In the Matter of the Complaint Against: THE PROCESSING CENTER, INC., 5211 Linbar Drive, Suite 508, Nashville, TN 37211-1021 and 501 Metroplex Drive, Suite 310, Nashville, TN 37211-3148; VAUGHN MANAGEMENT, INC., 5178 Linbar Drive, Nashville, TN 37211-5029; JOEL B. VAUGHN, 5211 Linbar Drive, Suite 508, Nashville, TN 37211-1021; and JOHN LEWIS, 5211 Linbar Drive, Suite 508, Nashville, TN 37211-1021 P.S. Docket No. 34/63 10/17/89 Grant, Quentin E., Chief Administrative Law Judge APPEARANCE FOR COMPLAINANT: Geoffrey A. Drucker, Esq., Consumer Protection Division, Law Department, United States Postal Service, Washington, DC 20260-1144APPEARANCE FOR RESPONDENT: Larry D. Woods, Esq., Jason B. Rogers, Esq., Woods & Woods, 121 Seventeenth Avenue South, Nashville, TN 37203-2794
In a complaint filed May 5, 1989, Complainant, the General Counsel of the United States Postal Service, alleged that The Processing Center, Inc. (Processing Center), Vaughn Management, Inc. (Vaughn Management), and Joel B. Vaughn are violating 39 U.S.C. § 3005 by conducting both a lottery and a false represent- ation scheme. By order dated June 7, 1989, Complainant's motion to file an amended complaint was granted. The amendment added John Lewis as a respondent and alleged three additional false representations.
Respondents' answer to the amended complaint denied that they are conducting a lottery, denied that they seek remittances of money through the mail by means of false representations, and denied that the individual respondents direct and control the alleged activities of the corporate respondents.
By stipulation filed June 21, 1989, the parties waived oral hearing and argument and agreed that the merits of the complaint should be decided based on the transcript and exhibits, whether admitted or not, in United States Postal Service v. The Processing Center, Inc. and Joel B. Vaughn, No. 3:89-3075 (M.D. Tenn.) and written briefs. Each party has filed some, but not all, of the exhibits it identified or introduced in evidence at the district court hearing together with proposed findings of fact and conclusions of law.
The District Court hearing lasted two days, May 18 and 19, 1989. The pages of the transcript were not numbered consecutively from the first day to the second. Transcript page references in the following findings of fact are, therefore, numbered I for May 18 and II for May 19.
1. Respondent Processing Center is a Tennessee corporation with a principal place of business at 5211 Linbar, Suite 508, Nashville, TN 37211 (Ans. P2).
2. Respondent Vaughn Management is a Tennessee corporation with a principal place of business at 5211 Linbar, Suite 508, Nashville, TN 37211 (II Tr. 71). It sometimes does business under the trade name Puradyne (II Tr. 41, 42).
3. Respondent Joel B. Vaughn is the president of both Processing Center and Vaughn Management. In conjunction with respondent John Lewis, he controls the day-to-day affairs of these companies (II Tr. 70-73).
4. Respondent John Lewis is the secretary and treasurer of both Processing Center and Vaughn Management. In conjunction with respondent Joel Vaughn, he controls the day-to-day affairs of these companies (II Tr. 71-73).
5. Mr. Vaughn and Mr. Lewis had final say over the contents of the mailing piece and phone script used in the scheme described below (II Tr. 123-24).
6. Processing Center sends an OFFICIAL CLAIM NOTICE to members of the public ("consumers") by certified mail that states:
This is an official notice to advise that you are an award claim recipient in the PURADYNE CO. $1,000,000.00 National giveaway promotion]
We are required to give notice that the control number listed on this award notification absolutely guarantees that you have a valid claim for one of the gift awards listed to the right. The Puradyne Company requires no purchase of any kind . . . but you must call me immediately in order to validate your claim for one of these fabulous awards (RX-1).
