In the Matter of the Complaint ) November 19, 1992 Against ) ) AMERICAN ADVERTISING CORPORATION ) 1717 No. Highland Avenue, Suite 405 ) Los Angeles, CA 90028-4499 ) d/b/a ) $25,000 WIN A FORTUNE CONTEST ) 11288 Ventura Blvd., Suite 600 ) Studio City, CA 91604-3149 ) and ) $25,000 TRIVIA QUIZ ) 16161 Ventura Blvd., Suite 600 ) Encino, CA 91436-2588 ) and ) FABULOUS VACATIONS ) 1280 Bison Ave., Suite B9 ) Newport Beach, CA 92660-4205 ) and ) WYNN SCOTT FOSTER ) 191 No. Mollison #14 ) El Cajon, CA 92021-6863 ) P.S. Docket No. 37/69 APPEARANCES FOR COMPLAINANT: Geoffrey A. Drucker, Esq. Betty A. Garner, Esq. Consumer Protection Division United States Postal Service Washington, DC 20260-1144 APPEARANCE FOR RESPONDENTS James Toledano, Esq. NORMAN ANTHONY KING AND Toledano & Wald CYNTHIA PAULINE KING: 2212 Dupont Dr., Suite D Irvine, CA 92715-1543
ON BREACH OF CONSENT AGREEMENT
The Consumer Protection Division, Law Department, United States Postal Service (Complainant) has filed two Petitions for Orders Based Upon Breach of Consent Agreement, alleging that Norman Anthony King and Cynthia Pauline King (Respondents) have breached the terms of an Agreement Containing Consent Order to Cease and Desist (Consent Agreement) executed on November 20, 1990. In the Petitions, Complainant alleges that Respondents are continuing to solicit remittances for contest entries by means of direct mail postcards containing representations which they were bound to discontinue.
Complainant filed its first Petition on January 16, 1992 (First Petition), alleging that Respondents currently seek remittances in violation of the terms of the Consent Agreement using the name WIN A FORTUNE CONTEST, at 808 Peace Portal, Dept. AA, Blaine, WA 98230-1750. On the basis of the information contained in the First Petition and the exhibits attached thereto, an interim detention order as authorized by the Consent Agreement 1/ issued directing the detention of mail to the Blaine, WA address. Although Respondents filed a timely reply denying the allegations of the First Petition and requesting a hearing for the purpose of showing they are not bound by the terms of the Consent Agreement, they did not support their denial and hearing request with affidavits or other documentation showing the existence of any genuine issues of material fact. In the absence of any genuine issues of material fact, the issues presented in the First Petition are being decided on the record.2/
A second Petition (Second Petition) was filed by Complainant on April 9, 1992, alleging that Norman Anthony King (Respondent) has again breached the terms of the Consent Agreement by soliciting remittances to WIN A FORTUNE CONTEST, at 2261 Market Street, Dept. A, San Francisco, CA 94114-1612. On the basis of the information contained in the Second Petition and the exhibits attached thereto, an interim order directing the detention of mail to the above name and address was issued on April 10, 1992. Although the interim order granted Respondent a period of 10 days in which to file a reply to the Second Petition, no reply to that Petition has been filed within the time allowed or as of the date of this Decision. In the absence of a reply, the allegations of the Second Petition are deemed to be admitted. The unchallenged allegations, supported by the attachments to the Second Petition, make a prima facie showing that Respondent has breached the terms of the Consent Agreement in the manner alleged in that Petition. Accordingly, the Order sought in the Second Petition is issued with this Decision.
The following findings of fact are made in connection with the First Petition:
1. In January 1990, Wynn Scott Foster (Foster) was hired by Respondents to operate two of Respondents' sweepstakes contests, known as "$25,000 Win A Fortune Contest" and "Fabulous Vacations" (Foster Declaration (Decl.) ¶ 4).
2. To assist Foster in operating the "$25,000 Win A Fortune Contest" (contest), Respondents provided Foster with lists of persons to whom postcards for the contest were to be sent. The postcards informed the recipient of his or her selection as a winner of a prize "valued at up to $25,000," and requested payment of $4.00 for postage and handling. The prizes provided to Foster by Respondents and sent to postcard recipients, were purchased by Respondents for less than $1.00 each (Id.).
