In the Matter of the Complaint Against: FEDERAL LICENSING, J.V., P.O. Box 776, McLean, VA 22101-0776 and P.O. Box 610, Gettysburg, PA 17325-0610 and PAUL DAMICO and JOHN HERTRICK and NATIONAL SYSTEMS, INC., 1270 Fairfield Road, Suite 13, Gettysburg, PA 17325-7237 and FEDERAL LICENSING, INC., P.O. Box 4567, Gettysburg, PA 17325-4567 P.S. Docket No. 30/116 03/03/89 Mason, Randolph D., Administrative Law Judge APPEARANCES FOR RESPONDENTS: Thomas Coates, Esq., David M. Davenport, Esq., A. Richard Thorsey, Esq., 6845 Elm Street, Suite 611, McLean, VA 22101-3853 APPEARANCES FOR COMPLAINANT: W. Gary Claytor, Esq., Thomas A. Ziebarth, Esq., Law Department, Consumer Protection Division, United States Postal Service, Washington, DC 20260-1144
This proceeding was initiated on May 16, 1988, when the Postal Service filed a Complaint alleging that Respondents Federal Licensing, J.V., Paul Damico, John Hertrick and National Systems, Inc., are engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations in violation of 39 U.S.C. § 3005. On August 12, 1988, Complainant filed an Amended Complaint adding Respondent Federal Licensing, Inc. Specifically, the Amended Complaint alleges in paragraph 5 that Respondents falsely represent, directly or indirectly, in substance and effect, whether by affirmative statement, implication or omission, that:
a. Federal Licensing, J.V., is affiliated with the United States Government or one of its agencies;
b. The fee paid to Federal Licensing, J.V., by a recipient of Respondents' circular for the renewal of a Federal Communications Commission (F.C.C.) license is the actual cost of renewing the license with the F.C.C.;
c. A renewal of a F.C.C. license can only be obtained through Federal Licensing, J.V.; and
d. The amount listed on the direct mail solicitation is due and owing.
The Amended Complaint also alleges that Respondents attract attention to their scheme by means of direct mail solicitations in the form of bills, invoices, or statements of account due which fail to give the notice required by 39 U.S.C. § 3001(d) or § 123.4 of the Domestic Mail Manual.
In their Answer, Respondents deny that they have made the above false representations or that they have otherwise violated the statute.
A hearing was held by the undersigned Administrative Law Judge on July 18-19, 1988 in Washington, DC; the record was subsequently reopened and an additional hearing was held on September 9, 1988. All parties were represented by counsel and afforded full opportunity to be heard, adduce relevant evidence, and examine and cross-examine witnesses. Complainant presented the testimony of six consumer witnesses, a communications consultant, a representative of the FCC, the Postal Inspector and Paul A. Scipione, Ph.D., an expert in the field of market research and consumer psychology. Respondents presented the testimony of consumer witnesses Joseph Hoover and Herman Antonoff; radio dealers Jack Block, Keith Brooks, and Merrill C. See; Respondents John Hertrick and Paul Damico; William Burke (Respondents' former associate); and expert witnesses Ivan Ross, Ph.D., and James Lauer. Both parties presented documentary evidence.
The parties filed proposed findings of fact and conclusions of law and reply briefs which have been duly considered. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. Based on the entire record herein, including my observation of the witnesses and their demeanor, the exhibits, stipulations, and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions of law:
1. Respondent National Systems, Inc., is a corporation organized and doing business under the laws of the Commonwealth of Virginia (Ans. P1). Respondents Damico and Hertrick are individuals whose business address is 1270 Fairfield Road, Suite 13, Gettysburg, PA 17325 (CX-12). They are majority shareholders, directors, and officers of National Systems, Inc. and Federal Licensing, Inc. (Id., Tr. 370-371). The above Respondents do business under the name Federal Licensing, J.V. and Federal Licensing, Inc. (Id.; Tr. 369, 483-484; RX-D).
2. Respondents are in the business of preparing applications for renewal of land based mobile radio licenses. They also sell an abridged version of the applicable FCC Regulations. Respondents solicit the remittance of money through the mails, for this service and the publication, to the Post Office Box addresses set forth in the caption.
