In the Matter of the Complaint Against

 GOC
 P. O. Box 2770 at
 Stuart, FL 33494

 and

 GROUP ONE COMMUNICATIONS
 2321 N.E. Dixie Highway at
 Jensen Beach, FL 33457

 P.S. Docket No. 12/118;  

 09/03/82

 Cohen, James A.  

 APPEARANCE FOR COMPLAINANT:
 H. Richard C C L U WHefner, Esq.
 lark C. Evans, Esq.
 onsumer Protection Division aw Department nited States Postal Service ashington, DC 20260

 APPEARANCE FOR RESPONDENT:
 R D S O F obert L. Beals, Esq.
 i Giulian, Spellacy & DiChiara uite 1500 ne Financial Plaza ort Lauderdale, FL 33394

Respondent has appealed from the Initial Decision of an Administrative Law Judge which holds that, with regard to the sale of mailing list distributorships, it is engaged in a scheme to obtain money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

On October 28, 1981, the Consumer Protection Division of the Law Department, United States Postal Service (Complainant) filed a Complaint alleging that Respondent was selling distributorships through the mail, through advertisements and a booklet entitled "Lists By Mail," by means of false representations in violation of 39 U.S.C. § 3005. Specifically, paragraph III of the Complaint alleges that Respondent's materials falsely represent that:

"(a) Purchase of the booklet 'Lists By Mail' will allow immediate participation in Respondent's promotion without further substantial financial investment by the homeworker.

(b) The principal activities leading to sizable earnings are insertion of sales literature into envelopes followed by mailings to prospects and processing return orders.

(c) Names and addresses of sales prospects will be furnished on gummed address labels.

(d) Respondent's mailing lists are widely marketable at the advertised price."

Respondent's Answer denied both that the representations alleged in the Complaint were made and that they are materially false. The Complaint was subsequently amended twice to incorporate additional advertisements.

At a hearing before an Administrative Law Judge, Complainant presented the testimony of Calvin L. Townsend, one of Respondent's distributors, and Postal Inspector Gary D. Cantley. Respondent presented the testimony of Roger H. Lourie, a mail order expert; Carl Brimm, Respondent's secretary/treasurer and 100% stockholder; and Postal Inspector Judith K. Groom. On the basis of the testimony presented, as well as the exhibits received in evidence, the Administrative Law Judge issued an Initial Decision which found that Respondent makes the representations alleged in subparagraphs III (a) through (d) of the Complaint and that they are materially false. Respondent appealed the Initial Decision to the Judicial Officer. Both parties have filed written briefs.

Respondent has filed two exceptions to the Initial Decision, neither of which relate to the Administrative Law Judge's findings with respect to subparagraphs III (a) and (c) of the Complaint. Therefore, issuance of a False Representation Order would be appropriate based on the undisputed findings that the representations alleged in subparagraphs III (a) and (c) were made and are materially false. Nonetheless, on appeal the entire record has been considered (39 C.F.R. § 952.26) along with Respondent's exceptions, which are discussed, in turn, below.

"The Administrative Law Judge erred in finding

that the sizeable earnings representation of

the Respondent was false."

Respondent first argues that the Administrative Law Judge's interpretation of subparagraph III (b) of the Complaint is "grammatically incorrect" because the charge expressed in this subparagraph only concerns "principal activities" and does not embrace a representation that sizable earnings can be made. The Administrative Law Judge found that the subparagraph "refers to two representations:

1. Sizable earnings can be made in Respondent's program.

2. The principal work will be insertion of sales literature into envelopes and processing return orders" (I.D. at 7).

Subparagraph III (b) of the Complaint charges Respondent with having represented that "the principal activities leading to sizable earnings are insertion of sales literature into envelopes followed by mailings to prospects and processing return orders" (emphasis added). A fair reading of this language is that the sizable earnings can be realized by insertion of sales literature into envelopes followed by mailings to prospects and processing return orders. It encompasses an allegation of sizable earnings as well as an allegation that the principal activities are those enumerated.

Further, Respondent was aware that Complainant was charging it under this paragraph with making the representation that sizable earnings can be made. At the hearing, Complainant's counsel stated, without encountering any objection from Respondent's counsel, that " i n allegation b of the Complaint , the Complainant charges that the Respondent falsely represents that sizable earnings will accrue from participation in Respondent's distributorship program" (Tr. 46). Accordingly, the Administrative Law Judge's interpretation of subparagraph III (b) as including the representation that sizable earnings can be made is affirmed.

Respondent's principal argument under this exception appears to be that the Administrative Law Judge "gave full credence to the testimony of a man who obtained a high school diploma through a correspondence course Calvin T. Townsend, one of Respondent's distributors, who testified for Complainant . . . and discounted entirely the testimony of an expert witness with a post-graduate degree who had testified for the Government on two prior occasions Robert H. Lourie, who testified for Respondent on mail order industry practices ." (Respondent's brief at 4). However, a review of the Initial Decision discloses that, in making his findings, the Administrative Law Judge specifically considered Mr. Lourie's testimony "that the average GOC distributor would sustain a net loss in participating in GOC's program" and "that GOC distributors should expect to spend considerable hours in connection with the mailings required under the program" (I.D. at 8).

