In the Matter of the Complaint ) June 28, 1993 Against ) ) ARTHUR MOURAD ) 41 Sugden Street ) ) at ) ) Bergenfield, NJ 07621-2031 ) P. S. Docket No. 37/177 APPEARANCES FOR COMPLAINANT: H. Richard Hefner, Esq. Peter J. Wheeler, Esq. Consumer Protection Division Law Department United States Postal Service Washington, D.C. 20260-1144 APPEARANCE FOR RESPONDENT: Arthur Mourad 41 Sugden Street Bergenfield, NJ 07621-2031
Respondent has filed an appeal from the Initial Decision of an Administrative Law Judge which concluded that Respondent is engaged in a scheme or device for obtaining money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Complainant opposes Respondent's appeal.
The General Counsel of the United States Postal Service (Complainant) initiated this proceeding by filing a Complaint alleging that Respondent, in connection with a work-at-home envelope stuffing promotion, is engaged in conducting a scheme or device for obtaining money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Specifically, Complainant alleges in Paragraphs 8 and 9 of the Complaint that Respondent falsely represents:
"(a) the program consists primarily of stuffing envelopes;(b) the program provides a means whereby each participant can earn a large amount of money (e.g. $500 a week);
(c) the program is legal;
(d) responding consumers will not have to spend money beyond the initial registration fee to participate in the program."
Complainant also alleges in Paragraph 11 that Respondent causes participants to make the same misrepresentations to third parties, and thereby seek remittances "through the mails by means of false representations to third parties made by participants at Respondent's express direction."
In his Answer to the Complaint, Respondent denied that he makes the false representations alleged in the Complaint or that he has otherwise violated 39 U.S.C. § 3005. Additionally, Respondent asserted that he has terminated the alleged enterprise and therefore, there is no issue remaining for determination in this proceeding. In two separate motions to dismiss filed thereafter, Respondent again claimed that there was no issue for determination in this proceeding since he is no longer engaged in the envelope stuffing promotion referred to in the Complaint or receives mail at the address alleged in the Complaint. The Administrative Law Judge denied both of Respondent's motions on the grounds that discontinuance of the promotion does not deprive the Postal Service of jurisdiction to decide the issues originally presented.
At a hearing before the Administrative Law Judge, Complainant presented the testimony of Postal Inspector Robert G. DeMuro and expert witness Roger H. Lourie. Complainant also introduced documentary evidence (Exhibits (Exhs.) CX-1, -2 & -3) in support of its position. Although Respondent presented no witnesses or exhibits, he did cross-examine Complainant's witnesses and object to the admission of Complainant's evidence. Respondent also renewed his motions to dismiss the Complaint which the Administrative Law Judge orally denied at the hearing (Tr. 3-4).
Following the hearing and the parties' submission of proposed findings of fact and conclusions of law, the Administrative Law Judge issued an Initial Decision in which he determined that Respondent makes the representations alleged in Paragraphs 8(a), (b) and (d) of the Complaint and that those representations are materially false. The Administrative Law Judge also found that, as alleged in Paragraph 11 of the Complaint, Respondent causes participants to seek money through the mail by means of false representations which participants in his program make to third parties at Respondent's express direction. Accordingly, the Administrative Law Judge concluded that Respondent is engaged in conducting a scheme for obtaining money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.
Respondent has filed a timely appeal in which he takes issue with the Administrative Law Judge's findings and conclusions. Complainant has filed a response in which it urges that the Administrative Law Judge's findings and conclusions be affirmed on appeal.
In his appeal, Respondent contends the Administrative Law Judge erred in denying his motions to dismiss the Complaint. In addition, Respondent contends that the Administrative Law Judge erred in allowing one of Complainant's witnesses to testify as an expert, and admitting into evidence certain testimony and exhibits introduced by Complainant. Respondent also claims that Complainant failed to substantiate the allegations against him, failed to make a test purchase of his product under 39 U.S.C. § 3005(e)(1), and improperly attempted to pressure him into entering into a consent agreement. Each of these contentions is hereafter addressed.
