In the Matter of the Petition by ) November 20, 1974 ) AMOCO MOTOR CLUB, a division of ) AMOCO ENTERPRISES, INC. ) W. H. VEHMEIER, Publisher ) 111 West Jackson Boulevard ) P.S. Docket No. 2/50 Chicago, Illinois 60604 ) ) Revocation of Second-Class Mail ) Privileges for "ADVENTURE ROAD ) MAGAZINE" ) APPEARANCES: Matthew J. Gallo, Esq. Maurice P. Glover, Esq. 910 South Michigan Avenue Chicago, Illinois 60605 for Petitioner Arthur S. Cahn, Esq. Grayson M. Poats, Esq. Law Department U. S. Postal Service Washington, D.C. 20260 for Respondent Lussier, Edward F.
This proceeding arises out of a ruling by the manager of the Mail Classification Division revoking the second class mail privileges granted Petitioner for "Adventure Road" magazine. After filing of a petition pursuant to 39 C.F.R. Part 954 to contest the revocation action, a hearing was held and an Initial Decision rendered by Administrative Law Judge Rudolf Sobernheim on May 7, 1974, reversing the revocation action and holding that the magazine was entitled to second class mail privileges. The case is now before the undersigned on appeal from that Initial Decision by the Respondent herein.
Respondent filed its Brief on Appeal on May 21, 1974. Thereafter an application for intervention was filed by American Business Press, Inc. Over the objections of the Petitioner the former Judicial Officer issued an order permitting American Business Press, Inc., to file an amicus curiae brief in the matter. Petitioner thereafter filed reply briefs to the Appeal Brief of Respondent and the amicus curiae brief of American
Business Press, Inc. At the same time petitions to file amicus curiae briefs were filed by All State Enterprises, Inc., and Exxon Travel Club, Inc. Over the objections of the Respondent the then Acting Judicial Officer issued an order granting leave to file such amicus curiae briefs. The case on appeal, having been thoroughly briefed by the parties and all pending motions disposed of, is now ready for final Postal Service decision.
Before launching into its argument in support of reversal of the Initial Decision, Respondent's brief lists twelve specific findings of fact and conclusions of law contained in the Initial Decision to which it takes exception as having no basis in fact or law. Respondent did not offer specific supporting reasons as such for its exceptions. It simply listed them as a group and then followed them with what might be termed general argument leaving it to the reader of the Appeal Brief to apply the argument to the exceptions. In some instances the impression is evident that there is disagreement with other portions of the Initial Decision even though no exception was taken as such. In spite of these failings the substance of the Appeal Brief sets forth the principal areas of disagreement with the Initial Decision sufficiently to deal with in this decision where comment is warranted. Each exception will be taken up separately first quoting the finding of fact or conclusion of law to which exception is taken and then ruling on the exception.
"11. In respect of the four issues published in 1973 a profit and loss statement (Pet'r Ex. P-9) shows subscription income in round figures of $2,200,000 and advertising income of about $30,000. After expenses, in which general and administrative overhead is apparently not included, this statement indicates a profit of well over $1,500,000 for the 1973 ADVENTURE ROAD operation. Even if these figures are not entirely accurate they tend to indicate that the magazine provides Enterprises with a very substantial net income. The magazine has been profitable from or almost from the start and its profitability has been increasing (T 158)."
Respondent's objections to findings of profitability of the magazine are based upon the fact that $2 out of the $15 annual membership fee for members of the Amoco Motor Club is automatically assigned as a subscription fee for "Adventure Road" magazine. There is no indication that the assignment of $2 as the price of the magazine was fictitious or unreasonable. The implicit criticism in such an argument that the members are not legitimate subscribers is inappropriate as an issue in this case for the reasons discussed by Judge Sobernheim on page 5 of the Initial Decision.
The exception is disallowed.
"14b. ADVENTURE ROAD at least from shortly after the start of publication began to be a substantial money earner for Enterprises (Amoco Enterprises, Inc.) and was as late as the end of 1973 a source of considerable profit to it and Oil (Amoco Oil Company)."