3. Respondents have an office in the same building as the FCC's Land-Based Mobile Radio Licensing Division in Gettysburg, PA (Tr. 16-17).
4. Original applications -- Apart from Respondents' business, the FCC procedure for applying for a land based mobile radio license is as follows. The applicant must complete an FCC Form 574 application (long form) and send it to a Frequency Coordinator. The latter is a private organization which provides, for a fee, the appropriate frequency. The applicant also sends the coordinator a $30 FCC filing fee. (FCC began charging a fee for license renewal, except for public safety organizations, in April 1987 (Tr. 78)). After the coordinator provides its service, it sends the application and $30 fee to FCC's office in Pittsburgh, PA, which removes the $30 and forwards the application to its Gettysburg, PA office for processing (Tr. 110-111).
5. Renewals -- Every 5 years a license must be renewed and a $30 renewal filing fee paid; again, the fee is not imposed upon public safety organizations (Tr. 112). Since January 1984, the FCC has automatically sent licensees a renewal Form 574R (short form) 90 days before the expiration date (Tr. 111). The form is simple, merely requiring the applicant to review computer-generated information to see if it is correct (Stip. Tr. 307). The applicant makes simple changes, such as name and address, on the form before returning it to the FCC (Tr. 112).
A. Modifications -- Upon renewal, a radio license needs to be modified if certain changes have been made in the radio system. Such changes would include, for example, relocation of a base station or an increase in power (Tr. 127). When modification is necessary, FCC's automatic renewal program does not apply, and applicants must complete a long Form 574 and send it to the frequency coordinator, accompanied by the FCC's $30 filing fee (Tr. 113).
A relatively small number of applications for license renewal require modification due to changes in a radio system. 1/
B. Expired Licenses -- If a license has already expired, an applicant must reapply by filing another Form 574 (Tr. 117). If it has been expired for less than 6 months, then no frequency coordinator is required (id.). After nine months, however, the information is deleted from the database and the licensee may lose his frequency (Tr. 124). Criminal penalties may be imposed for willful operation of a radio station without a license (Tr. 125).
6. Modification Division promotion -- Respondents purportedly offer to prepare applications for filing with the FCC for the renewal of licenses requiring modification (CX-1). Even though a relatively small number of applications for license renewal require modification, Respondents send the Modification Division letter to all licensees who are approaching their expiration date (8,000-13,000 per month including a large number who do not need modification). According to Respondents' owner, Mr. Damico, the company gets about a 1.8% response rate from the Modification Division mailing (Tr. 478), however, that is a significant percentage in view of the relatively small number of licensees who actually need modification (f.n. 1, supra).
7. The Modification Division letter is only directed to licensees who have had changes in their radio system, or who wish to combine licenses into one system license. The letter is sent about a month before the FCC sends out the automated renewal short Form 574R (Tr. 80). The letter contains a work sheet similar to a short form application previously used by the FCC (Tr. 384; RX-A). Although many customers responding to this promotion think they are sending the FCC the renewal fee (see Representations (a) and (b), infra), they are actually purchasing a service: In return for an $85 fee, Respondents complete application Form 574 (or short form if no modification was necessary) for the licensee and, if necessary, send it to a frequency coordinator for processing.
8. About 30% of the people responding to the Modifications Division promotion have no changes in their system (Tr. 488), and could have simply waited for the FCC's automated short form to arrive, signed it, and sent it to the FCC with a check for the $30 renewal fee (Tr. 464). If these were public safety organizations, they would not have even had to pay the $30.
9. Expired License Promotion -- Respondents send their Expired License Division letter (CX-2) to licensees whose licenses have expired. Again, as discussed below, many licensees think that the letter is from the FCC, and that the letter requires a fee for renewal of the license. In reality, however, they are purchasing, for a $145 fee, a service from Respondents. In this regard, Respondents prepare an application on Form 574 and, if the license has been expired more than six months, send it to the frequency coordinator for processing.
10. Publications Division -- After licenses are granted by the FCC, Respondents send the licensee a Publications Division promotion offering to sell him for $15 an abridged copy of the applicable FCC regulations (Tr. 481).
11. Respondents mail approximately 25,000 to 35,000 solicitations each month, including all promotions (Tr. 476). They have mailed about 3 million pieces of mail since 1982.
