In the Matter of the Complaint Against SPOT REDUCER CO., ET AL. at Newark, New Jersey. H.E. Docket No. 1/85; 03/23/59 Ablard, Charles D. POST OFFICE DEPARTMENT Washington 25, D. C.
The history of this proceeding is long and somewhat arduous. On November 8, 1946, the Assistant Solicitor 1/ of the Post Office Department issued a fraud complaint against the respondent corporation. The hearing was before the Senior Trial Examiner of the Post Office Department in January of 1947, and a fraud order was issued in January of 1948. The respondent sought to enjoin that fraud order in the United States District Court in and for the district of New Jersey and a temporary restraining order was in effect when, on September 5, 1951, the fraud order was withdrawn. A new complaint was issued against the respondent on September 6, 1951. The Department had promulgated new Rules of Practice, effective July 8, 1951, in compliance with the Administrative Procedure Act. A motion to dismiss the second complaint was made by the respondent on October 17, 1951. On May 16, 1952, a motion to amend the complaint was made by the complainant. On June 9, 1952, the complainant moved under Rule 34 of the Federal Rules of Civil Procedure for the production of certain documents of the respondent. An answer was filed and a hearing was held on both motions on January 9, 1952. On July 13, 1953, Hearing Examiner Daniel Kelly ruled on those motions denying the respondent's motion to dismiss and dismissing the complainant's motions for the production of documents holding that the Federal Rules of Civil Procedure had no applicability to administrative hearings. The amendment to the complaint was permitted.
Examiner Kelly transferred to another agency and the matter was reassigned to Hearing Examiner James C. Haynes, Jr. on November 4, 1953. Hearings were held during February and September of 1954. During the hearing the complaint was amended to include the name "Body Massager." Proposed findings of fact were filed by the complainant on November 18, 1954, and by the respondent on December 27, 1954. On August 21, 1958, the complainant moved to dismiss without prejudice because of the decision in Columbia Research v. Schaffer, 256 F.2d 677 (C.A. 2, 1958), which invalidated a fraud order because of a commingling of functions between the prosecuting and adjudicative arms of the Department. An answer was filed by the respondent on August 27, 1958, objecting to a dismissal without prejudice.
On October 8, 1958, Examiner Haynes departed from the Post Office Department without having rendered an Initial Decision on this matter. On that same date an order was issued by the Judicial Officer directing the parties to appear at a conference for the purpose of attempting to resolve the impasse. The conference was held on October 28, 1958. A stipulation was entered into by the parties and filed on December 18, 1958, agreeing to submit the case to the Judicial Officer for a tentative decision from which either party might except. The respondent waived the question of commingling of functions raised in Columbia Research v. Schaffer, supra. A tentative decision was rendered which concluded that a fraud order should issue. On February 17, 1959, the respondent filed exceptions to that decision. Oral arguments were presented on February 20, 1959.
Lest it appear that the entire responsibility for the prolongation of these proceedings rests on the Government, it should be noted that of sixteen continuances granted in this proceeding eleven were on motion of the respondent causing a total delay of 274 days. Four continuances were sua sponte by the examiner and only one was requested by the complainant. Of course, the respondent bears no responsibility for the failure of the examiner to render an Initial Decision.
The first question for determination is that raised in the respondent's motion to dismiss of October 17, 1951. The recommendation to the Postmaster General to invalidate the prior fraud order by the Hearing Examiner stated:
"The enforcement of said fraud order was enjoined by order of the U.S. District Court for the District of New Jersey on October 26, 1948, which order by agreement between the parties was permitted to remain in effect pending final decision of the case of Reilly v. Pinkus in the Supreme Court of the United States. Said decision did not sustain the legal reasoning of the United States District Court aforesaid, but certain statements of the court make advisable revocation of aforesaid fraud order. Therefore, it is recommended that an order be entered by the Postmaster General revoking the aforesaid fraud order without prejudice to the institution of further proceedings with respect to the Spot Reducer Company."
The Supreme Court in Reilly v. Pinkus, 338 U.S. 269 (1949) invalidated another fraud order against the respondent because of an undue restriction on cross-examination of medical witnesses. The same problem existed in the first Spot Reducer proceeding. In ruling upon the respondent's motion to dismiss the examiner said:
"The bill of complaint ... alleges and makes an issue that cross examination was limited in the manner prohibited by the aforesaid Supreme Court decision. (Reilly v. Pinkus) As hereinbefore shown, the Postmaster General revoked Fraud Order No. 36501 upon my recommendation, for the reason that because of the decision of the Supreme Court the aforesaid Civil Action 11035 could not be successfully defended by the Department. The revocation of Fraud Order No. 36501 was not an arbitrary action but in effect an admission that it would be futile further to defend against these technical errors made in the hearing before the Department, regardless of the merits of the case. The revocation was made without prejudice to further action against the Respondent under the postal fraud statutes in the event he were to violate them in the future."