The comments made with respect to the preceding exception are equally applicable here. The finding of fact is supported by the evidence. The exception is disallowed.
"e. The magazine is published for a dual purpose: to inform, educate and entertain the reader on automobile travel, including some general topics of automotive service, ***."
The record is abundantly clear that "Adventure Road" informs, educates and entertains the reader on automobile travel including some general topics of automotive service. The exception is disallowed.
"g. As compared to this purpose (i.e. the purpose set forth in Finding of Fact 14f) 1/ and its accomplishment, the use of ADVENTURE ROAD as a channel of communication about the Club between the latter and its members appears secondary. From other materials furnished to the members by the Club the former would appear to be well informed about the benefits provided for them. The magazine speaks with any frequency of only two of them: emergency road service and trip maps. It does not appear likely that Petitioner would maintain a publication costing several hundred thousand dollars annually for such limited communication. Moreover, as a channel of communication, the magazine reaches for the very greatest part those who are already customers of Enterprises and, in particular, Oil since nearly all those reached are already Club members and four-fifths of them Amoco credit card holders (T 148)."
The record supports these findings of the Administrative Law Judge and they are upheld. The exception is disallowed.
"6. *** Respondent's comment that it need only prove that the magazine is published as auxiliary to and essentially for the advancement of the Club (Br. p. 3, n. 1) is misleading since the Club is the main business of Enterprises to which ADVENTURE ROAD is alleged to be auxiliary and which it is said to advance."
The first sentence in Conclusion of Law 6 states the issue in the case. The statement above quoted, to which exception is taken, seems only to be saying that Respondent's restatement of the issue may be construed as begging the question of whether "Adventure Road" was conducted essentially for the advancement of the business of the Club or its parent corporation.
The basic theme, inherent in this exception, running through the Appeal Brief, and apparent in the position of the Manager of the Mail Classification Division follows a res ipsa locquitor reasoning that second class mail privileges are not available to a motor club publication if it is a "travel" magazine. However, I see nothing incestuous in this per se. Without regard to the issue of whether there is a legitimate list of subscribers, which issue is not before us, it would stand to reason that members of a motor club would be attracted to the type of articles one might find in a travel magazine and that such a magazine purely on its own merits could be a legitimate profit making enterprise. This may present special problems in evaluating the true purpose of the publication but these are to be resolved on the individual facts of each case rather than on any disqualification standard broader than the regulation itself. The exception is denied.
"8. But even the official publication of an organization such as the Amoco Motor Club, the management of which constitutes the main business of its organizer and owner Amoco Enterprises, Inc., may as a matter of fact sometimes be shown to be published for its own sake and as a moneymaking undertaking, not subordinated to or in essence serving the publisher's main business. ***"
The next paragraph, Conclusion of Law, paragraph 9, discusses the decision in Diners Club, Inc., P.O.D. Docket No. 1/225 (1960). It is clear from a reading of that case that the conclusion of the Administrative Law Judge to which exception is taken, is correct. The exception is disallowed.
"(2) *** It does not significantly serve as an advertising medium either to affiliated companies or outsiders and does not compete with other magazines."
The above cited conclusion is supported on review of the record. The exception is disallowed.
"b. On the other hand, in both cases the magazine does not serve as a means of attracting new Club members and to advance Club business since it is received for the most part by existing members. In both cases, the magazine is also not essential to the main business of its owner, the Diners' Club credit card operation on the one hand, the Amoco Motor Club on the other. In both cases, too, the magazine has become a significant income-producing factor."
This conclusion is related to a comparison of the instant case to the above cited Diners Club case. I find these conclusions of the Administrative Law Judge to be correct. The exception is disallowed.
"c. Finally, in both cases the magazine has independent content appeal to its readers beyond any 'house organ' function which it does perform."
The conclusion of the Administrative Law Judge is affirmed. It is not, however, as Respondent suggests, a finding of fact that "Adventure Road" magazine "is a house organ". The exception is disallowed.
