May 18, 1959
In the Matter of the Complaint That
U. S. HEALTH CLUB,
at
Bergenfield, New Jersey,
(hereinafter called Respondent), is engaged in conducting a scheme for obtaining money through the mails in violation of 39 U.S. Code 259 and 732
P.O.D. Docket No. 1/109
This case involves the sale through the mails of a product called Super Coronaid with Choless by U. S. Health Club, Bergenfield, New Jersey, the Respondent. The general Counsel for the Post Office Department, the Complainant, alleges that in the sale of this product the Respondent is making the following representations which are alleged to be false and fraudulent:[1]
a. That the use of respondent’s products “Super-Coronaid” and “Choless” as directed will “prevent painful – even fatal heart attacks, that is to say that the said preparations provide a certain means for accomplishing those results;
b. That the use of the said “Super-Coronaid” and “Choless” as directed will “immediately reduce high-cholesterol blood level” and thereby “avoid heart attacks”;
c. That the said “Super-Coronaid” and “Choless” provide the most effective means known to medical science “to prevent coronary artery disease,” including personal treatment by the “world’s leading doctors” in the field;
d. That the use of “Super-Coronaid” and “Choless” as directed will insure a substantially “longer” life to persons afflicted with atherosclerosis and heart disease;
e. That the use of the said “Super-Coronaid” and “Choless” as directed will prevent “aging of your arteries”;
f. That the use of the said “Super-Coronaid” and “Choless” as directed will “prevent cholesterol from building up inside the arteries” so that it will not “calcify or harden, causing a clot to form”;
* * * * * *
h. That the said so-called “Super-Coronaid” and “Choless” “gives you a complete program for better heart health, stronger blood vessels, healthier blood, and helps prevent coronary artery disease,” that is to say that persons afflicted with such conditions may safely rely upon the use of the said preparations in the effective treatment thereof with no need for professional medical assistance;
i. That the treatment of atherosclerosis and heart diseases by the use of “Super-Coronaid” and “Choless” has been approved by “THE PRESIDENT” of the United States;
j. That the said “Super-Coronaid” and “Choless”, when used as directed, keeps “the fats and cholesterol necessary for the body’s use” “in stable suspension that that they don’t settle into the blood vessels”;
k. That the said “Super-Coronaid” and “Choless”, when used as directed moves “fatty deposits” “from the liver to where the body can use them properly”;
l. That simply by the use of “Super-Coronaid” and “Choless” as directed, any person will have “the right combination” of “valuable unsaturated fatty acids” for effectively “lowering cholesterol and rendering it harmless to your arteries” regardless of dietary intake.
In its answer the Respondent denies that it ever conducted a fraudulent scheme in violation of Sections 259 and 732 of Title 39, United States Code; admits selling the product and admits the validity of the circular attached to the complaint as a true copy of material supplied to it by the supplier; denies knowledge or information sufficient to enable it to form a belief as to the allegations of paragraphs “3” and “4” of the complaint, since the Respondent is a retailer which neither formulated the product nor prepared the advertising claims or written material accompanying or relating to the product; denies that the statements alleged in the Complaint to have been made by it are false and fraudulent; and alleges that it has never made or intended to make false or fraudulent statements with respect to the products sold by it, including Super-Coronaid and Choless.
Normally, in a case such as this there would be three issues, to wit: (1) are the charged representations made; (2) are they false; and (3) were they made with fraudulent intent. In this case, however, there are slight variations on these issues. Nowhere, in its answer, at the hearing, or on brief, does the Respondent deny that the representations are made, but Respondent does deny that it makes them. According to Respondent’s view the representations are those of the supplier, alone. Thus, the first issue in this case is whether the representations which are admitted to have been made are attributable to the Respondent. The second issue, i.e., as to the falsity of the representations, being neither admitted nor denied, is to be deemed to have been admitted under Section 201.8(c) of the Rules of Practice[2] which provides:
“(c) Any facts alleged in the complaint which are expressly admitted or not denied in the answer may be considered as provided, and no further evidence in respect of such facts need be adduced at the hearing.”
