In the Matter of the Complaint Against SUPER-CAR PUBLICATIONS P. O. Box 28101 at St. Louis, MO 63119 P.S. Docket No. 7/127; 02/19/80 Duvall, William A. APPEARANCE FOR COMPLAINANT: Dani el S. Greenberg, Esq. Law Department United States Postal Service Washington, DC 20260 APPEARANCE FOR RESPONDENT: Tony K. Vollers, Esq. Darwin A. Hindman, Jr., Esq. 1001 East Walnut, Suite 300 Columbia, MO 65201
The Complaint by which this proceeding was initiated was filed on December 7, 1979. In the Complaint it is charged by the United States Postal Service, the Complainant, that the Respondent, Super-Car Publications, at St. Louis, Missouri, is engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations within the meaning of Section 3005 of Title 39 of the United States Code as hereinafter set forth.
In Paragraph I it is alleged that Respondent attracts attention to said scheme by means of matter (hereinafter referred to as the "advertisements," typical copies attached as Exhibits A, B and C), referring to the product described in Paragraph II below.
Paragraph II contains the allegation that by means of said advertisements, and in similar matter, Respondent represents, directly or indirectly, by means of affirmative statement, implication or omission, in substance and effect:
"(a) That the principles enumerated in Respondent's manual 'Own and Drive a New Car Free' will enable the average consumer to obtain a new case without cost;
"(b) That said car can be a luxury model;
"(c) That said car can be loaded with 'all the options you may have passed up before';
"(d) That the principles enumerated in Respondent's manual will enable the average consumer to drive said new car without cost;
"(e) That the principles enumerated in Respondent's manual will enable the average consumer to effect the results enumerated in subparagraphs (a) through (d), supra, each year;
"(f) That said average consumer need not be skilled in bargaining in order to effect the results enumerated in subparagraphs (a) through (e), supra;
"(g) That said average consumer need not be knowledgeable about the factors involved in automobile purchasing in order to effect the results enumerated in subparagraphs (a) through (e), supra;
"(h) That the principles enumerated in Respondent's manual will enable the average consumer to reduce his/her automobile payments to a small percentage of what they should ordinarily be."
In Paragraph III of the Complaint it is alleged that the said representations are materially false as a matter of fact.
In Paragraph IV it is alleged that by means of requests contained in, or accompanying the advertisements, Respondent seeks to induce readers thereof to remit money or property through the mails to the captioned name and address for the said product.
The hearing in this proceeding was originally set for January 14, 1980.
In the Answer to the Complaint which was filed by the Respondent, Respondent admitted the use of Exhibits A, B and C to the Complaint but denies that its business is a scheme. It further denies the remainder of the allegations in Paragraph I of the Complaint.
Respondent admits the making of the allegations which are set forth in Paragraph II of the Complaint. Respondent denies that the representations which it admits to making are materially false as a matter of fact.
The Respondent admits that be means of its advertising material it seeks to induce readers thereof to remit money or property through the mails to the Respondent for the purchase of Respondent's product.
In Paragraph 5. of the Answer the Respondent states that the action of the Postal Service requested by the Complainant denies the Respondent and its officers, directors, employees and stockholders their rights of free speech under the First Amendment of the United States Constitution and that it is contrary thereto.
At the Respondent's request the hearing was continued so as to commence on January 23, 1980, and, taking into consideration the convenience and necessity of the parties, particularly of the Respondent, the hearing was held at St. Louis, Missouri, also at Respondent's request.
Respondent, as indicated above, admits the use of the advertising material attached to the Complaint as Exhibits A. B an C, thereto, copies of which are attached hereto as Appendices A, B and C, to this decision. Respondent admits, also, that by means of Appendices A, B and C, it makes the representations set forth in Paragraph II of the Complaint and that it seeks to induce readers to remit money to the Respondent to purchase Respondent's product.
The product being sold by the Respondent is a pamphlet in which is described a plan or system of buying new cars. The pamphlet is entitled, "Own and Drive A NEW CAR FREE]"
On the second unnumbered page of the booklet, hereinafter sometimes called the product, there is the following caveat: "Although the system set forth in this booklet will work if properly utilized, Super-Car Publications will not guarantee, or be liable for, any and all results obtained from utilizing this system." This caveat does not appear anywhere in Respondent's pre-sale advertising material.
Looking at Respondent's product, pages 3 to 6, inclusive, contain Respondent's statement of "The Way Things Are," or present practices in the automobile business, advantages enjoyed by the automobile dealers and the opportunity offered to the buyer in a time of increasing inflation. At pages 7 to 10, under the caption, "Step One: Let's Look at the Classified Page:", there is a critique and analysis of dealer's advertisements. On page 11, there is a caption, "Step Two: Select Your New Car and Determine Price." In this section there is a discussion of the list price, the price the dealer pays, and the price the average buyer pays. This step involves determining the real or actual dealer cost of the car that the purchaser wants. A publication known as "Edmund's New Car Prices," is recommended as a good source of this information. The dealer cost must be compared to the list or sticker price.
