In the Matter of the Complaints Against W. G. CHARLES COMPANY; ROBERTSON-TAYLOR COMPANY; INTRA-MEDIC FORMULATIONS, INC.; J. F. PHARMACEUTICALS, INC.; CONNOR-FREEMAN LABORATORIES, INC., DLANDER; HARRIS FRIEDLANDER; and MICHAEL MEADE, Respondents. P.S. Docket Nos. 19/103, 19/104, 19/105, 19/161, 19/162, 19/179, 19/182, 19/183, 19/184, 20/16 and 20/32 01/28/85 Bernstein, Edwin S. Administrative Law Judge APPEARANCES FOR COMPLAINANT: Sandra C. McFeeley, Esq. Kenneth N. Hollies, Esq. Consumer Protection Division Law Department U. S. Postal Service Washington, DC 20260-1100 APPEARANCE FOR THE CORPORATE Lee H. Harter, Esq. RESPONDENTS: 2256 Van Ness Avenue San Francisco, CA 94109-2513 APPEARANCE FOR William L. Richey, Esq. MITCHELL K. FRIEDLANDER: Richey & Munroe, P.A. Suite 331 717 Ponce De Leon Boulevard Coral Gables, FL 33134-2084 APPEARANCE FOR Ira N. Loewy, Esq. HARRIS FRIEDLANDER: Bierman, Sonnett, Shohat & Sale Peninsula Fed. Bldg., 5th Floor 200 S. E. First Street Miami, FL 33131-1976 APPEARANCES FOR Stephen E. Nagin, Esq. MICHAEL MEADE: 1570 Madruga Avenue Coral Gables, FL 33146-3075 Michael Meade, Pro Se 2615 N. E. 49th Street Ft. Lauderdale, FL 33308-4846 BEFORE: Judge Edwin S. Bernstein
Complainant alleged and Respondents denied that Respondents are engaged in schemes or devices to obtain money or property through the mail by false representations in violation of 39 U.S. Code 3005. Various Respondents are named in various docket numbers. Mitchell Friedlander is a Respondent in all cases; Harris Friedlander in all except Docket Nos. 19/182 and 20/32, and Michael Meade in Docket Nos. 19/103, 104 and 105. Included in the relief requested by Complainant are cease and desist orders pursuant to 39 U. S. Code 3005(a)(3).
The interpretation of the advertisements and their truth or falsity will be addressed at a hearing scheduled to commence on February 4, 1985. As a preliminary matter, a hearing was held on December 11-14, 17, and 19, 1984, in Miami, Florida, to determine whether or not Harris Friedlander and Michael Meade are properly named as Respondents.
On behalf of Complainant, Postal Inspector A. J. Lara and Dolores D'Ancona testified about their conversations with Harris Friedlander; Postal Inspector Gary Cantley identified locations where the Robertson-Taylor Company (Robertson-Taylor) has done business and described the purpose and function of several Postal Service forms; and William Daniel Parsons of the Houston Better Business Bureau (BBB) testified about his conversations and correspondence with Michael Meade.
Respondents presented the testimony of James Falk, a computer programmer at Robertson-Taylor, who provided information on the administrative and operational structure of the corporate Respondents; and Harris Friedlander and Michael Meade, who testified about their roles in the corporations.
Complainant and Harris Friedlander and Michael Meade filed proposed findings of fact, conclusions of law and memoranda. All of these have been considered. To the extent indicated, they have been adopted. Otherwise, they have been rejected as irrelevant or not supported by the evidence.
FINDINGS OF FACT
Mitchell K. Friedlander owns Intra-Medic Formulations, Inc., (Intra-Medic). Intra-Medic wholly owns Robertson-Taylor, W. G. Charles Company (W. G. Charles), Customer Service Distribution Center, Inc. (Customer Service) (Tr. 401-402, 420-21; 1644; CX 2-28), J. F. Pharmaceuticals, Inc. (J. F. Pharmaceuticals), and Bio-Technic Labs, Inc. (Bio-Technic Labs) (CX 2-28; CX 2-11 p. 1).
Mitchell Friedlander is the president of these corporations (Answers of corporate Respondents) and, except for Bio-Technic Labs, Mitchell is the sole director of each (CX 22 - CX 2-27). Mitchell Friedlander is "the boss", the decisionmaker, and the giver of instructions in these corporations (Tr. 1689, 1724, 1756, 1794, 1899.)
I. Harris Friedlander
Harris Friedlander is the 35 year old younger brother of Mitchell Friedlander (Tr. 1727). Harris has worked for Robertson-Taylor since October 1982. (Tr. 1728.) His salary is $600 per week (Tr. 1733).
