In the Matter of the Complaint Against AMERICAN TRUSTEE & LOAN ASSOCIATION P. O. Box 7018 at Washington, D. C. 20032 P.S. Docket No. 3/40December 2, 1974
Rudolf Sobernheim Administrative Law Judge
APPEARANCES: Lee H. Harter, Esq. Consumer Protection Office Law Department U.S. Postal Service Washington, D.C. 20260 for Complainant Mr. Dan H. Brown II President Kline Building Bryan's Road, Maryland 20616 for Respondent
This is a proceeding by Complainant against Respondent under 39 U.S.C. 3005 which authorizes action against Respondent on evidence satisfactory to the Postal Service that Respondent "is engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations."
Complainant alleges that Respondent is engaged in such a scheme in the sale of memberships in Respondent through use of an advertising circular, a copy of which is attached to the complaint as Exhibit 1. Specifically, Complainant alleges in paragraph III of its complaint:
"A. that Respondent provides a method or discloses the
necessary information to enable a purchaser to
obtain a Federally insured savings account paying
9 to 25% annual interest; i.e.
the Federal government guarantee protects the
investment and makes it a 'no-risk'
investment yielding these high returns;
B. that Respondent provides a method or discloses the
necessary information to enable a taxpayer to
realistically reduce his taxes by one-half;
C. that Respondent provides a method or discloses the
necessary information to enable a purchaser to
double his salary without increasing his
education;
D. that Respondent provides a method or discloses the
necessary information to enable a purchaser to
make up to %500,000 in a commission plan; and,
E. that Respondent provides a method or discloses the
necessary information to enable a person to 'buy
enough stock without investing or gambling any of
[his] own money to pay [him] up to an additional
$4,000 income...'."
In its answer Respondent in substance admitted soliciting memberships and dues payments through the mails by means of the cited circular. It denied, however, that the representations made in its circular were false and, on the contrary, attempted to demonstrate the truth thereof.
A hearing was held at which both parties introduced evidence. Respondent was represented by its president who presented its defense but did not take the stand on its behalf. Subsequent to the hearing both parties filed briefs.
1. Respondent is an unincorporated association, located in the District of Columbia, of about 6,000 to 6,500 members (T 20; Resp. br., Att. 7) of which Dan H. Brown II is president. On or about 8 July 1974 its membership was allegedly taken over by a Maryland corporation, called American Trustee & Loan Association, Inc. (Resp. br., Att. 7). The record does not, however, contain any conclusive proof that incorporation of the Maryland corporation and its take- over of Respondent have actually been accomplished.
2. (a) Respondent solicited dues paying members through a two-page circular in typescript, bearing its name and address and the legend "Founded to advance mankind through economic science." at the top together with the admonition: "If you are smart, read this." (Compl. Ex. 1).
(b) The circular described thereafter twenty-one (21) items in which Respondent purported goals, from buying insurance wholesale (Item 5) or stereo cartridges well below retail cost (Item 4) or travelling to Europe and back for as little as $289.00 (Item 14) by way of more complex matters, such as building one's own house cheaply (Item 18), setting up a print shop (Item 17) or becoming an independent salesman (Item 11), to esoteric matters such as how to get federally insured savings accounts bearing up to 25% interest (Item 1), double one's salary, halve one's rent and taxes, found an investment corporation and join an international market being formed of 500 firms for North America and 200 in Europe (ITems 7, 9, 2, 20).
