June 18, 1968
In the Matter of the Complaint That
THE ARZANA CO., INC.
at
Long Island City, New York 11101
(hereinafter called Respondent), is engaged in conducting a scheme for obtaining money through the mails in violation of 39 U. S. Code 4005.
P.O.D. Docket No. 2/277
APPEARANCES:
Solomon H. Friend, Esq.
Robert Ullman, Esq.
Bass & Friend
342 Madison Avenue
New York, New York
for Respondent
John F. Vantresco, Esq.
Office of the General Counsel
Post office Department
Washington, D.C.
for the Complainant
INITIAL DECISION OF HEARING EXAMINER
This action, initiated by the General Counsel of the Post Office Department, charged that the Respondent, the Arzana Co., Inc., is engaged in a fraudulent scheme in violation of Section 4005, Title 39 U. S. Code,[1] and that the Respondent has been (and is) obtaining money through the mails by means of false and fraudulent pretenses, representations and promises. The Complaint then set forth particulars in subparagraphs 3a., 3b., 3c., and 3d., thereof based on advertising matter attached to the Complaint as Exhibit A (Appendix 1, hereto), and in paragraph 4 alleged that such particulars are false and fraudulent.
The Respondent, by its attorneys answer with specific and general denials of each charge made in the Complaint, and admitted that Exhibit A thereto (Appendix 1 hereto) is a true copy of its advertising material, but denied that it is/was used as any part of a fraudulent scheme, and asserted that it speaks for itself.
The only evidence adduced in addition to the foregoing exhibit was the testimony of W. J. Hegarty, a Postal Inspector, and of Charles A. Ros, M.D., a thoracic surgeon, of Buffalo, New York, who qualified as such, and as a specialist in lung surgery and director of Smoking Withdrawal Clinics and Roswell Park Memorial Institute.
Testimony by Mr. Hegarty, the Postal Inspector established the fact that he had purchased the produce PA-90 from the Respondent company by ordering and paying for it through the mails. In view of this fact and the admission of the Respondent in its answer and other statements herein, jurisdiction in this case was established under Section 4005, Title 39, U. S. Code.
Dr. Ross testified, in effect, that he had had no direct experience with the advertised product PA-90, but that he had used lobeline sulfate (which is the only stated content of PA-90) in smaller and larger does than 2 milligrams three times daily for three days (which is the dosage prescribed in the advertisement, Appendix 1, attached) in connection with the treatment of some 1450 people in smoking withdrawal clinics; that this drug had some slight effect, when compared with a placebo, for short periods of time (7 days), and in general negatived the claims of the advertisement (Appendix 1). He also testified that he had discontinued the use of lobeline sulfate in his clinic since follow-ups on patients at six months showed no difference between those who took the sulfate and those who took a placebo (Tr. 97). He also testified that he testified only as to his own experience and the results of his clinics; that he had no opinion, and that there could be difference of opinion in the scientific world, although he had no knowledge of any (Tr. 90-95).
At the conclusion of the Complainant’s case the Respondent moved that the Complaint be dismissed, and rested its case. Subsequently, both sides submitted proposed findings of fact and conclusions of law, together with briefs in support thereof.
The Respondent’s motion to dismiss the Complaint, was in the nature of a demurrer to the evidence, and on the basis of the record and the pleadings should be sustained. Under the statute it is essential to prove not only falsity of representation, but fraudulency as well, that is, that the advertiser intended to deceive.
The case is governed by the Supreme Court case of Reilly v. Pinkus, 338 U.S. 269, 276 (1949), wherein the court said:
“Proof of fraudulent purposes 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;--“
See also, U. S. NATURE PRODUCTS CORP. v. SCHAFFER, 125 F. Supp. 374, 378 (USDC SDNY 1954), wherein the court stated that the issue is not whether the claims made in the advertisement are incorrect and misleading. The issue is whether they are fraudulent in fact.
There is no direct testimony in this case as to fraud, nor is there anything in the record to indicate any universality of scientific belief from which an inference of fraud might be drawn. Consequently, in view of the foregoing, IT IS ORDERED, that Respondent’s motion to dismiss be, and it hereby is, granted, and that the Complaint be, and it hereby is, dismissed.
Gerard N. Byrne
Hearing Examiner
[1] §4005. Fraudulent and lottery matter
(a) Upon evidence satisfactory to the Postmaster General that any person is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false or fraudulent pretenses, representations, or promises; or engaged in conducting a lottery, gift enterprise, or scheme for the distribution of money or of real or personal property by lottery, chance, or drawing of any kind; the Postmaster General may—
(1) direct postmasters at the office at which registered letters or other letters or mail arrive, addressed to such a person or to his representative, to return the registered letters or other letters or mail to the sender marked “fraudulent” or “lottery mail”; and
(2) forbid the payment by a postmaster to such a person or his representative of any money order or postal note drawn to the order of either and provide for the return to the remitters of the sums named in the money orders or postal notes.
(b) The public advertisement by a person engaged in activities covered by subsection (a) of this section, that remittances may be made by mail to a person named in the advertisement, is prima facie evidence that the letter is the agent or representative of the advertiser for the receipt of remittances on behalf of the advertiser. The Postmaster General is not precluded from ascertaining the existence of the agency in any other legal way satisfactory to him.
(c) As used in this section and section 4006 of this title the term “representative” includes an agency or representative acting as an individual or as a firm, bank, corporation, or association of any kind.