In the Matter of the Complaint Against UNITED STATES TESTING AUTHORITY TELEVISION DIVISION 1681 Kennedy Causeway at North Bay Village, FL 33141-9982 P.S. Docket No. 14/77; 12/23/82 Mason, Randolph D. APPEARANCES FOR COMPLAINANT: Thom as A. Ziebarth, Esq. Clark C. Evans, Esq. Consumer Protection Division Law Department United States Postal Service Washington, DC 20260 APPEARANCES FOR RESPONDENT: Edmond W. Frank, Esq. Suite 700 14 Northeast First Avenue Miami, FL 33132 Ronald A. Karp, Esq., for American Testing Institute 1232 17th Street, N.W. Washington, DC 20036
This proceeding was initiated on September 22, 1982, when the Consumer Protection Division, Law Department, U. S. Postal Service ("Complainant"), filed a Complaint which alleges that Respondent United States Testing Authority is engaged in conducting a lottery, gift enterprise or scheme for distribution of money or property by lottery, chance or drawing of any kind in violation of 39 U.S.C. § 3005. Respondent's Answer denied any violation of the statute.
A hearing was held by the undersigned on October 27, 1982, in Washington, D. C. Both parties were represented by counsel and afforded full opportunity to be heard, adduce relevant evidence, and examine and cross-examine witnesses. At the hearing, much of the evidence concerned Complainant's Motion to Amend Complaint. The latter Motion sought to include American Testing Institute as a party respondent on the ground that it was essentially the same company as Respondent United States Testing Authority. After hearing the evidence on this issue, I held that Complainant failed to sustain its burden of proof and denied the Motion to Amend Complaint. I hereby reaffirm my ruling on that Motion.
After the hearing, 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 of law:
1. Respondent is United States Testing Authority, Television Division, 1681 Kennedy Causeway, North Bay Village, Fl 33141-9982. Respondent obtains remittances at that address in the amount of $14.80 from persons interested in winning a prize (Exhs. C-1 & C-7).
2. Respondent attracts persons to its scheme by sending them a letter stating that they "have automatically been awarded one of the twenty outstanding gifts listed below, worth between $260 to $2,000." The letter encloses a "Test Response Form" containing eight simple multiple-choice questions which the participant is expected to answer by checking the appropriate boxes. The "test" asks about matters such as the number of hours the participant watches television each day, the number of television sets he owns, and the kind of programs he watches. The letter also encloses a business reply envelope with postage paid for easy response.
3. Respondent's letter lists 20 gifts that a participant could win by sending in a completed test response form. The list includes expensive items such as a microwave oven, a television set, and video recorder. Each of the gifts is assigned a value by the Respondent; the least expensive is $262.95.
4. Since it has been in operation, Respondent has used two different solicitation letters (Exhs. C-1 & C-7). On the earlier letter, gift No. 12 was a "holiday for two vacation" at eleven different locations with "accommodations paid in full" and a purported value of $300 (Exh. C-1). On the latest letter, gift No. 12 is listed as follows:
12. UNLIMITED KODAK FILM FOR THE REST OF YOUR LIFE ... Guaranteed Lifetime Free Membership in U.S. Photo Labs provides free color film, any size, any exposure, for each roll developed ...
Respondent's letter placed a $720 "value" on this gift (Exh. C-7).
5. After listing the gifts, the earlier letter set forth the following "INSTRUCTIONS":
A. Answer all eight questions on the "Test Response Form".
B. Place your completed "Test Response Form" in the enclosed postage paid envelope. Include check of money order for $14.80 to cover shipping, handling, postage, printing, and general administrative costs of this testing procedure. This amount is not to be considered as payment for any of the above gifts, one of which you will automatically receive.
C. You are required to mail the fully completed "Test Response Form" within ten days from the time you receive it.
D. Then ... within a week to ten days from the time we receive your completed "Test Response Form" ... you will receive a computer sealed gift catalog showing all twenty of the gift awards listed above ... this sealed catalog shows you which one of these 20 gifts will be sent to you. All gift catalogs are selected at random. Emphasis in original
5. Respondent's latest letter (Exh. C-7) changed the "INSTRUCTIONS" to read as follows:
A. Answer all eight questions on the TEST RESPONSE FORM.
B. Place the completed TEST RESPONSE FORM in the enclosed postage-paid envelope. Include your check of money order for $14.80 covering the cost of shipping, handling, postage, printing and administration of this testing procedure.
C. You are required to mail the fully completed TEST RESPONSE FORM within ten days from the time you receive it. THERE IS ABSOLUTELY NO PURCHASE REQUIRED IN ORDER TO RECEIVE YOUR GIFT. Each gift itself is considered to be FREE OF CHARGE.
D. Within two weeks after we receive your fully completed TEST RESPONSE FORM, we will send your gift completely prepaid.
NOTE: Every survey participant automatically receives one of the twenty gifts listed above. Highest valued gifts are distributed less frequently. However, every participant has equal opportunity to receive any of the gifts, regardless of value. Emphasis in original
7. In addition to the above, the following instruction appears on the back of the "Test Response Form" (Exhs. C-2 & C-7):
Make check or money order payable to:
U.S. TESTING
/ / CHECK / / MONEY ORDER
ENCLOSED IS MY CHECK OR MONEY ORDER
TO COVER SHIPPING, HANDLING,
REGISTRATION, PROCESSING AND
POSTAGE $ 14.80
MAIL TO: UNITED STATES TESTING AUTHORITY
8. At least half of the people responding to Respondent's letter considered the offer to require the remittance of $14.80 before they would be eligible to receive one of the 20 "gifts." In accordance with this understanding, they followed the instructions and remitted the money to Respondent (Tr. 77-78; Exhs. C-1, C-2, C-7). Less than half completed the test response form but did not send any money to Respondent. Some of the latter people checked the box indicating that money was enclosed, but failed to enclose their check (Tr. 69, 93).
