In the Matter of the Complaint Against COSVETIC LABORATORIES, et al. or any variation thereof at P. O. Boxes 95543, 95544 and 95545 Atlanta, GA 30347 etc. P.S. Docket Nos. 8/160 07/22/82 Cohen, James A. APPEARANCE FOR COMPLAINANT: Sandra C. T F L U WMcFeeley, Esq. homas A. Ziebarth, Esq. Frederick I. Rosenberg, Esq. Law Department United States Postal Service Washington, DC 20260 APPEARANCE FOR RESPONDENT: S B 7 N heldon S. Lustigman, Esq. ass, Ullman & Lustigman 47 Third Avenue New York, NY 10017
Respondent 1/ has appealed from the Initial Decision of an Administrative Law Judge which holds that, with regard to the sale of various hair and scalp products, Respondent 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.
During the months of July, August, and October 1980, the Consumer Protection Division of the Law Department, United States Postal Service (Complainant) filed various Complaints alleging that Respondent was selling hair and scalp products thorough the mail by means of false representations in violation of 39 U.S.C. § 3005. The products identified in the Complaints are: Bio Genesis; Bio-Prima II; Bio-Genesis Shampoo; Bio-Prima II Shampoo; LB-49; Biotin Gel; Biotein H-3; Bio-NC-36; Biotein H-3 with Nucleic Acid; Nucleic Acid Gel; Herbal Hair Naturally; German Hair Vitamins; German Formula Medicated Shampoo; Amino Hair Food Formula; Formula 40; Improved Formula 40; and Jojoba Oil. The alleged misrepresentations, most of which relate to the effectiveness of these products in either stopping excessive hair loss or causing the regrowth of hair, are set forth at pages 14 through 19, 58 through 63, and 83 through 88 of the Initial Decision.
Respondent filed Answers to the Complaints which denied both that the alleged representations were made and that they are false. The individual Complaints were consolidated in order to avoid repetition.
Respondent filed several motions for dismissal based on various grounds, which were all denied. Complainant filed several motions to amend the Complaints for the purpose of including new mailing addresses. The new addresses are included in the caption of the Initial Decision. The parties also filed other procedural motions which are not in issue in this appeal.
On November 10 through 19, 1980, a hearing was held in Atlanta, Georgia. The parties presented extensive testimony with respect to the numerous products in issue. At the close of the hearing, Respondent's request that the record be kept open to permit the examination of 2,600 biopsy slides by a medical expert was granted. However, Respondent did not subsequently produce any testimony with respect to these slides.
On November 19, 1980, Complainant filed a motion to amend certain of the Complaints by adding a Florida address. The motion was granted at the hearing (Tr. 829).
On February 24, 1981, Respondent filed a motion to dismiss the proceeding because of a Consent Order entered by the United States District Court for the Northern District of Georgia, Atlanta Division, in the case of United States Postal Service v. Cosvetic Laboratories, Inc., et al., Civil Action No. C80-1211A. The motion was denied on the grounds that the court litigation, which was brought under 39 U.S.C. § 3007, did not affect or determine any fact at issue in the administrative proceeding.
On February 17, 1981, Complainant filed another motion to amend certain of the Complaints by adding additional Florida addresses. On March 30, 1981, this motion was granted.
Thereafter, both parties filed Proposed Findings of Fact and Conclusions of Law. Respondent also filed a rejoinder brief.
On December 23, 1981, an Initial Decision was issued which found that Respondent made the representations alleged in the Complaints and that they are false, except that: (1) "Respondent does not represent that Formula 40 will permanently increase the diameter of the hair " (I.D. at 106); and (2) the representation made in advertisements for Herbal Hair Naturally that "proper habits and incorrect maintenance of the hair and body are passed down from one generation to the next through heredity" is not material 2/ (I.D. at 107). In the Initial Decision five legal arguments raised by Respondent with respect to the validity of the proceeding were rejected. Also, it was found that "Complainant has no power to require corrective advertising by Respondent under 39 U.S.C. § 3005" (I.D. at 103). Finally, in a separate count, it was found in the Initial Decision that "the Respondent, Braswell, Inc., under the name Head Start, Inc., knowlingly seeks remittances of money through the mails by means of false representations made by its retailers and representatives at its express direction" (I.D. at 110).
