In the Matter of the Complaint Against

 KEYSTONE INDUSTRIES a/k/a WEALTHCO
 8480 Fredericksburg Rd. Suite 205
 at San Antonio, TX 78229-3317

 AMERICAN FIDELITY CO. a/k/a AMFICO
 1040 Lone Star Drive
 at New Braunfels, TX 78130-2937

 CONSOLIDATED INDUSTRIES
 211 Eastley
 at San Antonio, TX 78217-5710

 JABACO LTD. Suite 114,
 7115 Blanco Road
 at San Antonio, TX 78216-5022

 P.S. Docket No. 17/44;
 P.S. Docket No. 17/45;
 P.S. Docket No. 17/46;  
 
 02/29/84
 
 Cohen, James A.  

 APPEARANCES FOR COMPLAINANT:
 H. Richard Hefner, Esq.
 Clark C. Evans, Esq.
 Consumer Protection Division
 Law Department
 United States Postal Service
 Washington, DC 20260-1112

 APPEARANCE FOR RESPONDENT:
 Jeremiah Handy, Esq.
 147 East Mistletoe
 San Antonio, TX 78212-8580
 Jack Paul Leon, Esq.
 Samuel H. Bayless, Esq.
 500 Lexington
 San Antonio, TX 78215-1930

The Respondents in these proceedings (hereinafter collectively referred to as Respondent) have appealed from an Initial Decision of an Administrative Law Judge which holds that

Respondent is engaged in conducting a scheme or device to obtain money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

On August 3, 1983, the Consumer Protection Division, Law Department, United States Postal Service (Complainant), filed Complaints alleging that Respondent, by means of materially false classified advertisements and circulars distributed through the mail, expressly or impliedly represent to the public, directly or indirectly, in substance and effect, whether by affirmative statements, omissions or implications, that:

"(a) Amounts of earnings derived from participation in the Respondent's program are primarily determined by whatever time participants devote to the routine, mechanical tasks of processing envelopes and stuffing them with sales circulars.

(b) Payment of the initial fee will allow full participation in Respondent's program without further substantial financial investment by the homeworker.

(c) Respondent offers paid employment for routine, mechanical in-the-home processing of mail."

In a timely filed Answer, Respondent denied that it makes the representations alleged in the Complaints, and further denied that any of its representations are materially false. Respondent admitted that the promotional materials referred to and attached to the Complaints, except for the classified advertisement referred to in the Complaint in P.S. Docket No. 17/46, are typical of the classified advertisements it uses and the circulars it distributes. At the close of an evidentiary hearing at which both parties were offered the opportunity to present evidence in support of their respective positions, the presiding Administrative Law Judge issued an oral decision in which he found that Respondent makes the representations alleged in the Complaint and that those representations are materially false in violation of 39 U.S.C. § 3005. He, therefore, recommended the issuance of a False Representation Order as authorized by § 3005.

Respondent has filed twenty-eight numbered exceptions to the Initial Decision which have been combined where appropriate and are discussed below.

Respondent argues that the Administrative Law Judge erred "when he forced" Respondent to go to hearing at a time when its two principals were unable to testify. Respondent cites the Fifth Amendment to the United States Constitution in support of its position, but does not articulate the rationale for its allegation of error. While it is true that an evidentiary hearing was held in this proceeding while criminal charges were pending against Respondent's principals, no error was committed. Respondent has not cited, nor are we aware of, any precedent which would require that this administrative proceeding be suspended during the pendency of a criminal investigation. Neither has Respondent shown that its two principals were unable to testify at the hearing. Accordingly, there is no merit to this exception.

Respondent contends that the Administrative Law Judge erred in finding that the evidence establishes that Respondent is engaged in a scheme to defraud as a result of its mailing circulars. Contrary to Respondent's contention the Administrative Law Judge did not find that Respondent is engaged in a "scheme to defraud." The Administrative Law Judge concluded in his Initial Decision that Respondent is "engaged, as charged, in conducting schemes to obtain money or property through the mails by means of false representations within the meaning of § 3005 of Title 39, United States Code" (I.D., p. 24). Such a finding does not include a finding of fraudulent conduct.

