In the Matter of the Complaint Against BOND INDUSTRIES/CCP at Kendalia, TX 78027 P.S. Docket No. 13/84; 10/29/82 Cohen, James A. APPEARANCES FOR COMPLAINANT: H. Richard Hefner, Esq. Ben A. Kilgrow, Esq. Consumer Protection Division Law Department United States Postal Service Washington, DC 20260-1112 APPEARANCE FOR RESPONDENT: Edward Errol Chastain, Esq. Franz, Chastain & Cater 1019 Camden at N. St. Mary's Street San Antonio, TX 78215
Respondent has appealed from the Initial Decision of an Administrative Law Judge which holds that, with regard to its mailing program, Respondent is engaged in a scheme for obtaining money through the mail by means of false representations in violation of 39 U.S.C. § 3005.
On March 23, 1982, the Consumer Protection Division, Law Department, United States Postal Service (Complainant), filed a Complaint which in Paragraph 3 alleges that Respondent, expressly or by implication, falsely represents that:
"(a) instructions and starting supplies to be provided by Respondent are all that is necessary for participants to begin earning a steady weekly income;
"(b) no capital investment is necessary beyond the application fee; and
"(c) participants can reasonably be expected to earn $219.00 per week by mailing three hundred 'sales letters.'"
In its Answer, Respondent denied all of the allegations of the Complaint. At a hearing before an Administrative Law Judge, Complainant presented the testimony of Postal Inspector Ackermann, Ms. Pat Hodson, Ms. Shelia Fisher and Ms. Joyce Ann Riley. Respondent presented the testimony of Ms. Carolyn Wolf. On the basis of the evidence presented, the Administrative Law Judge concluded that Respondent makes the representations alleged in subparagraphs 3(a), (b), and (c) of the Complaint, but that only the representations in subparagraphs (a) and (b) are materially false in violation of 39 U.S.C. § 3005.
Respondent has stated a number of exceptions to the findings of fact and conclusions of law in the Initial Decision, each of which is addressed below.
In Finding of Fact No. 2, the Administrative Law Judge found that Respondent's direct mail circular makes the representation alleged in subparagraph 3(a) of the Complaint (I.D., pp. 3-4). In support of this finding the Administrative Law Judge quotes specific language from Respondent's circular. In taking exception to this finding Respondent alleges its circular includes references to further instructions which place the reader on notice that Respondent does not furnish all starting supplies and that further action is required of participants in order to receive stamped envelopes. It also argues that the representation alleged in subparagraph 3(a) of the Complaint is not stated expressly in Respondent's advertising and cannot be reasonably implied by the ordinary mind.
The language quoted by the Administrative Law Judge read in the context of the entire circular supports the finding that the representation alleged in subparagraph 3(a) of the Complaint is made in Respondent's direct mail circular. The ordinary reader would reasonably conclude that envelopes and supplies would be furnished by Respondent and that other than following instructions with respect to the supplies furnished, no further action on the part of the homeworker would be required. The absence of an express statement to this effect does not alter this conclusion since a false impression may be conveyed even where individual statements are true. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948).
Accordingly, the finding of the Administrative Law Judge is supported by the record.
In Finding of Fact No. 3 the Administrative Law Judge found the representation alleged in subparagraph 3(a) of the Complaint to be false. Respondent contends this finding is erroneous because the Administrative Law Judge's reading of the representation is strained and contradictory, the finding implies immediate receipt of income, its instructions are easy to read, the earnings of participants are calculated to allow for advertising expenses and advertising expenses will be advanced by Respondent.
The Administrative Law Judge found that Respondent's circulars make it appear that participants simply stuff and mail envelopes, and do not advise prospective participants they must place classified advertising at their own expense to receive the envelopes to stuff and mail. The Administrative Law Judge's reading of the advertisement was not strained and does not imply as Respondent argues that the " h homeworker will be receiving money within one minute after receipt of the starting supplies and instructions."
As to Respondent's "easy to read instructions," they are received after participants have paid for the program and thus come too late to affect the truth or falsity of the representations which induced the purchase of the program. Furthermore, even if earnings are calculated to cover the advertising expenses, nevertheless participants are required to advertise the program and solicit additional participants in order to realize any earnings. In addition, even if it is true that advertising expenses will be advanced by Respondent, participants are only so advised when they become disenchanted with the program and seek a refund. Even then any advances will be deducted from earnings so that in fact the advertising expense is incurred by the participant (Tr. 75-77). These facts establish the falsity of the representation alleged in subparagraph 3(a) of the Complaint. Accordingly, the Administrative Law Judge's finding is supported by the record.