By letter to the Judicial Officer dated February 22, 1982, Respondent appealed twelve of the cases covered by the Initial Decision. False Representation Orders were issued in the remaining cases. Respondent subsequently advised that it had intended to appeal of the cases covered by the Initial Decision. In the absence of objection by Complainant, the False Representation Orders which had been issued were revoked pending appeal. Both parties filed briefs. In addition, Respondent filed a rejoinder brief.
Respondent has presented two exceptions to the Initial Decision. These exceptions are discussed below.
"I. THE PROPOSED FALSE REPRESENTATION ORDERS INSOFAR AS THEY PROHIBIT THE RECEIPT OF REMITTANCE AT FLORIDA ADDRESSES IN RESPONSE TO SOLICITATIONS WHICH ARE ADMITTEDLY NOT THEMSELVES FALSE, ARE NOT SUPPORTED BY THE EVIDENCE, ARE NOT BASED UPON ANY FINDINGS OF FACT, ARE VIOLATIVE OF THE FIRST AMENDMENT TO THE CONSTITUTION, AND ARE NOT WITHIN THE STATUTORY AUTHORITY OF THE POSTAL SERVICE.
"A. The Initial Decision mistakenly proposes false representation orders against solicitations to Florida addresses not containing false representations.
"B. A false representation order may not lawfully be entered against solicitations to addresses which do not contain false representations."
Respondent argues that the Initial Decision may inadvertently have incorporated certain Florida post office addresses which are identified in advertisements that do not make the representations at issue in this proceeding. Respondent further argues that, in any event, the proposed False Representation Order should exclude these addresses, since they are not the subject of the challenged representations.
The addresses in question were added to the Complaints at and subsequent to the hearing on motion by Complainant. 3/ Complainant concedes that the direct mail solicitations which include the Florida addresses contain "few or no express claims of product efficacy" (Comp. Brief at 2). The thrust of Complainant's argument, rather, is that these solicitations were sent to individuals who previously received copies of advertisements containing the representations which have been found to be false. Accordingly, Complainant contends that "the 'Florida' advertisements continue by implication the earlier express representations" (Comp. Brief at 3). Complainant denies that in seeking to extend the false representation order to the Florida addresses, it is attempting to impose the remedy of corrective advertising. As noted, supra, the Initial Decision contains a finding that a corrective stop order is not authorized under 39 U.S.C. § 3005.
This argument was previously made in another case involving Cosvetic Laboratories, P.S. Docket No. 7/38. In denying Complainant's Petition for a Supplemental Order in that case, it was stated:
"Complainant has not sustained its burden of establishing that Respondent sells its products by means of representations previously found to be false. It is undisputed that Respondent makes no representations concerning the efficacy of its products with the solicitations which are the subject of the petition. Under such circumstances the subsequent solicitation of the previously advertised product is not alone sufficient to establish that persons receiving the solicitation will purchase the product on the basis of their recollection of claims previously made." (Postal Service Decision on Petition for Supplemental Order and Motion for Modification, Aug. 21, 1980.)
Despite Complainant's assertions to the contrary, the decision in the prior Cosvetic case is very much on point. Absent a showing that recipients of the Florida advertisements were influenced by the prior representations, issuance of a False Representation Order covering these addresses would be improper. Cf. Raymond Milo, P.S. Docket No. 12/168 (P.S.D. July 16, 1982). Accordingly, no False Representation Order will be issued with respect to the Florida addresses in question.
"II. THE INITIAL DECISION IN ITS ENTIRETY IS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE AND IS OTHERWISE LEGALLY IMPROPER.
Respondent makes no separate argument with respect to the general statement of its exception. Rather, it subdivides its argument into three parts which it has letter A-C. Each of its arguments is hereafter addressed.
"A. Complainant failed to sustain its burden of proof that Respondent's advertising was materially false."
Respondent does not present any new arguments in support of this exception. Rather, it relies on the Proposed Findings of Fact and Conclusions of Law and the Rejoinder Brief which were previously filed. The points raised in the prior briefs do not require extended discussion in view of the Initial Decision's extensive and specific findings of fact. A review of the record supports the findings of the Initial Decision, based primarily on the testimony of Complainant's expert witnesses, Sorrell Lee Schwartz, Ph.D., a pharmacologist, and Karl Jules Kramer, M.D., a dermatologist, that the products in issue have not been proven to be effective in either halting or reversing male pattern baldness (E.g., see I.D., Findings of Fact 5-9 and 12 at 32-35; Findings 10-22 at 40-48; Findings 1 and 2 at 63-64; Findings 1-4 at 64-67; Finding 13 at 82; Finding 2 at 89-90; Finding 1 at 91-94). Both witnesses testified on direct examination that their testimony reflects the "mainstream" of scientific or medical thought (I.D., Findings 2 and 3 at 99). The consistency of these witnesses' statements based on a review of the relevant scientific and medical literature, and, in particular, Dr. Kramer's practical knowledge and experience in the area of hair and scalp dermatology, support the conclusion that this testimony reflects a consensus of informed medical and scientific opinion.