As further discussed under other exceptions, the conclusion reached by the Administrative Law Judge that Respondent's use of materially false representations to obtain money through the mail in violation of 39 U.S.C. § 3005 is supported by a preponderance of the evidence. Thus, there is no merit to Respondent's contention.

Respondent contends it was improperly forced to an evidentiary hearing while its mail was being held pursuant to an injunction obtained by Complainant under 39 U.S.C. § 3007. As Respondent contends, an evidentiary hearing was held while a § 3007 injunction was in effect. Nonetheless, no error was committed. A § 3007 injunction is premised on the initiation of a proceeding under § 3005, and § 3007 specifically contemplates that mail will be held until the completion of the administrative proceeding and any appeal therefrom. Therefore, it was not improper for the Administrative Law Judge to hold an evidentiary hearing while Respondent's mail was being held.

Under these exceptions Respondent alleges that the Administrative Law Judge erred in refusing to admit into evidence the transcripts of testimony of witnesses called by Respondent in the § 3007 proceeding before the United States District Court. Respondent contends that such refusal was erroneous because Complainant was provided adequate notice that the transcripts were going to be offered in evidence and the issues and parties were essentially the same in both proceedings. Respondent further argues that the refusal to admit the transcripts in evidence was a denial of due process. In addition, Respondent contends that the exclusion of the transcripts violated the Administrative Law Judge's agreement with the parties as to the evidence to be presented.

The Administrative Law Judge's refusal to accept into evidence the transcripts of the testimony given by Respondent's witnesses at the § 3007 hearing was not error, a denial of due process or a violation of an agreement with the parties. In order for the former testimony of a witness to be admissible as an exception to the hearsay rule, under § 804 of the Federal Rules of Evidence (FRE) the witness must be unavailable. Respondent has not shown that the witnesses whose former testimony it sought to introduce were unavailable. Although the witnesses could not be compelled to attend the hearing because subpoenas are not available in § 3005 proceedings, Respondent did not even attempt to show that it had been unable to procure the voluntary attendance of the witnesses. Furthermore, the record does not support Respondent's assertion that Complainant was on notice that hearsay testimony was intended to be offered into evidence

(see FRE 804(b)(5)). At Respondent's request the hearing was moved to San Antonio, Texas, so that it would be convenient for Respondent ot call certain listed witnesses. Nevertheless, Respondent did not call any of the witnesses it listed in its Request for Change of Place of Hearing, but rather attempted to introduce into evidence their former testimony. Notice that a witness will be called to testify is not the notice contemplated by FRE 804(b)(5). Moreover, the proper application of the Federal Rules of Evidence in this proceeding resulting in the refusal to admit into evidence inadmissible hearsay does not constitute a denial of due process (See 39 CFR § 952.18).

Finally, the Administrative Law Judge's exclusion of the evidence did not violate any agreement reached with the parties. Contrary to Respondent's assertion, the record does not reflect any agreement by the Administrative Law Judge to accept into evidence the former testimony of Respondent's witnesses.

For the reasons given, the exclusion of the testimony presented in the § 3007 proceeding does not serve as a basis for reversing the Initial Decision.

By these exceptions Respondent challenges the standard used by the Administrative Law Judge to interpret its advertisements. According to Respondent, the standard applied by the Administrative Law Judge is so vague that it "escapes definition" and cannot be used to determine whether Respondent makes the representations alleged in the Complaint. Respondent also argues that the Administrative Law Judge erred in admitting the testimony of the four witnesses who responded to Respondent's advertisements because they did not qualify as individuals encompassed by the standard. Further, Respondent argues that the use of the terms "average", "normal" and "typical" in describing the persons to whom Respondent's advertisements are directed illustrates the vague and ambiguous nature of the standard. Finally, Respondent argues that the testimony of Complainant's expert is tained by his review of the post-sale materials.

