In the Matter of the Complaint Against: CONTE & COMPANY, INC., a corporation d/b/a CONTE & CO. and GUS BAZARIAN, individually and as an officer of said corporation, 2137-H Flintstone Drive at Tucker, GA 30084-5009 and P.O. Box 1648 Decatur, GA 30031-1648 P.S. Docket No. 29/131 09/29/88 Cohen, James A.; Judicial Officer APPEARANCES FOR COMPLAINANT: Thomas A. Ziebarth, Esq.; Kenneth F. Innes, Esq., Consumer Protection Division, Law Department, United States Postal Service, Washington, DC 20260-1144 APPEARANCE FOR RESPONDENTS: Frank J. Shannon, III, Esq., Henritze & Shannon, 422 Candler Building, 127 Peachtree Street, N.E., Atlanta, GA 30303-1810
Respondents have appealed from the Initial Decision of an Administrative Law Judge which holds that Respondents are engaged in the conduct of a scheme for obtaining money or property through the mail by means of a "gift" promotion which is in violation of the false representation and lottery provisions of the Postal Service statute, 39 U.S.C. 3005.
This proceeding was initiated by the filing of a Complaint alleging that Respondents, by means of postcards notifying recipients that they have been selected to receive one of several valuable prizes, are falsely representing that those "who remit the required $17.00 fee will receive one of the awards listed and be able to use and enjoy said award without restrictions or additional costs" (Comp., Count I, para. 7). The Complaint also alleges that Respondents' promotional materials offer prizes in consideration for a monetary fee, and that the enterprise constitutes a lottery in violation of 39 U.S.C. 3005 (Comp., Count II, para. 10). Respondents filed a timely Answer denying the material allegations of the Complaint.
Following a hearing at which Complainant presented three witnesses, Respondent presented no witnesses, and both parties introduced documentary evidence, the Administrative Law Judge issued an Initial Decision concluding that Respondents make the representation alleged in the Complaint, and that the representation is materially false (I.D., COL 4-6). The Administrative Law Judge also concluded that Respondents' promotional materials offer individuals a chance to receive one of a number of prizes in consideration for a monetary fee and that Respondents are engaged in the conduct of a lottery enterprise within the meaning of 39 U.S.C. 3005 (I.D., COL 7). Respondents have appealed from both of these conclusions.
Respondents present two exceptions to the Initial Decision, each of which is considered below.
Exception 1
"The Initial Decision erred in finding that there were necessary elements of a lottery or scheme for distribution of money or property by chance as prohibited by 39 U.S.C. 3005."
Respondents first contend that, because 39 U.S.C. 3005 neither defines the term "lottery" nor specifically authorizes the Postal Service to issue rules to define the term, the regulations pertaining to lotteries in 123.41 et seq. of the Domestic Mail Manual (DMM) should not be considered in this proceeding.
Respondents are correct that 39 U.S.C. 3005 contains no definition of the term "lottery." However, their argument that the Postal Service lacks authority to issue regulations defining the term ignores the fact that 39 U.S.C. 401 authorizes the Postal Service "to adopt, amend, and repeal such rules and regulations as it deems necessary to accomplish the objectives of this title." The DMM, which is incorporated by reference into 39 C.F.R. Part 111, is promulgated pursuant to this general authority. See Bolger v. Youngs Drug Products Corp., 463 U.S. 60 (1983). Thus, the Postal Service is authorized to issue regulations defining the term "lottery." However, neither the Administrative Law Judge nor the Judicial Officer has relied on the provisions of the DMM in concluding that Respondents' promotion constitutes a lottery. Further, Respondents admit to being in agreement with Complainant as to the definition of a lottery, which is well established in case law. See, e.g., Horner v. United States, 147 U.S. 449 (1893); American Testing Institute v. United States Postal Service, 579 F. Supp. 1345 (D.D.C. 1984); Brooklyn Daily Eagle v. Voorhies, 181 F. 579, 589 (E.D.N.Y. 1910). Therefore, Respondents' argument clearly provides no basis for altering the Initial Decision.
Respondents next assert that a stipulation entered into in a proceeding pursuant to 39 U.S.C. 3007 binds the Postal Service in this proceeding, and that the stipulation precludes the finding of a lottery. According to Respondents, the stipulation establishes that the gifts are awarded on the basis of chance by a company other than Respondents, and therefore the elements of a lottery are not present in the challenged promotion.
Respondents' reading of the stipulation expands its meaning beyond its terms. The stipulation's reference to "the 'valuable gifts' awarded to recipients by American Gifthouse Extravaganza" */ does not preclude a finding that the prizes are awarded on behalf of Respondents. Indeed, the fact that the recipient is given a card in one of Respondents' mailings, which must be sent to National in order to receive the gift promised by Respondents' solicitation, is sufficient to establish that National acts for Respondents in awarding the prizes.
Respondents further contend that the elements of a lottery have not been shown because the prizes were selected before recipients were required to send money to Respondents. According to Respondents, courts have "regularly and routinely" ruled that a lottery requires that the drawing take place after the furnishing of consideration.
The cases relied on by Respondents involve the strict construction of statutes not involved in this proceeding. Under the Postal Service statute chance exists regardless of the timing of the drawing if the prize awarded is unknown. Cf. American Testing Institute v. United States Postal Service, 579 F. Supp. 1345 (D.D.C. 1984); United States Testing Authority, P.S. Docket Nos. 14/77 & 14/114 (Jan. 19, 1983). In Respondents' promotion, participants are led to believe they will receive a valuable prize but do not know until after consideration is furnished which prize they will receive. No prize will be awarded if no consideration is paid. Therefore, the elements of a lottery are present. See Horner v. United States, 147 U.S. 449, 459 (1893).
Respondents also assert that the element of consideration has not been shown because the remittance is purportedly "to cover processing and handling" of the award packages (CX-1). This characterization is immaterial. Notwithstanding Respondents' statements that the prize is free, the requirement that a fee be paid constitutes consideration for the chance to receive a prize. Respondents may not evade the consequences of a lottery by labeling the fee as "processing and handling." See United States Testing Authority, supra. See also W. Ed Herder, et al. v. United States Postal Service, #85-3487-Civ (S.D. Fla., Final Summary Judgment, Dec. 8, 1986).
"The Initial Decision erred in finding that Respondents made the alleged misrepresentations contained in
Complainant's Complaint."
In reviewing Respondents' solicitations, the Administrative Law Judge correctly applied the general rule that advertisements are to be judged in their totality and the impression they would most probably create in ordinary minds (I.D., COL 1). He further correctly applied the standard that an advertisement may be completely misleading due to omissions and implications, although every sentence separately considered is literally true (I.D., COL 2 & 3). The evidence provides ample support for the conclusion that ordinary readers could and in fact did interpret the offer of a "gift" of a "holiday vacation for two" as consisting of more than the "advertising material ... used for the purpose of soliciting timeshare periods" that they actually received (I.D., FOF 6; CX-14, at p. 3.). Thus, there is no merit to this argument.
After consideration of the entire record and Respondents' exceptions to the Initial Decision, it is concluded that Respondents are engaged in a scheme to obtain money or property through the mail by means of a materially false representation, and are also engaged in conducting a lottery, gift enterprise, or scheme for the distribution of property by lottery, chance, or drawing, in violation of 39 U.S.C. 3005. Accordingly, Respondents' appeal is denied, and the orders requested in the Complaint and authorized by 39 U.S.C. 3005 are issued with this decision.
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