12. Respondents' solicitations (CX-1-4) make each of the false representations set forth in P5a-d of the Amended Complaint. CX-5 makes representation (a) only. The language and other aspects of the mailings which contribute to this impression are set forth below. These findings are based upon my independent analysis of the solicitations plus the testimony of the Complainant's consumer witnesses, who I found to be credible. The fact that some of these consumers may have heard negative remarks about Respondents from third parties after receiving the mailings does not diminish their sworn testimony concerning their original impression of the mailings. Also, the testimony of Dr. Paul Scipione corroborates my independent findings. As set forth below, I did not find Respondents' experts to be as impressive, objective, forthright and credible as Dr. Scipione.
13. Complainant's expert, Paul A. Scipione, Ph.D., is a consumer psychologist who has directed more than 325 research projects during his 15 year career. He is a professor of marketing who teaches consumer behavior, market research (a tool used by consumer psychologists), and advertising at both the M.B.A. and undergraduate level. He previously served as Vice President at Response Analysis Corporation, a market research firm (CX-15; Tr. 167-171).
14. Dr. Scipione was a highly credible, forthright, and objective expert witness. His qualifications in the fields of consumer psychology and marketing research are excellent and his conclusions corroborate my findings.
15. Respondents' first expert witness, James W. Lauer, has been a market public opinion researcher for 12 years. He holds a B.A. degree in political science, but has no graduate degrees. He has had graduate training in quantitative research methods and has conducted about 750 surveys or focus groups. His qualifications in the area of market surveys are not as impressive as those of Dr. Scipione, and he has minimal qualifications in the area of consumer psychology (Tr. 395-404; RX-G).
16. Respondents' second expert witness, Ivan Ross, Ph.D., is a professor of marketing and an industrial/consumer psychologist. In his capacity as a professor and consultant, he has conducted many research projects, including consultations with the Federal Trade Commission on false advertising matters. He is a member of a number of relevant professional organizations, and has edited numerous articles. He has particular experience in survey and questionnaire design, and has written many articles on consumer behavior. He has a good background in surveys and consumer psychology; however, at the hearing he frequently acted more like an advocate than an objective expert, and was often evasive. I found Dr. Scipione's testimony to be more objective and credible.
(a) Federal Licensing, J.V., is affiliated with the United States Government or one of its agencies. 17. The name "FEDERAL LICENSING" appears in bold letters on the envelope and at the top of the letter, and in several other locations in the mailings. The word "licensing" itself means the issuing of licenses, thus the name best describes the action of the federal government of issuing the radio licenses in question. Webster's Ninth New Collegiate Dictionary (1986). Obviously, Respondents are not engaged in licensing, but merely prepare applications for licenses. The use of the name makes them appear to be a government agency, or affiliated with the government (Tr. 28). The use of "J.V." is meaningless to most people, and does not represent an adequate disclaimer. Also, although the recent change of their name to "Federal Licensing, Inc." indicates that it is not a government agency, as discussed below, the company would still appear to many readers to be acting on behalf of and affiliated with the federal government.
18. The overall perception of each mailing is that of a government notification (Tr. 28, 29, 30, 40, 46, 55-56, 60, 74-75, 84-85, 91, 100; Scip. Tr. 179). It requires immediate action (Tr. 179). It does not resemble a typical advertisement for a service (id.). That factor combines synergistically with the red diagonal "URGENT FCC License Info Enclosed" on the outbound envelope (Scip. Tr. 180). Although the red color may not be particularly governmental itself, its use tends to draw more attention to the words (Tr. 215, 249), and would be noticed more than the disclaimer discussed below (Tr. 449). Also, the fact that Respondents enclose a copy of the customer's actual FCC license in the Expired License Division and Publication Division (Tr. 458) promotions, which appears in the window of the envelope, further enhances this representation (Scip. Tr. 180). In addition, the return envelope is not a postage-paid business reply envelope (Tr. 180). Finally, the document is boring, drab, and contains legalese and "governmentese" (Tr. 227).
19. In addition to the above elements of the mailings, the following language contributes to the impression that Federal Licensing is affiliated with the government:
FEDERAL LICENSING, J.V.