In Reilly v. Pinkus, supra, the Court said that the Department would not be precluded from a "reopening of the proceedings ... to permit additional hearings should the Postmaster General choose to do so." Apparently, the Postmaster General so chose and on the day following the revocation of the order the new complaint was issued. While it might have been possible to reopen the former proceeding and permit proper cross-examination of the witnesses this was a discretionary matter and I cannot find that a failure to follow that procedure was so arbitrary that this complaint should have been dismissed. On February 8, 1952, the District Court in New Jersey vacated the temporary restraining order against the former fraud order.
The Supreme Court held in Wallace Corporation v. N.L.R.B., 323 U.S. 248, that res judicata was not applicable to administrative proceedings. See also Churchill Tabernacle v. Federal Communications Commission, 160 F.2d 244, and U.S. v. 42 Jars of Bee Royale Capsules, (CA 3 Decided March 12, 1959).
When the applicability of the doctrine of res judicata has been discussed there have been strict limitations imposed. Professor Kenneth C. Davis, an acknowledged authority on administrative law, says in his treatise:
"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/
There is no doubt that the conduct of the enterprise was a continuing practice and in the light of the language of the Supreme Court the second complaint cannot be deemed to be an undue harassment of the respondent.
The respondent contends that the actions of the complainant constituted a breach of Section 5(b) of the Administrative Procedure Act. (5 U.S.C. 1004b). The pertinent part of that section provides:
"The agency shall afford all interested parties opportunity for the submission and consideration of facts, arguments, offers of settlement, or proposals of adjustment where time, the nature of the proceeding, and the public interest permit."
During the period June 11 through August 24, 1953, there was an exchange of correspondence between the counsel for the respondent and the complainant. (Respondent's Exhibit 1) Certain offers of settlement were made by the respondent and in every instance they were rejected by the complainant. The respondent submitted a proposed form of advertisement which changed much of the language in the advertisement. The respondent also offered to change the name of the enterprise. In response to this the complainant, relying on medical reports, advised the respondent that the changed advertisement would not bring it into compliance and refused to accept the proposal as a basis for the disposition of the proceeding. The complainant submitted a form of an affidavit of discontinuance to the respondent for his consideration. The respondent on August 24, 1953, rejected the affidavit saying:
"It is unfortunate that you apparently rejected our suggestion that you let us have any revisions in the form of advertisement submitted that would make it acceptable as a basis for settlement. If you should deem this suggestion worthy of recognition, please let us hear from you."
The respondent contends that the refusal to suggest a proper modification of the advertisement constituted a breach of Section 5(b) and alleges that the effect of the actions of the complainant was to refuse to consider any compromise except total abandonment of the enterprise.
The legislative history of the Administrative Procedure Act, Senate Document 248, 79th Congress, 2d Session, reveals certain facts as to the history of and the reasons for the inclusion of this portion of the Act. The Senate Judiciary Committee Print of June 1945, provided:
"Subsection (b) provides that, even where formal hearing and decision procedures are available to parties, the agencies and the parties are authorized to undertake the informal settlement of cases in whole or in part before undertaking the more formal hearing procedure. Even courts through pretrial proceedings dispose of much of their business in that fashion. There is much more reason to do so in the administrative process, for informal procedures constitute the vast bulk of administrative process. The statutory recognition of such informal methods should both strengthen the administrative arm and serve to advise private parties that they may legitimately attempt to dispose of cases at least in part through conferences, agreements, or stipulations. It should be noted that the precise nature of informal procedures is left to development by the agencies themselves." (Emphasis supplied)
It thus appears that the purpose of the Congress was to authorize informal settlements and certainly not to make them mandatory leaving the development of the procedures to the agency.
The report of the Committee on the Judiciary on the Bill placed some limitation on the discretion of the agency stating:
"The preliminary settlement-by-consent provision of this subsection is of the greatest importance. Such adjustments may go to the whole or any part of any case. The limitation of the requirement to cases in which time, the nature of the proceeding, and the public interest permit does not mean that formal proceedings, to the exclusion of prior opportunity for informal settlement, lie in the discretion of any agency irrespective of the facts, legal situation presented, or practical aspects of the case. It does not mean that agencies have an arbitrary choice, or that they may consult their mere preference or convenience. It is intended to exempt only situations in which, for example, (1) time is unavoidably lacking, (2) the nature of the proceeding is such that for example (as in some forms of rule making) the great number of parties or possible parties makes it unlikely that any adjustment could be reached, and (3) the administrative function requires immediate execution in order to protect the tangible and demonstrable requirements of public interest."