Even early in Harris' employment he had supervisory responsibility of Robertson-Taylor's shipping operation. In May 1983, he identified himself to Food and Drug Administration (FDA) Inspector Edward DeBerry as the shipping manager, with responsibility for mail order shipping operations. He described to the inspector the firm's product packaging and shipping procedures, and, at that time, Harris was observed by the inspector supervising three employees (CX 2-4, pp. 4, 6).
Harris is vice president of W. G. Charles (CX 2-1(b)), Robertson-Taylor (CX 2-6(a)) and Intra-Medic (CX 2-7(c)). He is the only officer of Robertson-Taylor other than Mitchell (CX 2-4, p. 2). He is the only person other than Mitchell who signs checks for the corporations (Tr. 1777). His signature has appeared on refund checks for Bio-Technic Labs and Customer Service (CX 2-14, 2-17). No one other than Mitchell gives him instructions. He was the sole initial director of Bio-Technic Labs (CX 2-23).
There is a relationship of mutual trust between the Friedlander brothers (Tr. 1771, 1784). At the 1110 W. Sunrise location since early 1984 (Tr. 1745), except during the December 1984 hearing, Harris has been the only person who opens incoming mail and counts the money, a fact that he emphasized to Inspector Lara as the basis for his certainty that there was cash missing from the incoming mail (Tr. 444, 1681, 1740, CX 2-5). Harris' mail opening activities are carried out for Robertson-Taylor, Customer Service, Intra-Medic, J. F. Pharmaceuticals, and W. G. Charles (Tr. 1755, 444-493). After the mail is opened, only Harris and Mitchell have access to the cash (Tr. 519).
Despite this, Harris contended that he is an unimportant person in the corporate activities. His lawyer described him as a nudnik (Tr. 1960) and a "go-for." (Respondents Pre-Hearing Brief, p. 2). The tone and content of Harris' testimony was extremely humble and self-demeaning. I found this not wholly believable. Although Dolores D'Ancona testified credibly that Harris represented himself as the corporate vice president in complaining about thefts of mail and Harris' name appears on various papers as vice president (Tr. 1037), Harris at first attempted to deny this. When asked by his lawyer if he is an officer of Robertson-Taylor, he initially answered, "No. I am not" (Tr. 1731). When reminded that his name is on corporate papers as vice president, he stated:
". . . I never checked into it to see if I really was on the corporate papers; but I assumed that I was. It was just a title. I never represented myself as being -- as it being more than a title" (Tr. 1732). Emphasis added.
Later, on cross-examination, he stated about the title of vice president of Robertson-Taylor:
A. I never used it formally no.
. . . . .
Q. But you have used it on various documents, isn't that correct?
A. Only when I had to. (Tr. 1747)
However, the facts are that Harris holds himself out as vice president of Robertson-Taylor. He identified his signature on various Postal Service forms (CX 2-7, p. 3; CX 2-7(c); CX 2-7(a); Tr. 1756). He acknowledged that he signed his name on checks with "V.P." after the name (Tr. 1749). When Harris visited the post office to complain about possible mail theft, he identified himself to Dolores D'Ancona as the vice president of Robertson-Taylor (Tr. 1747-48; 1037). He also appeared to Ms. D'Ancona "to be familiar with the operation of the companY" (Tr. 1041, 1115, 1182).
Mitchell also identified Harris as the corporate vice president. As early as May 1983, Mitchell told FDA Inspector DeBerry that Harris was Robertson-Taylor's vice president (CX 2-4, p. 2). Two Postal Service Forms 1583, dated June 29, 1983 and September 23, 1983, respectively, signed by Mitchell, also identified Harris as "V. Pres." (CX 2-6(a); CX 2-1 (b)).
Harris explained that he was given the title to impress his grandmother (Tr. 1731). But this does not explain his use of the title on corporate papers and in dealings with third parties.
When asked if he knew who owns stock in the corporations, Harris testified, "I am not sure. I would assume my brother, but I don't know" (Tr. 1732). This "uncertainty" conflicts with the following unequivocal handwritten statement on CX 2-7(c): "Mitchell Friedlander is sole owner of Robertson-Taylor and Intra-Medic Corporation", signed, "Harris Friedlander, Vice-President".
The tone of Harris' testimony was that of an egoless nonentity. In light of his actions, I find it difficult to believe this. The attempt to cast aside ego also conflicted with his explanation that he used the title of vice president for "egotistical reasons" (Tr. 1770).
