In the Matter of the Complaint Against BOND INDUSTRIES/CPP at Kendalia, TX 78027 P.S. Docket No. 13/84 07/09/82 Mason, Randolph D. APPEARANCE FOR COMPLAINANT: Ben A. Kilgrow, Esq.; Consumer Protection Division, Law Department, United States Postal Service, Washington, DC 20260 APPEARANCE FOR RESPONDENT: Edward Errol Chastain, Esq.; 1019 Camden, San Antonio, TX 78215
This proceeding was initiated on March 23, 1982, when the General Counsel filed a complaint against Bond Industries/CPP ("Respondent"). The complaint alleges that Respondent, in connection with its envelope stuffing plan, falsely represents:
(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
(3) participants can reasonably be expected to earn $219.00 per week by mailing 300 "sales letters."
In a timely filed answer to the complaint, Respondent denied that it falsely represents its program. The answer also contained a motion to dismiss based upon four affirmative defenses. At the hearing, the motion was denied with respect to three of these defenses, but judgment was reserved with respect to Respondent's contention that the complaint failed to state the facts in a manner sufficiently clear to permit a response.
A hearing was held by the undersigned on May 13, 1982, in San Antonio, Texas. Both parties were represented by counsel and afforded full opportunity to be heard, adduce relevant evidence, and examine and cross-examine witnesses. Both parties filed proposed findings of fact and conclusions of law which have been duly considered. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. Based on the entire record herein, including my observation of the witnesses and their demeanor, the exhibits and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions at law:
1. Respondent's direct mail circular solicits the remittance of money through the mails for a work-at-home "mailing program" (Exh. C-1B; Tr. 15-17).
2. As alleged in paragraph 3(a) of the complaint, Respondent represents in its direct mail circular (Exh. C-1B) that instructions and starting supplies provided by Respondent are all that is necessary for participants to begin earning a steady weekly income. This representation is made in the following language quoted from the circular:
We are looking for a number of honest and reliable people to take part in our Homeworker Program. The work is simple and pleasant. You do it right in your own home in your spare time. No previous experience is necessary. Your age . . . does not matter in the least.
We . . . [are looking for] sincere people who are willing to work at home mailing out our sales letters for use.
We supply you with our sales letters. You receive stamped, addressed envelopes by following our easy-to-read instructions.
Fold the letters, insert them in the envelopes, and drop them in the mail. It's as simple as that. We are not talking about one of those complicated mail order programs. You are not required to buy stamps, envelopes, sales letters, or other supplies. You do not sell anything.
[The circular contains a "registration form" which states:]
Gentlemen:
Please register me in your program and send me the instructions and starting supplies for making money as an Independent Homeworker.
3. The representation set forth in the preceding finding of fact is false. Although the circular makes it appear that a participant will simply stuff and mail envelopes upon receipt of Respondent's materials, the program actually requires a participant to make the additional effort of placing classified advertisements in newspapers at his own expense in order to receive "stamped, addressed envelopes" to stuff and mail (Exh. C-4b, penultimate page; Tr. 33-35, 66-67).
4. As alleged in paragraph 3(b) of the complaint, Respondent represents in its circular that no capital investment n1 is necessary beyond the application fee. This representation is made in the following language contained in the circular (Exh. C-1B):
. . . You are not required to buy stamps, envelopes, sales letters, or other supplies.
When this quotation is considered in conjunction with what appears to be a simple envelope-stuffing program, many readers would assume that the application fee was the only expense that they would have to incur (Tr. 33, 66).
n1 A "capital investment" includes the total funds invested in an enterprise; contrary to Respondent's contention, this differs from a "capital expenditure" which represents an addition to the value of fixed assets. The Random House College Dictionary (1980).
5. The preceding representation is false because participants also have the additional expense of placing classified advertisements in newspapers and other publications (Exh. C-4B; Tr. 35, 67).