7. The telephone number to call is printed on the OFFICIAL CLAIM NOTICE, as is a return address for Processing Center. OFFICIAL CLAIM NOTICES mailed before May 1, 1989, show Processing Center's address as 5211 Linbar, Suite 508, Nashville, TN 37211; notices mailed after May 1 give an address of 501 Metroplex Drive, Suite 310, Nashville, TN 37211. A business reply envelope with the Linbar or Metroplex Drive address is enclosed with the OFFICIAL CLAIM NOTICE (RX-1, 2; I Tr. 99).
8. The following five awards are listed on the OFFICIAL CLAIM NOTICE:
* 1989 Ford Taurus (4-door Luxury Package)
* $10,000 Cashiers Check
* Two Round Trip Airfares (Disclosure Documents for Airfares are from any major U.S. City)
* $5,000.00 Retail Merchandise Checks
* $5,000.00 EE U.S. Savings Bonds (RX-1)
9. A consumer who calls the phone number listed on the OFFICIAL CLAIM NOTICE reaches a Processing Center telemarketer who reads to him from a prepared script. According to this script, Puradyne obtained the consumer's name from a list of Visa, Mastercard, or retail charge card holders (CX-8).
10. The script explains that all awards except the Ford Taurus are "insured and shipped by a bonded carrier to your home." The script describes the airfare "gift" as a trip to Florida for a week or more, during which time the consumer "is responsible for hotel or motel stay" (CX-8).
11. At the end of the phone pitch the consumer learns that to claim an award he must pay a refundable processing fee of $12.50 to pick up the award in Nashville or pay $26.50 for shipping, insurance, and processing (CX-8).
12. If the consumer asks which award he has won, the telemarketer replies: "The Processing Center does not receive follow-up information and has no idea what gift award any particular claimant might receive." If the consumer asks what are the odds of winning, he is told that all gift awards are issued completely at random by special selection at Puradyne (CX-8).
13. A revision of the OFFICIAL CLAIM NOTICE was mailed commencing about May 1, 1989. Use of this notice ceased in early May following the entry of a temporary restraining order (TRO) in the U.S. District Court (M.D. Tenn.) (II Tr. 42, 60).
14. Nearly all consumers who remit $26.50 to Processing Center receive via first-class mail, not by a bonded or insured carrier, a travel brochure issued by Vacation Ventures, Inc. (VVI) offering two round trip airline tickets to Orlando, Florida provided the consumer purchases accommodations for seven nights, through VVI, at one of ten specified hotels in either Orlando or Daytona Beach and at rates set forth in the brochure (RX-7; I Tr. 12, 13, 18, 19).
15. Respondents were responsible for identifying to the mailer, Endata, which consumers would receive a prize other than the round-trip airfares and were responsible for furnishing these prizes. As of May 18, 1989, the date of the TRO hearing, Endata had not received identifications of any such consumers (I Tr. 13, 44, 45).
16. Numerous complaints and inquiries concerning this promotion were received by postal inspectors (I Tr. 106-110), by the Tennessee Division of Consumer Affairs (I Tr. 49-58), and the Better Business Bureau of Nashville (I Tr. 86, 87, 94).
17. On May 16, 1989, two days prior to the TRO hearing, Burnett Research Services was commissioned by Processing Center to perform a consumer marketing survey (II Tr. 3, 5). The following day, Lorna Stephens, mall supervisor for Burnett, conducted such a survey at Rivergate Mall, a large retail shopping center near Nashville (II Tr. 6). The survey utilized Respondent's direct mail piece received in evidence as RX-1 (II Tr. 7). Thirty consumers, randomly selected (screening out persons under 25 and over 54), were interviewed. These consumers were shown RX-1 and had read to them the telephone script used by Processing Center telemarketers. They were then asked two questions: (1) if you were the recipient of this [RX-1] and received the information you've just been given [telephone script] what gift would you expect to get or receive?; (2) do you understand that you'd be responsible for your own stay at a designated motel or hotel if you're the winner of the airfare? (II Tr. 9). According to the affidavit of Ms. Stephens, sworn to May 19, 1989, filed in the U.S. District Court, the consumers were then asked if they understood that they would have to pay for their own lodging in designated hotels and motels if they were awarded the free airline tickets and all of them answered in the affirmative.