The Administrative Law Judge's characterization of Mr. Lourie's testimony is supported by a review of the hearing transcript. Mr. Lourie testified that in order to make a profit, a distributor would require more guidance than is given in Respondent's booklet (Tr. 127); that "there are skills necessary in the recognition of what types of classified ads to go after" (Tr. 108); that if "a raw distributor" wanted to become expert in mail order he would have to "find a class, read basic text books, attend industrywide lectures' or engage in similar activities (Tr. 113); and that the "conservative" 5% response rate represented in Respondent's booklet (CX D at 14 and 17) was unrealistic and that a .5% response rate would be expected for the average GOC distributor (Tr. 123-124). He further testified that the response rate to be expected varies with the time of year inquiries are mailed (Tr. 97-99), a variable that is not mentioned in Respondent's booklet. Finally, even based on his own estimate that Respondent's distributors had received an average of five orders, Mr. Lourie concluded that the distributors incurred net losses (Tr. 124-127, 130). In short, the portrait of a distributor's expectations given by Mr. Lourie contrasts sharply with Respondent's advertisements, which represent that "you can amass large amounts of cash-in-advance orders almost overnight" (CX-A) and realize "big profits" (e.g., CX-C and D).

Respondent's implication that Mr. Townsend's testimony should be discounted because he obtained a high school diploma through a correspondence course is somewhat ironic in view of the statement contained in one of its advertisements that " y our educational background is not important to your success in my program." (CX-B). Indeed, it is apparent from Respondent's advertisements that Mr. Townsend reflects the type of individual at whom Respondent's program was primarily targeted. His conception of, and involvement with, this program are therefore of great interest. The record discloses no basis for disturbing the Administrative Law Judge's conclusion that Mr. Townsend is "a reasonably bright and extremely dedicated and ambitious individual" (I.D. at 8).

Respondent more specifically argues that Mr. Townsend's testimony that he did not make a single sale after 259 inquiries has been discredited by Mr. Lourie's statement that this number of inquiries was insufficient for testing the program. However, Mr. Lourie's testimony merely supports the conclusion that Respondent's advertising is misleading. The order form included in Respondent's booklet (CX-D, page identified as "7-H") clearly invites distributors to order "250 of all supplies listed above." A reader of this booklet without previous experience in mail order work would reasonably assume that this quantity was sufficient to elicit a valid customer response. The booklet contains no caveat to the contrary and it is reasonable to conclude that such a reader, on first trying this unfamiliar enterprise, would invest the least capital possible and therefore would order the minimum quantity of supplies. Moreover, Mr. Townsend testified to spending considerable time researching potential recipients of his 259 inquiry letters (Tr. 18, 32). Had Mr. Townsend ordered a larger quantity of supplies, he obviously would have been required to spend even more time researching customers. In contrast, Respondent's booklet states that a "2,000 piece mailer program requires about 90 minutes to assemble. After that, sit back and take it easy." (CX-D at 4).

Finally, Respondent argues that the Administrative Law Judge improperly relied on a chart developed by Postal Inspector Cantley. Based on this chart, Inspector Cantley concluded that the average distributor made two sales and incurred a net loss. However, as noted supra, even if Mr. Lourie's contrary assumption that the average distributor made five sales is accepted, the result is still a net loss. Further, Respondent's witness Mr. Brimm, testified that over a twelve-month period, Respondent's net profit from distributors' sales of mailing lists was only approximately $40,000 (Tr. 159). Mr. Brimm testified that Respondent has between 960 to 1,000 distributors (Tr. 139). While the amount of commission to distributors varies with the size of an order, in most instances over one-half of the retail sales price for mailing lists is forwarded to Respondent (CX-F-2 and F-5). However, even assuming that the $40,000 net proceeds to Respondent reflected an additional $40,000 profit to 960 distributors, and assuming further that the distributors incurred no other costs, it is obvious that the average distributor did not make the big profits promised by Respondent. This is so even if Inspector Cantley's figure of 696 distributors (Tr. 48) is adopted. Indeed, when the costs of supplies and postage are considered, it is obvious that the average distributor incurred a net loss.

These figures belie Respondent's assurance that " b y following my methods, it is almost impossible not to succeed" (CX-C). While Respondent argues that no evidence was presented that most distributors attempted to make a sale, Mr. Townsend's testimony was convincing as to the result obtained when an inexperienced distributor diligently follows the instructions contained in Respondent's booklet.

Accordingly, the Administrative Law Judge's finding that Respondent falsely represented sizable earnings can be made in its program is affirmed.

"The Administrative Law Judge erred in finding that

the Respondent's mailing lists were not widely marketable

at the advertised price."

Respondent argues that the Administrative Law Judge's conclusion that its lists are not widely marketable at the advertised price was not supported by the evidence and disregarded the testimony of its expert witness, Mr. Lourie. According to Respondent, the only evidence which could yield a contrary inference was totally discredited by Mr. Lourie.

While Mr. Lourie did testify that the mailing lists were widely marketable at the advertised price (Tr. 105-106), he also testified that Respondent's distributors would not be able to market the mailing lists following Respondent's program (see discussion supra.). Furthermore, Mr. Townsend's testimony relating to his efforts to market the lists, as well as the testimony of Inspector Cantley relating to results obtained by other distributors, supports the conclusion that within the framework of the program advertised by Respondent, the mailing lists are not widely marketable at the advertised price.

After consideration of the entire record and Respondent's exceptions, it is concluded that Respondent is engaged in a scheme to obtain money through the mail by means of materially false representations. Accordingly, Respondent's appeal is denied. A remedial order under 39 U.S.C. § 3005 is being issued with this decision.