The Administrative Law Judge found in Finding of Fact No. 4 that the representation alleged in subparagraph 3(b) of the
Complaint is made in Respondent's advertising and in Finding of Fact No. 5, that the representation is false. Respondent argues that the advertising does not expressly make the representation alleged in subparagraph 3(b) of the Complaint and that there is no evidence the representation is false. It also argues that the Administrative Law Judge has incorrectly defined the term "capital investment," and even if expenditures are required they do not constitute a capital investment.
Respondent correctly argues that it does not expressly represent that the application fee is the only expense participants would incur. However, it is the overall impression of the advertisement on the ordinary mind that governs the interpretation of advertising in a proceeding under 39 U.S.C. § 3005. Donaldson v. Read Magazine, Inc., supra. The reader of ordinary mind, interpreting Respondent's advertisement as a whole, would conclude that no other expenses would be incurred. Although it was not necessary for the Administrative Law Judge to have testimony regarding the meaning of the advertisement in order to arrive at this conclusion, Complainant presented the testimony of three witnesses who interpreted the advertisement as the Complaint alleges. Moreover, a simple comparison of the actual program as described in Complainant's material with its advertisement supports the finding of the Administrative Law Judge that the representation is false.
Respondent argues that even if advertising expenses are required to be incurred, such expenses do not constitute a "capital investment" as that term is reasonably understood. While the Complaint is inartfully worded, it is clear that during this proceeding, Respondent was aware that the term "capital investment" referred to advertising expenses. Respondent has not alleged that it was misled by the use of the term nor has it attempted to show that it understood the term to refer to anything other than the advertising expenses which were required to be incurred by participants. In fact, Respondent presented evidence to rebut Complainant's allegation that such expenses would be incurred. Thus, it was not prejudiced by the use of the term "capital investment." Accordingly, Finding of Fact Nos. 4 and 5 are affirmed.
In Finding of Fact No. 8, the Administrative Law Judge found that " t he misrepresentations set forth in subparagraphs (a) and (b) of paragraph 3 of the Complaint are material." Respondent contends that the use of the word "misrepresentations," in the finding of fact was erroneous since "the so-called 'misrepresentations' are not so stated and can only be concluded as a matter of law in the opinion of the trier of the fact" (Resp. Brief, p. 3).
Whether the representations alleged in the Complaint are characterized as "misrepresentations" in the findings of fact or in the conclusions of law or, as here in both, does not affect the ultimate conclusion that the alleged representations are false. Accordingly, Respondent's argument is without merit.
In Finding of Fact No. 9 the Administrative Law Judge addressed several matters having to do with Respondent's operation and the investigation performed by the Postal Service.
Respondent excepts to the finding on several grounds. The matters addressed in Finding of Fact No. 9 do not relate directly to the existence of the representations alleged in the Complaint or their falsity. Thus, even if there was merit to this exception, the ultimate decision would not be affected.
In Finding of Fact No. 10, the Administrative Law Judge found that " s ince January of 1982, Respondent has attempted to persuade individuals requesting a refund to participate in the program by offering to pay for the expense of the classified advertising" (I.D., p. 6). Respondent argues that the Administrative Law Judge improperly interpreted the evidence and raised the matter to "unfairly bolster" the Initial Decision.
Respondent's offer to advance the cost of classified advertising has been previously discussed and it has been concluded that such offer does not affect the falsity of Respondent's representations. Further, a review of the record does not establish that the evidence has been evaluated improperly or that it was inappropriate to make the findings included in Finding of Fact 10. Accordingly, there is no merit to this exception.
In Conclusion of Law No. 1, the Administrative Law Judge summarized the law to be applied in interpreting advertising. In Conclusion of Law No. 2, the Administrative Law Judge applied the law to Respondent's advertising to reach the conclusion that Respondent makes the representations alleged in subparagraphs (a), (b) and (c) of the Complaint. Respondent excepts to Conclusion of Law No. 1 because in its view it is improper for a conclusion of law to merely quote and cite legal authority. The exception to Conclusion of Law No. 2 is based on Respondent's argument that Complainant failed to show, either by testimony or statistical evidence, that "ordinary" persons were misled by Respondent's advertising.