While the report makes it clear that an agency may not be arbitrary or rely only on convenience, the Post Office Department believes the third exemption is applicable to it. While this proceeding has been prolonged many years since the negotiations between the respondent and the complainant, at that time the Department undoubtedly believed that the public interest required an immediate execution of an order. In fact there had been another administrative proceeding on the same matter which resulted in the issuance of a fraud order.
The legislative history points to the fact that agencies such as the Post Office Department were possibly exempt from the requirement of the provision because of the nature of the work performed and the protection of the public interest. The fact that an opportunity for a compromise was given in this case as provided in the Rules of Practice of the Post Office Department should not permit the respondent to successfully contend that because the Department did not accept its offer of compromise that these proceedings should be declared void. It should be noted that the act itself provides no sanction for the enforcement of this provision and the Attorney General's Manual on the Administrative Procedure Act provides that:
"the precise manner in which opportunities are to be offered has been deliberately left by Congress to development by the agencies themselves." The manual also states that: "it is clear that Section 5(b) does not require an agency to defer formal proceedings indefinitely while parties submit a series of proposals for the purpose of delay." (Page 48)
The Civil Aeronautics Board held that an agency is not required to accept an offer of compromise in Standard Airlines, Inc., Non Certificated Operations, Docket No. 3357, 2 Ad.L. 34b. 63-16 (CAB June 20, 1949). The Board there held that it was not required to consider an offer of settlement made by an air carrier against whom proceedings for revocation of a letter of registration was pending and that an agency is not required by Section 5(b) to accept a consent settlement if it believes that such action will not insure compliance with the law.
The facts presented there are analogous to those in this proceeding. The complainant believed that the offer of compromise submitted by the respondent would not bring it into compliance with the law. He was under no obligation to accept that compromise if he so believed and under no duty to make a counter-proposal if he believed it would only result in additional correspondence causing further delay.
The complaint in this proceeding charged that the respondent was conducting a fraudulent scheme obtaining and attempting to obtain money through the mails for the Spot Reducer device by false and fraudulent pretenses. The device is an electric massager of a variety of types sold for $2.00, $9.95 and $12.95.
The complaint against the respondent as amended charged that through an advertisement in a certain magazine, the respondent was representing to the public in substance and effect:
"a. That any person will 'LOSE WEIGHT Where it Shows Most' and will 'reduce most any part of the body with Spot Reducer's relaxing, soothing penetrating massage.'
b. That in performing the aforesaid massage which causes the user to 'lose weight' and to 'reduce' as aforesaid, it is only necessary for the user to just 'plug in, grasp handle and apply over most any part of the body -- stomach, hips, chest, neck, thighs, arms, buttocks, etc.'
c. That when used in the manner stated above 'The relaxing, soothing massage breaks down FATTY TISSUE, tones the muscles and flesh, and the increased awakened blood circulation carries away waste fat -- helps you regain and keep a firmer and more graceful figure.'
d. That by the use of 'The Spot Reducer' as aforesaid on 'Most any part of your body where it is loose and flabby, wherever you have extra weight and inches, the 'Spot Reducer' can aid you in acquiring a youthful, slender and graceful figure.'
e. That the aforesaid 'results' to be obtained by the use of 'The Spot Reducer' are 'quick and sure' and will be obtained by the aforesaid 'simple and easy,' 'relaxing soothing massage,' with 'no exercises or strict diets.'
f. That any obese person who uses the Spot Reducer as set forth above and in said advertisement photostatically reproduced as Exhibit 'A' hereto, will surely 'lose pounds and inches' of 'ugly, embarrassing, undesirable pounds of FAT' 'in hips, abdomen, legs, arms, neck, buttocks, etc.'
g. That the aforesaid results will be obtained 'by massage, use (of) Spot Reducer with or without electricity.'
h. That any person wishing to use the Spot Reducer for the reduction of 'ugly fat' as aforesaid can 'Try the Spot Reducer 10 days free in your own home.'
i. That any person wishing to use the Spot Reducer to take off excess 'ugly fat' as aforesaid and who orders same from respondent and pays therefor, may 'use it for ten days in your own home. Then if not delighted return Spot Reducer for full purchase price refund,' and will be given a 'prompt refund' by respondent.
j. That persons who purchase the Spot Reducer as aforesaid 'having nothing to lose -- except ugly, embarrassing, undesirable pounds of FAT.'
k. That any obese person who purchases and uses Spot Reducer as directed must 'LOSE WEIGHT OR NO CHARGE.'
l. That any person who purchases and uses Spot Reducer as aforesaid 'Two weeks after using the 'Spot Reducer,' look in the mirror and see a more glamorous, better, firmer, slimmer figure' and if this result is not secured 'You have nothing to lose but weight for the 'Spot Reducer' is sold on a MONEY BACK GUARANTEE.'"
