In the Matter of the Complaint Against The Respondents: CANADIAN EXPRESS SERVICES, P.O. Box 6576, Station, at Toronto, Canada M5W 1X4 and C.E.C., P. O. Box 6002 Stn. A, at Toronto, Canada M5W 1P4 P.S. Docket No. 28/149 12/30/88 Cohen, James A., Judicial Officer APPEARANCE FOR COMPLAINANT: Jerry Belenker, Esq. Consumer Protection Division Law Department, United States Postal Service Washington, DC 20260-1144 APPEARANCE FOR RESPONDENTS: Elizabeth St. Clair, Esq. Rabinowitz, Boudin, Standard, Krinsky & Lieberman, P.C. 740 Broadway, Fifth Floor New York, NY 10003-9518
Respondents have filed a motion to dismiss the Complaint which alleges that they are engaged in conducting a lottery in violation of 39 U.S.C. § 3005. In the alternative, Respondents have requested that consideration of this matter be deferred pending a decision in P.S. Docket No. 28/52, a matter involving the same parties and similar issues.
In the Complaint initiating this proceeding, the General Counsel of the United States Postal Service (Complainant) alleges that Respondents, by means of direct mail solicitations distributed within the United States, offer the addressee a chance to receive a prize of a sum of money in consideration for the purchase of a lottery ticket and that Respondents' offer constitutes a lottery, gift enterprise or scheme for the distribution of money or of real or personal property by lottery, chance or drawing within the meaning of 39 U.S.C. § 3005. Based on the determination that the Complaint and supporting documents made a prima facie showing that Respondents were in violation of 39 U.S.C. § 3005, Tentative Decision and Order No. 87-122 was issued pursuant to 39 C.F.R. § 952.7(b). The Order directed Respondents to cease and desist from conducting any scheme for the distribution of money or property by lottery within the meaning of 39 U.S.C. § 3005. It also directed the detention of Respondents' mail related to the lottery activity during the pendency of the administrative proceeding.
A notice accompanying the Tentative Decision and Order advised Respondents that they had 45 days in which to show good cause for either dismissal of the Complaint or modification of the Tentative Decision and Order. Within the 45 day period as extended Respondents filed their Motion to Dismiss.
Respondents' solicitation which is attached to the Complaint was mailed to an addressee within the United States. The solicitation establishes that Respondents Canadian Express Services, P.O. Box 6576, Station A, Toronto, Canada M5W 1X4, and C.E.C., P.O. Box 6002, Station A, Toronto, Canada M5W 1P4, solicit remittances both for the purchase of Canadian lottery tickets and for the purchase of shares in groups of lottery tickets. The remittances for the purchase of shares in groups of tickets are aggregated to purchase tickets in various Canadian lotteries. Respondents represent that participation in its share program will produce a monetary return based on increased chances from the multiple ticket entries and that winnings will be distributed among all shareholders in the group lottery pool. Service charges are assessed for all purchases.
Respondents contend that the Complaint should be dismissed because (1) they are not "conducting" a lottery within the meaning of 39 U.S.C. § 3005; (2) their activities are exempt from the provisions of § 3005 by virtue of 18 U.S.C. § 1307(b) and thus are protected by the First Amendment to the Constitution; (3) the Rules of Procedure deny Respondents due process and exceed Complainant's statutory authority; (4) the Postal Service is discriminating against Respondents in violation of 39 U.S.C. § 403(c); (5) Respondents are the victim of selective enforcement of § 3005; (6) service of process was improper; (7) the proceeding is tainted by an illegal search and seizure of Respondents' property; or in the alternative (8) the decision in this proceeding should be deferred until after the decision in P.S. Docket No. 28/52 is issued.
"The Postal Service Cannot Show That Defendant Is Conducting A Lottery"
Respondents contend that they are not "conducting" a lottery, but instead are acting as an agent for individuals who wish to play a lottery conducted by the Ontario Lottery Corporation (OLC), an entity of the Province of Ontario. In support of this position Respondents, referring to provisions of Ontario law, argue that they have no contractual relationship with OLC and have no authority to conduct the lottery or determine lottery winners.