The ordinary reader standard for interpreting advertisements in false representation cases was articulated by the Supreme Court in Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948) and has been consistently followed by the courts and this agency. See, e.g. Peak Labs., Inc. v. United States Postal Service, 556 F.2d 1387 (5th Cir. 1977); Cates v. Haderlein, 189 F.2d 369 (7th Cir. 1951); United States v. Outpost Development, 369 F.Supp. 399 (C.D. Ca. 1973), aff'd, 414 U.S. 1105; Borg-Johnson Electronics v. Christenberry, 169 F.Supp. 746 (S.D.N.Y. 1959); G.J. Howard Co. v. Cassidy, 162 F.Supp. 568 (E.D.N.Y. 1958); Vibra-Brush Corp. v. Schaffer, 152 F.Supp 461 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2d. Cir. 1958); New Generation, P.S. Docket No. 11/152 (P.S.D. May 13, 1983); Telex & twx Directory, P.S. Docket No. 13/6 (P.S.D. April 1, 1983); Bond Industries/CCP, P.S. Docket No. 13/84 (P.S.D. Oct. 29, 1982). The standard is no less clear than the standard of reasonableness which pervades the common law determination of the rights and obligations of parties in civil cases.

While the ordinary reader will vary from case to case depending on the audience to which a particular advertisement is directed, in this case Complainant's witnesses were clearly among the persons from whom Respondent sought to obtain remittances. Their testimony was properly admitted to show what they expected to receive based on their understanding of Respondent's pre-sale representations. The testimony of Complainant's expert was properly admitted to describe the characteristics of the group to whom Respondent's advertising was directed and his testimony does not support the contention that this group is not susceptible to a reasonable definition. Finally, the expert's testimony cannot be tainted by post-sale materials since, as discussed later in this decision, it was perfectly proper to review those materials to determine whether the pre-sale materials contained materially false representations.

Accordingly, there is no merit to these exceptions.

Respondent argues in these exceptions that it was error for the Administrative Law Judge to find that Complainant's witnesses were misled by its advertising, particularly with respect to the requirement for "further substantial financial investment," and that he further erred in his rulings and consideration of the post-sale materials. Neither contention has merit.

Respondent cites several portions of the transcript of the hearing which it contends supports its position that the witnesses were not misled. Essentially, Respondent has taken the testimony of the witnesses out of context in order to support its contentions. A reading of the entire testimony of each witness supports the conclusion that each was misled by the representations made in the pre-sale circulars. They were misled with regard to the nature of the program advertised (Complaint allegations (a) and (c)) and they were misled with regard to the need for further financial investment (Complaint allegation (b)). They discovered they were misled after they had sent money to Respondent and received the post-sale materials which required them to place advertisements to obtain envelopes to stuff.

The position taken by Respondent both at the hearing and in its appeal brief with respect to post-sale materials is not altogether clear. However, what is clear is that it is the pre-sale materials which the Complainant alleges are false (see Tr. 107-110), and the Administrative Law Judge ruled that the post-sale materials would be admitted into evidence and considered to determine the truth or falsity of the pre-sale representations (Tr. 110). While the Administrative Law Judge limited the extent of the testimony on the post-sale material, it was only in an effort to confine the evidence to the disputed issues. The Administrative Law Judge's ruling at the hearing was proper and his reliance on the post-sale materials as part of the evidence showing that Respondent's pre-sale materials make the false representations alleged in the Complaint was correct as a matter of fact and law.

Accordingly, these exceptions of Respondent are denied.

Respondent contends that there is a substantial variance between the allegations contained in the Complaint and the testimony given by Complainant's witnesses as to the wording of its pre-sale circulars. Although the allegations of the Complaint do contain some descriptive words which are not found in the pre-sale circulars, these variances do not affect the substance of the alleged false representations. As alleged in the Complaint, Respondent makes the false representations either "expressly or impliedly . . . directly or indirectly, in substance and effect, whether by affirmative statements, omissions or implications" (see § 5 of the Complaint) Thus, there is no merit to this exception.