The complaint charged that these representations were false. Four doctors testified on behalf of the complainant and four others testified on behalf of the respondent. The record of this proceeding constitutes 1,336 pages. There is much testimony as to the practices used by the medical profession in weight reduction.
First let it be said that the issue in this proceeding is not what the Spot Reducer device will or will not do when considered in any absolute sense. The issue is whether it will do what the advertisement claims it will do. The advertisement of the respondent which was attached to the complaint as Exhibit A carries such phrases as, "lose weight where it shows most", "Reduce most any part of the body with Spot Reducer", "You have nothing to lose - except ugly embarrassing and undesirable pounds of FAT", "Thousands have lost weight this way - in hips, abdomen, legs, arms, neck, buttocks, etc.", "The beauty of this scientifically designed reducer is that the method is so simple and easy, the results are sure and harmless", "No exercises or strict diet", "No steam baths, drugs or laxatives."
Dr. Charles S. Wise was the first medical witness for complainant. Dr. Wise, a general practitioner, had tested the Spot Reducer device on five employees of a hospital that were available to him for observation and measurement. (Tr. 76) They were not placed on a diet but were provided with the instructions which accompanied the Spot Reducer device and instructed to follow them. (Tr. 77) Dr. Wise testified that the Spot Reducer "had no significant effect on either body weight or waist or hip measurements." (Tr. 80)
The second medical witness for the complainant was Dr. Sam W. Kalb, a specialist in the field of physical medicine, with emphasis on obesity, weight reduction and nutrition. He had been the author of several articles on the subject. (Tr. 175) Dr. Kalb testified that he did a series of tests on sixty patients as to the effects of massage. Massage was applied on one limb of each patient and the test disclosed that there was no difference in the measurement of the massaged and the unmassaged limb. (Tr. 170, 176, 177) An article by Dr. Kalb was introduced as Department Exhibit 13. The article appeared in the Journal of Medical Society of New Jersey in November 1944, and related to the study described in this testimony. The summaries and conclusions of the test as stated in the article are as follows:
"In forty patients with obesity on low caloric diets, there was a loss in total body weight and a decrease in the circumference of the limb which was massaged. There was a similar decrease in the measurements of the opposite limb which was not massaged. In twenty patients with obesity -- with no dietary restrictions but who received body massage, there was no loss in total body weight and no decrease in the circumference of the limb which was also massaged with a vibrating machine. General body massage or local massage by means of a vibrating machine, alone, is ineffective in decreasing total body weight or the circumference of a limb in patients with obesity."
Dr. Kalb said that his views concerning the inefficacy of massage for general or spot reducing were in conformity with the consensus of modern, scientific medical opinion. (Tr. 180)
The third medical witness for the complainant was Dr. Lawrence E. Putnam, Washington, D.C. who had performed tests on two persons with the Spot Reducer device. His conclusion was that there was no significant change in the measurement of the hips even though the patients gained or lost a few pounds of weight generally. (Tr. 287-292). The report made to the Post Office Department was introduced into evidence as Department's Exhibit 14. He testified that the device had "no value whatsoever for the reduction of weight." (Tr. 290) The essence of the testimony of the three witnesses for the complainant was that the consensus of informed medical opinion today believes that there is no value in massage alone for the reduction of weight or the removal of spots of fatty tissue.
The first witness to testify for the respondent was Dr. Frederick S. Dick, a general practitioner whose practice regularly included the treatment of obesity. He testified that he generally prescribed massage as a part of his treatment. (Tr. 362) Sometime prior to the proceeding, Dr. Dick was approached by Mr. Joseph H. Pinkus, president of the respondent corporation and requested to test the Spot Reducer device. This he did on twenty-three persons and on the basis of these tests he concluded that Spot Reducer "assists" in the weight reduction of the patient. (Tr. 369-370) His report was introduced into evidence. (Respondent's Exhibit 5) Dr. Dick testified that for each of the twenty-three patients an individual diet was prescribed. (Tr. 366) He testified that "obesity is not just a problem of massage." (Tr. 399) His conclusion as to the Spot Reducer device was that it accounted for twenty percent of the weight loss which the patients achieved. (Tr. 372) Dr. Dick did not state how he arrived at this percentage. No tests were made by him with the device alone without also imposing a diet requirement and he never prescribed massage alone as a treatment. He stated that he believed it could produce weight reduction "without exercise or strict diets." (Tr. 374)
The second medical witness for the respondent was Dr. Richard H. Waltier who testified that a small part of his practice was devoted to the treatment of obesity and that he was not a specialist in the field. (Tr. 421) Mr. Pinkus had also approached Dr. Waltier and he tested ten persons with the Spot Reducer device. The results of the test were introduced to evidence as Respondent's Exhibit 6. This showed a reduction in size and weight on the persons tested. He used the Spot Reducer alone without benefit of diet although he testified that in his own practice he used diet and drugs on most patients to treat obesity. (Tr. 423)
The third witness for the respondent was Dr. Herman M. Rubin, a private practitioner in the field of internal medicine. About ten percent of his work involved obesity. His treatment usually consisted of a diet, medication, massage and exercise and based on this experience, he believed that massage was of great help in reducing size and weight. He had not tested the device.
