In the Matter of the Complaint Against JAMES L. MORRIS d/b/a NATIONAL CREDIT SERVICES 717 North Harwood, Suite 800 at Dallas, TX 75201-6505 and 11419 Mathis Avenue, Suite 206 Dallas, TX 75234-9408 P.S. Docket No. 19/38; 06/25/84 Duvall, William A. APPEARANCE FOR COMPLAINANT: H. Ric hard Hefner, Esq. Alan B. Ostroff, Esq. Law Department United States Postal Service Washington, DC 20260-1112 APPEARANCE FOR RESPONDENT: John W. Rhea, III, Esq. 4131 North Central Expressway Suite 630 Dallas, TX 75204-3141
In a Complaint filed on April 6, 1984, the General Counsel for the United States Postal Service, Complainant, filed a Complaint in which it is charged that James L. Morris doing business as National Credit Services in Dallas, Texas, is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations within the meaning of Section 3005 of Title 39, United States Code.
An advertisement in a nationally distributed periodical invites people to call a toll free number to get information about obtaining credit cards. (Ex. C-5; Tr. 31) Persons who make the call are asked for their names and addresses. There are then sent to the callers a form letter bearing the salutation "Dear Future Cardholder," Exhibit R-1, (attached hereto as App. A) and a form calling for a credit history of the individuals, Exhibit R-2 (attached as App. B). In these forms, also, the Respondent asks for the remittance of $35.
The Complainant alleges that in these forms the Respondent makes the following representations:
(a) Persons sending the required remittance through the mails to Respondent and furnishing the information required on the credit card application, are assured of receiving valid credit cards, particularly Visa and Mastercard.
(b) Respondent will furnish all applicants with valid credit cards --particularly Visa and Mastercard --irrespective of the applicants' credit experience, credit history or income.
(c) All applicants who fill out the credit card application and make the required remittance to Respondent will be accepted by member banks as valid Visa and Mastercard credit card holders.
Complainant alleges that these representations are materially false, as a matter of fact, and asks for the issuance of a mail-stop order and a Cease and Desist Order, suggested forms of both of which are attached to the Complaint.
In its answer to the Complaint, Respondent admits the use of the mails and it admits the solicitation of remittances of money, but it denies that it has engaged in any scheme, particularly one to obtain money or property through the mails by means of false representations in violation of 39 United States Code § 3005 and he denies making the representations set forth in subparagraphs (a), (b), and (c) of paragraph 4 of the Complaint, either expressly or impliedly.
Moreover, Respondent states that even if the alleged representations are made, Respondent denies that they are materially false in view of the latter's promise of a refund if the use of Respondent's system was unsuccessful for a particular individual.
Respondent sought the denial of all relief sought by Complainant.
At the hearing, the Complainant produced three witnesses whose testimony will be reviewed. Mrs. Linda Carey of Fort Pierce, Florida, was the first witness. Mrs. Carey saw an advertisement of Respondent's on television at some time in 1983. It is true that the Respondent, in the person of Mr. Morris, denied the use of the medium of television in advertising his product, but it is not particularly important whether Mrs. Carey saw the advertisement on television or in a publication. The fact is that Mrs. Carey must have seen the name of the Respondent and the address somewhere because she would not have been able otherwise to be aware of the address in Dallas of this Respondent, while she herself was residing in Fort Pierce, Florida. So, somehow she encountered the name of the Respondent and formed a belief as to what business the Respondent was in. She decided to make the required telephone call.
In due time she received through the mail the "Dear Future Cardholder" letter and the credit history form. (App. A and B) She read both forms in their entirety, and after reading them she believed that if she supplied the required information and sent the fee to the Respondent, both of which she did, she would receive the Mastercard which she ordered. (Ex. C-3; Tr. 12-16) Time passed and she received nothing. On September 23, 1983, she wrote to Respondent asking for the Mastercard or for the refund of her money. (Tr. 16-17)
After the passage of more time, Mrs. Carey wrote on October 29, 1983, to the Better Business Bureau in Dallas, and to the Attorney General of the State of Texas and reported her transactions with the Respondent. (Tr. 22-23)
Eventually, she received an envelope which, from its size and shape, she believed contained a booklet. Since what she wanted was a credit card and not a booklet, she did not open the envelope and she returned it to the Respondent. (Tr. 17-18) Mrs. Carey never received a refund of her $35 nor the Mastercard. (Tr. 20)
Mrs. Carey was asked on cross-examination whether on re-reading at the hearing the "Dear Future Cardholder" letter, she now believes that her first impression that she would, on the basis of sending in the fee and the credit history, receive the Mastercard, was incorrect. (Tr. 26) By the time that she had re-read the letter, she had failed for a number of months to receive anything, so it was obvious to her that the letter did not mean that she would get either the card or the refund.
