In the Matter of the Complaint Against MICHAEL NARCUM, individually and as president of, INTERNATIONAL SUCCESS DEVELOPMENT CORPORATION, 1954 Hilltop Ct., Woodstock, IL 60098-2539 and ISDC INTERNATIONAL SUCCESS DEVELOPMENT CO., d/b/a, CM/NA COMMISSION MAILERS OF NORTH AMERICA, P.O. Box 830, Woodstock, IL 60098-0830 and P.O. Box 870, Woodstock, IL 60098-0870 and P.O. Box 910, Woodstock, IL 60098-0910 and P.O. Box 406, Woodstock, IL 60098-0406 and P.O. Box 66, Woodstock, IL 60098-0066 and P.O. Box 150, Woodstock, IL 60098-0150 and GARY LECHNER, d/b/a, MAILERS ASSOCIATION DEPT. AR7CEG, SUCCESS, MAILERS ASSOCIATION DE and HEADQUARTERS, P.O. Box 470, Woodstock, IL 60098-0470 and ISDC, INTERNATIONAL SUCCESS DEVELOPMENT CORPORATION, d/b/a, CHICAGO DIVISIONAL HEADQUARTERS, DEPT. AM-7CEG, MAILERS NETWORK DEPT. AZ-7CEG HOME MAILERS DEPT. AF-4CEG, DEPT. AM-5CFU, and DEPT. AM-7, P.O. Box 830, Woodstock, IL 60098-0830 and ISDC, INTERNATIONAL SUCCESS DEVELOPMENT CORPORATION, d/b/a, DIVISIONAL HEADQUARTERS, HEADQUARTERS - TAC, DEPT. ECK W29, HEADQUARTERS - MGF, MAILERS, DEPT. CB-20CC38 HEADQUARTERS FACILITY, and HEADQUARTERS, P.O. Box 870, Woodstock, IL 60098-0870 and ISDC, INTERNATIONAL SUCCESS DEVELOPMENT CORPORATION, d/b/a, DEPT. AN-5 DIVISION HEADQUARTERS, and DEPT. NETWORK HEADQUARTERS, P.O. Box 910, Woodstock, IL 60098-0910 and ISDC, INTERNATIONAL SUCCESS DEVELOPMENT CORPORATION, d/b/a, HQ FACILITY ECK PROGRAM, P.O. Box 406, Woodstock, IL 60098-0406 and ISDC, INTERNATIONAL SUCCESS DEVELOPMENT CORPORATION, d/b/a, DEPT. AN-6CC EDUCATIONAL MARKETING DIVISION, P.O. Box 150, Woodstock, IL 60098-0150 and DEPT B - ORDERS, CMG DIVISION, Box 829, Woodstock, IL 60098-0829 and HQ FACILITY, ECK PROGRAM, P.O. Box 801, Woodstock, IL 60098-0801 P.S. Docket No. 23/75 November 12, 1986 Edwin S. Bernstein Administrative Law Judge APPEARANCES FOR COMPLAINANT: H. Richard Hefner, Esq. Timothy J. Kruthaupt, Esq. Consumer Protection Division Law Department United States Postal Service Washington, DC 20260-1112 APPEARANCES FOR RESPONDENTS: Stephanie W. Kanwit, Esq. Jerome S. Lamet, Esq. 600 South Federal Street Chicago, IL 60605-1842 BEFORE: Judge Edwin S. Bernstein
Complainant alleged and Respondents denied that Respondents are engaged in a scheme to obtain money through the mail by false repre- sentations and are conducting a lottery in violation of 39 United States Code 3005 in connection with a circular mailing venture.
Complainant's February 10, 1986 Complaint alleged in Count I that Respondents' solicitations falsely represent:
(a) Each person who elects to participate in Respondents' program will earn substantial sums of money (i.e. $360. per week);
(b) Very little work and time will be required to make substantial sums of money (i.e. $360. per week);
(c) The expenditure of very little money is required to receive substantial sums of money through Respondents' program (i.e. $360. per week);
(d) The major expense involved is the purchase price to be sent to Respondents for their plan;
(e) Respondents will provide a refund to program participants who are unsatisfied with the pro- gram; and
(f) The plan Respondents sell is legal.
Count II of the Complaint alleged that Respondents urge and cause participants to make the above representations to third parties. Count III alleged that Respondents are conducting a lottery or scheme for the distribution of money by chance through the mail.