The last witness for the respondent was Dr. Sidney H. Gehl, a specialist in endocrinology, who devoted about ninety percent of his practice to obesity. He treated 1200 to 1500 new obesity cases each year. (Tr. 612-613) He prescribes diet, medication, and massage using massage for the reduction of measurements by decreasing flabbiness and increasing muscle tone following weight reduction. (Tr. 613-614) He conducted tests on twelve overweight persons with Spot Reducer. The results were introduced as Respondent's Exhibit 7. He concluded from these tests that the instrument was effective to reduce the "measurements" of the parts of the body massaged. (Tr. 625) As to reduction of weight he said that it was not a "dramatic instrument" but that it had a "tendency to reduce weight." He stated that it was more efficacious in reduction of measurement than in reduction of weight. (Tr. 625) He testified that he agreed with the article by Dr. Frank Krusen (Department Exhibit 15) in which appears the statement "massage will not remove fat deposits even if vigorous heavy movements are used" and that the modern consensus of scientific opinion was that massage would not reduce fat. (Tr. 644 and 645)
As a rebuttal witness, the complainant introduced the testimony of Dr. Fred W. Norris, an employee of the Food and Drug Administration, who testified that in his opinion the tests performed by the witnesses for the respondent were unscientific.
Certain medical articles and treatises were introduced into evidence by both the respondent and the complainant. These reflect a variety of views on the subject of massage. One appears in Mock, Pemberton and Coulter, Principles and Practice of Physical Therapy. (Respondent's Exhibit 2b) in which it is said:
"The aid of massage is invoked as a treatment of obesity from several points of view ... Sometimes it is demanded simply as a 'beauty cure,' and beyond all question something can be done by massage to reduce local deposits of fat ***. But for the actual effect of treatment in suitable cases, one would almost be inclined to doubt the physiological possibility of this process. There can, however, be no question that massage applied to the region of hips can, and does, reduce the amount of fatty deposits in this region.***"
Another article (Respondent's Exhibits 3c and 3d) was an excerpt from Electrotherapy and Light Therapy by Richard Kovacs:
"Only when the entire organism is affected by regular massage and exercise does the subcutaneous fat begin to disappear. In other words, fat accumulation under the skin cannot be affected by massage except indirectly through increasing general body metabolism. Thus the links in the chain of physiological phenomena produced by massage are arterial stimulation, active hyperemia, more active nutrition, secretion, excretion and absorption, in fact more rapid and more thorough metabolism and increased functional activity in the part or parts subjected to massage. It has been shown that after massage there is an increase of red blood cells in the superficial vessels amounting to from forty to fifty percent."
"Obesity is a general systemic disorder, in which either exogenous causes, such as overeating and lack of exercise or endogenous causes, such as endocrine imbalance, predominate; at the bottom of it all there is always the uncertain factor of constitutional predisposition -- one that keeps lean people as they are in spite of all they eat and keeps others stout in spite of all exercising and dieting. Many of the commercialized obesity cures carried on by self-styled experts only add to the already existing disorder. No therapeutic measure directed against obesity can be called rational unless one first makes the attempt to combat the underlying pathology and, therefore, it must not be inferred that the method described constitutes the whole treatment of obesity. This condition is of such complex and diverse origin that the treatment must be individualized in accordance with the causative factors."
"Massage has only very limited value in the treatment of obesity although the lay mind is made to believe that it is possible to break up fat and stout ladies hopefully crowd into commercially advertised reducing studios where underpaid slaves maul them in long sessions of vain efforts. Only a judicious use of general massage may exert some effects on metabolism in obesity."