Neither exception has merit. It is not improper for a conclusion of law to summarize applicable legal authority. Moreover, Respondent has not alleged, and we do not find that the legal principles summarized in Conclusion of Law No. 1 are incorrect. Furthermore, Respondent has not shown that the legal principles summarized in Conclusion of Law No. 1 were misapplied to Respondent's advertising in Conclusion of Law No. 2. The testimony of Complainant's witnesses, as well as the advertisements themselves, support the conclusion that the representations are made in Respondent's advertising. See, Vibra-Brush Corp. v. Schaffer, 152 F.Supp. 461, 468 (S.D.N.Y. 1957), rev'd. on other grounds, 256 F.2d 681 (2d Cir. 1958); United States/Great Lakes Federal Surplus Depository, P.S. Docket No. 7/136 (P.S.D. March 31, 1981). Therefore, there is no merit to these exceptions.
In Conclusion of Law No. 3, the Administrative Law Judge concluded that the Complaint adequately notified Respondent of the issues in question. He therefore denied Respondent's Motion to Dismiss the Complaint. In so doing the Administrative Law Judge states " s ince the above representations are easily found in Respondent's circular, it is not necessary for the Complaint to specify the precise language of the circular which made the representations in question."
Respondent contends that the Complaint does not "fairly appraise" it of the issues and the Administrative Law Judge's conclusion to the contrary is illogical and unsupported by the evidence. Respondent also renews a contention which was made to the Administrative Law Judge that the Complaint is defective because it does not name as the Respondent a person as required by 39 C.F.R. § 952.5. Finally, Respondent argues that Conclusion of Law No. 3 is "not a Conclusion of Law but is a Finding of Fact, unsupported by the evidence" (Resp. Brief, p. 8).
The Complaint need not identify specific language of an advertisement in order to satisfy generally accepted principles of pleading, and to comply with 39 C.F.R. § 952.5. The Complaint was sufficient to place Respondent on notice of the representations alleged to be false and to enable Respondent to file an Answer thereto. Furthermore, Respondent has not shown surprise or prejudice in presenting its defense to the Complaint. Thus, it was not improper to deny Respondent's Motion to Dismiss the Complaint.
Respondent's further contention that Conclusion of Law No. 3 is actually a finding of fact without evidentiary support is without merit. The ruling on the Motion to Dismiss was properly included in the conclusions of law since the sufficiency of a pleading is a question of law. The evidentiary basis for the conclusion that the representations alleged in the Complaint are made in Respondent's advertising is discussed in other portions of this Decision.
Respondent's contention that the Complaint was defective because it did not name a "person" as the Respondent as required by 39 C.F.R. § 952.5 fails to take into consideration the entire language of the rule. The rule defines person as including "any name, address, number or other designation under or by use of which the Respondent seeks remittances of money or property through the mail." Thus, it was proper for the Complaint to name as Respondent any entity which seeks remittances of money through the mail. See, Diet Lake, Inc., v. United States Postal Service, Case No. 79-2563 (5th Cir., July 18, 1980). Bond Industries/CPP clearly seeks remittances through the mail and therefore was properly named as the Respondent in this proceeding (CX 1-B).
Accordingly, it was not improper to deny Respondent's Motion to Dismiss the Complaint.
The Administrative Law Judge found, in Conclusion of Law Nos. 4, 5 and 6 that the representations in subparagraphs 3(a) and (b) of the Complaint are materially false, that the availability of refunds does not dispel the effect of false advertising and that Respondent is engaged in the conduct of a scheme for obtaining remittances of money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.
In its exception to these conclusions Respondent alleges the Administrative Law Judge allowed "patent bias to deter him from an even-handed administration of 'fair play'" (Resp. Brief, p. 9). It also argues that administrative agencies are not expected to "thwart plain and unambiguous representations" to protect "the emotionally troubled few" (Id.).
A review of the record does not establish any bias on the part of the Administrative Law Judge or unfair treatment of Respondent. The interpretation of Respondent's advertisement and the applicable legal principles have already been discussed and found to be correct.
Following its specific exceptions to the findings of fact and conclusions of law, Respondent quotes from Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387 (5th Cir. 1977), American Image Corp. v. United States Postal Service, 370 F.Supp. 964 (S.D.N.Y. 1974), and M.K.S. Enterprises v. United States Postal Service, 459 F.Supp. 1180 (E.D.N.Y. 1978) to support its argument that Complainant has not established that it makes the representations alleged in the Complaint. The application of the principles stated in the cited cases would not lead to a conclusion contrary to that reached in the Initial Decision. In the present case, the evidence supports the conclusion that Respondent's advertisement makes the representations alleged in the Complaint and that two of those representations are false. Therefore, reliance on the cited cases would not alter the result reached in the Initial Decision.
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 mails by means of materially false representations. Accordingly, Respondent's appeal is denied and a remedial order under 39 U.S.C. § 3005 is being issued with this decision.