A hearing was held in Chicago, Illinois. Ms. Lori Kendall, Mr. John E. Cunningham, Ms. Gladys Hickman, Ms. Ruth Franko, Mr. Robert F. Bobowski, and Postal Inspector Isaiah P. Ward testi- fied for Complainant, while Mr. Herman Holtz and Respondent Michael B. Narcum testified for Respondents. At the hearing, the Complaint was amended to include additional addresses for Respondents (Tr. 239). The parties filed proposed findings of fact, proposed conclu- sions 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.
Respondents solicit remittances of money through the mail through classified advertisements such as those in CX-11 and CX-12. Respondent Michael Narcum confirmed that Respondents send a circu- lar to individuals who send inquiries as instructed by the classi- fied advertisements. Circulars similar to CX-1 instruct those who wish to participate in Respondents' plan to send money to one of the post office boxes identified in the caption herein (Tr. 272- 274). The exhibits, Mr. Narcum's testimony, and the testimony of various other witnesses (Tr. 14-17, 39-42, 61-63, 76, 77, 158-159) show that Respondents solicit money through the mail.
Respondents' advertising materials make the representations alleged in Paragraph 9 of the Complaint for the following reasons:
(a) Each person who elects to participate in Respondents' program will earn substantial sums of money (i.e. $360. per week).
CX-11 reads:
$360 Weekly Up, Mailing Circulars] No Quotas/bosses] Sincerely Interested send Self-Addressed Envelope: Mailers, Box 870F4, Woodstock, Illinois 60098.
The classified advertisement at CX-11 appeared in Field and Stream magazine during the months of April 1985 through December 1985. Similar advertisements (CX-12) appeared in Sports Afield magazine during the months of April 1985 through May 1986. Similar advertisements appeared in various newspapers (CX-2, p. 6; CX-3, p. 6; CX-4, p. 5; CX-16, p. 2; CX-17, p. 1).
This language represents that Respondents' plan will enable the user to make $360. or more per week.
(b) Very little work and time will be required to make substantial sums of money (i.e. $360. per week).
This representation is made by language in Respondents' circu- lars such as CX-1 and CX-7. CX-7 states: "The work you will be doing is not difficult. You ... need only work a few hours per day. You can do this on your kitchen table, or even while watching television.", "NO EXPERIENCE IS NECESSARY," "They [the instructions] are not difficult to follow, and the average person can do it. You need no previous experience ... it does not matter how old you are ... all it takes is a wish to make more money and the willfulness to follow proven instructions." CX-1 contains similar language.
(c) The expenditure of very little money is required to receive substantial sums of money through Respondents' program (i.e. $360. per week).
The sums of $360 weekly and up referenced in Respondents' advertisements constitute substantial sums of money. Respondents' circulars such as CX-1 and CX-7 emphasize that substantial amounts of money can be earned. The only references in Respondents' circu- lars to expenditures of money by purchasers are the $14., $19., or $25. membership fees. Respondents' promotional materials contain numerous references to substantial sums of income that can be anticipated. However, these materials totally omit references to amounts of expenditures that will be required of participants. Potential participants are not told of any anticipated costs to purchase classified advertise- ments or have posters and/or circulars printed and distributed.
(d) The major expense involved is the purchase price to be sent to Respondents for their plan.
Several of Respondents' circulars state:
To get started, just fill in the order form and mail it to us with the $19 Association service fee. This tax-deductible fee pays for your Association participation, your processing, and entitles you to receive FREE Beginner's Package. Your following through with this valuable package can certainly result in your making hundreds of dollars weekly. There's no better time than the present to get started earning those extra dollars, so mail in the form today] Hope to hear from you soon] (CX- 1, pg 2; CX-16, pg 5; CX-17, pg 4; CX-18, pg 3).
Other circulars sent by Respondents contain similar language (CX-7, p. 2; CX-15, p. 2; CX-19, p. 3; CX-20, p. 2) which implies that the Association fee will be the purchaser's only or major expense. Nowhere in Respondents' classified advertisements or in the circulars that they mail to persuade individuals to purchase their programs is there any statement to the effect that participants will be required to make additional expenditures in order to successfully promote Respondents' programs.
(e) Respondents will provide a refund to program participants who are unsatisfied with the program.
As Complainant admitted in its proposed findings (p. 19), Respondents' solicitations do not make this representation. The references to refunds cited in Complainant's findings are to Respondents' Personal Success Manual (CX-6 and CX-7) which is given to Respondents' customers after they have paid for Respondents' program.
(f) The plan Respondents sell is legal.
