In the Matter of the Complaint Against FINANCIAL ADVISOR SERVICES or FAS Box 13703 at San Antonio, TX 78213 P.S. Docket No. 8/20; 05/08/80 Grant, Quentin E. APPEARANCE FOR COMPLAINANT: Kris tin L. Malmberg, Esq. H. Richard Hefner, Esq. Consumer Protection Division Law Department United States Postal Service Washington, D.C. 20260 APPEARANCE FOR RESPONDENT: James J. Robertson, Esq. Richardson, TX 75080 Jack Leon, Esq. Sol Casseb, III, Esq. San Antonio, TX 78205
In a Complaint filed on March 24, 1980, Complainant alleges that Respondent is engaged in the conduct of a scheme for obtaining money through the mails by means of false representations in violation of 39 U.S.C. § 3005.
The specific allegations of false representation are set forth below in the Findings of Fact.
Respondent filed an answer to the Complaint denying all the allegations therein. It also asserted eight affirmative defenses which amount to motions to strike the Complaint before hearing. The motions were denied in my Order of April 24, 1980. Those denials are hereby reaffirmed and incorporated herein by reference.
At Respondent's request the location of the hearing was changed from Washington, D.C. to San Antonio, Texas. The hearing was held on May 2, 1980.
The parties have filed proposed findings of fact and conclusions of law all of which have been considered. They are granted to the extent indicated and otherwise denied.
1. Respondent is engaged in a scheme to obtain money or property through the mails (Tr. 9-14; CX-1a through CX-2c).
2. Respondent conducts its scheme by means of classified advertisements, direct mail advertisers, and direct mail solicitations (Tr. 41, 42; CX-1a, 1b). Direct mail solicitations are sent to names taken from lists of opportunity seekers purchased from commercial sources (Tr. 42, 43).
3. In paragraph VII (a) of the Complaint it is alleged that Respondent makes the representation in its advertising that it will provide employment for one or two hours daily. I do not find such a representation, expressly made or implied, in Respondent's advertising.
4. Respondent's advertising circular (CX-1a, 1b) makes the representations alleged in paragraphs VIII (b) through (f) of the Complaint, quoted and underscored below, in the wording quoted from its circulars following each allegation:
b) The only expense to the Homeworker will be the $15 "Deposit/Application Fee."
"He has absolutely nothing invested in any kind of property or special equipment. He has no office rental because he runs this business right on his kitchen table."
c) Compensation to the Homeworker is limited only by the number of hours worked.
"You can make as much or as little as you want ($178.00 per week minimum). That is entirely up to you. Do what you have time for as long as you agree to work at least one hour a day five days a week. By doing this work according to directions, we unconditionally guarantee that you're going to be making $178.00, $356.00 or $534.00 every week. How much you want to make is entirely up to you."
d) If the Homeworker follows the FAS instructions and works two hours per day he/she will earn $356 per week.
"$178.00 WEEKLY FOR ONE HOUR A DAY"
f) No special skills or knowledge are needed to successfully follow this program.
"And yet he gets a steady 2nd income of $356.00 every week from it, year after year, with no special skills, equipment, land investment, or knowledge."
5. The foregoing representations are false in fact for the reasons set forth under each of such representations quoted and underscored below:
b) The only expense to the Homeworker will be the $15 "Deposit/Application Fee."
To engage in nearly all of the mail order businesses suggested in Respondent's program ("The FAS Guaranteed Monthly Income Program") members must incur expenses for advertising, postage, envelopes, lists of names, a Certified Public Accountant, and, in some cases, product development and inventory (CX-2b; Tr. 59, 60).
c) Compensation of the Homeworker is limited only by the number of hours worked.
Number of hours worked is only one factor, and not the limiting factor, in a homeworkers' compensation derived from one of Respondent's suggested mail order businesses. The basic factor limiting income is the number of responses to advertising received (Tr. 55). Tied to this is the quality of lists of names purchased by a homeworker. This is evident throughout the program booklet (CX-2b) as are other limiting factors such as experience, business and management skills (Tr. 38, 63).
d) If the Homeworker follows the instructions and works two hours per day, he/she will earn $356 per week).
e) If the Homeworker follows the FAS instructions and works one hour per day, he/she will earn $178 per week.
