In the Matter of the Complaint Against WILLIAM VAUGHT, d/b/a CLAY ENTERPRISES at 323 South Franklin, 804 Chicago, IL 60606 P.S. Docket No. 13/55; 04/26/82 Mason, Randolph D. APPEARANCE FOR COMPLAINANT: Anne Gallant, Esq. Steven B. Caver, Esq. Consumer Protection Division Law Department United States Postal Service Washington, DC 20260 APPEARANCE FOR RESPONDENT: William C. Vaught, President Clay Enterprises 323 South Franklin, 804 Chicago, IL 60606
This proceeding was initiated on March 4, l982, when the General Counsel filed a complaint against the Respondent. The complaint alleged that Respondent is 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 (1980). Respondent filed an answer which substantially denied the allegations of the complaint, and stated that Respondent would not attend the hearing.
A hearing was held by the undersigned on April 7, l982, in Washington, D.C. Respondent failed to appear and Complainant was permitted to introduce evidence and make proposed findings of fact and conclusions of law. Based on the entire record herein, including my observation of the Complainant's witness and his demeanor, the exhibits and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions of law:
1. Respondent is William Vaught, doing business as Clay Enter prises, 323 S. Franklin 804, Chicago, IL 60606. (Exh. C-1; C-5; C-9).
2. Respondent's advertising and other promotional material seeks remittances of money or property through the mails from persons who wish to obtain loans. (Exh. C-1; C-5; C-9).
3. Respondent initially attracts the attention of prospective customers by means of the following advertisement (Exh. C-1):
6% LOANS. Nobody refused $1.00 (refundable) with completed application. Clay Enterprises, 323 South Franklin 804, Chicago, IL 60606
4. The above advertisement represents, as alleged in paragraph III of the Complaint, in substance and effect, that upon payment of a fee not exceeding $1.00, any person may obtain loans from Respondent at an interest rate of 6%. (Exh. C-1).
5. Persons responding to the above advertisement by mailing $1.00 to Respondent receive a form letter. The letter requires the person to remit an additional $49 to become a member of Respondent's club before a loan may be obtained. (Exh. C-5). As alleged in paragraphs IV and V of the complaint, this form letter represents that for a membership fee of $50, a participant in Respondent's club will be able to borrow at least $50 and thus should have a reasonable expectation of obtaining a first loan in an amount greater than $50. In this regard, the letter states: "You can borrow from $50.00 on up." (Exh. C-5).
6. Individuals mailing the additional $49 to Respondent thereafter receive a second form letter which states that new members are entitled to borrow a maximum of $50 at 6% interest and that it must be paid back in monthly installments of $8.59 over a six month period. (Exh. C-9).
7. Respondent's representation that any person may obtain 6% loans upon payment of a fee not exceeding $1.00 is false. Respon dent requires $50 in membership fees before a "loan" is given. (Exh. C-5).
8. In addition, Respondent's representations that a partici pant in the club would be able to borrow at least $50, and thus should have a reasonable expectation of obtaining a first loan in an amount greater than $50, are false. The maximum first "loan" given by Respondent is $50. (Exh. C-9).
9. The false representations made by Respondent are material since they had the effect of inducing individuals to remit money to the Respondent.
1. Respondent's advertisement and form letters are to be considered as a whole and the meaning is to be determined in light of the probable impact of these materials on a person of ordinary mind. Donaldson v. Read Magazine, 333 U. S. 178, 189 (1948); Peak Laboratories, Inc. v. U. S. Postal Serv., 556 F.2d 1387, 1389 (5th Cir. l977). The impression of advertising on the ordinary mind is a question of law for the presiding officer to determine and testimony on interpretation is not required to make that determination. Vibra-Brush v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. l157). Express misrepresentations are not required. It is the net impression which the advertisement is likely to make upon individuals to whom it is directed which is important, and even if an advertisement is so worded as not to make an express representation, if it is artfully designed to mislead those responding to it, the ail fraud statutes are applicable. G. J. Howard Co v. Cassidy, 162 F. Supp. 568 (E.D.N.Y. l958); see also, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 424 U.S. 748 (1976).
2. Applying the foregoing standards, I find that Respondent's advertisements and promotional materials make the representations alleged in paragraphs III, IV, and V of the complaint.
3. The representations found are materially false in fact.
4. Complainant has established its case 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. l978).
5. Respondent contends that he promised and give refunds to dissatisfied customers. However, such actions will not dispel the effect of false advertisements. The decisive factor is whether the mails are being used in a scheme which may result in obtaining money by means of false representations. Farley v. Heininger, 105 F.2d 79 (D.C. Cir. l939); Borg-Johnson Electronics, Inc. v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959).
6. 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.
7. An order pursuant to 39 U.S.C. § 3005, in the form attached, should be issued against Respondent.