In the Matter of the Complaint Against: EQUISYSTEMS CALIFORNIA, INC., c/o Donald E. Mason, Esq., 2121 Ponce De Leon Boulevard, Suite 350, Coral Gables, FL 33134; AARON E. HASTINGS c/o Donald E. Mason, Esq., 2121 Ponce De Leon Boulevard, Suite 350, Coral Gables, FL 33134; LORRAINE A. HASTINGS, c/o Donald E. Mason, Esq., 2121 Ponce De Leon Boulevard, Suite 350, Coral Gables, FL 33134 P.S. Docket No. 33/115 6/11/90 Grant, Quentin E., Chief Administrative Law Judge APPEARANCES FOR COMPLAINANT: Elizabeth P. Martin, Esq., Geoffrey E. Drucker, Esq., Consumer Protection Division, Law Department, United States Postal Service, Washington, DC 20260-1144 APPEARANCE FOR RESPONDENT: Donald E. Mason, Esq., P.A., 2121 Ponce de Leon Boulevard, Suite 630, Coral Gables, FL 33134-5222
A complaint filed by Complainant, the General Counsel of the Postal Service, on February 22, 1989, charged Respondents with violation of 39 U.S.C. § 3005, alleging that in a scheme involving advertisements, telephone calls and letters they seek money or property through the mail by means of the following materially false representations:
"(a) Respondents are affiliated with, acting in concert with or on behalf of a financial institution which issues national credit cards such as Visa or MasterCard;
"(b) Respondents are authorized to represent the financial institution named in its notification letter to applicants; and
"(c) The financial institution named in Respondents' letters issues national credit cards such as Visa or MasterCard." (Complaint P9)
By order dated September 21, 1989, Complainant's motion to amend the complaint was granted. The amended complaint continued, essentially, the three false representations alleged in the original complaint and added four others which were dismissed on Complainant's motion following the hearing (Order 2/13/90).
Respondents' answer to the amended complaint denies violation of 39 U.S.C. § 3005, denies that they were involved in a scheme, denies the representations alleged in paragraph 9 of the complaint were materially false in fact, and alleges, essentially, that in all actions alleged in the complaint in which they participated they were acting as agents for Security Trust Company of Arlington, Texas or the Texas Department of Banking in accordance with decisions made and criteria established by these entities.
A hearing was held in Miami, Florida on January 23 and 24, 1990. Complainant called as witnesses Postal Inspector Ted Griem, California Deputy Attorney General Steven J. Green, and Respondent Aaron Hastings. Respondents' sole witness was Aaron Hastings. Both parties have filed proposed findings of fact and conclusions of law. To the extent indicated below they have been adopted; otherwise they have been rejected as irrelevant or contrary to the evidence. Pursuant to my order of February 13, 1990, consideration of the testimony of Steven J. Green has been limited to the non-hearsay portions thereof. Based on the relevant parts of the entire record herein as so limited and my observation of the witnesses and their demeanor, I make the following findings of fact and conclusions of law.
1. Respondent Equisystems California, Inc. (Equisystems) is a California corporation. By means of letters sent to persons responding to advertisements placed in nationally circulated newspapers, Equisystems sought to obtain money through mail addressed to 10969 Trade Center Drive, Rancho Cordova, CA 95670-6130 and P. O. Box 2290, Ranch Cordova, CA 95741-2290 in connection with its marketing of a credit card program (Ans. to Amended Complaint, P5; Exhibits 1-3 to Amended Complaint; CX-8 through 13).
2. Respondents Aaron E. Hastings and Lorraine A. Hastings were, at all times relevant to this matter, respectively Chief Executive Officer and Secretary/Chief Financial Officer of Equisystems (Ans. P3).
3. Equisystems entered into a contract, effective May 23, 1987, with Security Trust Company of Arlington, Texas (Security) to market and process Security's secured Visa and MasterCard credit cards (CX-1; Tr. 177).
4. Security had a contract with MasterCard to issue MasterCard credit cards (Tr. 178).
5. Under its contract with Security, Equisystems marketed the Security credit card program, received and processed applications, received security deposits, and made arrangements with First Data Resources, Inc. of Omaha, Nebraska, for actual issuance of cards to approved applicants (Tr. 206).
6. On August 18, 1988, Equisystems represented by Aaron Hastings, Lorraine Hastings and Equisystems's attorney, Scott Rothstein, along with officers and directors of Security attended a meeting with the Commissioner and other officials of the Texas Banking Department at the offices of that department in Austin, Texas. The meeting dealt with the concern of the Department about Security's management, about the way Security was handling security deposits, and about Security's credit card program. At the conclusion of the meeting, the Banking Department said that it would do a complete audit of Security including the credit card program and that pending completion of the audit it was placing a freeze on the issuance of credit cards (Tr. 180-182, 186, 187).
7. On August 18, 1988, Security wrote to the credit card issuer, First Data Resources, Inc., confirming oral direction given over the telephone, to stop immediately the issuance of credit cards on behalf of Security, including those in process. Equisystems was furnished a copy of this letter (CX-3, Ex. E).
8. At the August 18 meeting, the matter of Equisystems continuing to market the program was not discussed and it was not told to stop marketing the program (Tr. 182, 183).
9. Following the August 18 meeting, Equisystems, with the full knowledge of the Banking Department, continued to advertise the Security credit card program, to process applications as they were received, and to receive security deposits with the expectation, according to Respondent Aaron Hastings, that following completion of the audit the Banking Department would lift the temporary freeze and the program would be resumed (Tr. 51, 183, 184, 187, 188). This expectation was supported by the statement of the chief attorney for that department on August 25, 1988, following three days spent by him at Equisystems looking into the credit card program, that he was taking a favorable report back to the Commissioner (Tr. 187, 188).