An article by Dr. Frank H. Krusen, Chairman of the American Medical Association Council on Physical Medicine, of Rochester, Minnesota which appeared in the Journal of American Association, January 24, 1953, was introduced as Department Exhibit 15. It said:
"Innumerable glib claims are made for procedures and devices which are supposed to be effective in 'spot reducing' of adipose tissue. Most obese people are especially concerned about collections of fat in certain specific regions of the body. Men seem particularly concerned about reducing their waistlines and women seem chiefly concerned about reducing their hips. Both sexes often seem anxious to eliminate a 'double chin.' Charlatans have exploited this concern to the utmost and unscrupulous manufacturers of drugs, proprietors of beauty parlors and physical culture clubs, makers of 'slimming creams,' and manufacturers of chin straps, reducing belts, massaging devices, rollers and electrical vibrators have produced almost unlimited claims concerning the value of their devices for 'spot reducing.'"
"While the value of nearly all of these devices is absolutely nil, some careful medical observers believe that massage may be of some value after much fat has been removed from the entire body, including the affected region, by appropriate dieting. At this time, massage may aid in restoring elasticity to the sagging skin. However, gentle manual massage is more satisfactory than any of the mechanical devices, rollers or vibrators. The only effective way of reducing fat in local regions of the body except when extremely large amounts of fat are occasionally removed by the heroic measure of surgical excision is to follow a program of general reduction of weight by remaining on a low-calorie diet."
Although the testimony of the various witnesses is at a variance on some points, the conflict is slight and as to those witnesses best qualified to testify, the specialists in the field of physical medicine, there is very little material diversity of opinion. In Vibra Brush Corporation v. Schaffer, (U.S.D.C., S.D.N.Y.), 152 F. Supp. 461 (1957), (Reversed on other grounds 256 F.2d 681 CA 2 1958), Judge Weinfeld said:
"the mere fact that in a limited area plaintiff's experts were prepared to and did take issue with others in the field did not necessarily cast the medical problem into the area of scientific uncertainty."
With the possible exception of the testimony of Dr. Gehl, and his statements were qualified, there seems to be a unanimity of opinion that massage alone will not accomplish weight reduction. The diversity of opinion centers around whether massage will move deposits of fact after general weight reduction has been accomplished through dietary control. That is not an issue in this proceeding since that is not the purpose for which the device is advertised.
The advertisement of the respondent must be considered in its entirety and questions of fraud are determined by the impression and effect it would most probably produce on ordinary minds. G. J. Howard v. Cassidy, (U.S.D.C., E.D.N.Y.) 162 F. Supp. 568 (1958). The Supreme Court said in Donaldson v. Read Magazine, 333 U.S. 178 (1947):
"Advertisements as a whole may be completely misleading although every sentence separately considered is literally true. This may be because things are omitted that should be said, or because advertisements are composed or purposefully printed in such way as to mislead."
The advertisement is designed to convey the impression that the use of the Spot Reducer device alone will accomplish weight reduction. No mention is made of any plan 3/ or diet control and indeed there is no mention of the word "diet" other than to say that there is no exercise "or strict diet imposed."
In Linden v. U.S., 254 F.2d 560, (C.A. 4, 1958) the court said:
"Deception is not necessarily confined to a direct statement of fact. Not words alone, but their arrangement, the manner of their display, and the circumstances in which they are used, may create an appearance which is false and deceptive, even though the words themselves fall short of this. Sometimes circumstances are more eloquent than words, and they impart their meaning to the words used."
Long ago the Supreme Court in Leach v. Carlile, 258 U.S. 138, held that when a product is so far from being the panacea that it is represented to be then a fraud is perpetrated. The complainant proved that the device was not efficacious for the purposes represented by the respondent in his advertisement.
The charges in the complaint (h-l) which were the subject of the amendment of May 16, 1954, raised the question of whether the respondent is complying with its money-back refund guarantee within ten days of purchase. In support of this charge the complainant offered the testimony of Postal Inspectors Dunbar and Quinn and Department's Exhibit B which constituted complaints from the public. The examiner excluded all of the exhibits except 292 complaints of persons who had not been furnished a refund after requesting it from the respondent. The inspectors testified that over a period of years they furnished the respondent with names of people who had complained about failure to receive a refund.
The respondent in rebuttal offered into evidence 219 checks addressed to those persons numbered among the 292 who complained. Payment had been furnished after some delay. Thus, there were seventy-three complaints not accounted for. The respondent offered the testimony of the two female employees, the Misses Golden, who handled his refunds. (Tr. 1049 and 1100) They worked independently and followed only general directions of the respondent. The Golden girls testified that at the direction of Mr. Pinkus, they furnished a refund to any person who made a request regardless of how long after the purchase the request was made and without checking to see if a prior refund might have been made.