6. As alleged in paragraph 3(c) of the complaint, Respondent represents in its circular that participants can reasonably be expected to earn $219.00 per week by mailing 300 "sales letters." This representation is made in the following language from the circular:
LET US SEND YOU A PAY CHECK FOR $219 A WEEK *
* The number of sales letters that you mail each week is up to you, so we cannot guarantee that you will make a specific income. $219 a week is an estimate of what you can make when you mail 300 sales letters a week. The actual amount you are going to be making depends on how much you want to make. It's up to you. [Exh. C-1B]
7. Complainant has failed to sustain its burden of proving that the preceding representation is false. Participants who purchase Respondent's program are subsequently told that they will make $219 a week if (1) the classified advertisements that they place produce 300 inquiries per week, and (2) 15% of those 300 people order the Respondent's program after receiving a sales letter (Exh. C-4B). Complainant adduced no evidence with respect to these estimates.
8. The misrepresentations set forth in subparagraphs (a) and (b) of paragraphs 3 of the complaint are material because they have the effect of inducing individuals to remit money through the mail in order to join Respondent's program.
9. Individuals have been purchasing Respondent's program as a result of the above misrepresentations since at least September of 1981 (Tr. 42). At least one individual wrote to Respondent on two occasions to request a refund, but never received a response. Moreover, this individual found that Respondent's telephone "hot-line number" had been disconnected and no listing could be found under "Bond Industries" or "CPP" (Tr. 53-54). Postal Inspectors have received over 100 complaints and 100 "inquiries" regarding Respondent's program (Tr. 14-15).
10. Since 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 (Exh. R-2).
1. Respondent's direct mail circular which advertises its program is to be considered as a whole and the meaning is to be determined in light of the probable impact of this material 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. 1977). 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. 1957), rev'd on other grounds, 256 F.2d 681 (2nd Cir. 1958). 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 false representation statute is applicable. G. J. Howard Co. v. Cassidy, 162 F. Supp. 568 (E.D.N.Y. 1958); See also, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U. S. 748 (1976).
2. Applying the foregoing standards, I find that Respondent's direct mail circular makes the representations alleged in subparagraphs (a), (b), and (c) of paragraph 3 of the complaint. The language contained in the circular which directly or implicitly makes these representations is set forth in my Findings of Fact, supra. A simple reading of the circular in question reveals these representations. In reaching this conclusion, I have considered the statement in the circular that participants would receive envelopes to stuff and mail by following "easy-to-read instructions." Respondent argues (1) that these words should have put individuals on notice that they would have to d more than simply stuff and mail envelopes, and (2) that no one could reasonably expect the circular to set forth every detail of the program. However, an ordinary person reading the entire circular would have assumed that the work would be primarily stuffing and mailing envelopes; Respondent carefully described these "simple" activities but failed to mention that the keystone of its program consists of solicitation activities without which there would be no envelopes to stuff. In the context of the circular, this glaring omission misrepresented the nature of the progarm.
3. Sincere the above representations are easily found in Respondent's circular, it was not necessary for the complaint to specify the precise language of the circular which made the representations in question. Since the complaint adequately notified Respondent of the issues in question, Respondent's motion to dismiss on this ground is denied.
4. The representations in subparagraphs (a) and (b) of paragraph 3 of the complaint are materially false in fact. With regard to these representations, 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. 1978). However, Complainant has failed to sustain its burden of proof with respect to the falsity of the representation in subparagraph (c) of paragraph 3 of the complaint. As alleged in subparagraph (c), Respondent represented that participants can reasonably be expected to earn $219.00 per week by mailing 300 "sales letters. n2 Complainant chose not to introduce any evidence regarding the probability of a participant generating 300 inquiries per week. Moreover, Respondent's $219.00 estimate of weekly earnings assumes that 15% of the inquiries will result in mail orders, but Complainant failed to introduce any evidence on the probable response rate. Although it is possible that Respondent's estimate might have been proven false through the testimony of an expert in the mail order business, Complainant chose not to adduce such testimony.
n2 Although Respondent alleges that its circular has been amended to read "500" letters, no evidence was adduced on this point.
5. Respondent also appears to argue that any misrepresentation that may have occurred has been cured by Respondent's subsequent offer to pay advertising expenses to individuals requesting a refund. However, assuming arguendo that such payments or refunds were made, these 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. 1939); Borg-Johnson Electronics, Inc. v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959). Furthermore, the "offer" was only made to people requesting refunds and was not made until January of 1982. Prior of that time, some participants did not get refunds.
6. In conclusion, I must conclude and hold that 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. Accordingly, an order pursuant to that statute, in the form attached, should be issued against Respondent.