"11. *** In part it ('Adventure Road' magazine) satisfies the interest of its readers in the popular leisure time activity of automobile travel, in part it creates a favorable public image and prestige for the Amoco Motor Club and hence for Amoco Oil Company."
This conclusion is clearly supported by the record.
Petitioner's Reply Brief construed the exception to apply to the next sentence which reads "It is not an effort to sell Club memberships or Amoco gasoline, oil or services." This would be more understandable and to preclude a motion for reconsideration based upon a claim of obvious typographical error the following comments are made. The record is abundantly clear that the purpose of the magazine is not to sell Club memberships.
Respondent at page 10 of its Appeal Brief considers this particular finding worthy of the footnote that the Administrative Law Judge "misses the point--that ARM is produced not to obtain new members, but to retain present members of the Club." Some evidence of this purpose would have been appropriate but if one assumes the magazine has that incidental effect, as it might have even if all references to the Club were completely removed, it would be but one fact to consider in looking at the total picture. Here, on the evidence, it is not controlling.
The second part of the finding, namely that it is not an effort to sell Amoco gasoline, oil or services, is supported on the record. However, this conclusion should be read in conjunction with my comments on exceptions to Conclusions of Law 12 and 13.
The exception is disallowed.
"12. In a somewhat different context the issue has been raised under a federal statute prohibiting that advertising costs be passed on to the Government under defense contracts (P.L. 87-144 (1962)). Notwithstanding strong statutory language the Armed Services Board of Contract Appeals held in construing that statute that the cost of the defense contractor's Public Communications Department for publication of the 'Industrial Booster' was not an advertising cost within the legislative prohibition. The 'Industrial Booster' was designed to let the public and interested Government agencies know about the company's support of Government activities and to serve as ready reference to its research and was, therefore, treated as a public relations effort the expense for which was ratably recoverable as a contract cost. Aerojet General Corp., ASBCA No. 13372, 73-2 BCA § 10164, mot. f. recon. den., id., § 10307; same: The Boeing Company, ASBCA No. 14730, 73-2 BCA § 10325. The Aerojet and Boeing cases are by no means on all fours with the instant case but the basic distinction made there between public relations and advertising is illuminating and applicable here."
This paragraph in the Initial Decision of the Administrative Law Judge was by way of explanation of statements made by him in Conclusion of Law 11, with respect to the public relations aspect of ADVENTURE ROAD magazine.
Respondent's objection to Judge Sobernheim's reference to Government contract cases dealing with "advertising" versus "public relations" with respect to Government cost contracts misconstrues the decision in asserting at page 27 that "he (Judge Sobernheim) was found that the predominant characteristic of ARM consists of material which the USPS traditionally has classified as 'advertising'" and that to escape the conclusion of a violation of Postal Service Manual § 132.226(b) "Judge Sobernheim labels the material in ARM as 'public relations material' (I.D. 30-31)". The first part of that assertion is inaccurate to the extent that it attributes to the Administrative Law Judge the view that the predominant characteristics of the magazine consists of advertising. This is Respondent's view of the case rather than the Administrative Law Judge's view and was quite clearly rejected by the Initial Decision. The second part of the assertion misquotes Judge Sobernheim's decision which did not label the "material" as "public relations material". He used the term "public relations" to describe, not any particular material in the magazine as such, but rather one of the incidental benefits that would necessarily accrue whenever a motor club publishes a travel magazine which has popular acceptance. This does not of necessity transform the publication into one which is auxiliary to and essentially for the advancement of the other business.
Judge Sobernheim's conclusion in the last sentence of Conclusion of Law 12 that the referenced Armed Services Board of Contract Appeals cases are applicable here was unnecessary to the decision and that portion of the Initial Decision is not adopted by the undersigned in this case.
Respondent, at page 28 of its Appeal Brief, contends that Judge Sobernheim voided, by his decision, Postal Service Manual § 125.52. That regulation sets forth the definition of advertisements which Respondent says clearly holds that "public relations" material (the quotes are Respondents') is advertising. The referenced section nowhere uses the term "public relations". Nor does the decision in the instant case rest upon the definition of advertising.