MODIFICATION DIVISION
[or EXPIRED LICENSE or PUBLICATIONS DIVISION]
Dear Licensee:
Our review of FCC records has revealed that the radio authorization -- LICENSE -- which you were granted in January, 1983 is scheduled to expire within the next three months. (CX-1)
[or]
Our review of FCC records has revealed that the radio authorization -- LICENSE -- which you were granted has EXPIRED. As you are aware, it is a violation of FCC Rules to operate a radio system without proper authorization. (CX-2)
[or]
A review of Federal Communication Commission records indicate that you have been issued a Radio System License to operate within the Business Radio Service, and a photocopy of that license is attached for your information. As you are aware, you the licensee are obligated to operate the radio system within the Rules and Regulations of the FCC. You have further certified, with your application signature 'that a copy of the requested radio service's rules will be obtained.' (CX-5)
The above language shows an access to information and government documents, and a governmental tone, which tends to indicate that the mailing is from the government. 20. The fact that licensees are told to call between 9:00 AM and 4:00 PM, and Respondents' location in the same building as the FCC, also suggests a governmental operation (Tr. 29, Scip. Tr. 183, 216).
21. The mailing contains two disclaimers. Many readers would not notice the disclaimer at the bottom of the letter: "NOT AFFILIATED WITH U.S. GOVERNMENT/AGENCIES" (CX-1, 2). It is too small and inconspicuous (Tr. 31, 35, 96). People tend to read from top to bottom, and usually do not read an entire communication. This is especially true when, as here, the mailing has a boring appearance (Scip. Tr. 185).
22. The disclaimer on the envelope "non government agency" also has a negligible impact in view of the large bold red diagonal "URGENT, FCC License Info Enclosed" and the large type "FEDERAL LICENSING, J.V." in the upper left corner (Scip. Tr. 177).
23. When Respondents subsequently bill their customers for the $30 FCC filing fee, Respondents indicate that the check should be made payable to the "FCC" (Tr. 362). However, many of these checks are made payable to "Federal Licensing/FCC", indicating that they think Respondents are affiliated with the FCC (id.; Tr. 491).
24. Respondents' owner, Mr. Damico, admitted that he has heard of many people who thought Federal Licensing was the FCC, based upon the ambiguity and confusion arising from their first reading (Tr. 472-473).
25. The testimony of Respondents' lay witnesses on this representation was not persuasive. Mssrs. Hoover and See knew about Respondents' company before they received the solicitation, and would not have confused it with the government. Similarly, Mr. Brooks had previously dealt with another private company performing the same service before he received the solicitation (Tr. 331). Mr. Antonoff stated if "you read carefully, you learn that it is a service", however, many ordinary readers are too busy to analyze such a mailing. Mr. Block works for a radio manufacturer which supplies dealers, and testified the dealers never indicated confusion about the identity of Federal Licensing. However, the relevant consumers are end user licensees, not dealers; moreover, he admitted the matter never arose in conversation (Tr. 322).
26. Representation (a) is false because Respondents have no contractual relationship or other affiliation with the FCC (Tr. 113).
(b) The fee paid to Federal Licensing, J.V., by a recipient of Respondents' circular for the renewal of a Federal Communications Commission (FCC) license is the actual cost of renewing the license with the FCC.
27. Respondents' mailings make this false representation (Tr. 30-31, 41, 85, 92, 101). It follows from the language and other elements discussed above indicating that Respondents are affiliated with the government.
28. The mailings contain the following disclaimer:
. . . [W]e can assist you in the preparation and filing of the documentation required to obtain A CURRENT LICENSE. However, this language does not dispel the impression that the Government is simply offering to help an applicant with the application process. Nor does the subsequent reference to a "service and preparation fee" clearly indicate that the fee is not the FCC's renewal charge. This ambiguous language, if noticed by the reader, could well refer to the preparation of the license by the FCC. On CX-1, "We prepare applications in the order received" is inconspicuous, and, if noticed, is ambiguous, since the applications appear to many to be "received" by Respondents.
29. Finally, one mailing states that "Subsequent fees may be applicable" (CX-2). This is inconspicuously located near the end of the document after the primary text. These subsequent fees could be interpreted as coordination or additional filing fees, and the statement does not dispel the impression that the requested fee is the FCC's renewal fee. Likewise, another mailing states: Due to recent changes in the FCC Rules & Regulations Print 90, subsequent fees will be required for coordination and filing.