According to Respondent's program booklet the incomes promised in these representations are based on a 15 percent response to a promotional circular sent in response to a response to a classified advertisement (CX-2b, App. B).
Complainant's evidence as to this allegation consisted of the testimony of Roger H. Lourie, Vice President for Marketing of Grolier Publishing Company. Mr. Lourie has had about 2 years experience in direct mail sales of records and tapes for CBS Division-Columbia House and 7 or 8 years in direct mail sales of books and records for Time-Life, Inc. (Tr. 8/18, 68-70). Based on his experience and background Mr. Lourie expressed the opinion that a five percent response could be expected to a promotional circular put together by a person with a certain amount of expertise, and a smaller percentage to one prepared by a novice.
Respondent's evidence on these representations was the testimony of its sole proprietor, Alan Chavis, who qualified as an expert in mail order business. The credentials of Mr. Chavis fall short of those of Mr. Lourie. The weight of his expert testimony is also diminished by his sole proprietorship of Respondent (Tr. 41) and his financial interest in the three other respondents who cases were heard in conjunction with the instant case and involved mail order schemes (Tr. 8/18, p. 118). Mr. Chavis did not testify directly to the percent response to advertising on which the represented income figures are based. He testified generally in his expert capacity that he would expect a 10 to 30 percent, average 20 percent, response to advertising circulars sent to persons responding to a classified advertisement (Tr. 8/18, pp. 107-109). Further Mr. Chavis's testimony was to the effect that the higher response rates would be achieved only with experience (Tr. 8/18, p. 114).
Attaching greater weight to the testimony of the disinterested and more highly qualified expert, Mr. Lourie, I find that the represented incomes will not be realized by the average person participating in Respondent's Appendix B program.
f) No special skills or knowledge are needed to successfully follow this program.
Successful operation of a mail order program requires skills in preparing and placing advertising, name selection, knowledge of printing and finance and skill in customer fulfillment (Tr. 38, 39; Tr. 8/18, pp. 86, 87).
6. Such representations are material because the natural effect thereof is to induce readers of Respondent's advertising to pay the required fee to join Respondent's program.
1. The meaning of advertising representations is to be considered in light of the probably impact of the entire advertisement on the person of ordinary mind. Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948); Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387, 1389 (5th Cir. 1977); Unique Ideas, Inc. v. United States Postal Service, 416 F. Supp. 1141, 1145 (S.D. N.Y. 1976).
2. The average person reading Respondent's advertisements would interpret them substantially as characterized in paragraph VII, subparagraphs (b) through (f) of the Complaint.
3. Complaint has established its case, except as to paragraph VII (a) of the Complaint, by a preponderance of the reliable and probative evidence of record. S.E.C. v. Savoy Industries, 587 F.2d 1149, 1168 (D.C. Cir. 1978); S.E.C. v. National Student Marketing, 457 F. Supp. 682, 701 n. 43 (D. D.C. 1978); Wilmont Products, P.S. Docket No. 6/46 (P.S.D. 1979); Gard, Jones on Evidence, § 30:4 (1972); Wigmore, Evidence, § 2498 (3d ed. 1940).
4. An element of religion does not extend a constitutional privilege which protects against a charge of fraud. Fields v. Hannegan, 162 F.2d 17 (1947).
5. A promise to refund if a customer is dissatisfied will not dispel the effect of false advertisements, Farley v. Heininger, 105 F.2d 79 (D.C. Cir. 1939); Borg-Johnson Electronics, Inc. v. Christenberry, 169 F. Supp. 746 (S.D. N.Y. 1959).
6. The representations specified in paragraph VII, subparagraphs (b) through (f) of the Complaint are materially false.
7. Respondent is engaged in the conduct of a scheme for obtaining remittances of money through the mails by means of materially false representations in violation of 39 U.S.C. § 3005.
8. An order pursuant to 39 U.S.C. § 3005 in the form attached should be issued against Respondent.