Moreover, portions of Dr. Kramer's testimony confirm that his conclusions were given with reference to generally accepted medical opinion. For example, with respect to the report of a 1978 Finnish study of the Bio-Genesis/Bio-Prima Formula (CX 2), Dr. Kramer testified that "the results that they obtained are clearly different from what is generally accepted as the pattern of hair growth" (Tr. 316; emphasis added). He further stated, with respect to the 1978 and an earlier (1974) study (CX 3): "There is no evidence based on this data and on everything that I have seen to prove or support the claim that is made in these advertisements that it grows hair" (Tr. 324; emphasis added). With respect to the effect of nutrition on baldness, Dr. Kramer stated: "In my opinion, and I think it is an accepted opinion, the --the people's complaints about hair problems are not related to nutritional deficiencies in this country" (Tr. 283; emphasis added).
Finally, the testimony of Respondent's own witnesses supports the conclusion that the scientific and medical communities have not accepted the formulas or ingredients contained in the products in issue as halting or reversing male pattern baldness. In this regard, Dr. Ilona Schreck-Purola, a medical doctor and researcher who co-authored the reports of the 1974 and 1978 studies, conceded that male pattern baldness is widely recognized as being irreversible and incurable, although she personally holds a different opinion (Tr. 558). Dr. Rolf Nordstrom, a dermatologist, testified that, to his knowledge, neither the 1974 nor the 1978 Finnish studies had been published in a recognized medical journal (Tr. 636). Dr. Irwin Lubowe, another dermatologist, made clear that his testimony was based solely on his own opinion (Tr. 804).
Complainant's showing that the representations in issue had not been accepted as true by a consensus of the scientific and medical community established a prima facie case that the representations are, in fact, false, which Respondent was required to rebut. (See infra.) However, the testimony of Respondent's witnesses reinforced rather than rebutted this evidence.
Dr. Schreck-Purola conceded that the statement in Respondent's advertisements that "Bio-Genesis is a cure for baldness" is false and that the implication that 80 percent of the participants in the 1978 study regrew all of their hair is a missstatement (Tr. 566-567). This witness acknowledged that the 1974 study was "preliminary" and "is scientifically not really adequate" (Tr. 543; 562). Even if it is accepted that participants in the 1978 study experienced decreased hair loss and growth of new hair, the cause and conditions responsible for this phenomenon remain unclear. In this regard, Dr. Schreck-Purola agreed that some subjects used the Bio-Genesis/Bio-Prima preparation twice as much as others and cited a book which concludes that "either mechanical or chemical provocation in a follicle will induce the hair growth" (Tr. 545; 568; emphasis added). Dr. Nordstrom conceded that the subjects' variable use of the preparation might have affected the results of the study (Tr. 636). Moreover, he stated that he has not observed even one cure of male pattern baldness with the Bio-Genesis/Bio-Prima preparation and does not treat any of his patients with it (Tr. 642).
Dr. Norbert Gollnick, a dermatologist, testified that his success with this preparation was coupled with changes in diet in almost all patients (Tr. 730-731) and that changes in diet and removal of inhibiting factors, such as tonsils, are effective in the treatment of male pattern baldness (Tr. 733). Indeed, he stated that tonsillitis alone can promote baldness and, if tonsils are removed, new hair can grow on its own (Tr. 737).
Finally, Dr. Kai Setala, another medical doctor and researcher who helped discover the Bio-Genesis/Bio-Prima formula and co-authored the reports on the 1974 and 1978 studies, stated, in a letter admitted into evidence as CX-14, that "It is to be underlined that we never utilized the words 'bald' vs. 'baldness' vs. 'cure of baldness' in our scientific articles" and that "Neither I myself nor Dr. Schreck-Purola have ever written 'Bio-Genesis to be effective in restoring hair in 80% of all patients treated.'"