This disclaimer is similarly inadequate to dispel representation (b). There, the $85 fee still appears to be the normal renewal fee, and the other fees would appear to many readers to be additional fees caused by a change in the law.
(c) A renewal of an FCC license can only be obtained through Federal Licensing, J.V. 30. This false representation also follows from the fact that Federal Licensing appears to be affiliated with the government (See also, Tr. 29-30, 92, 101).
(d) The amount listed on the direct mail solicitation is due and owing.
31. This false representation is made in the mailings for the Expired License Division (Scip. Tr. 182-183, 226), the Modification Division (CX-1; RX-A), the Renewal Division (CX-3; Tr. 248; See also Tr. 29, 41, 55-56, 84-85, 91, 101) and Amateur Radio Division.
32. The fact that the mailings appear to be from the government or its affiliate contributes to this impression. In addition, the mailings state:
"Tear off the work sheet and attach it to your service and preparation fee payment of $85. Please make your check payable to FEDERAL LICENSING, J.V." (CX-1)
[or]
"Attach this corrected license copy to your service and preparation fee payment of $145.00. Please make your check payable to Federal Licensing, J.V." (CX-2; see also CX-3, 4)
33. In addition, the letter has a "fait accompli" tone: "Our review of FCC records has revealed that the radio authorization -- LICENSE -- which you were granted . . . is scheduled to expire. . . " (Scip. Tr. 182).
34. The reply envelope states on the back: "Have you -- Corrected name/address. Included phone number. Enclosed check and form."
This is characteristic of a reply envelope accompanying a bill (Scip. Tr. 181).
35. Unlike the solicitations in issue, a typical solicitation extols the virtues of the product or service and shows how it benefits a particular problem. The fact that Respondents' mailings lack this "sell" element enhances the perception that they are bills (Scip. Tr. 182).
36. Postal Inspector Denise Cann sent a questionnaire to 327 of Respondents' customers. She has had no formal training in conducting surveys (Tr. 151-152). The names were obtained from all applications filed by Respondents with the FCC during a two month period (Tr. 116, 138). These consumers had responded to either the Modification Division or the Expired License Division promotions (Tr. 406). The names constituted an appropriate, representative sample taken from the proper universe of actual customers (Tr. 500, 514) 2/. The size of the sample was not too small to invalidate the study (Tr. 501).
37. The purpose of the survey was to ascertain the applicants' understanding of the direct mail piece from Federal Licensing when they originally received it.
38. The cover letter indicates that the Postal Inspection Service is conducting the survey, and is signed by "Denise R. Cann, Postal Inspector," but does not state the reason for the study. The word "investigation" is not used. It further states: "The survey is not to reflect unfavorably upon the business of Federal Licensing or any of its officers or employees" (CX-10). Although the Postal Inspector attempted to neutralize the letter, it is probable that many persons receiving the questionnaire would assume that an investigation was being conducted (Ross Tr. 555-557).
39. The Postal Inspector received 201 responses to the questionnaire. Fifteen of these could not remember dealing with Respondents. She telephoned 39 survey respondents who had either failed to answer a question or had given an ambiguous answer (Tr. 139). Such "call backs" to clarify ambiguous answers are accepted in the scientific community (Tr. 193). Some of these asked how they could get their money back (Tr. 155). If the Inspector told them they could get their money back before asking the questions, it could bias the individual; however, there is no evidence that this was done (Tr. 224). Although the possibility of bias is diminished by the use of a script, no script was used here.
40. In conducting such surveys, it is ideally desirable, but not necessary, for the questionnaire to be sent to the same persons who originally responded to the solicitation (Tr. 205). They should be, as they were here, representative of their businesses (Tr. 207). As stated above, the individuals to whom the questionnaire in issue was sent constituted a proper scientific sample (Tr. 189).
