In the Matter of the Complaint Against KARFAX and KARFAX INDUSTRIES, Rt. 2, Box 60, Swaggertown Road at Scotia, NY 12302 P.S. Docket No. 7/36 June 5, 1979 Quentin E. Grant Administrative Law Judge APPEARANCES FOR COMPLAINANT: Thomas A. Ziebarth, Esq. H. Richard Hefner, Esq. Consumer Protection Office Law Department U. S. Postal Service Washington, D.C. 20260 APPEARANCE FOR RESPONDENT: Donald F. Conine President Karfax Industries Pro se Scotia, N.Y. 12302
In a Complaint filed March 14, 1979, Complainant alleged that respondent, doing business under the names and at the address set forth in the caption hereof, is engaged in conducting a scheme for obtaining money through the mails in violation of 39 U.S.C. 3005.
Respondent filed an answer to the complaint containing denials and admissions of the material allegations thereof and requesting a dismissal of the complaint on the ground that exhibits annexed thereto contradict certain of the allegations thereof. The motion was denied with a continuance of the hearing from April 16 to April 30 granted to enable respondent to prepare for hearing.
The hearing was held as scheduled. Respondent did not appear thereat. Complainant's evidence was received in accordance with Section 952.11 of the rules.
1. Based on the testimony of Postal Inspector Alvin J. Pritchard concerning a test purchase of respondent's plan and product, "Mail Order Profits at Home" (Tr. 4-10) together with complainant's exhibits CX-1 through CX-13, I find that respondent is engaged in a scheme for obtaining money through the mails.
2. Respondent seeks money through the mails in a two-stage promotional effort. Initially, interested persons are invited to rush to respondent a stamped envelope for information concerning "HUNDREDS WEEKLY STUFFING ENVELOPES" (CX-1(a) through (d).
3. Persons responding to these advertisements are sent a letter addressed "Dear Opportunity Seeker" which advertises the availability of the "KARFAX STUFF ENVELOPES PLAN" (MAIL ORDER PROFITS AT HOME") (CX-3) for the sum of $6.00 sent to respondent by mail.
4. In response to an order for the plan respondent mails a booklet entitled "MAIL ORDER PROFITS AT HOME" which contains instructions for participation in the plan (CX-5a).
5. Paragraph V of the complaint contains specific allegations of express and implied misrepresentations made by respondent concerning the plan. These allegations are repeated below followed by findings as to whether or not respondent makes the allegations alleged.
a. " Respondent will employ and compensate persons "Stuffing envelopes. "
I do not find this representation made in respondent's magazine advertisements (CX-1) or the letter sent to persons responding to the magazine advertisements (CX-3). The magazine advertisements do not use the words "employment" or "homeworker" or any other wording representing that employment by respondent is being offered. The letter emphasizes establishment in a going business, profits, reinvestment of profits, dealership, and a business of your own. It does not contain an offer of employment in any form, express or implied.
(b) Respondent will provide "Free supplies [and] stamps" to persons whom he employs stuffing envelopes .
Respondent's advertisements (CX-1) indicate that free supplies and stamps will be furnished by respondent to participants in the plan. Respondent's letter (CX-4) indicates that sales letters, order forms, and stamped envelopes will be supplied by respondent free. The plan itself (CX-5a) discloses that these representations are false. However the allegation as a whole has not been proved because, as found above, respondent does not offer employment.
(c) Respondent will compensate persons at a rate of "Hundreds weekly stuffing envelopes. "
This allegation has not been proved. Neither respondent's advertisements nor its letter indicate that the compensation of participants in the plan will come from respondent.
(d) Persons participating in "THE KARFAX STUFFING ENVELOPES PLAN" will thereby earn" . . . 1200, or more each month .
Respondent's letter (CX-3) in its third paragraph and the order form page attached thereto in its eighth paragraph make this representation explicitly.
(e) Participants in "THE KARFAX STUFF ENVELOPES PLAN" will receive ". . . $500 in net profits . . ." for ". . . each 1000 envelopes [they stuff]."
This representation is found to be made explicitly in the third paragraph of respondent's letter (CX-3) and the eighth paragraph of the order form page attached thereto.
On receipt of "THE KARFAX STUFF ENVELOPES PLAN" the purchaser discovers for the first time that respondent's advertising is a complete hoax; that the plan does not involve the simple stuffing of envelopes at so much per envelope or number of envelopes. Rather, it involves operating and perpetuating a scheme essentially identical to that operated by respondent. This scheme is described by respondent in a letter to Postal Inspector Pritchard (CX-13) as one for the sale of a booklet and advice, the booklet being one outlining a plan essentially identical to that sold by respondent. The booklet sold by respondent (CX-5a) discloses that to operate the scheme in a manner such as to produce earnings of $1200 per month, if such earnings were possible at all, would require an investment of approximately $500 per month in advertising and $70 per month for letters, order forms and envelopes, resulting inquiries numbering approximately 1750 per month and conversion of approximately 20%, or 350, of such inquiries per month to orders for the booklet. Respondent's booklet makes it clear that achievement of such a rate of return and income can be expected if at all only after adoption of an assumed business name (with probable attendant expense), acquisition of a typewriter and post-office box, careful research into the methods and modes of effective advertising, adopting successful advertising methods, establishment of advertising records and income and expense journals, acquiring a large quantity of mailing materials and several months of successful operation.
6. I find that the representations alleged in paragraph V (d) and (e) of the complaint are materially false in fact.
7. Respondent's letter of November 24, 1978 to Postal Inspector Pritchard states that only 1% of the purchasers of the plan become active participants or "dealers." He further states that he has 3 active dealers who as a group send him 10 orders per week for the booklet. This volume of orders translate into less than $15.00 per week earnings for each of the three dealers after deduction of business expenses.
8. Based on Findings of Fact Nos. 6 and 7 above, I conclude that the representations made by respondent as alleged in paragraphs V (d) and (e) of the complaint are materially false in fact. The plan is in fact a pamphlet selling plan, not an envelope stuffing plan as represented by respondent. And, as a matter of common sense, based on the considerable expense and difficulty of participating on a large scale in the plan, together with the evidence provided in respondent's own letter (CX-13), achievement of the earnings promised by respondent is from the standpoint of the average purchaser a practical impossibility.
1. The meaning of advertising representations is to be judged from a consideration of an advertisement in its totality and the impression it would most probably create in ordinary minds. Donaldson v. Read Magazine , 333 U.S. 178 (1948); Vibra-Brush Corp. v. Schaffer , 152 F. Supp. 461 (S.D.N.Y., 1957); Borg-Johnson Electronics v. Christenberry , 169 F. Supp. 746 (S.D.N.Y., 1959).
2. The average person reading respondent's advertisements would interpret them substantially as characterized in paragraphs V (d) and (e) of the complaint.
3. Such representations are materially false in fact.
4. The effect of false representations is not dispelled by a money-back guarantee. Borg-Johnson Electronics v. Christenberry , supra .
5. Respondent's vigorous argument that he is selling nothing more than a self-help book is not a valid defense. Respondent's plan is not advertised or described as such a plan in its advertising and promotional literature wherein the materially false representations are made.
6. Complainant has failed to prove the allegations of paragraphs V (a), (b), and (c) of the Complaint. The complaint is dismissed as to those allegations.
7. Respondent is engaged in the conduct of a scheme for obtaining money or property through the mails by means of false representations in violation of 39 U.S.C. 3005.
8. An order pursuant to that statute in the form attached should be issued.