3. As part of their agreement, Respondents provided Foster with start-up costs and unlimited technical support, and paid him 10% of the revenue collected until start-up costs were recovered (Foster Decl. ¶ 4). Later, Foster renegotiated his agreement with Respondents to receive a minimum payment of $4,000 per month until start-up costs were recovered (Foster Decl. ¶ 6). Under the terms of the renegotiated agreement, Foster agreed to resign from his other employment and begin working full-time for Respondents (Id.).
4. For the purpose of operating the contest, and in accordance with Respondent Norman King's instructions, Foster opened a bank account, rented a mail box to receive remittances, and formed American Advertising Corporation (AAC), doing business as "$25,000 Win A Fortune Contest" (Foster Decl. ¶ 5; Complaint (Compl.) filed Dec. 5, 1990, at 2).
5. On November 20, 1990, Foster "as president of American Advertising Corporation and in his individual capacity" executed the Consent Agreement which is the subject of this proceeding (see Consent Agreement). At the time Foster executed the Consent Agreement, Complainant had no knowledge Respondents were involved with Foster in operating the promotions which were the subject of the Complaint (Petition, at 3).
6. By the terms of the Consent Agreement, Foster agreed that the promotional activities and representations challenged in the Complaint would be discontinued and not "be resumed, directly or indirectly, under any name or names, or through any corporate or other device" (Consent Agreement, at 2 & 3).
7. Foster further agreed that the cease and desist order attached to the Complaint could be issued and that a breach of the Consent Agreement by Foster or AAC or any party in privity with either would warrant the issuance of a false representation order as described in 39 U.S.C. § 3005 (Consent Agreement, at 4).
8. Cease and Desist Order No. CD-3166 (Cease and Desist Order) was issued on December 12, 1990, and ordered AAC, Foster, and anyone who would be bound by an injunction issued against them pursuant to Federal Rule of Civil Procedure 65, to cease and desist immediately from falsely representing that:
"(1) Consumers are winners of any type of contest, including a sweepstakes;
(2) Consumers will receive a free prize of any kind;
(3) A nominal fee or cost is anything other than the cost of a prize;
(4) The primary purpose of Respondents' program is to inform consumers that they are winners and not to collect funds from them"3/ase and Desist Order, ¶ 3(A)(1)-(4)).
9. Shortly after the Cease and Desist Order was issued, Respondents received a copy of the Order through their attorney (Petition, Exhs. D & E, ¶ 13).
10. Following the execution of the Consent Agreement and issuance of the Cease and Desist Order, a postcard from "$25,000 Win A Fortune Contest," 808 Peace Portal, Dept. AA, Blaine, WA 98230-1750, was distributed through the mail (James C. Vach(Vach) Decl. ¶ 6 & Attachment 4, dated Sept. 27, 1991). This postcard is almost identical in format and text to the solicitation attached to the Complaint and which Foster agreed on pages 2 and 3 of the Consent Agreement to discontinue (Compare Vach Decl., Attachments 4 & 7).
11. The postcard identifies the recipient by name, states in large bold print "CONGRATULATIONS!!!," and informs the recipient that he or she has been selected as an "Official Winner" in the "$25,000 Win A Fortune Contest," the "Prize is worth up to $25,000 in CASH!," and there are "Total Prizes Over $100,000.00." The recipient is also instructed that the postcard must be returned in seven days and $5.00 must be included "to cover costs of postage and handling." The postcard informs the recipient that instructions will be sent on how to validate "prize eligibility" and warns "Please Do Not Allow your eligibility to lapse or your prize may be awarded to someone else." The postcard further states: "For More Information Call 1-900-786-9991 (24 Hrs)" and "THIS IS AN OFFICIAL NOTIFICATION OF PRIZE ELIGIBILITY" (Vach Decl., Attachment 4).
12. Postcard recipients who submit the $5.00 remittance and return the postcard do not receive a prize or any other thing of value as the result of responding to the "Win A Fortune" solicitation (Vach Supplemental Decl. ¶ 2).
13. The Blaine, WA address currently used for the contest is the address of a commercial mail receiving agency, which rented a box to Respondent Norman King, as applicant, for mail addressed to "Target Marketing Corporation" and "Win A Fortune" (Vach Decl. ¶ 8 & Attachment 6). Respondent Norman King is the president of Target Marketing Corporation (Vach Decl. ¶ 8 & Attachment 6). The 900 telephone number listed on the postcard is a 900 telephone number assigned to Target Marketing Corporation (Vach Decl. ¶ 8 & Attachment 5).