9. Every person who sent Respondent a completed Test Response Form received one of the twenty "gifts" regardless of whether they remitted the $14.80 or not (Tr. 69, 72, 75). Almost every person responding received gift No. 12, i.e. the vacation for two or the photo club membership. Only one person in every 10,000 (previously 7,500) received one of the other, more valuable, prizes (Tr. 72).
10. A person who remitted $14.80 with the completed test response form received nothing more than a person who merely completed the form and paid nothing (Tr. 104).
11. Both of Respondent's letters (Exhs. C-1 & C-7) are artfully worded to lead a person of ordinary intelligence to believe that the remittance of $14.80 is a prerequisite to becoming eligible to win one of the 20 prizes.
12. Respondent's scheme contains the elements of prize, chance, and consideration, and constitutes a lottery or scheme for the distribution of money by chance.
1. The only issue for consideration is whether Respondent violated 39 U.S.C. § 3005, which provides for a mail stop order when it is found that
... any person is engaged in conducting... a lottery, gift enterprise, or scheme for the distribution of money or of real or personal property, by lottery, chance, or drawing of any kind....
The necessary elements of a lottery are the furnishing of a consideration, the offering of a prize, and the distribution of the prize by chance. Brooklyn Daily Eagle v. Voorhies, 181 F. 579, 581 (1910); Horner v. United States, 147 U.S. 449 (1893). Respondent concedes that its scheme contains the requisite elements of prize and chance. The evidence of record fully supports this concession. Therefore, the only issue remaining is whether the participants were required to pay consideration in order to become eligible to receive a prize.
2. Respondent's letter constitutes an offer which prescribes the conditions of acceptance. 1/ See, e.g., Seattle Times Co.v. Tielsch, 80 Wash. 2d 502, 495 P.2d 1366, 1369 (1972). Therefore, it is necessary to determine whether Respondent's offer required the payment of $14.80 as consideration to become eligible to win one of the 20 prizes. Restatement (Second) of Contracts, § 20 (2) (Revised ed. 1981) provides the following rule:
(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if
...
(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.
A person has "reason to know" a fact if he has information from which a person of ordinary intelligence would infer that the fact in question does or will exist. Ibid, § 20, Comment a & § 19, Comment b. Similarly, a contractor is bound in accordance with the meaning that he induces another to understand and act upon, if he has reason to know that the other will so understand and act. 3 A. Corbin, Contracts, § 538 (1960).
3. Respondent argues that no consideration was required to be eligible to win a prize, and points to the language in both letters alleging that the gifts are "free" and that the $14.80 is for other costs such as shipping and handling. However, the offer contained in the letters must be viewed as a whole. In this regard, both letters clearly instruct the prospective participant to remit $14.80 to the Respondent. Whether the Respondent states that the money is to cover costs such as shipping and handling is of no consequence to the participant. It is reasonable for the latter to infer that he will not receive a prize unless he follows the instructions and remits the money. Furthermore, it is not reasonable for a person to be expected to remit money to a business enterprise without receiving something in return. Respondent only offers to send one of the 20 prizes. Therefore, it is reasonable for an ordinary participant to infer that the $14.80 is consideration for the chance to receive a valuable prize, notwithstanding Respondent's ambiguous statement that the prize is "free." Accordingly, applying the principles set forth above, I must conclude and hold that
Respondent's offer requires the payment of consideration by persons of ordinary intelligence for a chance to win a prize. 2/
4. Respondent also points to the fact that prizes were given to persons who returned their test response forms without remitting $14.80. However, the fact that a group of more intelligent individuals may have correctly guessed that Respondent would send the prize even if the $14.80 was not remitted does not alter the status of those ordinary persons for whom consideration of $14.80 was required. People v. Shira, 62 Cal. App. 3d 442, 133 Cal. Reprt. 94 (2d Dist, 1976) (available on LEXIS States library). The scheme is still a lottery with respect to the latter participants.
5. Accordingly, I hold that Respondent's scheme contains the requisite elements of prize, chance, and consideration. As such, it constitutes a lottery or scheme for the distribution of money by chance within the meaning of 39 U.S.C. § 3005.
6. The attached order should be issued against Respondent.
1/ An advertisement is not generally considered to be an offer if the ad fails to limit the number of articles per customer since it would be onerous to hold that the advertiser has committed himself to an unlimited supply of the article. J. Calamari & J. Perillo, Contracts, § 2-8 (2d ed. 1977). The instant letter offers only one prize each to a fixed number of participants.
2/ With regard to false representation issues arising under § 3005, the meaning of representations is determined from the standpoint of a person of "ordinary mind." Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948). I need not decide whether this test should be applied to lottery issues arising under the same section. However, if it were applicable, I would reach the same result in this case.