(c) Item 21 read as follows:
"21. How to wipe out atheism in America. Churches, organizations, and dedicated individuals - we are the source for 8 Scientific Proofs of God which has been acclaimed to be the most brilliant defense of religion ever put into print in history and converts up to 499 per 500 readers to positive belief in God. This report has also been expanded into a 220 page book which has proven so popular with its readers that it is now being produced as a full-length motion picture for later world showing. As a Christian economic movement now in five continents and growing, we believe that we will do the most good for mankind and economics by restoring public faith in God, in decency, in fair ethics, in the possibility of social justice for all on this earth, and the regeneration of mankind. Get a free copy of this startlin report and see why people get so enthusiastic about it. JOIN NOW ]]]"
(d) The twenty-one items were followed by a lengthy statement, reproduced below in full:
"We believe in the philosophy of Jesus Christ, 'Love they neighbor as thyself.' We practice this philosophy by extending to our fellow man the means to help himself even as we seek to help ourselves and families to prosperity, security, and happiness in life. These 21 items and our international magazine will be sent to you upon joining. This association is dedicated to help American (and European) business and labor become very prosperous, with or without support from Washington, while incurring little personal or national debt in the process. We will create a rebirth of real free enterprise by helping small business become big business on limited capital. As an economic organization and movement dedicated to helping the people help themselves to greater prosperity, security, and happiness in life through advanced economic principles, we have advertised in prominent publications such as The Wall Street Journal and Millionaire Magazine (published for millionaires) - and the mail is steadily coming in from all over America, Canada, and Europe. This association is now gaining both national and international popularity as people from all walks of life are joining and even very enthusiastically promoting it to their friends, associates, etc. after seeing what it really is (and what it can become). This association is sponsoring economic bills for Congress to pass in order to benefit the people and businesses of America. We sponsor a market place patterned after Lloyd's of London for high-profit loans our members can underwrite. This association was founded by the one-time employee of The Wall Street Journal who has since been written up as the potential 'Einstein of American Economics.' He is organizing an international loan market of 700 corporations with 70 already lined up in the United States, Canada, and Europe."
(e) At the end of the flyer was a membership application, stating the fee to be $2.00.
3. The five items which are charged by Complainant as false representations read as follows:
(a) "1. Exclusive in print] How to get Federally insured savings accounts to pay as high as 9% to 25% annual return or even higher in some cases. Also, how to use the equity in your home or business and get high interest rates on that or else set yourself up to become a potential future millionaire while still paying off your mortgage or commercial bank lona."
(b) "2. How to cut your taxes in half - regardless of your present income in life. This is the information (an economic report) that Federal and state tax collectors are going to hope you never find out about. Also, how a number of Americans have been able to Legally stop paying any income taxes, despite their high incomes; and how some corporations can get an 85% tax deduction on income. Do you want to know their secret? Why pay high taxes if you don't legally have to? Also, how to haul the IRS into court for only $10 if they give you much fight."
(c) "7. How to double your salary on your present job without increasing your education - an economic report which has been hailed as a masterpiece."
(d) "8. How to make up to $500,000 (actually $250,000 twice) in what may be the largest commission plan in the world. A number of well-known mail order dealers and people wanting to set up a business in their home are starting to use this amazing commission plan. Anyone can do this work and many enthusiastically are."
(e) "12. How to buy enough stock without investing or gambling any of your own money to pay you up to an addition $4,000 income on top of the salary from your job. This is the famous Kelso stock plan to greatly supplement the annual income of Americans which was endorsed by such prominent men as the former Governor of Puerto Rico and Dr. Mortimer Adler (the brilliant intellectual). This economic stock report is brief - but stunning."
4. Those who respondent to the circular received as many as seventeen (17) items of literature (Comp. Ex. 4), as exemplified by Respondent's mailing to the Postal Inspector (see Compl. Ex. 3, 4). his test mailing to Respondent was instigated by outside complaints (T 57).
5. The following pieces of literature (Compl. Ex. 4) were sent out by Respondent to its members:
(a) THE DAWNING OF A NEW AGE FOR MANKIND THROUGH THIS ECONOMIC ASSN.
(b) O U R M E M B E R S H I P D R I V E I S O N N O W
(c) AMERICAN TRUSTEE & LOAN ASSOCIATION
(d) 8 Scientific Proofs of God
(e) THE SECRET OF BUYING LIFE INSURANCE
(f) MORE ECONOMIC ANSWERS FOR YOU
(g) HOW TO CUT YOUR RENT IN HALF THROUGH THE HELP OF YOUR LOCAL BANKER AND MAKE SEVERAL THOUSAND DOLLARS IN THE PROCESS. THE SMART WAY TO RAISE THE MONEY FOR YOUR FUTURE HOUSE.