On page 13 there is a caption, "Step Three: A Preliminary Visit." The purpose of this visit is to gain information concerning automotive sales methods. On pages 13 to 14 1/2 there is, "Step Four: Absolutely No Trade-In]" Allowances by dealers are said to be based on sticker prices and not on the prices the dealers pay for the car. Respondent recommends that car owners sell their old cars outright before going to the dealer to buy a new car.
On pages 15 1/2 to 17 there is, "Step Five: You Must Buy the Car at Dealer Cost]" The point of this step is that the car buyer must buy the new car for not more than $100 over dealer cost. In this section the buyer is advised to engage in dealer shopping in order to get the most advantageous price. It is stated in the booklet, "Once you find a dealer who will deal at the price you want to pay, you can generally return to that same dealer every model year and receive the same treatment." (Comp. Ex. 3, p. 16)
On pages 18 to 19, inclusive, there is found, "Step Six: Paying for Your New Car." The crux of this step is described as follows: "***go to your banker and ask for a note, secured by the car, for a period of twelve months, with the entire principal amount due at the end of the note and payable in one lump-sum. Arrange for the interest only to be paid quarterly while the note is in effect] Thus you drive the car for a year with the only expense being the interest on the note] AND THAT EXPENSE, BEING INTEREST, IS TAX DEDUCTIBLE] *** SELL THE CAR AT THE END OF THE TWELVE MONTHS FOR THE SAME PRICE YOU PAID OR A LITTLE MORE] YOU PAY OFF THE NOTE WHEN YOU SELL THE CAR] ALL THE CAR COST YOU THEN WAS THE INTEREST ON THE NOTE WHICH IS TAX DEDUCTIBLE]" The idea back of this part of the plan is that inflation will have increased used car prices 8 to 12 per cent during the year's period. Inflation will then have offset depreciation and the purchaser will be able to sell the car for what he paid for it.
Pages 20 to 21 contain, "Step Seven: Selling Your Car." This step emphasizes the importance of picking the "right" car in the first instance. Popular, medium-priced cars at not "right." Special cars with special options are "right" cars, as are most luxury cars. Respondent points out that cars with diesel engines are good cars to use in employing Respondent's system. Other good features to have are turbo-charged engines, computer package AM-FM stereo radios, citizen-band radios, sun roof, air conditioning and power equipment. Intensive advertising is urged and the method recommended for setting the price is to follow the classified advertising in newspapers with particular attention being paid to used car ads being run by dealers, since they get highest prices for their used cars.
Page 22 is the "Conclusion": If a person sells his car for only what he paid for it, the cost of ownership is limited to the interest paid on the note, which the Respondent says would be reduced by about 50 per cent through tax deduction.
In the Respondent's view, licenses, taxes, and insurance do not enter into the picture since these are constant costs which must be paid regardless of what kind of car one drives. They can not be eliminated. This last information is not contained in Respondent's pre-sale advertising material.
On pages 23 and 24 there is an "Addendum" in which the probabilities for the future are discussed, along with the effects of the current gasoline prices.
I am constrained to say at this point that I do not subscribe to the Complainant's point of view, that the average purchaser is going to believe that such items as insurance and upkeep will be paid for by following Respondent's plan. It seems to me it is no more logical to think those expenses would be paid than to think that Respondent's plan would pay the cost if you should be driving down the street and run across a nail and have a flat tire. I do not think that type of expense is represented as being covered.
The first witness called by the Complainant was Jerry L. Byrd, Sr., who is a Senior Vice-President of the St. John's Bank and Trust Company of St. Louis, Missouri. Of the approximately 150 banking institutions in the city of St. Louis and in St. Louis County, the St. John's Bank and Trust Company is about the 25th in size, measured by the amount of assets. Mr. Byrd has been with the St. John's Bank and Trust Company for 21 years and he is now the head of the Consumer Loan Department and the Commerical Loan Department of that institution. He has attended classes and seminars sponsored by the American Institute of Banking. In 1971 he attended the Consumer School of Banking at the University of Virginia. He has attended, also, the Graduate School of Banking at the University of Wisconsin and he has taken additional courses in banking at the University of Oklahoma.
The bank of which Mr. Byrd is an officer would not make loans with deferred payment of principal for one year, secured only by an automobile. That bank would not lend more than 75 per cent of the list price of the car and it would require full payment in 36 months.