41. In this case, if the FCC files did not contain an individual's name, then the questionnaire was simply directed to the attention of the License Renewal Section (Tr. 149). Although there is no assurance that all of the persons answering the questionnaire were the same persons who originally responded to the solicitation, it is probable that most of them were. Most responded that they had seen something from Federal Licensing in the past, and no one indicated they had not previously seen a similar solicitation (Tr. 206). Since the questionnaire mentioned that they had received the previous solicitation, and a copy was attached, it is likely that they would have indicated that they were not qualified to answer the question if they had not previously seen the solicitation (Tr. 206).
42. The questionnaire poses two questions requesting an open-ended response (CX-10, p. 4):
1. What is your understanding of the relationship, if any, Federal Licensing, J.V., has with the Federal Communications Commission (FCC)?
2. When you received a letter, similar to the attached form from Federal Licensing, J.V., Expired License Division, did you think it was a bill you were obligated to pay or did you believe it to be a solicitation/advertisement for a service for which you could have chosen to select and pay?
43. Eighty-eight percent of the persons responding to the questionnaire stated that Federal Licensing had a relationship with the federal government: "same, affiliated with, Bureau of, Division of, part of, related to, or contracted by". Only 4% stated that Respondents had no connection with FCC. (It is possible that a few people might consider Respondents "related to" the FCC solely because they prepare licenses for renewals with the FCC, but this would clearly be a strained interpretation. Also, there is no evidence that anyone had that interpretation (Tr. 245)).
44. In response to the second question, 96% "felt letter received from Federal Licensing was a bill they had to pay." Only 4% felt the letter was a solicitation or advertisement (CX-11, p.2).
45. Dr. Paul Scipione analyzed the results of the survey and its accompanying data. He recoded the information on the questionnaires, found the quality of the Postal Service's tabulation to be good, and concurred with the results obtained by the Postal Inspector (Tr. 194-195, 503-504). He also found the survey to be a valid indicator of consumer perceptions with respect to Respondents' other solicitations in view of their generic appearance (Tr. 247, 250).
46. a. Each of Respondents' solicitations (CX-1-4) make the representations alleged in the Amended Complaint (Tr. 251-252). The Publication Division promotion (CX-5) only makes representation (a); Complainant does not argue that it makes the other representations.
b. Many average recipients of CX-1-4 who wish to renew their licenses would consider each mailing to be in the form of, and reasonably interpret each mailing to be a bill, invoice, or statement of account due.
47. Representations (a)-(d) are materially false.
I. Estoppel Issue
1. At the hearing Respondents argued that the Complainant is estopped from bringing the instant action in view of the Agreement dated August 16, 1982 executed by Respondent Federal Licensing, J.V., and Roderick Sullivan, a former USPS Inspector Attorney. It provided, in pertinent part, that Respondents' future solicitations would clearly indicate that it is not affiliated with the U.S. Government or any of its agencies and that the fees paid to it are for its services. Respondents also agreed to refrain from engaging in any activities not previously enumerated which would constitute a violation of 39 U.S.C § 3005. Although the agreement provided for a procedure whereby Complainant could file a petition with the Judicial Officer if Respondents breached the agreement, it also provided in P5d:
". . . In the event the terms of this agreement are violated, nothing contained herein shall preclude the Postal Service from taking whatever other legal action(s) it deems appropriate in the circumstances."
2. a. At the hearing Respondents moved to dismiss on the ground that Complainant was estopped by the above agreement from bringing the instant action under § 3005, but this motion was denied in view of the above-quoted language. Complainant also argued that the instant Complaint alleges new false representations and that the law has been changed to allow issuance of cease and desist orders. Those arguments also have merit.
b. In any event, the doctrine of equitable estoppel will not ordinarily be applied against the United States when the interests of the public are at stake. See, e.g., Heckler v. Community Health Services, 104 S. Ct. 2218 (1984). Since the protection of the public is the principal purpose of 39 U.S.C. § 3005, the doctrine will not be applied here. Consumer Research, Inc., P.S. Docket No. 18/33 (P.S.D. 1984).
3. Respondents also argue that Inspector Sullivan executed the above agreement after he had reviewed certain solicitations which Respondents intended to mail. Although it is likely that he did (Tr. 164), and one of Respondents' employees testified that the present solicitations are "pretty much like the same letter," none of the solicitations in issue were in existence at that time in 1982 (Tr. 280). In any event, even if Sullivan had approved the letter in issue herein, Complainant would not be bound by the determination of its employee. In this regard, there has been no showing of a detrimental reliance by Respondents sufficient to overcome the public interest protection afforded by 39 U.S.C. § 3005. The Robertson-Taylor Company, P.S. Docket Nos. 16/98-102, 16/120-121 (P.S.D. March 31, 1986).