The scheme described above is not a lottery.
This representation is made explicitly in the mailing piece:
"This is not a contest, lottery, or sweepstakes of any kind"(RX-1).
As described above, the scheme conducted by Respondents incorporates the essential elements of a lottery. Accordingly, the representation is false.
A consumer who is awarded two round-trip airfares must pay no more than $26.50 to receive this award.
This representation appears in the OFFICIAL CLAIM NOTICE, which states: The Puradyne Company requires no purchase of any kind," (RX-1) and the telephone script, which states: "I would like to point out once again that you are not required to purchase anything now or ever." The $26.50 fee is said to cover shipping, insurance, and processing fees, not the cost of the prize (CX-8).
The telephone script informs the consumer that, if he wins the airfare prize, he will be "responsible for hotel or motel stay." Having been assured that he never has to purchase anything, the ordinary consumer would not interpret this to mean that he must pay for a stay in a hotel or motel in order to receive the airfare. Rather, he would construe this simply as a warning that Processing Center will not find accommodations for him.
After May 1, 1989, Respondents for a short time mailed a revised OFFICIAL CLAIM NOTICE which contained buried in very small print the information that recipients of the airfare prize receive airfare only and that they are responsible for their own stay at designated hotels or motels (RX-1).
It is unlikely that ordinary consumers will see this fine print warning or, if they do, that they will interpret it as meaning that in order to receive the airfare award they must purchase 7 nights accommodations through Vacation Ventures when much larger print tells them that no purchase of any kind is required.
The Vacation Ventures travel brochure received by consumers awarded the airfare prize originally required payment of a $25.00 registration fee (eliminated later) (CX-7; I Tr. 36, 140-41; II Tr. 61) and conditioned entitlement to the free airfares on purchase of 7 nights accommodations at specified hotels or motels through Vacation Ventures (RX-7). Therefore, this representation is false.
I attach no weight to the testimony of Lorna Stephens concerning the mall consumer survey conducted by Burnett Research Services for Respondents because the questions asked consumers did not address the point that receipt of free airlines fares was conditioned on the purchase of hotel reservations.
The Puradyne Company will determine which award the consumer will receive after the consumer calls to claim the award.
This representation occurs in the telemarketer's response to a consumer who asks, "what have I won?" The consumer is told that his claim form will be passed on to Puradyne which will make arrangements for delivery of the gift award, that the Processing Center does not receive follow-up information and has no idea what gift award any particular claimant might receive. The phrase "follow-up information" implies that the drawing has not yet occurred as does the reference to what the consumer "might receive."
The script also implies that the drawing will be held in the future by leading consumers to believe that they might win the most valuable prize, the Ford Taurus. Telemarketers convey this impression by asking consumers what color they prefer for the Ford Taurus, and by discussing how the car will be delivered.
This representation is false because selection of the certified numbers to receive prizes other than the airfares was made approximately two weeks before the direct mail OFFICIAL CLAIM NOTICE was sent out (II Tr. 78, 79).
Processing Center will send the consumer his award by some means other than First-class mail.
This representation is made in the telemarketer script which says, "All gift awards are insured and shipped by a bonded carrier to your home. The Ford Taurus will be delivered by a local Ford dealer in your community" (CX-8).
The representation is false because most consumers receive the travel brochure (airfare prize) which is sent by first-class mail (I Tr. 20; II Tr. 80-81).
Processing Center and Puradyne Company are controlled and directed by different persons.