10. On September 12, 1988, a representative of the Texas Department of Banking visited Equisystems's office and advised Respondents that they were no longer to market the Security Trust MasterCard program (Tr. 193). Respondents immediately took steps to pull all ads and to stop all outgoing marketing correspondence relating to the program. Lead time policies of some publications such as the National Enguirer and the Los Angeles Times prevented immediate pulling of such ads with the result that they appeared on September 21, 1988, in the Los Angeles Times and October 4, 1988, in the National Enquirer (Exhibits 1 and 3 to Amended Complaint) (Tr. 194-196).
11. Immediately on learning that it was no longer to market the Security program, Equisystems took steps to find a new issuer for credit cards applied for but which could not be processed and issued between August 19 and September 12, 1988. Equisystems also telephoned these applicants to tell them it had made arrangements with a new issuer and to get their consent to enrollment in the new program or their request for a refund. On September 12, 1988, Respondents entered into an agreement with Service One Corporation/Bank of Hoven whereunder the latter would temporarily take over such applications and issue credit cards to qualified applicants until Respondents could finalize an agreement with another bank. A credit card marketing agreement with the other bank (Independent Colorado Bankshares) was entered into on October 13, 1988 (CX-4, 5, 6; Tr. 44, 92, 93, 196-199).
12. Respondents purchased printed materials to be used in implementing the agreement with Service One and otherwise prepared to operate under that agreement and to make refunds to customers desiring them when, on October 19, 1988, Equisystems was enjoined by the Superior Court of the State of California, in an action commenced by that state on September 21, 1988, from making refunds and continuing the program (Tr. 45, 197-200).
13. Following the August 18 meeting at the Texas Department of Banking, no more credit cards were issued under the Equisystems/ Security program (Tr. 239).
This proceeding presents what appears to be a novel fact situation with respect to the applicability of 39 U.S.C. § 3005. Unlike the typical promotion involved in cases brought by the Postal Service under the statute, Respondent's credit card marketing program was not created or initiated to obtain money or property through the mail by means of false representations. The complaint does not allege and the evidence does not suggest that the program was anything but a legitimate business enterprise until August 18, 1988, when the Department of Banking imposed a temporary freeze in order to conduct an audit because of its concerns about the management and operation of Security Trust Company.
The case focuses on Respondent's marketing activities during the 25-day period between August 18 and September 12 when Equisystems was ordered to, and did, stop, permanently, the marketing of Security's credit cards. As to the three representations alleged and found, above, the record contains no ads by Equisystems published during this brief period but Respondents do not deny that during it marketing, including advertising, continued. Presumably this advertising continued those representations. I do not, however, regard the two ads in the record published after September 12 as making representations to be considered because Respondent made reasonable efforts to pull the ads immediately but was unable to do so. In any event, these ads were no longer part of a scheme, if one previously existed, because Respondents discontinued all other marketing activities related to Security's cards on September 12.
Proceeding next to a determination whether the representations made were false, I find that Complainant, in the unique context of the facts prevailing between August 18 and September 12, has failed to prove their falsity. So far as the record shows, Equisystem's contract with Security was still in force and MasterCard had not revoked Security's authority to issue MasterCard credit cards. Texas had placed only a temporary freeze on the issuance of such cards and Respondent, encouraged early in the freeze by the chief attorney for the Banking Department, believed that the hold would be quickly lifted and, acting on that belief, continued to market the program.
Finally, I find that Complainant has not proved that Respon- dent's marketing activities during the very brief period in question constituted a "scheme" within the ambit of the statute. The statute does not define the term. The Judicial Officer has held that a scheme or device exists if a business seeks remittances of money through the mail by means of a "plan or program involving a misrepresentation." National Marketing Company, P.S. Docket No. 7/46 (P.S.D. 5/23/80). The most applicable definition of "scheme" in Webster's Third New International Dictionary is "4; ...a planned undertaking ... as a: a crafty or unethical project..." Complainant has proved no plan, program or project engaged in by Respondent to obtain money through the mails by means of falsity in any of the representations alleged. As pointed out above, there is no allegation or evidence that Respondent was engaged in a "scheme" prior to the August 18 imposition of a temporary freeze on issuance of cards. Up to that time, its marketing of the Security program was a completely legitimate enterprise. The temporary freeze took Respondent by surprise but it was not told to stop marketing the program and continued it with the knowledge of the Texas Banking Department in the expectation, encouraged by the department's chief attorney, that the temporary freeze would be lifted soon. When, instead of being lifted, the freeze was made permanent, Respondent immediately pulled all ads for the Security program to the extent possible, set about making arrangements for an alternative card issuer and contacted applicants for their approval of that issuer or their request for a refund. None of the facts surrounding Respondent's operations during the temporary freeze suggest that they were the result of any plan or program by Respondent to bilk consumers by means of false representations. Therefore, I do not find it was engaged in a scheme violative of 39 U.S.C. § 3005.
1. In marketing the Security credit card program during the period August 18 through September 12, 1988, Respondent made the representations alleged in subparagraphs 9 a, b and c of the amended complaint.
2. Complainant has failed to prove either the falsity of these representations or that they were employed by Respondent in a scheme within the meaning of 39 U.S.C. § 3005.
3. The complaint is dismissed.