Finally, there is the issue as to whether the representations, if made by the Respondent, are fraudulent.
While it is not denied that the representations set forth in the complaint are made, I have read the advertising literature upon which these charges are based (Dept. Exhibit 1) and I make the affirmative finding of fact, predicated on that reading, that the representations are made.
While the rules of Practice provide that matters not denied are to be taken as proved, it is not necessary to rely on this procedural requirement to establish the falsity of the claims made for Super-Coronaid and Choless. The falsity of these claims was firmly established by the testimony of Complainant’s expert witness. Respondent introduced no medical witness, or any other witness, in support of its position. The background, training and experience of Complainant’s medical expert rendered him well qualified in the field about which he was examined. He testified, in substance, that while there has been some experimentation which the use of “unsaturated fatty acids,” which constitute the primary basis for most of the advertising representations, in connection with the prevention and cure of atherosclerosis and arteriosclerosis by lowering the cholesterol level of the blood, it has been concluded that these substances do not produce the desired result. He stated that this conclusion represents the “universality of informed medical opinion on that question.” (Tr. 81) The experiments with unsaturated fatty acids involved the ingestion of these substances in amounts ranging from 6 or 8 to 20 or more grams per day, whereas, the Respondent’s product, if taken as directed, would result in the daily ingestion of only from 2 to 3 grams. The doctor testified that a carefully selected diet must be followed by persons afflicted with these conditions, or by persons with a family history of these conditions who wish to prevent them. When it was pointed out to this witness that Respondent’s advertising literature makes reference to dieting, the doctor said, in effect, that such references were worthless – if not dangerous – because they do not take into consideration such factors as the patient’s heredity, weight, sex and age. This testimony which has been summarized is found, among other places, at pages 40, 42, 47, 55, 71, 74, 75, 80, 81 and 87 of the transcript. There is ample, competent and probative testimony that the claims made in Department’s Exhibit No. 1 for Super-Coronaid and Choless are false.
Did the Respondent make the false representations which have been made? On the outside of the advertising circular sent through the mails to a test name used by a post office inspector, the return address “U. S. HEALTH CLUB, Bergenfield, New Jersey” is shown in large, prominent, back type. On the order blank which is part of the advertising circular the same address is shown and the remitter is advised in large, red type to “SEND ALL ORDERS TO THIS ADDRESS.” By having these representations appear on an advertising circular bearing its name and by holding itself out to the public as the source to which all orders should be sent and from which all orders would be filled, the Respondent has adopted as its own and affirmed the representations concerning the product contained in the advertising literature. (See Am. Law Inst. Restatement, Agency 2d (1958) §§83, 94; 2 Am. Jur. 176, §220; 2 C.J.S. 363). The Supreme Court has held that in instances in which a vendor makes representations as his own it is his duty to know the truthfulness or falsity of them and he is presumed to have this knowledge. (Lehigh zinc and Iron Co. v. Bamford, 150 U. S. 665, 673)
The testimony of the medical witness which heretofore has been paraphrased and cited is largely dispositive of the remaining issue relating to the intent of the Respondent. the doctor did not say that the profession has completely abandoned experimentation with unsaturated fatty acids. Such experimentation continues because “we just don’t want to overlook any bets.” (Tr. 76) But the doctor was positive on direct examination and unshaken on cross-examination that products containing such minute quantities of unsaturated fatty acids as are contained in Super-Coronaid with Choless are of “no value in preventing heart attacks or all these other conditions set forth in the complaint.” (Tr. 54) There is also the testimony that there is a “universality of informed medical opinion” that the use of unsaturated fatty acids “has no effect on the reduction of the blood cholesterol level.” (Tr. 80, 81)
As stated in Reilly v. Pinkus, 338 U.S. 269, 276:
“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***.”
That Respondent concedes on pages 13 and 14 of its brief that “Of course, it has been held in Reilly v. Pinkus, supra, that if a fact is recognized false by a ‘universality of scientific opinion,’ an inference of intent to deceive may be drawn.”