The name Processing Center implies that this company acts as the agent of another and, according to the OFFICIAL CLAIM NOTICE, Processing Center is "required" by the Puradyne Company to notify the consumer of his award. This wording would lead the ordinary consumer to believe that Processing Center and the Puradyne Company are separate entities, as would the following passage in the phone script:
We [Processing Center] are responsible for the processing of all claims for the Puradyne Company's National Giveaway. I am required to give you information on exactly how to claim your gift award. [emphasis supplied] (CX-8)
If the consumer asks: "What have I won," he is told: "The Processing Center merely processes claims provided by Puradyne, on behalf of Puradyne." This response reinforces the impression that the two companies are separate.
The same two persons, Joel Vaughn and John Lewis, serve as officers of Processing Center and Vaughn Management doing business as Puradyne Company, and control the day-to-day affairs of these companies (FOF 2-4, supra). Thus, for all practical purposes, Processing Center and the Puradyne Company are one and the same, and the representation that they are not is false.
1. There is no doubt that consumers would view the awards listed in Respondents' direct mail piece as prizes which they have won, or will win, based on Respondents' random selection of winners. In order to receive the prizes, consumers must pay processing charges. Thus, there are present the three essential elements of a lottery: "(1) the distribution of prizes; (2) according to chance; (3) for a consideration." Federal Communications Commission v. American Broadcasting Co., 347 U.S. 284, 290 (1954); Tenpen Sales Corporation, POD No. 2/34 at 4 (PSD May 10, 1961); Conte & Company, Inc., P.S. Docket No. 29/131 (PSD Sept. 29, 1988). Although the prizes were actually preselected, it was represented to consumers that winners would be selected in the future. This is sufficient to bring the scheme within the lottery provisions of 39 U.S.C. § 3005. See Conte & Company, Inc., P.S. Docket No. 29/131 (P.S.D. Sept. 29, 1988) at p. 5.
2. The meaning of advertising representations is to be judged from a consideration of an advertisement in its totality and the impression it would most probably create in ordinary minds. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959). Express representations are not required. It is the net impression that the advertisement is likely to make upon purchasers to whom it is directed that is important. 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 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). Vibra-Brush Corp. v. Schaffer, supra; Aronberg v. Federal Trade Commission, 132 F.2d 165, 167 (7th Cir. 1942).
3. If the wording of an advertisement creates an ambiguity and one reasonable interpretation is found to be false, the representation is deemed to be false. Rhodes Pharmacal Co. v. F.T.C., 208 F.2d 382, 387 (7th Cir. 1953), rev'd in part 348 U.S. 940 (1955); Great Lakes Yellow Pages, Inc., P.S. Docket No. 25/79 at 8 (P.S.D. July 15, 1988).
4. Applying the foregoing standards of interpretation to respondents' OFFICIAL CLAIM NOTICE and telephone script, it is concluded that they make the representations alleged in the amended complaint.
5. For the reasons stated in the findings, supra, all of these representations are found to be false.
6. All of the representations are material because they have the tendency to cause consumers to remit the required processing fee to obtain a gift.
7. In determining whether a promoter makes a certain representation, discontinued materials may be considered. CM/NA, P.S. Docket No. 20/33 at 9-10 (PSD August 29, 1986); Kingsbridge Media & Marketing, Inc., P.S. Docket No. 20/17 at 6-7 (P.S.D. June 13, 1986).
8. The offer in evidence of the report of the mall survey was rejected by the district court on the ground that the approach to the respondents questioned in the mall was insufficiently similar to the approach made by mail and over the telephone to consumers responding to the OFFICIAL CLAIM NOTICE (II Tr. 10-13). I think that ruling was correct but I would also reject the survey on the ground that mall consumers were not asked what the word "responsible" meant to them and, specifically, whether they understood that receipt of the two airfares was conditioned on the purchase of hotel or motel accommodations for seven nights. The affidavit of Lorna Stephens submitted on Respondent's offer of proof following the hearing in the district court did not cure the deficiencies in the evidence offered at the hearing.
9. Complainant's case has been proved by a preponderance of the reliable and probative evidence of record.
10. Respondents have violated both the lottery and false representation provisions of 39 U.S.C. § 3005. Accordingly, the attached proposed orders should be issued.