Notwithstanding these arguments the record fully supports a holding that Respondents, by their activities, are "engaged in conducting a lottery, gift enterprise, or scheme for the distribution of money . . . by lottery, chance, or drawing of any kind" in violation of 39 U.S.C. § 3005. The fact that Respondents do not exert direct control over the OLC does not remove their activities from the operation of the § 3005 prohibition. Under regulations promulgated by the OLC, Respondents are "authorized by the corporation to sell tickets to the Public." (Motion Exh. 2, Regulation 719, § 1(d)). As such, Respondents solicit remittances, a part of which they keep, for lottery tickets and shares in a lottery pool, both of which involve the distribution of a prize of money determined by chance or drawing. Even though Respondents do not control the drawings, they are intimately involved in the operation of the lottery by selling and/or pooling chances and thus under the plain meaning of 39 U.S.C. § 3005 are "engaged in conducting a lottery, gift enterprise, or scheme for the distribution of money . . . by lottery, chance, or drawing of any kind." (39 U.S.C. § 3005(a)). Their self-styled designation as agent for purchasers rather than as agent for OLC is not persuasive that they are not engaged in the conduct of a lottery enterprise. Under any reasonable standard including the standard of "careful scrutiny" urged by Respondents their conduct is proscribed by 39 U.S.C. § 3005.
Activities identical in nature to those of Respondents were held to violate § 3005 in Universal Life Church, Inc., P.S. Docket No. 7/62 (P.S.D. Feb. 14, 1980, aff'g I.D. Aug. 31, 1979). Respondents attempt to distinguish Universal by arguing that the issue of the applicability of § 3005 to the role of an "agent" was never raised in that case. Respondents' argument is unconvincing, however, because the recitation of facts in Universal makes clear that the "agency" role of the Church was considered in concluding that it was engaged in conduct in violation of § 3005. The activities of the Respondents in this case place them squarely within the Universal holding that the distribution of solicitations inviting individuals to purchase lottery tickets or shares in lottery pools constitutes the conduct of a lottery. Accordingly, it is concluded that Respondents are engaged in conducting a scheme for the distribution of money by lottery, chance or drawing of any kind in violation of 39 U.S.C. § 3005.
"Complainant Cannot Show Probable Cause That Respondents' Conduct Violates § 3005, As The Conduct Falls Within An Exception To The Prohibition On Mailing Of Lottery Advertising"
Respondents argue that the Postal Service has repeatedly and explicitly taken the position that, pursuant to 18 U.S.C. § 1307, it is entirely legal to mail lottery materials as long as the material is mailed to addresses located within the jurisdiction conducting the lottery. In support of this argument Respondents refer to several Postal Service advisory opinions which take this position and thus, according to them, permit their activities. Respondents also argue that because their mailings are not subject to § 3005, they are protected by the commercial speech doctrine of the First Amendment.
Contrary to Respondents' assertion, none of the Postal Service opinions contain language which could be construed as approval to solicit money through the United States mail in connection with schemes involving foreign lotteries. The Postal Service opinions, in fact, follow the guidelines set forth in 18 U.S.C. § 1307 for mailings for state lotteries within the United States. Moreover § 1307 clearly distinguishes between state and foreign lotteries and between solicitations for the purchase of lottery tickets and the mailing of lottery material to be used in a lottery within a foreign country. Neither the Postal Service opinions nor § 1307 in any manner authorizes the solicitation of remittances for foreign lottery tickets or pools to an addressee outside the jurisdiction of the entity conducting the lottery. Nor, contrary to Respondents' assertions, can authority for Respondents' conduct be found because some magazines mailed in the United States carry advertisements regarding foreign lotteries. The basis for the rulings on mailability or entitlement to second-class privileges is not clear. Nevertheless it is quite clear that Respondents' solicitations seeking remittances for participation in Canadian lotteries are not exempt from the provisions of 39 U.S.C. § 3005. Since Respondents' mailings are not exempt from the statutory requirements they are not protected commercial speech. Accordingly there is no merit to this argument.