The policy of the St. John's Bank and Trust Company regarding the 75 per cent of list price as the loan maximum has been consistently in effect for the past 21 years, although an exception might be made in the case of a person who made a big down payment on a car, a person who wanted to defer principal payments for not more than three to six months, or for a well-established customer with a good balance in his account. These are exceptional circumstances and would not apply generally.
If a purchaser should get a good price from a dealer or if the purchaser should get a good trade-in price on his presently owned car, or if both of these conditions should occur, the maximum bank loan would still be 75 per cent of list price.
Complainant's next witness was Roger Adams, who has 18 years experience in automobile sales in the St. Louis area and who, for the past six years, has been sales manager of Carlson Oldsmobile in St. Louis, Missouri. Mr. Adams is in charge of a 22-man sales force which engages in the leasing of cars and the sale of new and used cars. In his business Mr. Adams competes with other Oldsmobile dealers and with dealers in other makes of cars.
Automobile prices are based on the seller's costs, established by the manufacturer's price, plus the necessary markup to pay all expenses and produce a profit to the dealer. On trade-ins the selling price of a new car is determined by subtracting the actual market value of the trade-in from the dealer's cost, and adding the necessary markup. The cost of automobiles to the purchasers vary with certain factors, including among others, the availability of certain models, intensive advertising campaigns, factory incentives, gas shortages and the like.
Automobile dealers could not remain in business if they made it a general practice to sell cars at $100 over their own cost of the car. The average gross profit figures on retail sales of various Oldsmobile cars in the St. Louis area were stated and the lowest such figure was about $375 per car, with the largest amount being roughly $940. For fleet sales the average gross profit is about $211 per car. Based on the witness's knowledge of the industry in general and of Oldsmobile dealers in particular, no automobile dealer is operating on the basis of a gross profit of $100 per car. Such a profit margin would not permit dealers to pay salesmen, have cars cleaned for delivery, pay fuel and other utility costs and other operating expenses.
Various factors may affect price markups in particular cases. Such as, for example, the availability of just certain models. As an illustration, only one factory in the United States is producing Oldsmobile 98's at the present. Because of the scarcity of this model the gross profit to the dealer is increased.
Purchasers are generally aware of trends in automobile buying and they are similarly aware that automobiles, at times, are discounted. Some situations that could cause a dealer to sell a car for $100 over his cost are: a purchaser comes in to buy on the last day of a sales contest; a particular model is carried over in inventory; if a car is equipped with undesirable options; a dealer is in a distressed credit situation; or a dealer is left with a large number of cars on hand at the end of a model year. Also, a good repeat customer sometimes gets a better price than does a casual one-time customer.
With respect to Respondent's advice to pick the "right" car to use in employing Respondent's system, it is not easy to pick the "right" car. For example, if a person had bought a luxury model of the car when the 1974 models came out, the gas shortage that occurred in that year would have made the sale of luxury cars difficult at the end of 1974.
The witness gave several examples of 1979 automobiles advertised in the St. Louis Post Dispatch of January 22, 1980, which the owners would have had difficulty in selling for the amount they paid for them. The average person would not be able to sell a year-old car and get back the amount he paid to buy the car, although it could happen in rare, special circumstances.
The president of the Super-Car Publications, Culver John Walters, Jr., was the first witness for the Respondent. He described how he devised the plan embodied in the pamphlet. His method involved pitting one dealer's offer against that of another until he got the deal he wanted from a dealer in Columbia, Missouri, the city in which he lives. Mr. Walters is the president of a number of companies located in Columbia, where he has lived for nine years. He deals with the Commerce Bank of Columbia where he has at least seven accounts. When he devised his plan to purchase his 1979 model car he went to the Commerce Bank where, without submitting a financial statement, he was granted a loan of over $7,500 on his signature alone, with the car as security. The note required no payment on the principal of the not for 12 months; only financing charges for one year were to be paid.
Mr. Walters ordered a new 1980 Oldsmobile in July 1979 which was delivered in October 1979. Mr. Walters advertised his 1979 car beginning on January 6, 1980, for $8,175 and, while he says he has had several prospective purchasers, the car was unsold as of January 23, 1980. The witness, Adams, without knowing, so far as it appears from the record, who the owner of the car was, noticed the advertisement in the January 22, 1980, Post Dispatch and expressed the view that the car was overpriced by about $1,000.
Mr. Walters said that the purchase and sale of each automobile is to be regarded as a separate transaction. The purchaser is to obtain at the end of a year the return of the purchase price of each car. The purchaser is not to expect to obtain from the sale of a one-year old car, enough money to pay the purchase price of a new car of the next year's manufacture.
Mr. Walters began advertising and selling his booklet in March of 1979. The advertising was done primarily in magazines and tabloids, and persons responding to such advertisements, Appendix A, were sent the mailing circular, which is Appendix B, and the order form, Appendix C.