When questioned by a Food and Drug Inspector in May 1983, he identified himself as shipping manager and not as vice president (CX 2-4). But when asked about this at the hearing, he stated "I was never the shipping manager" (Tr. 1770).
Not only was Harris the initial director of Bio-Technic Labs, the vice president of several of the Respondent corporations, the only corporate officer of Robertson-Taylor other than his brother, the person who was designated by the corporate Respondents' lawyer to be contacted concerning mail loss complaints (CX 2-8), but he was entrusted with opening the mail, a position of significant trust in a business where much cash is received by mail. I therefore, find that Harris Friedlander occupies a position of importance in the hierarchy of the corporate Respondents.
II. Michael Meade
Michael Meade is the corporations' general manager who supervises the computer, warehouse operations, order entry and customer service departments for W. G. Charles, J. F. Pharmaceuticals, Robertson-Taylor, Bio-Technic Labs, and Intra-Medic. Meade testified that the customer service department is the most important of the corporations' functions (Tr. 1689, 1703, 1720, 1722, 1812). Both James Falk and Meade acknowledged that Meade is the layer of management between Mitchell and the computer department (Tr. 1722, 1886-87). During the hearing, Mitchell also referred to Meade as "my general manager" (Tr. 428).
In describing his duties, Meade discussed some of the complexities of customer service. He testified that handling refunds is "not quite as simple as it sounds" (Tr. 1803-1804). Nor are orders; such assignments need very special attention (Tr. 1805-1806). Moreover, he said that he had developed standards for the operations of the Respondent corporations "based on how I saw the operation to be run . . . then I took it from there" and implemented them (Tr. 1884-1885).
Meade holds himself out to the public, including a Chicago mail receiving agency and the Houston Better Business Bureau, as general manager of W. G. Charles and Bio-Technic Labs. He identified his signature above the title "general manager" on CX 2-1(a), a letter from W. G. Charles. He also identified himself as general manager on the telephone to Daniel Parsons of the BBB (Tr. 535). Shortly before that telephone conversation, Meade signed a letter to the BBB as "general manager" (CX 2-21; Tr. 1811). Additionally, in a membership application for the BBB, Meade identified himself as "general manager" of Bio-Technic Labs (CX 2-12; Tr. 1810). In describing the basis for his belief that Meade was in a management position, Parsons stated that Meade used the title, "general manager" on documents; confirmed his title over the telephone; and responded to a complaint in the manner of a supervisor.
Mitchell Friedlander knows and approves Michael Meade's use of the title, general manager (Tr. 1865). Meade testified that if Mitchell didn't like something, he would put a stop to it (Tr. 1898-99).
Meade is compensated at a level commensurate with a general manager who fulfills substantial responsibilities. His salary of $52,000 a year, is third highest in the corporations, including that of Mitchell (Tr. 1853-55).
Meade explained that his recent salary increase from $525 per week to $1,000 per week was in payment for long hours that he worked (Tr. 1855). Just as Harris Friedlander attempted to explain away his use of the title of vice president as to impress his grandmother, Meade also attributed his use of the general manager title to joking references between himself and Mitchell (Tr. 1790). However, this explanation fails to explain why Meade identified himself as the general manager in correspondence and in his dealings with the Houston Better Business Bureau and was referred to at the hearing as "my general manager" by Mitchell.
Considering Meade's large salary, his supervision of employees in the important customer service, warehouse and shipping areas of the businesses, his use of the title of general manager, and the relatively small size of these companies, I find that Michael Meade is significantly involved in the management of the corporate Respondents.
CONCLUSIONS OF LAW
Effective November 30, 1983, Public Law 98-186 added subparagraph (a)(3) to 39 U.S. Code 3005. That provision authorized the Postal Service to issue an order which "requires the person or his representative to cease and desist from engaging in" a scheme or device for obtaining money or property through the mail by means of false representations.
No cases have been decided pursuant to that provision. Therefore, to determine its interpretation, we must examine the provision's legislative history and cases decided pursuant to other similar statutory provisions.
In granting the Postal Service the power to issue cease and desist orders against individuals, Congress intended to strengthen the deterrent effect of the statute and reduce possibilities of evasion of Postal Service orders. In its report, the Senate Governmental Affairs Committee quoted the following explanation by Charles P. Nelson, Assistant Chief Postal Inspector for Criminal Investigations:
T he bill would remedy a weakness in the existing law resulting from the fact that it has little or no deterrent effect. * * * So far as the current statute is concerned, a promoter who wishes to continue the same false advertising scheme need only change his trade name and/or address and thereby escape the consequences of the outstanding mail stop order until we can complete additional administrative proceedings. It is common for promoters to repeatedly employ this tactic and in each case the public is injured in the interim between the resumption of the scheme and our completion of additional proceedings.