Dr. Lubowe's endorsement of products containing Biotin, when taken at face value, was hardly unqualified. He stated that Biotin Gel "can grow new hair in 20 to 30 percent of patients between the ages of 20 and 30, . . . if the alopecia is not present for more than two or three years" (Tr. 788; emphasis added). Similarly, he stated that Biotin Gel will reduce excessive hair loss "mostly in the 20 to 30 age group and then less frequently in the older age group" (Tr. 790). He made similar statements with regard to the other Biotin products (see Tr. 791-796). With respect to Amino Hair Food Formula, Dr. Lubowe testified that only about 20 percent of his patients suffer deficiencies which would be helped by this product (Tr. 798). Moreover, he stated that, in his opinion, there is an adequate amount of amino acids needed for hair growth in the average American diet (Tr. 799). Finally, he conceded that LB-49 is the only one of these products which he uses in his practice (Tr. 804).
The materiality of the false representations in inducing an average reader suffering from hair and scalp problems to purchase
Respondent's products is clear from the various advertisements (see CX A-U generally).
Accordingly, the findings of the Initial Decision that Complainant proved, by a preponderance of the credible evidence, that Respondent's representations as specified in the Complaints were materially false, is affirmed.
"B. The Chief Administrative Law Judge improperly denied Respondent the right to fully cross-examine a key witness relied upon by Complainant."
Respondent argues that the presiding Administrative Law Judge improperly refused to allow cross-examination of Dr. Kramer on statements contained in a scientific publication entitled "Pharmacologic Techniques and Drug Evaluation." In making this argument, Respondent points out that "no attempt was made to introduce this publication into evidence" (Resp. Brief at 19).
The presiding Administrative Law Judge sustained Complainant's objection to questioning on the publication after Dr. Kramer testified to being unfamiliar with it (Tr. 408). Respondent's counsel argued that " . . . it is relevant. I think it is germane for purposes of introducing contrary opinions for impeachment purposes" (Tr. 411). The Judge responded: "It may be relevant and it may be germane, but if you don't establish its reputability or the author's it's just not proper subject for the basis of cross-examination." (Id.) Respondent did not establish either the reputability of the publication or its author.
Respondent argues that "the only time it is necessary for an expert witness to acknowledge that a published treatise has been established as a reliable authority is when the document itself is sought to be introduced into evidence or where the statements contained in the treatise are sought to be substantively received as evidence (Resp. Brief t 20). In support of its argument, Respondent cites a passage from Reilly v. Pinkus, 338 U.S. 269 (1949), which states, in relevant part:
"It certainly is illogical, if not actually unfair, to permit witnesses to give expert opinions based on book knowledge, and then deprive the party challenging such evidence of all opportunity to interrogate them about divergent opinions expressed in other reputable books." (338 U.S. at 275; emphasis added.)
Respondent's reliance on this quotation is misplaced. The underscored language makes clear that the Court's comments solely concern the use of "reputable books" during cross-examination. Indeed, the Court's holding that the reputability of treatises may be established by any means was adopted as the basis for Rule 803 (18) of the Federal Rules of Evidence. See Note of Advisory Committee on Proposed Rules; cf. Brown v. United States, 419 F.2d 337, 341 (8th Cir. 1969). Thus, Reilly v. Pinkus, supra, supports the conclusion that Respondent was not entitled to question Dr. Kramer regarding the publication absent a showing of reputability.
Nonetheless, questions regarding the publication could have been allowed as a matter of discretion pursuant to § 952.18 of the Postal Service Rules of Practice, which provides that the Federal Rules of Evidence "may be relaxed to the extent that the presiding officer deems proper to insure a fair hearing." In this regard, the concern expressed by the Supreme Court in Reilly v. Pinkus, supra, about affording a cross-examiner the opportunity to challenge expert testimony based upon book knowledge is particularly applicable to false representation proceedings before the Postal Service. However, in this specific instance, it is difficult to discern how the Administrative Law Judge's failure to use his discretion harmed Respondent. Once Dr. Kramer testified that he was unfamiliar with the publication or its authors, it would appear that any impeachment of the witness through this publication would require independent authentication of the statements relied on.
Accordingly, the ruling denying Respondent the right to cross-examine Dr. Kramer on this publication did not constitute error.
"C. The Initial Decision improperly shifted the burden of proof to Respondent."