"The Procedures Of 39 C.F.R. § 952.7(b) Deny Respondents Due Process Of Law And Exceed Complainant's Statutory Authority"
Respondents contend that even though they are nonresidents they are entitled to the same protections accorded domestic mailers and that § 952.7(b) violates their due process right to a full evidentiary hearing. Respondents also contend that § 952.7(b) exceeds Complainant's statutory authority. In support of their due process argument, Respondents rely primarily on Williams v. Blount, 314 F. Supp. 1356 (D.D.C. 1970). However, Williams is not controlling inasmuch as it pertained to a mailing by a United States citizen, not a mailing of a nonresident alien. The Court specifically stated in Williams that it was not addressing the question of whether "mail directed from abroad by non-citizens is entitled to the same protections as mail which is directed by citizens." Id. at 1363, n.11. Respondents have cited no other authority which definitively holds that nonresident aliens are entitled to the full evidentiary hearing which they seek. In fact, it appears that such entitlement does not exist. See Johnson v. Eisentrager, 339 U.S. 763 (1950); Pauling v. McElroy, 278 F.2d 252, 254, n.3 (D.C. Cir., cert. denied 364 U.S. 835 (1960)); Sanchez-Espinoza v. Reagan, 568 F. Supp. 596, 602, n.7 (D.D.C. 1983), aff'd 770 F.2d 202 (D.C. Cir. 1985); see also Stephan, Constitutional Limits on the Struggle Against International Terrorism: Revisiting the Rights of Overseas Aliens, 19 Conn. L. Rev. 831 (1987).
Nevertheless, Respondents have been afforded substantial due process protection under the procedures provided in 39 C.F.R. § 952.7(b). Prior to 1979 the Postal Service had no rule providing that nonresident aliens (1) would receive notice of the initiation of false representation or lottery proceedings against them, (2) be given an opportunity to present a defense, or (3) be permitted to survey mail subject to a false representation or lottery order issued against them. However, on October 29, 1979, the present § 952.7(b) was promulgated providing such rights. (44 Fed. Reg. 61959 (1979)). The present regulations allow Respondents ample opportunity to present good cause for dismissing the Complaint or modifying the Tentative Decision and Order or to establish that an oral hearing should be held. Such procedures afford substantial due process to Respondents.
Respondents' contention that § 952.7(b) exceeds Complainant's statutory authority by providing for the seizure of mail prior to a hearing is also without merit. Section 3005(a) specifically provides that "[u]pon evidence satisfactory to the Postal Service that any person is engaged in conducting . . . a lottery, gift enterprise, or scheme for the distribution of money . . . by lottery, chance, or drawing of any kind, the Postal Service may issue an order" providing for the detention and return of that person's mail. The rules of practice in § 952.7(b) implement this statutory provision with respect to nonresident aliens by providing for the interim detention of mail based on a prima facie showing of a violation of § 3005, which is evidence "satisfactory to the Postal Service" that an order should be issued. The order becomes final only after Respondents are given an opportunity to defend against the allegations of the Complaint. The interim detention order is a preliminary and integral part of the statutory scheme. Thus, § 952.7(b) is a proper implementation of the statute with respect to nonresident aliens.
"Complainant Is Discriminating Against Respondents In Violation Of 39 U.S.C. § 403(c)"
and
"Complainant Is Engaged In Selective Enforcement Of 39 U.S.C. § 3005"
Respondents contend they are being treated more harshly than their competitors and other organizations, both domestic and international, and that this disparate treatment is a violation of 39 U.S.C. § 403(c). Respondents also argue that Complainant is discriminating against Canadian run lotteries. Finally Respondents argue that they have established a prima facie case of selective enforcement which runs afoul of the due process clause's guarantee of equal protection of the law.