This representation was made by the following language in Respondents' circulars.
"None of the materials involved deal with any- thing objectionable..." (CX-1, p. 1; CX-16, p. 4, CX-17, p. 4; CX-18, p. 2.)
"These are reputable firms..." "Materials avail- able through IACM are not off color in any way." (CX-7, pp. 1 and 2.)
Additionally, it is reasonable for purchasers to conclude that, with respect to advertisements and promotional materials presented for public consumption, the product or service offered is legal and would not subject its purchasers to civil or criminal penalties as a result of its use.
At the hearing, Mr. Robert F. Bobowski testified as an expert for Complainant while Mr. Herman Holtz testified as Respondents' expert.
Mr. Bobowski is well qualified to testify as an expert in these matters. He is Manager of Marketing Communications of Handley & Peterson, an advertising, marketing and public relations agency in Chicago, Illinois. He has been involved in the direct mail and direct marketing business for a total of 25 years with several companies (Tr. 94-96). Mr. Bobowski founded and is chairman of an awards committee of the Direct Marketing Association, an organi- zation with which he has been closely associated (Tr. 96). For the past 10 years, he has taught at Roosevelt University on how to establish and operate direct marketing programs (Tr. 96-97). By virtue of Mr. Bobowski's long experience in the theoretical and practical aspects of direct marketing, he is well qualified as an expert to address the issues presented in this case (Tr. 95-97).
Mr. Holtz did not appear to be as well qualified. Mr. Holtz stated that his experience in direct marketing was limited to part-time during the past 10 years (Tr. 216) and he never has been employed by an advertising agency or direct mail marketing company (Tr. 195). Mr. Holtz stated that his formal education was in the area of electrical engineering in which he earned a B.S. degree from a technical school, Capitol Radio Engineering Institute (Tr. 195). He has no degree in Direct Marketing or related subjects (Tr. 196). When asked in what area he is considered an expert and by whom, Mr. Holtz gave a several examples of projects in which he had been requested to provide expert assistance. All of these related to Government contracting (Tr. 193-194). Although Mr. Holtz has written numerous handbooks and pamphlets, he stated that the primary source of this writing was his personal experience (Tr. 192).
Except for subparagraph 9(e) which was not represented, all of the representations alleged in Count I of the Complaint are materially false for the following reasons:
(a) Each person who elects to participate in Respondents' program will earn substantial sums of money (i.e. $360. per week).
Mr. Bobowski presented a detailed analysis of the amount of work and expense that would be required of an individual to generate $360 per week through Respondents' program (Tr. 109-114). He testified that for the average person to generate income of near $360 per week he would need expertise in "evaluating the responses from the media based on the size of the media, the audience, [and] characteristics of the media" (Tr. 110). Mr. Bobowski further testified that, in addition to analyzing media and responses, the manual suggests that participants may need to rewrite some of the advertising copy to suit their particular situation. Therefore, the individual also would need some expertise in writing advertising copy. Mr. Bobowski stated that one acquires such expertise through specialized courses of study. Moreover, he testified that if an individual is inexperienced in writing advertising copy he would be "at a loss for how to make the words work and compel people to respond in one way or another" (Tr. 111).
Mr. Bobowski also stated that in his expert opinion it is highly unlikely that the type of person responding to this type of adver- tisement would have a reading level of 2.8 or above. This would be required to successfully understand the techniques of printing, buying, and communicating ideas clearly, and to understand the techniques explained in the Respondents' Personal Success Manual (Tr. 112, 113, 136-139).
Based upon this reasoning, Mr. Bobowski concluded that it would be highly unlikely that an average individual would be able to earn $360 per week and up utilizing the information provided by Respon- dents' promotional materials (Tr. 112). In fact, he stated that "it would be almost impossible in the vast majority of cases for people to succeed using this information" (Tr. 113-114).
The $360 figure is used as an example by Respondents in their promotional materials (Tr. 109-111). However, Mr. Bobowski also stated his view that other income figures quoted in Respondents' promotional materials also were unrealistic (Tr. 104-106, 145-146). Mr. Bobowski stated that the Personal Success Manual, which is sent in response to a large number of Respondents' circulars for different programs, is totally inadequate as the sole source of information for a novice entering the mail order business to earn the income figures quoted by Respondents (Tr. 140-142).
Mr. Holtz, on cross examination, admitted that Respondents did not discuss or explain in their promotional materials the concepts of testing advertising results, statistical analysis of responses, or analysis of the effectiveness of various forms of advertising copy or media. And Mr. Holtz agreed with Mr. Bobowski that each of these procedures is important in conducting a mail order program (Tr. 209-212).
