United States Postal Service(TM) 


 In the Matter of the Complaint Against: 

 DENNIS SMITH,
 10 Second Street #2,
 Palisades Park, NJ  07650-1705

 P.S. Docket No. 37/176

 08/06/91

 Mason, Randolph D, Administrative Law Judge

 APPEARANCES FOR COMPLAINANT: H. Richard Hefner, Esq.,
 Peter J. Wheeler, Esq., Consumer Protection Division, Law Department,
 United States Postal Service, 475 L'Enfant Plaza West, S.W.,
 Washington, DC 20260-1144 

 APPEARANCE FOR RESPONDENT: Dennis Smith, 310 2nd Street, 2nd Floor,
 Palisades Park, NJ 07650

INITIAL DECISION

This proceeding was initiated on April 11, 1991, when the Postal Service filed a Complaint alleging that Respondent Dennis Smith is 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. Specifically, the Complaint alleges in paragraph 8 that Respondent falsely represents, directly or indirectly, in substance and effect, whether by affirmative statement, implication or omission, that:

In paragraph 11, Complainant alleges that Respondent urges participants to make the misrepresentations to third parties and thereby seeks remittances or property through the mails by means of false representations to third parties made by participants at Respondent's express direction.

Complainant seeks the issuance of a Cease and Desist Order.

In a timely filed Answer, Respondent denies that he makes the false representations alleged in the Complaint or that he has otherwise violated the statute.

Respondent did not receive the Order compelling discovery until close of business on June 5, 1991. He did not have time before the June 7 hearing to comply with the Order. Accordingly, the motion for sanctions is denied.

A hearing was held by the Administrative Law Judge on June 7, 1991, in New York, NY. Complainant was represented by counsel and both parties were afforded full opportunity to be heard, adduce relevant evidence, and examine and cross-examine witnesses. Complainant presented the testimony of Postal Inspector Robert G. De Muro and expert witness Roger Lourie. Respondent presented no testimony. Both parties presented documentary evidence.

On or before July 23, 1991, the parties filed proposed findings of fact and conclusions of law 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. The findings of fact and conclusions of law set forth below are based on the entire record herein, including observation by the Administrative Law Judge of the witnesses and their demeanor, the briefs, stipulations, exhibits, and other relevant evidence adduced at the hearing:

FINDINGS OF FACT

Respondent's Use of the Mails

1. Respondent Dennis Smith did business under the name National Business Services prior to January 3, 1991 (Tr. 21-23; CX-3). He solicited remittances through the mail to National Business Services, P.O. Box 44-1 (or P.O. Box 444), Palisades Park, NJ 07650 (CX-1, CX-2, CX-3). Mail addressed to P.O. Box 44-1 is delivered to P.O. Box 444 (Tr. 65-68). He also operated a similar business under the name National Marketing Services at P.O. Box 447, Leonia, NJ (CX-5, 4).

Respondent's Program

2. Respondent seeks prospective customers by using the following classified advertisement (CX-1):

3. When he receives a self-addressed envelope from a prospective customer, Respondent then mails the person a circular (CX-2) which solicits a remittance of $20 or $25 for what appears to be an opportunity to make money stuffing envelopes at home. Persons remitting the money receive a 7-page booklet entitled "Complete Homemailer's Program" which shows them how to sell the same program that they purchased from Respondent (CX-1; Tr. 85-86).

Complainant's Expert Witness

4. After considering the points made by Respondent on cross-examination, it is again concluded that Roger Lourie is an expert in direct response marketing and advertising. After receiving a B.S. degree in science from Rensselaer Polytechnic Institute, he received a master's degree in Business Administration and another in international affairs. Thereafter he worked for an advertising agency for two years. Then he worked for four years for the Columbia House division of CBS where he was involved in direct response marketing, including the analysis of advertisements and response rates. Thereafter, he worked for Time, Inc. in a direct response division for eight years performing similar duties. He now has his own company where he is engaged in the direct response sale of books. He is a member of the Direct Marketing Association and has published four articles on direct mail advertising and direct response analysis. He was also chairman of the DMA's Committee on Ethical Business Practices resolving consumer complaints. He has participated in many seminars in his area of expertise. (Tr. 75-83). He has also reviewed many other envelope stuffing programs as an expert witness (Tr. 98).