Senate Report No. 98-51, page 5, U.S. Code Congressional and Administrative News, Vol. 9A, January 1984, p. 2018.
The need for stronger measures was also expressed by Senator Pryor:
As most of my colleagues are well aware, the incidence of consumer fraud and misrepresentation has grown to epidemic proportions in recent years, and a large number of these schemes are perpetrated through the mails, preying upon some of our vulnerable citizens: The poor, the elderly, and the sick. In fact, it is estimated that over 60 percent of the victims of mail fraud are senior citizens.
The U.S. Postal Inspection Service makes every effort to combat the incidence of mail fraud and misrepresentation responding to over 200,000 complaints yearly. However, one of the principal statutes under which the Service is able to pursue deceptive mail marketing is over 100 years old and lacks the "teeth" the Service so desperately needs. This authority needs to be modernized to give the Postal Service more effective tools to combat the shrewder, more sophisticated con artists who prey upon the American consumer. S. 450 would provide the Service with these needed tools.
Congressional Record - Senate, November 3, 1983, at 15730.
Representative Ford also shared this concern:
The bill provides that the Postal Service--after a full adversarial hearing before an administrative law judge--may issue orders to require persons to cease and desist from engaging in false representation schemes. Presently, the Postal Service may only issue "stop-mail" orders, which are easily circumvented by experienced con men, who simply move to a new address under a new business name.
* * * * *
A "stop-mail" order alone is no obstacle for the operators of today's increasingly sophisticated, mobile, and ruthless schemes.
Congressional Record - House, November 16, 1983, at H. 10011. Emphasis added.
Many cases have interpreted the Federal Trade Commission's similar authority to obtain cease and desist orders for unfair competition against individual respondents pursuant to 5 U.S. Code 45(b).
The leading case is Federal Trade Commission v. Standard Education Society, 302 U.S. 112 (1937). The Court held that the F.T.C. properly included individuals in its cease and desist order where the individuals were sole stockholders, managers, and sole incorporators who were in charge of and conducted the affairs of the corporation. The Court stated that under the circumstances, further efforts of these individuals "to evade orders of the Commission might be anticipated", and it was necessary for a cease and desist order to include these individuals "to be fully effective in preventing the unfair competitive practices which the Commission had found to exist." The Court also emphasized that the corporations were closely held and were dominated and managed by the individual respondents. (Pp. 119-120).
The rationale for inclusion of individuals in cease and desist orders under a similar Department of Agriculture provision was explained in Bruhn's Freezer Meats v. United States Department of Agriculture, 438 F.2d 1332, 1343 (8th Cir. 1971):
Clearly, an order limited in its application only to the corporate petitioners probably would prove futile as the corporations could be dissolved and the individual petitioners could then, under the cloak of new corporations, engage in the proscribed activities and thereby frustrate the purposes of the Act. The law is well settled that the "corporate entity may be disregarded when the failure to do so would enable the corporate device to be used to circumvent a statute." Schenley Distiller Corporation v. United States, 326 U.S. 432, 437, 66 S. Ct. 247, 90 L.Ed. 181 (1945).
The test sometimes has been stated as being whether the individuals "formulate, direct and control the policies and practices of the corporate defendants." Benrus Watch Company v. F.T.C., 352 F.2d 313, 325 (8th Cir. 1965), United States v. Bestline Products Corporation, 412 F. Supp. 754, 765 (N.D. Cal. 1976), or whether they exercised authority, responsibility and direction over the corporate affairs. Surf Sales Company v. F.T.C., 259 F.2d 744, 747 (7th Cir. 1958); Steelco Company v. F.T.C., 187 F.2d 693 (7th Cir. 1951).
In determining whether this test has been met, a court will examine the individual's title, his duties, the corporate structure, and the size of the business. Thus, in Sunshine Art Studios, Inc. v. F.T.C., 481 F.2d 1171 (1st Cir. 1973), the Court was impressed by the fact that several corporations were interwoven into what was treated as a single economic entity and the individual respondent was deeply involved in the important business affairs of the corporations.
In Thiret v. F.T.C., 512 F.2d 176, 181-182 (10th Cir. 1975), an order was issued against a general manager who exercised a degree of control over the salesmen and was found to be in a command position.