Respondent argues that the Administrative Law Judge improperly equated the absence of information in the medical and scientific literature regarding the claims at issue with proof of the falsity of these claims. Respondent contends that:
In the absence of controlled clinical studies, although the scientific community may agree that a claim of efficacy has not been conclusively proven as scientifically true, this certainly does not mean that the absence of such studies is enough to conclude that the claim of efficacy has been proven to legally false. By so ruling, however, the presiding Administrative Law Judge improperly shifted the burden of proof to Respondent to prove the efficacy of its products on the basis of published double blind studies rather than requiring the Complainant to prove their inefficacy." (Resp. Brief at 24-25)
A commonsense difference exists between acceptance of a claim by a consensus of the relevant medical or scientific community and the inherent truth of that claim. However, these two aspects of a claim are nonetheless tied to each other. The acceptance of a claim as true under the standards of the medical or scientific community is prima facie evidence that the claim, in fact, is true. Conversely, proof by the Complainant in a false representation proceeding that a claim has not been accepted by the medical or scientific community constitutes prima facie evudebce if its falsity. The burden of rebutting this evidence thereupon falls on the Respondent, which must show that the claim is true despite the lack of acceptance. Standard Research Laboratories, P.S. Docket No. 7/48 (P.S.D. April 4, 1980 at 11). Cf. Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387, 1390 (5th Cir. 1977).
Under the burden Respondent would impose on Complainant, the Postal Service would be required to prove, by independent testing, the inherent inefficacy of claims which are on the outer fringes of medical or scientific research and therefore have not been subject to serious controlled inquiry. This is not in the public interest and is not required. Reilly v. Pinkus, supra, 338 U.S. at 274; Original Cosmetics Products v. Strachan, 459 F.Supp. 496, 503 (S.D.N.Y. 1978), aff'd, 603 F.2d 214 (2nd Cir. 1979), cert. denied, 444 U.S. 915 (1979); G.H.P. Laboratories, Inc., P.S. Docket No. 10/149 (P.S.D. Nov. 30, 1981 at 7-10).
Rather, if the showing of falsity because of lack of acceptance is not rebutted, then Complainant has sustained its burden of proof on this issue, regardless of whether the claims in question may ultimately be proven true. As Dr. Kramer stated with respect to the products at issue:
"I am not saying that these things don't work to grow hair any more than I am not saying rubbing chicken fat on the scalp doesn't grow hair. What I am saying is there is no evidence based on this data and on everything that I have seen to prove or to support the claim that is made in these advertisements that it grows hair. I don't know whether it does or it doesn't." (Tr. 324.)
"The importance of male hair in our society is of such tremendous cultural, sociologic, economic importance that if there were truly something that were effective in treating male pattern baldness, I would expect to see it both in the scientific literature and the non-scientific literature."
(Tr. 445.)
Respondent cites the frequently quoted statement in Reilly v. Pinkus, 338 U.S. at 274, that "It would amount to condemnation of new ideas without a trial to give the Postmaster General power to condemn new ideas as fraudulent solely because some cling to traditional opinions with unquestioning tenacity." The Court's language is not relevant to the findings and conclusions in this case. These findings and conclusions should not be construed as a condemnation of any new idea put forth by Respondent with respect to the treatment of the hair and scalp or as discouraging further scientific inquiry. Rather, they are solely directed at the particular representations made by Respondent in its advertisements, which go far beyond characterizing the products as ideas "where knowledge has not yet been crystallized in the crucible of experience." (Id.)
Respondent also cites Kurzon v. United States Postal Service, 539 F.2d 788 (1st Cir. 1976), for the proposition that it should be allowed to rely on the observations of medical practitioners who found the products in question to be effective. However, as discussed supra, the testimony of these medical practitioners is subject to serious question and, even when taken at face value, departs significantly from the representations at issue.
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, except with respect to the Florida addresses as discussed. A remedial order under 39 U.S.C. § 3005 is being issued with this decision.
1/ Following the style used in the Initial Decision and in the parties' briefs, all of the Respondents will be referred to in the singular.
2/ A motion to dismiss Docket No. 9/81 with respect to Herbal Hair Naturally was previously granted at the hearing on Complainant's own motion (Tr. 853).
3/ In addition to the motions dated November 19, 1980 and February 17, 1981, cited supra, Respondent's Brief refers to a motion to add new Florida addresses dated May 26, 1981. However, the only motion found in the record which bears this date refers to the addition of an Atlanta, Georgia, address.