Mrs. Barbara Hudson, a medical secretary in Hillcrest Medical Center in Tulsa, Oklahoma, said that the ad which is Exhibit C-5 was very similar to or identical to the one which she had seen in Star Magazine. (Tr. 31) This advertisement will appear in detail later in this decision. After seeing the ad in the Star, she called the toll free number and received the "Dear Future Cardholder" (App. A) letter and the credit history form (App. B).
The use of the term "(GUARANTEED)" in the third paragraph of the "Dear Future Cardholder" letter, and the fact that the fee was only $35 caused Mrs. Hudson to fill out the form and send the fee and the form to the Respondent. (CX-9) She believed that if she sent to Respondent the required information and fee she would receive the credit cards she ordered. (Tr. 40-41) She asked for a number of credit cards because she had had difficulty in obtaining credit due to some problems in paying bills. This difficulty caused her to file in bankruptcy, from which she was discharged in January 1981. (Tr. 41, 51)
In August 1983, Mrs. Hudson received Exhibit R-4, or a version of this booklet, called "The Magic Door of Credit." (Tr. 37) This is the system that is sent by Respondent when persons first encounter difficulty in either receiving a credit card or obtaining a refund, if they receive any response at all. The "system" as detailed in Ex. R-4 is somewhat long and tedious, and it is not necessary for present purposes to go deeply into it.
Mrs. Hudson wrote one letter of complaint to the Respondent asking for a refund because of the "(Guaranteed)" language previously referred to, and because of the last sentence of paragraph two of the "Dear Future Cardholder" letter. This sentence reads as follows: "National Credit Services guarantees you success in obtaining credit or your fee is returned." (App. A)
Mrs. Hudson never received a refund of her money or the credit cards that she sought. (Tr. 44)
Norman Tate, Vice President of the Northpark National Bank, Dallas, Texas, in charge of the credit card division, specializing in personal lending, has had a long and varied experience in the credit field. He has been President of the Dallas Credit Manager's Association; and he was also for a number of years collection manager of Neiman-Marcus in Dallas. Mr. Tate has personally considered over 100,000 credit applications, and persons under his supervision have approved or denied thousands of other such applications. He received a Bachelor of Science degree in textile engineering from North Carolina State College in 1951. Mr. Tate was qualified as an expert witness in matters relating to retail credit and the process involved in granting and obtaining credit cards. (Tr. 57)
It is Mr. Tate's opinion that persons not in the credit profession would believe that App. A and App. B, considered in the overall, do represent that National Credit Services would furnish credit cards to persons who furnished the required information and remitted the fee called for in those documents. If persons considered the smaller print, they might reach a contrary conclusion. (Tr. 58, 64)
One's credit history is of primary importance in the matter of extending credit. A prudent banker would make a credit investigation as a matter of course, and he would do so, particularly, in regard to applications for a Visa or Mastercard account. (Tr. 59) It was Mr. Tate's opinion that the credit history form would cause people to believe that they were applying for one or more credit cards. However, it was also Mr. Tate's opinion that Respondent would not be able in any event to supply a person with a valid Visa or Mastercard, regardless of the applicant's credit experience, credit history, or income. (Tr. 61)
Ms. Ann Morris, sister of James L. Morris, was called as a witness on behalf of Respondent. Ms. Morris worked with her brother in summers between school sessions. She moved to Dallas and worked with him from September 1983 to January 1984. Among other duties, Ms. Morris handled complaint letters under the direction and supervision of her brother. (Tr. 72-73)
James Lee Morris was the last witness to testify. In June 1982, when he started the present business, Mr. Morris filed an assumed name certificate with Dallas County stating that he was going to do business under the name "National Credit Services." (Tr. 97) He obtained, from others who were employing the same sales methods used by Respondent, the system of obtaining credit cards. He used this system himself and succeeded in obtaining credit cards. (Tr. 102, 115-116) It was developed on cross-examination that the system for obtaining credit cards presented in Respondent's Exhibit 4 advises the readers and users of the system to withhold certain types of adverse information about themselves when applying for credit. (Tr. 117-118)