Upon the basis of the record in this case, I find the following as facts:
1. The Respondent is engaged in business in Bergenfield, New Jersey.
2. In the course of the conduct of its business the Respondent sends advertising circulars through the United States mails soliciting orders and sales for a product known as Super Coronaid with Choless or Super Coronaid and Choless.
3. The representations contained in the advertising circulars are made by the Respondent.
4. The representations concerning said product are false.
5. The representations as to the efficacy of the product for the purposes for which it is advertised are contrary to the consensus of medical opinion and the universality of scientific belief.
6. The advertising representations which respect to said product are made with an intent to deceive and are, therefore, fraudulent.
Upon the basis of the entire record in this proceeding, I conclude as a matter of law that the Respondent is engaged in conducting a fraudulent scheme through the mails in violation of 39 U. S. Code 259 and 732.
At the hearing, motion was made by the Complainant that official notice be taken of a prior proceeding, and that a certain letter (Dept. Exhibit 6) from the Complainant to the Respondent and the latter’s reply thereto (Dept. Exhibit 6-A) be deemed to have put the Respondent on notice that there was a question as to the legality of its enterprise. These motions were opposed by the Respondent. Because of the ruling made herein, it is not necessary to reach the questions raised by these motions.
At the hearing, the Respondent requested the production of a report submitted by the expert medical witness to the Complainant approximately 14 months prior to the hearing and with respect to an entirely different proceeding, but one in which the same or a similar product was involved. I denied Respondent’s request for reasons stated on pages 90 and 91 of the transcript of the proceeding. I adhere to the ruling made at that time for the reasons stated. In addition, in those cases in which the production of reports, records, and the like have been required, the point at issue has been some matter of fact or an event or occurrence the happening of which was in question. In the instant case, that which was being sought from the witness was his expert opinion as of the present. So it would have made no difference whether the report conflicted with his testimony, since it could not be used to impeach the witness if in the course of 14 months he had found reason to change his opinion. In this instance, however, the witness testified that to the best of his knowledge he had stated the substance of everything that was in his report on the other case and that his views had not changed. Thus, Respondent’s counsel had nothing on which to predicate a belief or even a hope that there were in the prior report in a different case any statements which were inconsistent with the witness’s present testimony, and, since the witness’s opinion was being elicited, prior inconsistencies would have been immaterial, since no attack was made on the witness’s credibility. (See G. J. Howard v. Cassidy, 162 F. Supp. 568, 573).
Respondent’s counsel made a motion to dismiss this case on the basis of Bord-Johnson Electronics, Inc. v. Christenberry, Civ. 138-357, U.S.D.C., S.D.N.Y. (January 19, 1959). Permission was granted counsel to reserve his brief his argument on his motion.
In support of the motion to dismiss, Respondent urges the following points which, it is claimed, flow from the Borg-Johnson decision:
1. The Post Office Rules violate section 7(a) of the Administrative Procedure Act, 5 U.S.C. 1006(a), in that they authorize the Judicial Officer to preside at departmental hearings.
2. The Post Office Rules violate Section 11 of the Administrative Procedure Act, 5 U.S.C. 1010, in that they improperly interfere with the hearing examiner system and are, therefore, “a far cry from the mechanical rotation [of Hearing Examiners] prescribed by the Administrative Procedure Act.”
3. The Court ruling automatically adversely affects numerous other provisions of the present Rules of Practice, Procedure and Organization.
4. The Rules interfere with the right to file proposed findings and conclusions of law.
5. The Rules unlawfully interfere with the independent status of hearing examiners.
As to the first point raised by the Respondent, it is agreed that the substance of the Court’s decision is correctly stated. This part of the Court’s holding, however, has no bearing on the instant case for the reason that the hearing was conducted by a Hearing Examiner who was appointed to that position in accordance with the provisions of Section 11 of the Administrative Procedures Act, 5 U.S.C. 1010, and who is, therefore, in one of the categories enumerated in Section 7(a), 5 U.S.C. 1006(a), as being authorized to preside at the taking of evidence. Thus, insofar as this part of Respondent’s argument is concerned, Respondent has in no way been prejudiced, and the argument is inapplicable.