(h) ON LAW, TAXES, AND ECONOMICS
(i) We Search For The Economic Answers That Can Benefit You And The Nation
(j) THE FIRST OF OUR LARGE SPONSORED PROJECTS IS NOW STARTED - THE FULL-LENGTH MOVIE
(k) We are Working To Create A Sounder, More Profit- able Economy For America And You
(l) This Is A Genius Organization - According To Thomas A. Edison
(m) A M E R I C A N T R U S T E E & L O A N A S S O C I A T I O N Entrustment Deposit Record
(n) AMERICAN TRUSTEE & LOAN ASSOCIATION P. O. Box 7018 Wash., D.C. 20032
(o) We Want To Make YOU A Millionaire
(p) DEMOCRACY - An Ideal To Live By
(q) THE MARKET PLACE BULLETIN (Official Publication of Respondent, Vol. 1, No. 2, Jan. 1974)
6. Through these pamphlets there ran a thread of three ideological points: belief in God and Christianity; the plebiscite as the future basis of political life in the United States; acceptance of commonly rejected monetary theories, such as those of the German businessman and economist Silvio Gesell (1862-1930). The literature furnished by Respondent to its members was permeated with these ideological attitudes and concepts even though some paragraphs purported to give rather common place practical advise or to propose business activities which can only be described as highly speculative.
7. The literature referred to does in fact furnish Respondent's suggestions or proposals about the matters in respect of which Complainant has alleged false representations by Respondent to prospective members. They are summarized below.
(a) How to get Federally insured savings accounts to pay as high as 9% to 25% annual return or even higher in some cases (Compl. Ex. 1, No. 1)
From Respondent's literature (Compl. Ex. 4, items 3, 10, 13, 17) it appears that Respondent's members become entitled to participate in a Lloyd-type "investment pool", handled by American Trustee & Loan Association, Inc. of North America, a Delaware corporation ( id ., 10).
Deposits are to be placed in federally insured savings accounts and to be returned in 2 1/2 years but the member-depositor ir entitled to draw income on his deposit for 25 years (id., 13). The income from the "investment pool" savings accounts and the funds to be borrowed against them as security are then to be profitably invested to yield extremely high returns for the "depositors" as well as Respondent (see id ., 3, 17). The organization of the plan is inspired by a stated desire to avoid above all S.E.C. control. Respondent's animus against the S.E.C. is apparent throughout its literature (see e . g . id ., 8). There is no evidence in the record of any commencement of execution of this scheme or how it has fared.
(b) How to cut your taxes in half (Compl. Ex. 1, No. 2) Respondent here proposes that voters write in the name of its president, Dan H. Brown II, instead of the regular congressional candidates and thus create a large protest vote which will compel Congress to cut out 50% of taxes which now "go for graft, corruption, and financial incompetence in the handling of public tax funds." (Compl. Ex. 4, item 16, p. TT).
(c) How to double your salary on your present job without increasing your education - an economic report which has been hailed as a masterpiece (Compl. Ex. 1, No. 7)
The answer suggested by Respondent in a 32-page pamphlet (Compl. Ex. 4, item 16) is a thorough reform of the political and economic organization of the United States in accordance with the ideologies espoused by Respondent's president, based on adoption of a constitutional amendment providing for plebiscites ( id ., p. UU).
However this pamphlet be viewed, it suffices to state that the member does not receive down-to-earth advice of how to increase his salary within his existing circumstances but in which directions to change the political and economic institutions of the United States in order to improve his lot with that of all others.
(d) How to make up to $500,000 (actually $250,000 twice) in what may be the largest commission plan in the world (Compl. Ex. 1, No. 8)
Respondent's explanation of this goal is to seek memberships in Respondent and become eligible for huge bonuses when Respondent succeeds in large proposed (but unrealized) business transactions (Compl. Ex. 4, item 3, p. j).
(e) How to buy enough stock to obtain an additional $4,000 income without investing or gambling (Compl. Ex. 1, No. 12)
The advertising circular itself gives the answer of how this is to be achieved, i . e . by use of an employee stock purchase plan of the type advocated by the economist Louis Kelso to enable employees to form capital and become part owners of the business firms for which they work (see Compl. Ex. 4, item 16, pp. HH-II, Resp. Ex. 6). These plans are in existence in some small firms but their widespread applicability is disputed. Their feasibility and beneficence depend, of course, largely on general economic prosperity and the success of particular enterprises.
8. Respondent advertised once in the Wall Street Journal in June 1972. Whether it has advertised in Millionaire Magazine, as it claims, and what this magazine is, is not shown on the record. There is no proof in the record as to who, if anyone, has written up Respondent's president as the "Einstein of American Economics".