The False Representations

5. With the exception of Representation (c), Respondent makes all of the false representations alleged in paragraph 8 of the Complaint. The language set forth under each of the quoted representations, taken in the context of the entire solicitation, makes the representation. All of the alleged representations are false.

(a) The program consists primarily of stuffing envelopes.

6. This finding is also corroborated by the testimony of expert witness Roger Lourie (Tr. 96).

7. This representation is false since the program requires placing advertisements in publications for the purpose of obtaining customers to whom solicitations (circulars) would be sent to sell the Complete Homemailer's Program. A participant would also have to analyze media advertising opportunities, write advertisements, select the proper media, place advertisements, keep track of the results of each advertisement, perform bookkeeping, marketing analysis, and fulfillment (Tr. 92-93, 96; CX-1).

(b) The program provides a means whereby each participant can earn a large amount of money

8. Representation (b) is false since, as a practical matter, many ordinary purchasers of this program would not have the ability to earn large amounts of money quickly (Tr. 94, 96-97, 99).

(c) The program is legal.

9. Contrary to Complainant's contention, this representation is not made by the statement "you will never mail anything objectionable or pornographic." The solicitations do not contain any other language indicating that the program is "legal." (If the representation had been made, it would be false in view of the conclusion herein that it violates 39 U.S.C. § 3005.)

(d) Responding consumers will not have to spend money beyond the initial registration fee to participate in the program.

10. The reference to "your small expense involved in receiving the envelopes", in the context of the entire mailing would be perceived by many readers to be the registration fee rather than other expenses such as advertising.

11. Representation (d) is false since a participant would also have significant expenses in excess of the registration fee such as advertising, mailing lists, printing circulars, and postage for fulfillment of orders (Tr. 96-97; CX-1)).

Materiality

12. Representations (a), (b), and (d) are material since they tend to induce a reader to purchase the program.

Third Party Representations

13. Respondent also seeks money from its customers through the mail by means of the above false representations to third parties made by its customers at Respondent's express direction.

CONCLUSIONS OF LAW

1. (a) Each of Respondent's 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). It is not difficult to select words that will not deceive. See, United States v. 95 Barrels of Vinegar, 265 U.S. 438 (1924).

(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).

2. Applying the foregoing standards, I find that Respondent's advertisements make the representations alleged in P 8(a), (b), and (d) of the Complaint. The language contained in the advertisements, when read in context, which directly or impliedly makes these representations is set forth in the findings of fact.

3. As set forth in the findings of fact, the representations set forth in paragraph 8 of the Complaint are materially false.

4. Respondent also seeks money from its customers through the mail by means of the above false representations to third parties made by its customers at Respondent's express direction. Respondent knew the representations were false. This also constitutes a violation of 39 U.S.C. § 3005. United States v. International Term Papers, Inc., 477 F.2d 1277 (1st Cir. 1973).

5. 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).

6. The representations made by Respondent are material because they have a tendency to persuade readers to order and pay for Respondent's program.

7. Respondent argues that a Cease and Desist Order should not be issued because he allegedly voluntarily discontinued his business and now states that there is no reason to believe that he would do it again. Although he was encouraged to do so (Tr. 8-10), Respondent did not testify, so there is little evidence on this question. In the first place, Respondent's discontinuance of P.O. Box 444 does not appear entirely "voluntary" since the Postal Inspectors had already begun the investigation. In any event, voluntary cessation of a scheme does not deprive the Administrative Law Judge of power to decide the case; otherwise the Respondent would be "free to return to his old ways." United States v. W.T. Grant Co., 345 U.S. 629, 632 (1953). Moreover, the abandonment of the practice and the promise that it will not be resumed are insufficient to show that there is no cognizable danger of recurrent violation without a showing of a change in circumstances which would make a resumption of the practice impractical or impossible. Professional Opportunity Magazine, Inc., P.S. Docket No. 33/55 (P.S.D. September 14, 1990). Respondent has failed to carry the "heavy burden" of showing that there is "no reasonable expectation that the wrong will be repeated." United States v. W.T. Grant Co., supra.

8. Respondent is engaged in the conduct of a scheme for obtaining remittances of money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

9. The attached Cease and Desist Order should be issued.