In the approximately 18 months from June 1982 until some date in January 1984 that Respondent was actively engaged in business, 14,146 credit history forms, accompanied in each case by the required $35 fee, were submitted to Respondent. (Tr. 103) Respondent's Ex. 5 indicates that Respondent received letters of complaint from 465 customers during the course of its operation, and this number represents 3.3 percent of the total number of customers. The people who wrote to Respondent expressing dissatisfaction because they did not get the credit cards they expected numbered 125, representing .88 percent of the 14,146 customers. During this same period, Mr. Morris stated that approximately 150 refunds were issued. (Tr. 105)
On the evening of May 16, 1984, Mr. Morris and his sister analyzed complaint letters that had been received over the stated period. According to the categorization by the Respondent, the 465 letters fell into one of three groups, as follows (Ex. R-5):
207 persons who wanted refunds;
133 persons complaining of delays in receiving credit system;
125 persons who expected credit cards;
Additional information on Ex. R-5 indicates:
Amount of refunds issued: $4,325.00
Amount of bad checks received: $22,715.00
Gross amount of revenue received: $495,110.00
Here there must be a digression from the directg bearing of the above statistics on the issues. The digression is brought about by what appear to be discrepancies between the evidence in the testimony of Mr. Morris and the evidence as it appears in certain exhibits. These discrepancies cast a shadow of grave doubt over the credibility of Respondent's proof.
For example, Mr. Morris stated that he issued refunds to approximately 150 people and that he had records of these refunds in the form of Respondent's Exhibits 6, 7, and 8. These exhibits are said to be copies of his "checkbook ledger listing every check and who it was made out to and the purpose." The ledger "covers the entire period of time Respondent was in business"; it was prepared by Mr. Morris; he "signed all the checks"; he "made the entries into the ledger"; and the ledger "substantiates the figure" appearing on Ex. R-5 as the "dollar amount of refunds." (Tr. 105-106)
A line-by-line check of Exs. R-6, 7, and 8 discloses a total of refunds in the following numbers and amounts:
R-6, 7 and 8 by count Claimed (Tr. 105-106)
Number Amount Number Amount
16 @ $35 $560 No amount
stated in
72 @ $30 $2160 testimony,
but the
2 @ $20 $ 40 witness
affirmed
2 @ $ 3 the amount
stated in
1 @ $ 5 $ 5 Ex. R-5 -
93 $2771 150 $4,350
The above tabulation indicates that Respondent paid 57 fewer refunds as shown by Exhibits R-6, 7, and 8 than he stated at page 105 of the transcript of the testimony. Similarly, it is indicated that he refunded $1,579 less as shown by R-6, 7, and 8 than is shown in Ex. R-5 as having been paid in refunds. Thus it would be a matter of speculation as to which, if any, of the data appearing on Exhibits R-5, 6, 7, 8, and 12 are accurate. Accordingly, the exhibits are disregarded.
Mr. Morris said that he placed the last advertisement for National Credit Services in November 1983 because of his inability to meet the cost of the toll free calls that were coming to him in response to the invitation in his advertisement. (Tr. 110)
Based on this review of the evidence, I make the following findings of fact:
1. Respondent uses, and causes the use of the mails in the conduct of his business, and he solicits remittances of money through the mails. This fact is established by the admissions contained in the answer of the Respondent. (See, also, Ex. R-3, the return envelope)
2. Respondent makes the representations set forth in paragraph 4. of the Complaint. In support of that finding, excerpts from the following exhibits are cited.
First, there is the entire language from Exhibit C-5, which is the ad appearing in Star Magazine. (It is indicated that the copy of the advertisement attached to the Complaint appeared in The National Enquirer; see, also, Ex. 8, p. 1, check #1026 dated 7-14-82.)
"Credit Cards
Get Visa, MasterCard and more. Fast, easy. Also nationwide check guarantee card with emergency cash. Free legal services plus much more. Bankruptcy, bad credit, no credit. No problem] Guaranteed. Re-establish bad credit. Do as thousands have done, call the experts. National Credit Services. Free details. Call toll free 24 hours. 1-800-227-3800 extension 50."