Mr. Harry Kalb, a public accountant who does work for Mr. Pinkus testified concerning the payments of refunds. He said that the volume of refunds became excessive in early 1951. (Tr. 975) It was during this period that the Inspectors began to receive so many complaints from the public. He testified that the total amounts of sales and refunds for all products sold by Mr. Pinkus during the operation of this enterprise since 1950 were as follows:
1950 $ 734,198 $ 36,106 4.9% 1951 1,505,703 190,943 12.1 1952 1,333,215 93,069 7 1953 1,105,550 88,267 8 1954 685,564 34,923 5.1 (7 mos) Total $5,364,231 $443,250 8.3% In calendar year 1953, there were 3,358 sales and 3,582 refunds of the$12.95 device. During the first seven months of 1954 there were 896 refunds and only 422 sales. This evidence would tend to lend credence to the respondent's representation that refunds were furnished even after the ten day period mentioned in the advertisement. The complainant attempted to show that it only indicated the inaccuracies of the figures of the respondent. Without further proof such an inference is unwarranted. The respondent introduced evidence of a fire that occurred on his premises destroying certain records of the company which might have included evidence which could account for the refunds to the seventy letters of complaint where refunds were not proved.
The testimony of Mr. Irving Graham, an expert in the field of mail order advertising and author of several articles on the subject, was offered by the respondent. Based upon the testimony of the Golden girls he concluded that there was possibility for error in their system. He stated that most of the magazines in which respondent advertised appealed to a person of a lower cultural level who was more likely to make errors in correspondence which would result in confusion as to the refund. (Tr. 1114 and 1116) He testified that the respondent had a very liberal refund policy for a mail-order house. (Tr. 1116)
Assuming, arguendo, that the complainant made a prima facie case proving that the respondent had not made certain refunds and had not made others promptly, the rebuttal evidence offered by the respondent was sufficient to negate any inference of falsity of the claims or lack of intent to furnish a refund. While the refunds might not have been made promptly in every case, the fact that the respondent was doing such a large volume of business would account for possible delays and oversights. A businessman has a duty to operate with a certain degree of care but in this instance the number of failures proved by the complainant was insignificant as compared to the total number of refunds made. I therefore find that the charges concerning the refunds were not proved.
Having found that the complainant failed to prove the charges concerning the refund a question is raised as to whether this finding places the case within the purview of Jarvis v. Shackelton Inhaler Company, 136 F.2d 116, (C.A. 6, 1943) as to the findings on the remainder of the complaint. That decision held that when a money-back guarantee is offered coupled with a disclaimer of efficacy for every user there is no fraud. The case is inapplicable for two reasons: first, there is no disclaimer of efficacy in the Spot Reducer advertisement and; second, there appears to be a universality of scientific opinion that the Spot Reducer will not accomplish the purposes for which it is advertised for even one user.
At the oral argument on the exceptions from the tentative decision the respondent attempted to distinguish Shackelton from the instant proceeding stating that the only explicit disclaimer there accompanied the product and was not a part of the advertising and that the court found an implicit disclaimer in the money-back guarantee. The language of the court does not substantiate the contention. The court in summarizing stated:
"There is no substantial evidence that the advertisements, pamphlets and letters could raise hopes of a cure-all panacea. There is nothing that discloses a scheme or stratagem to take money with fraudulent misrepresentation. The inescapable intendment of these advertisements was that appellee was offering a medicinal compound and apparatus which in many cases had given helpful results and that it might not do it in every case was highlighted by the money-back guarantee."
The court found disclaimers throughout the advertisement and the guarantee only "highlighted" these disclaimers. While the most explicit disclaimer did accompany the product, the purchaser was thereby definitively placed on notice at the time of receipt of the fact that the Shackelton Company did not believe its product was efficacious for all users. This would tend to make the purchaser wary and not delude them into believing that their condition would in every instance improve. Having been placed on notice, he would more easily resort to the refund rather than continue its use when the condition did not improve. The opposite situation is presented in this proceeding. The claims made for the Spot Reducer are so exaggerated beyond any actual proof of efficacy that the user would tend to believe that if the representations were true, surely this device must do some good and continue its use ad infinitum. It is the gullible, the ignorant, the unthinking, the credulous, the unwary and the unsuspecting who are to be protected by the statute. Gottlieb v. Schaffer, 141 F. Supp. 7. In Shackelton the product was found to have some efficacy for some users for the purposes advertised. The same cannot be said for the Spot Reducer product.
The court in Farley v. Heininger, 105 F.2d 79, (CA DC 1938), (cert. denied 308 U.S. 587) quoted Harris v. Rosenberger, 145 Fed. 449 (CA 8 1906) saying:
"When a business is 'systematically and designedly conducted upon the plan of inducing its patrons, by means of false representations, to part with their money in the belief that they are purchasing something different from, superior to, and worth more than, what is actually being sold,' it becomes objectionable under the statutes in question, even though, as in the present case, there is a promise to refund the purchase price should the article sold prove unsatisfactory."
