals. It is certainly not necessary that an expert witness have read every item about a certain product to testify as to the consensus of modern scientific opinion. In fact, the Respondent did not prove that the articles in question were reputable or reported any efficacy of the product for humans. He attempted to show that certain work had been done on evaluating Royal Jelly and isolating its unknown ingredient. The fact that this type work might be occurring does not prove that the product has efficacy. If it proves anything it proves that Respondent proceeds with a reckless disregard for truth when he advertises an unknown and unproven product for the purposes which were alleged in the complaint.
The fourth is that the Respondent's action since the signing of the affidavit of the Respondent and the decision on the alleged breach indicate his good faith. The decision that a fraud order should not issue based on an alleged breach of the affidavit turned on the adequacy of that affidavit and the fact that phrases were included in it which were sufficiently broad to permit great latitude in advertising claims. This in no way redounds to the favor of the Respondent and cannot now be relied upon to show a lack of intent to deceive.
4/ Doehla Greeting Cards v. Summerfield, 116 F.Supp. 68, (U.S.D.C., D.C., 1953).
5/ Borg-Johnson Electronics v. Christenberry, supra.
6/ Electric Bond Co. v. S.E.C., 303 US 419.