The second point in Respondent’s argument is related to the first. Legal questions aside, it is a fact that under the Rules of Practice prior to the Borg-Johnson decision it was possible that the rotation of cases between the Hearing Examiners could be less that the “mechanical rotation” mentioned by the Court, As an aside, it might be well to refer to the words “so far as practicable” which modify “rotation” in Section 11 of the Administrative Procedure Act. The instant case, however, was actually assigned by “mechanical rotation” to the Hearing Examiner who conducted the hearing. This argument of Respondent’s therefore, falls of its own weight.
The third point of Respondent’s argument requires but little time to answer. The substance of this argument is that because of the ruling of the Court in Borg-Johnson with respect to the Judicial Officer, and because the Rules sometimes employ the term “presiding officer” so as to include the Judicial Officer, it follows that every rule which contains the magic phrase is void.
It is a cardinal rule of statutory construction that every reasonable effort is to be made to give effect to the intent of the legislative body which enacts a statute which has been challenged. (Pollard v. Bailey, 87 U. S. 520; U. S. v. Cochran, 235 F.2d 131, cert. den. 352 U. S. 941) It has also been held that an entire act is not invalidated by a finding that a portion of it is invalid. Presser v. State of Illinois, 116 U. S. 252; U. S. v. Davio, 136 Fed. Supp. 423) Administrative regulations promulgated pursuant to constitutional or statutory authority have the force and effect of law (Tyson v. Commissioner of Internal Revenue, 68 F.2d 584), and the same rules of construction are applicable to them as are applicable to statutes. (Miller v. U. S., 294 U. S. 435)
The specific holding made by the Court in Borg-Johnson is that the Judicial Officer may not conduct hearings required to be heard in accordance with the provisions of the Administrative Procedure Act. This was the Court’s decision and that is all the Court decided, so that only that provision of the Rules of Practice of this Department is regarded by the Court as invalid. Thus the phrase “presiding officer” now means and includes the Hearing Examiners, and no other person does conduct such hearings and preside at the reception of evidence in these cases. This contention of Respondent’s is without merit.
The Court did not express himself on the question of the issuance of a final Departmental decision by the Judicial Officer and this question has never been considered by the Courts. The Postmaster General could not possibly perform all the functions required by the various statutes to be done in his name. This fact was recognized by the President and the Congress when the former promulgated and the latter approved Reorganization Plan No. 3 of 1949, issued under the Reorganization Act of 1949. (5 U.S.C. 133z-15 note) The making of these final Departmental decisions is one function, similar to others, the performance of which the Postmaster General has lawfully delegated to a subordinate officer.
The fourth argument of Respondent’s suggests the possible deprivation of the right to file proposed findings of fact and conclusions of law. The 44-page document containing the proposed findings and conclusions of the Respondent appears to be an inappropriate place to raise this ghost. This is certainly one procedural right to which the Respondent in this case has not been deprived. The Respondent has not been prejudiced, and has no standing to challenge this rule.
The best answer to the Respondent’s last argument – that the placing of the Hearing Examiners under the Judicial Officer for administrative purposes is violative of Section 11 of the Administrative Procedure Act – is found in the
Borg-Johnson case, supra, wherein the Court said:
“Plaintiff asserts [that]***
(a) In placing the Hearing Examiners under the Judicial Officer, the Rules violate Section 11 of the Act, 5 U.S.C. 1010, which requires that the Hearing Examiners have independent status and that they can in no way be controlled by the Agency or Department. I find no merit in this argument.***:
With this conclusion of the Court’s, the undersigned agrees.
Proposed findings of fact and conclusions of law not discussed specifically herein have been considered and are denied as being without merit.
There is attached hereto for execution by the Judicial Officer the appropriate order for the suppression of the fraudulent enterprise.
William A. Duvall
Hearing Examiner