Complainant alleges that Respondents have breached the terms of the Consent Agreement by distributing postcard solicitations which violate the provisions of paragraphs 3(A)(1)-(4) and 3(B) of the Cease and Desist Order. Complainant claims that even though Foster, and not Respondents, signed the Consent Agreement, Respondents are bound by the terms of the Consent Agreement and the Cease and Desist Order since they actively participated with Foster in the scheme, and had actual notice of both the terms of the Consent Agreement and the Cease and Desist Order. According to Complainant, Respondents clearly aided and abetted Foster in the operation of the scheme, and therefore, were in active concert or participation with Foster within the meaning of paragraph 2 of the Cease and Desist Order and Federal Rule of Civil Procedure 65.
Respondents contend that they are not legally bound by the terms of the Consent Agreement or the Cease and Desist Order since they were not named in, nor signatories to, the Agreement and did not consent to any of its terms. Respondents also contend that the Petition filed by Complainant is inconsistent with the requirements of Rule 65(d), the procedures and process employed in this proceeding violate Respondents' constitutional rights, and the Judicial Officer lacks jurisdiction to consider this matter since Respondents were not served with a copy of the Complaint at the time the proceeding was initiated against Foster and AAC.
Respondents have not shown that the Petition filed by Complainant is inconsistent with the requirements of Rule 65,that Respondents' constitutional rights have been violated or that the Judicial Officer lacks jurisdiction to consider this matter. Accordingly, I find no merit to these contentions.
Respondents' principal contention--that they are not bound by the terms of the Consent Agreement or the Cease and Desist Order because they were not named in, nor signatories to, the Agreement--also lacks merit. Mr. Foster, as president of AAC, had either actual or apparent authority to enter into the Consent Agreement on AAC's behalf. As corporate president authorized to enter into the Consent Agreement, Foster could bind the corporation, its agents, employees, representatives and any others in active concert or participation with Foster or AAC, and in fact did so by signing the Consent Agreement. Respondents having hired Foster to operate the promotion clearly were in active concert and participation with Foster and therefore were bound by the terms of the Consent Agreement. See, e.g., USPS v. Columbia Research Corp., No. 79 C 2065, slip. op. at 3-4 (E.D. Ill. Jan. 24, 1980); J.W. Arthur, P.S. Docket No. 20/85 at 8-9 (P.S.D. Dec. 23, 1987); Mummers, P.S. Docket No. 22/67 at 3-4 (P.S.D. Aug. 31, 1987).
The Cease and Desist Order which Foster agreed could be issued, binds anyone who would be bound by an injunction issued against Foster and AAC pursuant to Federal Rule of Civil Procedure 65. The persons bound by an injunction issued under Rule 65 include "the parties to the action, their officers, agents, servants, employees and attorneys," and "those persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise." Fed. R. Civ. P. 65(d). See also Regal Knitwear Co.v. NLRB, 324 U.S. 9, 14 (1945); NLRB v. Sequoia Dist. Counsel of Carpenters, 568 F.2d 628, 633-634 (9th Cir. 1977); Chanel Industs., Inc. v. Pierce March, Inc., 199 F. Supp. 748, 753 (1961); Diet Products, Inc. v. USPS, CV-81-0486, slip. op. at 1-3 & 7 (E.D.N.Y. April 2, 1981); USPS v. Columbia Research Corp., No. 79 C 2065, slip. op. at 3-4 (E.D. Ill. Jan. 24, 1980).
Respondents actively participated with Foster in the conduct of AAC. Not only did Respondents hire Foster to operate a giveaway contest, but they instructed Foster to set up the corporation and open a bank account and mail box to be used in the operation of the contest. In addition, Respondents received the revenues generated by the contest, paid Foster for his services in operating the contest, and were responsible for furnishing Foster with the contest prizes and operating funds. As a result, Respondents would be bound by the terms of an injunction issued under Rule 65 and therefore are bound by the terms of the Cease and Desist Order executed by Foster on behalf of AAC. Thus, the terms of the Cease and Desist Order may be enforced not only against AAC and Foster, who are expressly named in that Order, but against Respondents who were principally responsible for the operation of the contest, see, e.g., FTC v. Standard Educ. Soc'y, 302 U.S. 112, 119-120 (1937); Finderhood, Inc., P.S. Docket No. 34/102 at 19-21 (P.S.D. Mar. 20, 1992), aff'd, (P.S.D. July 24, 1992); W.G. Charles Co., P.S. Docket Nos. 19/105, et al. at 43-44 (P.S.D. Sept. 30, 1985); United Savers of Am., P.S. Docket No. 33/98 at 4 (P.S.D. June 7, 1991), and had notice of the existence of the Order. See In Re Lennon, 166 U.S. 548, 554 (1897); Chanel Industs., 199 F. Supp. at 753; Mitchell v. Wilkey Gravel Works, Inc., 181 F. Supp. 628, 630 (E.D. Mo. 1959).