Respondent alleges that the Administrative Law Judge erred in allowing Complainant to call JoAnn Roberts as a witness because Respondent was not given prior notice that Ms. Roberts would testify in this proceeding. Although Respondent alleges error, it does not assert, nor does the record reflect, that it was prejudiced by the substitution of Ms. Roberts for another witness Complainant had intended to call. Furthermore, there is no indication of bad faith on the part of Complainant in making the substitution, and moreover, there is an indication Respondent was notified of the substitution prior to the hearing (Tr. 131-32). Therefore, no error was committed in allowing Ms. Roberts to testify at the hearing.

Respondent contends that the Administrative Law Judge erred in allowing Complainant's expert to testify on the ultimate issue to be decided in these cases. Respondent also argues that the expert was not qualified to "testify within the parameters of a scheme to defraud" and the expert's opinion was tainted by the post-sale materials.

Under Rule 704 of the Federal Rules of Evidence it is not objectionable for an expert's opinion testimony to embrace an ultimate issue to be decided by the trier of fact. Thus, the Administrative Law Judge did not err in allowing Complainant's expert to testify on the ultimate issues to be decided in these cases.

Respondent's expert was qualified as an expert in the field of advertising and marketing (Tr. 198). As such, he was qualified to testify with respect to the issues presented in this proceeding (see FRE 702). The opinions offered by the witness did not require expertise on the "parameters of a scheme to defraud."

Respondent's argument relating to the relationship of pre and post-sale materials has already been addressed. In connection with this exception it is sufficient to state that it was not improper for Complainant's expert to have reviewed the post-sale materials prior to testifying in these proceedings.

Accordingly, for the reasons stated, Respondent's exception is denied.

Respondent alleges that the Administrative Law Judge erred in questioning Complainant's expert about the amount of money which Respondent represented a homeworker would earn if Respondent's program had been followed (see Tr. 269-71). According to Respondent the amount which could be earned was not in issue. Respondent also perceives the wording of the Administrative Law Judge's questions as reflecting a prejudgment by the Administrative Law Judge about the nature of the program.

The Rules of Practice applicable to this proceeding specifically authorize a presiding officer to examine witnesses

(39 CFR § 952.17(b)(2)). As Complainant points out in its reply brief, the Administrative Law Judge's questioning was relevant to the issue of the understanding of an ordinary reader. The relevance is obvious from the follow-up question posed by the Administrative Law Judge which was " w ould that suggest any degree of questionability as to the validity of that offer?" (Tr. 270). Thus, there is no merit to this portion of Respondent's argument.

Respondent's argument that the Administrative Law Judge's questions show that he had already made up his mind is equally lacking in merit. The questioning took place after all of Complainant's evidence had been presented and a prima facie case established. Furthermore, the questions were phrased in the terms used by the witnesses who had testified about their understanding of Respondent's program based on their reading of the pre-sale materials. Thus, the questioning does not reflect any prejudgment of the case by the Administrative Law Judge.

Accordingly, Respondent's exceptions are denied.

By this exception Respondent, citing Blount v. Rizzi, 400 U.S., 410 (1971), and United States ex rel. Milwaukee Social Democratic Publishing Co. v. Burleson, 255 U.S. 407, 437 (1921), claims its conduct is protected by the First Amendment. Respondent also argues that Complainant has erroneously compared its conduct to the case law dealing with obscenity. Further, Respondent argues that the case of Virginia State Board of Pharmacy v. Virginia Citizen's Counsel, 425 U.S. 748 (1976), cited in the Initial Decision, does not set a standard by which this case may be governed.