That is the first information and contact with Respondent that persons interested in doing business with the Respondent have. That is their introduction. Then they call and give their names and addresses to the Respondent. The Respondent then sends to the callers the "Dear Future Cardholder" letter (App. A) and the "Credit History" (App. B). A return envelope is enclosed with R-1 and 2. (R-3)
There are many excerpts from App. A, which could be quoted, but it will not be necessary to use them all. Here are a few selected at random: "If you want Visa or MasterCard, or both cards, we will show you where to obtain them. No matter how bad your past history is. There will be no credit investigation involved , and you can select the limit you want." (emphasis in the original)
* * *
"As an exclusive service, you will obtain a special 'credit card' which will allow you to obtain cash instantly at over 4,000 locations, day or night." (emphasis in the original)
* * *
"Our guaranteed system will be mailed to you immediately upon receipt of our LOW FEE --$35.00 total." (emphasis in the original)
* * *
"Do as thousands have done. Let the experts help you]"
There are also some obscurely worded disclaimers, but a person who has been set up previously by reading Respondent's advertisement in the newspaper, and who then receives this letter, is persuaded that he has at last found something which will be beneficial to him in his efforts to obtain credit cards.
Generally, this advertising would have absolutely no appeal or use to those who have well-established credit ratings. Thus, it is those people who are most in need of establishing credit who would be the people who would respond most readily to the kind of an appeal presented by the Respondent in its advertisement and sales literature. This statement represents not only my independent conclusion --it is also the reflection of the opinion of the expert witness. (Tr. 68, 69)
Therefore, I find that the Respondent does make the representations set forth in paragraph 4 of the Complaint.
3. The representations found to have been made by the Respondent are material representations. A yardstick that has been suggested to aid one in deciding whether a representation is material was set forth in a decision in the case of Chaachou v. American Central Insurance Company, 241 F.2d 889, 893 (5th Cir. 1957), where it was said that the representation must "cause the other party to do other than that which would have been done had the truth been told."
The witnesses for the Complainant in this case, the only ones to whom the question was addressed, said that they neither expected to receive nor wanted to receive the booklet setting forth what is called "The Magic Door of Credit." (Ex. R-4) What they wanted originally was to receive a credit card. What they wanted subsequently was to receive either the credit card or the refund of the money which they thought they were paying to entitle them to receive the credit card. Had they known what they were going to get, it is obvious that they would not have remitted the money to the Respondent.
4. The representations found to have been made by the Respondent are false. One is impressed when he reads the literature, both the newspaper advertisement and the circular letter and the credit form used by the Respondent, at the lengths to which the Respondent has gone to avoid being forthright with the people to whom these letters are sent. This problem was touched upon by the Supreme Court in the case of Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748, 772 fn. 24, (1975) when it quoted the following language from the case of United States v. 95 Barrels of Vinegar, 265 U.S. 438, 443 (1924): "It is not difficult to choose statements, designs and devices which will not deceive."
On the same point, it was said in Rhodes Pharmacal Company v. Federal Trade Commission, 208 F.2d 382, 387 (7th Cir. 1953) as follows: "The important question to be resolved is the impression given by an advertisement as a whole. Advertisements which are capable of two meanings, one of which is false, are misleading. Advertisements which create a false impression, although literally true, may be prohibited."
The record of this proceeding measured by the excerpts from the above-cited cases demonstrates that the representations found to have been made by this Respondent are false.
5. It follows that the Respondent is engaged, as charged, in conducting a scheme or device for obtaining money or property through the mail by means of false representations within the meaning of Section 3005 of Title 39, United States Code.
1. Based upon the record in this case and the Findings of Fact heretofore stated, it is concluded as a matter of law that Respondent is engaged in conducting a scheme for obtaining money or property through the mail by means of false representation as proscribed by the provisions of 39 United States Code § 3005.
2. Assuming, but not accepting, the suggestion that Respondent offered and made frequent refunds to dissatisfied customers, that fact does not in any way exculpate Respondent for the original misrepresentations, expressed and implied, which caused them to respond to his solicitations. Borg-Johnson Electronics, Inc. v. Christenberry, 169 F. Supp. 746, 751 (S.D.N.Y. 1959); G. J. Howard v. Cassidy, 162 F. Supp. 568, 572 (E.D.N.Y. 1958); Farley v. Heininger, 105 F.2d 79, 84 (DC Cir. 1939).
Proposed findings of fact and conclusions of law submitted by the parties have been fully considered, and to the extent indicated herein, they have been adopted. Otherwise, such proposed findings of fact and conclusions of law are rejected for the reasons that they are unsupported by or contrary to the evidence or because of their immateriality, incompetence or irrelevance.
Accordingly, a mail-stop order and a Cease and Desist Order substantially as in the forms hereto attached should be issued against this Respondent.