These arguments have no merit. Respondents' contention that they have been treated more harshly than their competitors and other organizations is not supported by the exhibits to their motion. Moreover, there does not appear to be any other basis for this contention. The assertion that the Postal Service has limited its enforcement of § 952.7(b) to violators from Canada is also erroneous. While the bulk of the foreign complaints filed with the Judicial Officer do involve Canadian lotteries, mailers from other countries have also been the subject of past enforcement actions. Thus there is no basis for concluding that Canadian lotteries have been singled out for prosecution. Respondents rely on second-class and mailability determinations of the Postal Service which they argue support their assertion of discrimination or selective prosecution. Respondents' argument is not persuasive. Neither the possession of second-class mail privileges nor the determination of mailability of publications which include advertisements for lotteries support the finding that lottery advertisers themselves are exempt from the requirements of 39 U.S.C. § 3005. The solicitation of remittances for participation in a lottery is proscribed by § 3005, and it is no defense in a § 3005 proceeding that others may be conducting similar activities. Gottlieb v. Schaffer, 141 F. Supp. 7, 19 (S.D.N.Y. 1956); Universal Life Church, Inc., P.S. Docket No. 7/62 at 8 (P.S.D. Feb. 14, 1980); see also FTC v. Universal-Rundle Corp., 387 U.S. 244, 251-52 (1967). Furthermore it is well established that agencies have reasonably broad discretion in deciding whether and against whom to initiate proceedings. Heckler v. Chaney, 470 U.S. 821, 831 (1985); Water Transp. Ass'n v. ICC, 715 F.2d 581, 594 (D.C. Cir. 1983), cert. denied, 465 U.S. 1006 (1984); Nutrition Headquarters, Inc., P.S. Docket No. 12/156 at 3 (P.S.D. Aug. 31, 1987). Thus Complainant's determination to initiate proceedings against Respondents as one of many lottery advertisers is not inappropriate or illegal. Respondents' reliance on 39 U.S.C. § 403(c) is equally unavailing. Respondents have not made a prima facie showing of discrimination. Moreover, § 403 does not appear to be directed to individual prosecutions of violations of § 3005. Accordingly, Respondents have not shown any impropriety in the initiation of this proceeding.
"The Complaint Should Be Dismissed Because The Method Of Service Of Process Was Defective"
Respondents argue that the method of service of process was not "reasonably calculated to give notice of the proceeding" and thus violated their right to due process. This argument has no merit. The rules of practice at 39 C.F.R. § 952.8(c) do not require personal service under circumstances such as these, just as it is not required under the Federal Rules. Fed. R. Civ. P. 4(i)(1)(D). The service which was effected in this matter was reasonable and not violative of due process. Moreover, Respondents have not alleged that they failed to receive actual notice, nor that the Postal Service deviated from the procedures prescribed by § 952.8(c).
"The Complaint Should Be Dismissed Because It Is Tainted By An Illegal Search And Seizure Of Respondents' Property"
Respondents seek dismissal of the Complaint on the ground that it is tainted by an illegal search of their premises or in the alternative that they be granted a hearing on the issue of taint or that a ruling on their motion be deferred until a decision is issued by Judge Elfvin of the United States District Court for the Western District of New York. Respondents have not shown that dismissal, deferral or a hearing is required or appropriate. The evidence supporting the Complaint consists of a direct mail solicitation which was sent through the United States mail to Cheryl Hubbard at 4313 Gypsy Ct., Alexandria, Virginia. While Respondents argue that the Complaint is tainted by an illegal search and seizure, they have not argued, let alone shown, that the solicitation addressed to Ms. Hubbard is or could have been the direct or indirect product of the alleged illegal search. Accordingly, there is no merit to Respondents' contentions and their motion to dismiss and alternative motions are denied.
"This Proceeding Should Be Deferred Until Disposition Of P.S. Docket No. 28/52"
Because they allege that the parties and issues involved in this proceeding and P.S. Docket No. 28/52 are the same, Respondents again request that a decision in this matter be deferred pending disposition of P.S. Docket No. 28/52 or of the proceeding before the United States District Court for the Western District of New York. No purpose would be served in granting Respondents' request. Complainant, by the evidence presented, has made a prima facie showing that the conduct complained of in the Complaint constitutes a violation of 39 U.S.C. § 3005. Respondents have not rebutted Complainant's prima facie case nor otherwise shown that they are entitled to be relieved from the consequences of that violation. Therefore, the motion for deferral is denied.
Based on the evidence presented, it is concluded that Respondents have not shown good cause for dismissing the Complaint. Accordingly, Tentative Decision and Order No. 87-122 is now the Final Decision and Order of the Postal Service.