Image boosting can properly be construed to be advertising, and if prominent enough, might well support the conclusion that a particular publication was conducted essentially for the advancement of the main business of the company controlling it. It suffices to say here that such a finding of fact is not compelled in this case.
"13. The underlying findings of fact, the applicable administrative precedents, and the legal considerations heretofore discussed all lead to the final conclusion that ADVENTURE ROAD is not as a matter of law a publication primarily designed for advertising purposes or used by those who own or control it as an auxiliary to and essentially for the advancement of their main business. ADVENTURE ROAD, on the contrary, is a profit-making activity of Enterprises, having its own value as such and as a service and public relations effort for the pleasure of its readers and the indirect enhancement of the Amoco image. Hence, the magazine is not banned from second-class mail privileges by PSM 132.226. Accordingly, the revocation action of the Manager is reversed and ADVENTURE ROAD deemed entitled to second-class mail privileges."
Much has been said in the various briefs filed in this case about the legislative history and intent of the provision alleged to be violated here, which in essence was to preclude second class mail privileges to publications designed primarily for advertising. Postal Service Manual § 132.226, bars from admission as second class mail a "periodical publication designed primarily for advertising purposes." It then defines as included within this class a number of categories, one of which is "Those owned or controlled by individuals or business concerns and conducted as an auxiliary to and essentially for the advancement of the main business or calling of those who own or control them". It is this provision of the regulation, and only this provision, which is at issue in this case.
In the determination of whether the publication is "auxiliary to and essentially for the advancement of the main business or calling" one is inextricably drawn back to the preface of the particular prohibition which is a prohibition against a publication "designed primarily for advertising". In numerous portions of his testimony the Manager of the Mail Classification Division, in defense of his position, explained that particular features of "Adventure Road" magazine would not be advertising but for the fact that the publication is put out by a motor club and its principal subject, travel, relates to the business of the motor club (Tr. 43, 45, 46). He also was of the opinion that "Adventure Road" magazine could be brought into compliance without making significant changes in it (Deposition of Darwin E. Sharp, page 29).
Whether Mr. Sharp should have used the term "significant" is highlighted by Respondent's disagreement with this terminology at page 4 of its Appeal Brief where, in refutation thereof, it offers the information, without reference to the record, that Mr. Sharp, in meetings with the Petitioner, advised that a violation of Postal Service Manual § 132.226 would be avoided by severing "Adventure Road" from the Motor Club and Amoco Oil Company, giving club members an option to refuse the magazine and have their dues reduced accordingly and deleting all direct advertisements and promotional material for the Club. Petitioner's Reply Brief correctly disputes the introduction of evidence after the hearing, which it also contests as factually inaccurate, and then attaches its own late evidence consisting of a letter offer by Petitioner, which it says was rejected by Respondent, to remove all advertisements of Amoco Oil Company and Amoco Motor Club and all references thereto except for the Amoco Motor Club logo on the front cover and the statement of ownership, management and publication appearing on the inside cover of the magazine. The allegations raised for the first time in attorney's briefs cannot be made the basis for any factual findings. One can only observe that had Petitioner's magazines, upon which the decision in this case is predicated, followed the pattern the Appeal Brief suggests it was willing to follow after the hearing, the resolution of this case would have been greatly simplified.
Whether particular activity comes within the bounds of that proscribed by the regulations generally involves a factual question. The extent of advertising, both direct and indirect, of the Club and its parent corporation in relation to other advertising is particularly troublesome in this case. Nevertheless, upon a thorough review of the entire record and all of the arguments put forth in Respondent's Appeal Brief, and taking into account that the burden of proof lies with Respondent in this case, I am in agreement with Judge Sobernheim that a case has not been made to show a violation of Postal Service Manual § 132.226. There are cases which are crystal clear on the facts and there are cases which might be termed borderline after a thorough examination of the content of the publication. The instant case falls within the latter category and careful practitioners would be prudent to advise their clients not to walk so fine a line. Except as otherwise indicated in the foregoing decision, the Initial Decision is affirmed.
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