9. There is no question that Respondent's answers as to how to achieve the various goals listed in its advertising circular and the subject of false representation charges in Complainant's complaint are statements of the political, economic and religious ideologies espoused by Respondent or involve wholly unrealistic schemes growing out of an attempt to apply these concepts.
10. Respondent's promise of how to earn commissions of up to $500,000 (Compl., par. III D), standing alone, might well, for instance, be treated as a scheme of obtaining money through the mails by means of false representations. In the ideological context of Respondent's circular however, any such representations are not material. For Respondent did not purport to, and did not, give ordinary business advice (true or false) such as financial or consumer organizations might provide.
11. No ordinary reader could as a matter of fact understand that Respondent was anything other than a purveyor of ideology. Respondent held himself out as a purveyor of economic science, of a restorer of business enterprise and of Christian philosophy, as its president understood it. To those to whom such ideas are appealing or who desired to find out what they were no material misstatements were made.
1. There is no question that under the decisions of the United States Supreme Court so-called "commercial speech" is subject to regulation notwithstanding the seemingly absolute language of the First Amendment to the Constitution of the United States. Valentine v. Christensen , 316 U.S. 52 (1942); Pittsburgh Press Co. v. The Pittsburgh Commission on Human Relations , 413 U.S. 376, 41 USLW 5055 (1973). Hence, the dissemination of false or misleading advertisements can be interdicted. E.F. Drew Co. v. FTC , 235 F2d 735 (2d Cir., 1956), cert . de ., 352 U.S. 969 (1957); Lynch v. Blount , 330 F. Supp. 689 (S.D.N.Y. 1971), aff'd mem., 404 U.S. 1007 (1972). The public need not be allowed to be misled by false commercial advertising and Postal Service action under 39 U.S.C. 3005, the statute invoked in this proceeding, is one of the protections which the law affords to the unweary public. See Gottlieb v. Schaffer , 141 F. Supp. 7 (S.D.N.Y. 1956) (mail order sale of magic charms and articles).
2. But not every written matter taking on in some respect the appearance of "commercial speech" is thereby deprived of the protection of the First Amendment to our Constitution. N.Y. Times Co. v. Sullivan , 376 U.S. 254, 265-6 (1964). Paid advertising, communicating information and seeking financial support on behalf of a movement involving public concerns, was held there protected by the Constitution. Loc . cit ., supra , at p. 265.
3. The dividing line between pur "commercial speech" and the communication of the ideas of an organization may some times be hard to draw. Generally, however, the line between the advocacy of ideas, be they generally accepted or rejected, and the sale of a product, including instructions or a "method" how to attain a stated goal, can be drawn with certainty. See Brentwood Research , P.S. Docket No. 1/173 (1973); Lydia Feldman , P.S. Docket No. 1/202(1973); Sharon Woodman Associates , P.S. Docket No. 2/122(1974).
4. In the instant case, Respondent's advertising circular, used to solicit memberships in the Respondent's organization, falls within the area of protected non-commercial speech. The features of the circular set forth in the Findings of Fact make it plain that what Respondent seeks is adherents to its ideology. No ordinary or even trusting mind, presented with Respondent's advertising circular, could believe that straight, sober business advice would be forthcoming to those who joined Respondent. See Donaldson v. Read Magazine , 333 U.S. 178, 189 (1948). On the other hand, those to whom Respondent's stated ideological bias appealed received from Respondent in exchange for their membership dues what Respondent had represented. The plans and ideas proposed by Respondent in the literature sent to its members may appear to most fantastic and implausible. But those who sent for it out of ideological affinity or out of curiosity have not been deceived.
5. Hence, the conclusion is unavoidable that Respondent was not engaged in conducting a scheme or device to obtain money or property through the mails by means of false representations in violation of 39 U.S.C. 3005. On the contrary, it was exercising its constitutional right of free speech. To afford protection for free speech as well as the public's purse under 39 U.S.C. 3005 is a matter of duty, not discretion. To the extent that the Postal Service decision in Parker Publishing Co. , P.O.D. Docket No. 3/80 (1971) indicates otherwise, I would respectfully suggest that it be reconsidered when an appropriate occasion arises. In the instant case, the order requested by Complainant should not be issued.