4. Finally, Respondents point to the fact that before commencing business they sought the unofficial advice of a friend at the FCC who was chief of the Rules Branch. He looked at an early 1982 version of Respondents' solicitations and told them which one he would use (Tr. 279). Although one of Respondents' owners alleges that "except for technical updates, it looks pretty much like" the 1982 version, the latter document is not in evidence (Tr. 280). In any event, there is no reason to believe that the FCC employee was qualified to determine the legality of the solicitations under 39 U.S.C. § 3005, and Respondents would not have had a rational basis for relying upon his advice. Moreover, the Postal Service would not be bound under § 3005 by a determination of an employee of another agency.
II. False Representation Issues
5. (a) Each of Respondents' advertisements must be considered as a whole and the meaning is to be determined in light of the probable impact of this material on a person of ordinary mind. Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948); Peak Laboratories, Inc. v. U.S. Postal Serv., 556 F.2d 1387, 1389 (5th Cir. 1977). The statute is intended to protect the gullible, naive, and less critical reader, as well as the more sophisticated, wary reader. Fields v. Hannegan, 162 F.2d 17 (D.C. Cir. 1947), cert. denied, 332 U.S. 773 (1947); M.K.S. Enterprises, Inc. v. United States Postal Service, 459 F. Supp. 1180, 1184 (E.D.N.Y. 1978); Gottlieb v. Schaffer, 141 F. Supp. 7 (S.D.N.Y. 1956); Leo Daboub, P.S. Docket No. 19/185 (P.S.D. July 10, 1986). Express misrepresentations are not required. It is the net impression which the advertisement is likely to make upon individuals to whom it is directed which is important, and even if an advertisement is so worded as not to make an express representation, if it 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 U.S. 748 (1976).
(b) 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. v. F.T.C., 208 F.2d 382, 387 (7th Cir. 1953); Ralph J. Galliano, P.S. Docket No. 19/15 (P.S.D. May 2, 1985 at p. 9).
(c) An inconspicuous disclaimer is not sufficient to dispel the effect of false representations. Leo Daboub, supra; Gottlieb v. Schaffer, supra.
(d) The Administrative Law Judge can determine whether the representations are made, their effect on the ordinary mind, and materiality without the assistance of lay or expert testimony. Standard Research Labs, P.S. Docket No. 7/78 (P.S.D. Oct. 27, 1980); The Robertson-Taylor Company, P.S. Docket Nos. 16/98-102, 16/120-121, (P.S.D. March 31, 1986 at page 29); Vibra-Brush v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2nd Cir. 1958).
6. Applying the foregoing standards, I find that Respondents' advertisements make the representations alleged in P5(a)-(d) of the Amended Complaint. The language and other elements contained in the mailings, when read and viewed in context, which directly or impliedly make these representations are set forth in the Findings of Fact.
7. In reaching this conclusion, I have not relied upon the survey conducted by the Postal Inspector. In Pittsburgh Press Club v. United States, 579 F.2d 751, 758 (3rd Cir. 1978), the Court held that a poll is considered reliable evidence if it is conducted in accordance with generally accepted survey principles. The Court stated, in part, as follows:
Just as important, the survey must be conducted independently of the attorneys involved in the litigation. The interviewers or sample designers should, of course, be trained, and ideally should be unaware of the purposes of the survey or the litigation. A fortiori, the [survey] respondents should be similarly unaware.
As the person in charge of the investigation, the Postal Inspector was fully aware of the purpose of the survey. She was untrained in the conduct of surveys. In addition, the survey respondents were aware that the questionnaire was sent by the Postal Inspector. Although the survey was otherwise straightforward and neutral (Tr. 510), it is possible that some of the survey responses were biased. In view of these weaknesses, the survey's statistical projections are not accepted. Nevertheless, although the survey lacks the scientific validity to establish that precisely 88% of ordinary readers would think that Federal Licensing was affiliated with the government, or that 96% would think the mailing was a bill, it does constitute evidence that generally corroborates my independent finding that "many" average readers would have that impression.