In Coro Inc. v. F.T.C., 338 F.2d 149 (1st Cir. 1964), the Court held that the corporation's largest stockholder, president and chairman of its board of directors should not be included in an order where there was no evidence that he was aware of the unlawful practices. However, in Fred Meyer, Inc. v. F.T.C., 359 F.2d 351, 368 (9th Cir. 1966) an opposite result was reached on somewhat similar facts. There, the chairman of the board denied knowing about the improper practices. However, because the business was a small, family corporation, the Court concluded that it was "a fair inference" that he knew of the practices.
Similarly, in Delaware Watch Company v. F.T.C., 332 F.2d 745, (2nd Cir. 1964) the Court, in affirming a cease and desist order against individuals, emphasized that "the individuals were transacting an integrated business through a maze of inter-related companies" and stated that "in such a case the pattern and framework of the whole enterprise must be taken into consideration."
In Cotherman v. F.T.C., 417 F.2d 587, 595 (5th Cir. 1969), the Court held that the F.T.C. had not abused its discretion in issuing an order against individuals who had previously engaged in similar practices because the "Commission cannot be assured in all such circumstances, that the individuals will not engage in the practices". The Court continued, "Where there is doubt, as here, an order to cease and desist is fully justified."
The language of 39 U.S.C. 3005(a)(3) expressly provides that "the Postal Service may issue an order which * * * requires the person engaged in conducting a deceptive marketing scheme or his representative to cease and desist from engaging in any such scheme . . ." 39 U.S.C. 3005(a). Emphasis added The inclusion in a cease and desist order of a representative has been upheld where the agent was deeply involved in the deceptive scheme. Carter Products, Inc. v. F.T.C., 323 F.2d 523, 533-534 (5th Cir. 1963).
Additionally, where the deceptive practice is of an egregious nature, "one designed to mislead the public", a federal agency may include in its cease and desist order a corporate officer individually, even where that officer did not formulate or approve the deceptive practice. Barrett Carpet Mills, Inc. v. Consumer Product Safety Commission, 635 F.2d 299, 304 (4th Cir. 1980).
Although Mitchell Friedlander is clearly the chief executive of the Respondent corporations, both Harris Friedlander and Michael Meade hold important, responsible positions and are deeply involved in the corporations' business activities. Harris is the vice president of several if not all, of the corporations. He and his brother have a relationship of close mutual trust. He supervises individuals in the shipping department. He is the only person besides Mitchell who is authorized to sign corporate checks. With rare exceptions, he is the only person who opens the mail and removes the cash that is received in the mail. When complaints were made to the Postal Service about cash losses, he made those complaints and was designated by the corporate lawyer as the person in the corporations to deal with regarding those complaints.
Michael Meade is the corporations' general manager. He is experienced in business and occupies a position under Mitchell of supervising the important customer service, warehouse operations, order entry, and computer departments. He receives a salary of $1,000 per week, a significant salary for a small business. He deals with outsiders, such as the Houston Better Business Bureau, as the corporations' general manager.
In order to reduce the threat of evasion of any cease and desist orders that may be issued against Mitchell Friedlander and the corporate Respondents, it is, therefore, necessary that orders be issued against Harris Friedlander and Michael Meade as well. The substantial knowledge of these individuals in the corporations' activities could be used by them in establishing similar ventures. Especially in view of the close relationship of trust between the Friedlander brothers, an order issued against Mitchell could be circumvented by the establishment of new ventures by Harris.
Although both Harris Friedlander and Michael Meade stated that they do not intend to thwart any orders that might be issued against Mitchell and the corporations, such promises can not always be relied upon. I have not found these individuals to be completely reliable in their testimony. Harris testified inconsistently and both demonstrated a lack of candor in attempting to jokingly explain away titles that they had previously taken seriously in dealings with third parties.
As Complainant points out in its proposed conclusions (p. 2), other Postal Service initial decisions previously have been issued with respect to Robertson-Taylor's advertising of seven other products (P.S. Docket Nos. 16/98-102 and 16/120-121), which decisions are presently under review by the Postal Service Judicial Officer. The present cases involve eleven other products and many corporate entities. This demonstrates not only the far reaching business activities of Mitchell Friedlander but his faculty for establishing new business entities and ventures.
Therefore, upon consideration of the policies and purposes of 39 U.S. Code 3005, the roles of Harris Friedlander and Michael Meade in the Respondent corporations' business activities, the relatively small size of the businesses, and the need to protect the public, any orders issued in this matter should also apply to Harris Friedlander and Michael Meade and the applications to dismiss these proceedings with respect to these individuals are denied.