Since Respondents are bound by the terms of the Cease and Desist Order, the current promotion must be examined to determine whether Respondents are making the representations which they were bound to discontinue. See Mark Eden v. Lee, 433 F.2d 1077, 1082-83 (9th Cir. 1970); American Consumer, Inc. v. USPS, 427 F. Supp. 589, 591 (E.D. Penn. 1977); Dennis Ward, at 2 (P.S.D. Oct. 16, 1991); Associated Writer's Guild of Am., P.S. Docket No. 12/180 at 8 (P.S.D. June 6, 1990). In determining whether the prohibited representations are currently being made, the reasonable implication and overall impression created by Respondents' postcard must be considered. See N. Van Dyne Advertising Agency, Inc. v. USPS, 371 F. Supp. 1373, 1376 (S.D.N.Y. 1974); Vibra Brush Corp. v. Schaffer, 152 F. Supp. 461, 465 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2d Cir. 1958); Dennis Ward, at 7 (P.S.D. Oct. 16, 1991); Walter Head, P.S. Docket No. 15/123 at 4 (P.S.D. Oct. 10, 1984). Consequently, Respondents' postcard solicitation must be considered as a whole and its meaning determined in light of the probable impact it would have on an ordinary recipient. See Dennis Ward, at 7 (P.S.D. Oct. 16, 1991), citing Donaldson v. Read Magazine, Inc., 333 U.S. 178, 189 (1948); G.J. Howard Co. v. Cassidy, 162 F. Supp. 568, 572 (E.D.N.Y. 1958); Gottlieb v. Schaffer, 141 F. Supp. 7, 15-16 (S.D.N.Y. 1956).
A review of Respondents' postcard supports Complainant's allegation that it makes the representations prohibited by paragraphs 3(A)(1)-(4) and 3(B) of the Cease and Desist Order. The word "CONGRATULATIONS!!!" together with statements that the recipient has been selected as an "Official Winner" in the "$25,000 Win A Fortune Contest," the "Prize is worth up to $25,000 in CASH!," and there are "Total Prizes Over $100,000.00," would most probably lead the ordinary recipient to believe they had won a contest for a free prize valued at more than the $5.00 fee required to cover costs of "postage and handling." Since recipients either do not receive a prize or any other thing of value, Respondents make the representations proscribed by paragraphs 3(A)(1)-(4) and 3(B) of the Cease and Desist Order, and are therefore in breach of the Consent Agreement.
The record establishes that Respondents have breached the terms of the Consent Agreement in the manner alleged in the First Petition. As previously concluded, the allegations of the Second Petition are deemed to be admitted and, as supported by the attachments to that Petition, make a prima facie showing that Respondent has breached the Consent Agreement in the manner alleged. Accordingly, the False Representation Orders authorized by the Consent Agreement and described in 39 U.S.C. § 3005(a) are issued with this Decision.
James A. Cohen Judicial Officer
1/ Paragraph (c) on pages 5 and 6 of the Consent Agreement authorizes the issuance of an interim detention order on an ex parte finding that the allegations of the Petition, if true, would constitute a prima facie showing that the Agreement has been breached.
2/ Under paragraph (b) on page 5 of the Consent Agreement, a hearing will be held only for "good cause shown as ordered by the Judicial Officer." Good cause has generally been interpreted as requiring the existence of a genuine issue of material fact. Cf. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49 (1986); United States v. Cheramie Bo-Truc #5 Inc., 538 F.2d 696, 698-99 (5th Cir. 1976); Dennis Ward, P.S. Docket No. 37/118 at 2 (P.S.D. Oct. 16, 1991); WDAAS, P.S. Docket No. 34/60 at 2 (P.S.D. Nov. 30, 1990). Although Respondents were given a full opportunity to show good cause for a hearing to be held, no such showing was made.