Michael Narcum's testimony also confirmed how unlikely it would be for an average individual to earn the specified large sums of money utilizing Respondents' Personal Success Manual. According to Mr. Narcum, the 15 Miscellaneous Income Statements on IRS Form 1099 submitted by Respondent as RX-3 represent all individuals who made in excess of $600 for the entire year of 1985 through the use of Respondents' Personal Success Manual (Tr. 299-300). Only two of these 15 individuals earned more than $360 per week. This repre- sents a miniscule percentage of the approximately 70,000 persons who Mr. Narcum stated purchased Respondents' Personal Success Manual through February 1985 (Tr. 293-295).
(b) Very little work and time will be required to make substantial sums of money (i.e. $360. per week).
Mr. Bobowski's analysis of the amounts of money and work that must be expended to earn the large sums of money Respondents repre- sent in their promotional materials, such as $360. per week, is strong evidence that this representation is false (Tr. 104-114). Mr. Bobowski examined a large number of the elements necessary for implementing a successful mail order program. He testified that for an individual to successfully implement a mail order program, he must create a control piece for his advertisement, regardless of the medium utilized (Tr. 96-98). The promoter must acquire knowledge or experience that will enable him to effectively evaluate responses to various forms of advertising media (Tr. 97-98). He must also be able to write good advertising copy as well as analyze statistics relating to conversions of responses from advertising to actual purchases, independently contract with and direct printers, and maintain records (Tr. 111, 113). All of these tasks require substantial amounts of time and work. Moreover, individuals inexperienced in direct marketing techniques would first need to spend a significant amount of time and effort to familiarize themselves with the rudiments of mail order procedures and techniques (Tr. 95, 96). This highly credible testimony shows that Respondents' representation is unrealistic.
(c) The expenditure of very little money is required to receive substantial sums of money through Respondents' program (i.e. $360. per week).
Mr. Bobowski testified that the major expenditure would be for advertising. He then analyzed the various media that a mail order promoter could utilize and their relative costs. According to Mr. Bobowski, the most effective advertising technique in terms of response rate is a direct mailer which costs approximately $300 per thousand. He testified that classified advertisements and posters have a low cost, relatively speaking, but also have a low response rate (Tr. 118-123). However, classified advertisements and posters needed to generate the income level represented in Respondents' promotional materials would require significant expenditures (Tr. 102-108).
(d) The major expense involved is the purchase price to be sent to Respondents for their plan.
The testimony of Mr. Bobowski discussed under allegation 9(c) applies equally to this misrepresentation. In addition, Mr. Bobowski was specifically asked if the major expense in success- fully implementing Respondents' program would be the $20 payment for Respondents' Personal Success Manual. Mr. Bobowski answered in the negative. He stated that the major expenditure would be the place- ment of classified advertisements at one's own expense (Tr. 118).
In addition to the recommendation to place classified advertise- ments at their own expense, participants are told at page 6 of Respondents' Personal Success Manual (CX-6, CX-17, pgs 8-21), under the heading KEEP CORRECT RECORDS, of advertising and postage costs. At page 8 under the heading IMPORTANT SOURCES, participants are advised to do business with "a good printer." On page 9 under the heading THE ROAD TO PROFITS, Respondents recommend that partici- pants start by mailing at least 500 circulars. These 500 circu- lars are to be purchased by participants along with 500 printed envelopes. Postage costs are also to be paid by participants. All of these expenditures are in addition to the participants' member- ship fees.
(f) The plan Respondents sell is legal.
To make money through Respondents' plan, participants must make the false representations that Respondents make. Such false repre- sentations violate 39 U.S.C. 3005.
Respondents, through their promotion and scheme, urge and cause participants to make the above misrepresentations to third parties, and thereby knowingly seek the remittance of money through the mail by means of false representations made by participants at Respondents' express direction .
The evidence shows that this allegation in the Complaint is true. CX-1, CX-6, CX-7, CX-8, CX-9, CX-10, CX-15, CX-16, CX-17, CX-18, CX-19 and CX-20 contain references to, instructions for, and/or promotional material advising participants about how to operate their own envelope or circular stuffing schemes.