Respondent's reliance on Blount, which deals with obscene materials sold through the mail, is somewhat inconsistent with its argument that it was improper for Complainant to compare its program to the "case law dealing with obscenity and pornographic material" (Resp. Brief at 14). Respondent's reliance on Blount, is misplaced but its arguments that obscenity cases including Blount are distinguishable from false representation cases is correct and the Courts have so held. In Lynch v. Blount, 330 F.Supp 689 at 694 (S.D.N.Y. 1971), aff'd, 404 U.S. 1007 (1972) the Court stated:

"Moreover, it is now beyond doubt that the use of the mails is protected by the First Amendment, Lamont v. Postmaster General, 381 U.S. 301, 85 S.Ct. 1493, 14 L.Ed.2d 398 (1965). But it is also clear that the First Amendment right to freedom of speech does not go so far as to grant a person a privilege to mislead the public by means of false commercial advertising, Valentine v. Chrestensen, 316 U.S. 52, 62 S.Ct. 920, 86 L.Ed. 1262 (1942). The question for us thus narrows down to whether the process of distinguishing between the unprotected area of commercial fraud and protected speech is so similar to that of drawing the line between unprotected obscenity and protected speech that the safeguards employed in the latter determination by the Rizzi opinion must be brought over and applied to the procedure here under consideration.

Plaintiff seems to assume that what he calls 'First Amendment safeguards' are always the same, whether the area involved is politics, religion, obscenity, commercial fraud or what not else. We think the safeguards defined in Blount v. Rizzi, 400 U.S. 410, 91 S.Ct. 423, 27 L.Ed 2d 498 (1971), for obscenity cases are wholly inappropriate, unnecessary and inapplicable to the field of commercial fraud."

The Fifth Circuit reached the same conclusion in United States Postal Service v. Athena Products, Ltd., 654 F.2d 302 (5th Cir. 1981).

While the Supreme Court in Virginia, supra, was not confronted with facts establishing the existence of false commercial speech, they stated:

"Untruthful speech, commercial or otherwise, has never been protected for its own sale. Gertz v. Robert Welch, Inc., 418 U.S. 323, 340 (1974); Konigsberg v. State Bar, 366 U.S. 36, 49, and n. 10 (1961). Obviously, much commercial speech is not provably false, or even wholly false, but only deceptive or misleading. We foresee no obstacle to a State's dealing effectively with this problem. The First Amendment, as we construe it today, does not prohibit the State from insuring that the stream of commercial information flow cleanly as well as freely." Virginia State Bord of Pharmacy, supra at 771-72.

Thus, although Virginia does not set the standard governing the present proceedings, it makes clear that enforcement proceedings under statutes like 39 U.S.C. § 3005 are not precluded by the First Amendment.

Accordingly, it is concluded that a proceeding under 39 U.S.C. § 3005 does not constitute an infringement of Respondent's First Amendment rights. This exception is therefore denied.

Respondent contends that a statement made by the presiding Administrative Law Judge indicates that the Administrative Law Judge has engaged in ex parte communications in violation of 39 CFR § 952.34. Respondent also argues under this exception that the Administrative Law Judge had prejudged the case.

The statement referred to by Respondent as showing the existence of an ex parte communication is "The purpose of the existence of this statute is to protect the public and it's designed to be put into effect as rapidly as possible to effectuate the protection that is afforded by it. There have been suggestions in this record that the principal officer or officers of the Respondents here are engaged in business under other names" (Tr. 289). The basis for this statement appears on page 287 of the transcript where counsel for Complainant suggested that Respondent's principals were continuing in business under other names. Thus, there is no merit to Respondent's contention that even the appearance of an ex parte communication can be found in the Administrative Law Judge's statement.

Respondent's further arguments under this exception that the Administrative Law Judge had prejudged these cases and therefore Respondents were denied due process at every stage of this proceeding is also not supported by the quoted statement. The question of prejudgment has been previously considered and found to be without merit.

Therefore, this exception is denied.

After consideration of the entire record and Respondent's exceptions, it is concluded that Respondent is engaged in a scheme or device to obtain money through the mail by means of materially false representations. Accordingly, Respondent's appeal is denied and a remedial order under 39 U.S.C. § 3005 is issued herewith.