8. As indicated in the findings, the testimony of Complainant's expert, Dr. Paul Scipione, was found more credible than that of the Respondents' experts. My reasons for crediting his testimony are explained in the findings ("The Expert Witnesses," supra). Although these reasons provide an adequate basis for rejection of the testimony of Respondents' experts, one additional point should be noted. Respondents' experts were largely influenced by the alleged fact that 98% of the persons to whom solicitations were sent failed to respond, and therefore the experts found it unlikely that many recipients would have considered (1) Federal Licensing to be affiliated with the FCC, or (2) that the mailing was a bill which had to be paid if license renewal was desired. However, reliance on that percentage was misplaced for the following reasons:
a. The 98% non-response rate applied only to the Modification Division mailing, so it was inappropriate to apply it to the Expired License and Publication Division promotions.
b. In the Modification promotion, Respondents did not know which licensees needed a modification of their license at the time of renewal (as opposed to a simple, automatic renewal), so Respondents sent the mailing to every licensee who was approaching the time for renewal. Although sent to all, the letter itself was directed only to those who needed modification ("if there have been changes in your radio system [etc.]"), and the latter licensees constituted a relatively small percentage of all renewals. Therefore, one would not have expected the large percentage of licensees who did not need modification to respond to the mailing since it did not pertain to them. In this context, Respondents' 2% response rate appears to represent a much higher percentage of licensees needing modification.
9. A solicitation is "nonmailable" if it "is in the form of, and reasonably could be interpreted or construed as, a bill, invoice, or statement of account due" unless it contains the disclaimer prescribed by the statute or the Domestic Mail Manual. 3/ The determination of mailability is to be based on the totality of the solicitation and the impression created in the minds of those to whom it is directed. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2d Cir. 1958). This does not mean that the trier of fact is limited to the interpretation which a majority of recipients would place on a solicitation. Rather, the trusting are to be protected as well as the wary. Donaldson v. Read Magazine, Inc., supra, at 189; Fields v. Hannegan, 162 F.2d 17 (D.C. Cir. 1947), cert. denied, 332 U.S. 773 (1947); M.K.S. Enterprises, Inc. v. United States Postal Service, 459 F. Supp. 1180, 1184 (E.D.N.Y. 1978); IHS Department of Unclaimed Funds and Benefits, P.S. Docket No. 22/155 (P.S.D. Sept. 22, 1986); Leo Daboub, P.S. Docket No. 19/185 (P.S.D. July 10, 1986).
10. The best evidence that a mailing appears to be an invoice is the mailing itself. Telex & twx Directory, P.S. Docket No. 13/6 (P.S.D. April 1, 1983). As set forth in the findings of fact under Representation (d), with the exception of the Publications Division letter, all of the solicitations in issue would appear to many ordinary readers to be a bill for the FCC's renewal fee. This conclusion is corroborated by Dr. Scipione and the testimony of the consumer witnesses. Accordingly, the solicitations are nonmailable and constitute prima facie evidence that Respondents are engaged in a scheme or device to obtain money through the mail by means of false representations. 39 U.S.C. § 3001(d).
11. The representations set forth in paragraph 5 of the Amended Complaint are materially false.
12. The representations made by Respondent are material because they have a tendency to persuade readers to order and pay for Respondent's product.
13. Complainant has established its case by a preponderance of the reliable and probative evidence of record. S.E.C. v. Savoy Industries, Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978).
14. Respondents are engaged in the conduct of a scheme for obtaining remittances of money through the mail by means of materially false representations (a) through (d) in violation of 39 U.S.C. § 3005.
15. The attached False Representation Order and Cease and Desist Order should be issued.
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1/ The testimony of one of the Respondents about a study conducted by an FCC office at some point between 1972-1977 is rejected as too conjectural. He stated: "if I am not mistaken, it was possibly 35-40%" of licensees who required modifications within the first 5 years (Tr. 348). On the other hand, FCC employee Fishel's testimony that a "relatively small" number required modification was based on his recent review of new statistics and is more credible than the testimony of Respondents' witness (Tr. 126-127).