To the date of the hearing approximately 1, 150 booklets had been sold and there had been but 17 refund requests, all of which were honored. Mr. Walters did not think anything in his advertising material was objectionable until he received the Complaint by which this proceeding was instituted. Since receipt of the Complaint he has ceased using the former advertisements and Respondent now uses revised advertising literature.
Mr. Walters conceded that persons using the short form of income tax return could not deduct the interest paid on loans secured to purchase cars, under his plan, and in order to deduct as much as 49 per cent of such interest the individual, if a single tax payer, had to earn as much as $34,000 per year.
Mr. Walters admitted that he did not state in his advertising material that success with his plan, if any, depends upon selecting certain types of automobiles, although purchasers of his plan are so advised on page 20 of his booklet.
Mr. Walters admitted that followers of his plan must either obtain a loan and pay interest thereon or pay cash to get the new car, but that this fact is not explained in the advertising materia.
Mr. Walters admitted that readers of his advertising material are not told that in order for his plan to be put into effect, followers of the plan must acquire a car for not more than $100 over the dealer's cost for that car.
Mr. Walters admitted that in order for his plan to succeed, if at all, the resale price of the car must be increased by the amount of interest paid on the loan obtained to purchase the automobile.
There were three other witnesses who testified at the call of the Respondent. These witnesses were Ms. Karen Sue Ford, Secretary of the Respondent, 117 Albany Drive, Columbia, Missouri; Culver John Walters, Sr., father of the Respondent's President, 445 East Jackson Road, Webster Grove, Missouri; Lee Walters, Vice-President of the Respondent and brother of the President of the Respondent, who lives at 445 East Jackson Road, Webster Grove, Missouri.
The first two of these witnesses testified that at the suggestion, and with the assistance, of Respondent's President, he or she had bought a 1980 car from Bisping Oldsmobile in Columbia, Missouri, the same dealer through which Respondent's President had purchased his 1979 and 1980 automobiles. The third of the above witnesses testified that he had done some research, some of the results of which were incorporated in Respondent's booklet.
The position of the Complainant is that the thrust of the Complaint in this case is directed not so much at the repre- sentations made by the Respondent in its advertising literature, as to the omissions of information and clarifications that should have been made in Respondent's advertising literature. The admissions referred to above made by Respondent's President and the authoritative statements of the Complainant's witnesses, both the banker and the automobile sales manager, give great weight to the position of the Complainant in this case. There is much that ought to have been said that was not said. That does not necessarily mean that the Respondent is to give away his idea or his method in his advertising material but he must not represent it in such glowing terms.
The case of Donaldson v. Read Magazine, 333 U.S. 178, expresses this idea very succinctly. In that decision, at page 188, the Court said, "Advertisements as a whole may be completely misleading although every sentence separately considered is literally true. This may be because things are omitted that should be said, or because advertisements are composed or purposefully printed in such was as to mislead." (Citing Wiser v. Lawler, 189 U.S. 260, 264 and Farley v. Simmons, 99 F.2d 343, 346.) It is the second sentence just quoted from the Read Magazine case which expresses the very essence of this case.
The Respondent submitted a memorandum of law in which it is urged that the Complainant in this proceeding, being the proponent of the rule or the order, has the burden of proof. Unquestionably, Complainant has the burden of proof in this case.
The next point raised by the Respondent refers to the case of American School of Magnetic Healing v. McAnnulty, 187 U.S. 94, a 1902 case. In McAnnulty, the matter at issue involved two opposing but widely held opinions concerning the extent to which the mind could affect bodily diseases. Respondent also cited Reilly v. Pinkus, 338 U.S. 269 (1949) to support its argument that Complain- ant had not sustained its burden of proof and that the Complaint should be dismissed. In Reilly, the Court rejected the view that any conflict of medical opinion would suffice. The Respondent's reliance on these cases is misplaced. These cases are clearly distinguishable and the decisions are inapposite in the present situation.
The third point raised by the Respondent is that Section 3005 of 39 U. S. Code cannot be construed to cover statements made within the publication in question since such a construction would cause the statute to violate the first amendment of the United States Constitution. As previously pointed out, the thrust of this case is aimed more at what is not said in pre-sale advertising than at what is said, either in advertising or in the product being sold. So this point is inapplicable to the situation under consideration. In addition, this point has been sufficiently disposed of in the case of Hollywood House International, Inc. v. Klassen, 508 F.2d 1276 (9th Cir. 1974).
Having considered this entire record and having listened carefully to the arguments of counsel for both parties, it is concluded that by its method of operation as revealed by this record, the Respondent is engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations within the meaning of Section 3005 of Title 39, United States Code.
A mail-stop order of the kind provided in that section should be issued against this Respondent.