The money-back guarantee is of no consequence and is not a defense even if that guarantee is fulfilled.
The last question for determination is whether the complainant proved an intent to deceive on the part of the respondent. The Supreme Court in Reilly v. Pinkus, supra., said:
"proof of fraudulent purpose is essential - 'an actual intent to deceive'. Consequently, fraud under the mail statutes is not established merely by proving that an incorrect statement was made. An intent to deceive might be inferred from the universality of scientific belief that advertising representations are wholly unsupportable; conversely, the likelihood of such an inference might lessen should cross-examination admit that scientific belief was less universal than when he had first testified."
As I have previously found, the complainant proved that there was a universality of scientific belief that massage alone would not reduce weight. I have also found that this was what the advertisement of the respondent represented that the device would do. Thus, an inference of an intent to deceive was raised by the scientific testimony offered by the witnesses. This inference could be rebutted. The respondent, Joseph J. Pinkus, testified on his own behalf. He has a Master's Degree from Columbia University and did graduate work at Harvard University. He attended medical school at Kirksville, Missouri, and taught highschool in New Jersey and Massachusetts. He also taught at Boston University and did graduate work at Montclair State Teachers College, New Jersey. (Tr. 1162) He testified that he read every book he could on the subject of massage and that he conducted an extensive investigation to determine the efficacy of massage on weight and size reduction prior to beginning this enterprise. (Tr. 1164)
He testified that prior to institution of this enterprise he consulted many medical doctors. The only doctor testifying at this proceeding with whom he consulted then was Dr. Gehl. He testified that their opinions on the device were similar to those given by the doctors testifying on his behalf at the hearing. (Tr. 1309) He testified that Dr. Gehl told him that you can reduce size with a Spot Reducer but that the reduction in weight was negligible. He said the other doctors had told him that you can definitely reduce weight. These other doctors were not identified but Dr. Gehl stands uncontradicted as probably the most qualified expert to testify at the hearing on behalf of either the respondent or the complainant. Mr. Pinkus testified that Dr. Dick was one of several instructors in medical schools whom he contacted. (Tr. 1311) The complainant cross-examined him about many articles that had been written by doctors in medical journals and books on weight reduction. As to most of them, he either did not remember having read them or he admitted not having read them. (Tr. 1306, 1307) However, this hearing took place in 1954 and his readings were supposedly prior to 1946 which gives some good reason for his failure to remember. He did remember reading the article by Dr. Kalb but remembered only one statement and that was that for 3,000 years people have used massage in an attempt to lose weight. This was apparently the only statement that stuck in his mind. (Tr. 1314). He testified that he had never seen the article by Dr. Frank Krusen, Department's Exhibit 15.
He testified that the work of Coulter, Pemberton and Mock published by the Council of Physical Therapy of the American Medical Association, Department Exhibit 2(b), represented the views of the highest and best medical association he could contact. (Tr. 1301) Nowhere in his testimony does Mr. Pinkus represent that he was assured by any doctor that the claims that he made for his device were true. In fact the advice he received fell far short of the claims made. Having sought the advice of experts he was bound to rely on that advice. Instead, he took their very guarded statements, when any were made as to the efficacy of the product for weight reduction, and exaggerated them making the representations of his advertisement. The language of Vibra Brush v. Schaffer, supra., is applicable:
"the exaggeration of the claims for the brush, far beyond the scope of the advice plaintiff received from its experts, is cogent evidence of intent to deceive, Leach v. Carlile, 258 U.S. 138. The circumstances of the forehand resort to expert opinion ... together with the exaggerated claims, suggest consciousness of intent to deceive by preparation of a defense in advance of a charge." 2 Wigmore on Evidence, Section 256, 245, Third edition 1940.
The problem of proving an intent to deceive was best stated in Gottlieb v. Schaffer, supra. The court said:
"An intent to deceive is rarely capable of direct proof, since this involves what is in a man's mind. It is hornbook law that this subjective element may be established by circumstantial evidence. It is not any single element segregated from the whole by which the determination is to be made but from the totality of all the acts, conduct and surrounding circumstances and the inferences which may reasonably be drawn from a combination of acts and circumstances."
I conclude that the complainant proved that the respondent had an intent to deceive.
All exceptions of the respondent have been considered. Those exceptions consistent with the views of this decision are allowed. All others are disallowed. A fraud order will issue pursuant to the authority granted by 39 U.S.C. 259 and 732.
1/ The designation was changed from Solicitor to General Counsel by P.L. 854, 84th Congress, 2nd Session.
2/ Davis, Administrative Law, Sec. 181, p. 612.
3/ Carlay Company v. F.T.C., 153 F.2d 493, (C.A. 7, 1946).