Ms. Kendall testified that upon review of the materials that Respondents sent to her, she realized that Respondents were directing her to invest her own money in promoting in the same manner as Respondents. Ms. Kendall testified that just as she was misled by Respondents' classified advertisements and circular, she was being asked by Respondents promotional materials to make the same misrepresentations to others (Tr. 16). Having testified at length that he was misled by Respondents' promotional materials, Mr. Cunningham also stated that Respondents material instructed him to do the same to others by placing classified advertisements and getting envelopes from people who would like to participate (Tr. 43).
Respondents' Personal Success Manual (CX-6; CX-10, pg 1; and CX-17, pg 8-21) clearly directs program participants to make the same misrepresentations that Respondents made. At page 6, Respon- dents recommend the use of classified advertisements and posters to attract people to participate in the program. The participants are then instructed to send circulars to those who respond. In subse- quent sections, Respondents recommend the use of their circulars and language. At page 8, Respondents explain how to become involved with their "Plan B" program. At page 9, they recommend specific language for classified advertisements. At CX-8, Respondents recommend the use of the poster at CX-9. At CX-8, p. 1, Respondents recommend use of their Form CB-12.
Thus, throughout their Personal Success Manual (CX-6, CX-17 pg. 8-21, CX-8) Respondents direct participants to make misrepresenta- tions to third parties that are referred in Count I, para. 9 of the Complaint. All of the classified advertisements, posters and circulars recommended by Respondents for usage by participants are designed to further this scheme.
The testimony of Ms. Kendall, Mr. Cunningham, Mrs. Hickman and Mrs. Franko supports the conclusion that representations are material. Each of these witnesses testified that they remitted money to Respondents based on their reading of Respondents' classi- fied advertisement and CX-1.
Respondents' "Plan B" constitutes a lottery as defined in 39 USC 3005 in that it incorporates the elements of chance, prize and consideration. A prize of $360 per week or more is offered. Interested parties are required to forward consideration to Respon- dents. Whether they receive a prize depends upon the chance that other individuals, subsequent to participants joining the program, read Respondents' promotional materials and also decide to participate in the program.
1. Postal Service False Representation Orders do not violate the First Amendment of the Constitution. Donaldson v. Read Maga- zine, Inc. , 333 U. S. 178 (1948); Lynch v. Blount , 330 F. Supp. 689 (S.D.N.Y. l971); Hollywood House International, Inc. v. Klassen , 508 F.2d 1276 (9th Cir. l974); and United States Postal Service v. Beamish , 466 F.2d 804 (3d Cir. l972). In the latter case, the Court held "Advertisers possess no constitutional right to disseminate false or misleading materials. Therefore, Congress has the power to prohibit such deceptions through appropriate legislation." p. 807. See also : Bolger v. Young's Drug Products Corp. , 463 U. S. 60 (1983).
2. An advertisement must be considered as a whole and its meaning will be determined in the light of its probable effect on persons of ordinary minds. Donaldson v. Read Magazine, Inc. , supra ; Vibra-Brush Corp. v. Schaffer , 152 F. Supp. 461 (S.D.N.Y. 1957). Rev'd on other grounds , 256 F.2d 681 (2nd Cir. l958).
3. Express misrepresentations are not required. It is the net impression that the advertisement as a whole is likely to make upon individuals to whom it is directed that is important. Even if a solicitation is so worded as to not make an express representation, but is artfully designed to mislead those responding to it, the false representation statute is applicable. G. J. Howard Co. v. Cassidy , 162 F. Supp. 568 (E.D.N.Y. 1958); See also , Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council , 425 S.748 (1976), quoting 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." In Vibra-Brush Corp. v. Schaffer , supra , the Court stated:
It is not each separate word or clause here and there of an advertisement which deter- mines its force, but the totality of its contents and the impression of the entire advertisement upon the general populace. p. 465.
Similarly, in American Image Corp. v. United States Postal Service , 370 F. Supp. 964 (S.D.N.Y. l974) the Court held: "The cases are clear that such advertisements are to be viewed not with a lawyer's eye to 'fine spun distinctions' but with an eye to their over-all effect on the average reader."
4. Where an advertisement is ambiguous or capable of more than one meaning, if one of those meanings is false, the advertisement will be held to be misleading. Rhodes Pharmacal Co., Inc. v. F.T.C. , 209 F.2d 382, 387 (7th Cir. l953); Ralph J. Galliano , P.S. Docket No. 19/15 (P.S.D. May 2, l985); Bruce Roberts Co. , P.O.D. Docket No. 3/78 (I.D., August 16, l971); Moneymakers, et al. , P.S. Docket No. 16/1 (I.D., June 20, l983).
5. Although an astute person might not be deceived by an