Respondent argues that the Administrative Law Judge erred in denying his motions to dismiss the Complaint since he voluntarily discontinued the promotion prior to the date the Complaint was filed. Complainant counters that Respondent's discontinuance of the scheme was not voluntary because it occurred as a result of the Postal Service's investigation, and even if voluntary does not deprive the Administrative Law Judge and the Judicial Officer of jurisdiction to decide this case.
Despite Respondent's contentions to the contrary, it has been consistently held that § 3005 proceedings are not rendered moot because a scheme has been voluntarily discontinued prior to the filing of the Complaint. See Professional Opportunity Magazine, Inc., P.S. Docket No. 33/55 at 6 (P.S.D. Sept. 14, 1990); Paul W. Schuette, P.S. Docket No. 29/117 at 9-10 (P.S.D. Mar. 16, 1989); CM/NA Comm'n Mailers of North Am., P.S. Docket No. 20/33 at 9-10 (P.S.D. Aug. 29, 1986). In this case, even though Respondent discontinued the promotion which is the subject of the Complaint, a genuine issue of material fact remained as to whether Respondent made the alleged false representations and whether there was a reasonable expectation "that the wrong will be repeated."1/ United States v. W.T. Grant Co., 345 U.S. at 632-33 (1953); United States v. Aluminum Co. of Am., 148 F.2d 416, 448 (2d Cir. 1945). See also County of Los Angeles v. Davis, 440 U.S. 625, 631 (1979); Professional Opportunity Magazine, Inc., P.S. Docket No. 33/55 at 5-6. Accordingly, the Administrative Law Judge did not err in denying Respondent's motions to dismiss the Complaint (I.D., Conclusions of Law (COL) ¶ ¶ 7-9).2/
Respondent contends that the Administrative Law Judge improperly found Mr. Lourie qualified to testify as an expert in the field of direct response marketing and advertising. Respondent contends that Mr. Lourie is a layman rather than an expert as evidenced by his testimony that he "went from job to job," did not obtain a degree as a result of various two-day courses and seminars he attended, has no claim to any particular notoriety, and played only a small part in sending out ten million pieces of mail for one of his prior employers. Complainant in turn argues that the Administrative Law Judge properly accepted Mr. Lourie as an expert witness based on his knowledge, skill, experience, training, and education in the field of direct response marketing and advertising.
There is no merit to Respondent's contention that Mr. Lourie was not qualified to testify as an expert witness. The record reflects that, in addition to obtaining a master's degree in business administration, Mr. Lourie worked in direct response marketing and advertising for over 12 years and now owns his own company where he is engaged in direct response sales (I.D., Findings of Fact (FOF) ¶ 4). Not only is Mr. Lourie a member of the Direct Marketing Association, and former Chairman of its Committee on Ethical Business Practices, but he has published four articles on direct mail advertising and direct response analysis, participated in many seminars in his area of expertise, and testified as an expert witness3/ in his area of expertise in over 12 cases during a ten year period (Id.). Under these circumstances, the Administrative Law Judge properly concluded that Mr. Lourie was well qualified to testify as an expert in the field of direct response marketing and advertising4/ (Id.).
Respondent argues that Exhibits CX-1, -2 and -3 should have been excluded from the record since they were not properly authenticated and are hearsay, irrelevant and prejudicial. Respondent also claims that the Administrative Law Judge improperly relaxed the rules of evidence to admit these exhibits into evidence. In addition, Respondent contends that a letter purportedly written by him (Exh. CX-3, p.1),5/ was improperly admitted into the record based on the Administrative Law Judge's determination that the signature looked similar to Respondent's signature on another document. Similarly, Respondent claims that the Administrative Law Judge improperly admitted into evidence and relied on the testimony of both Inspector DeMuro and Mr. Lourie which was irrelevant, hearsay, and speculative. Specifically, Respondent complains that Inspector DeMuro was allowed to testify with respect to Exhibits CX-1, -2, and -3 even though he had no firsthand knowledge of those exhibits. Respondent contends that Mr. Lourie should not have been permitted to testify since his opinion testimony was speculative with no basis in fact, and based on Exhibits CX-1 and -26/ which Respondent contends contain solicitations and programs which were never shown to be distributed by him. Respondent also contends that Mr. Lourie was permitted to testify even though he had no firsthand knowledge of any individual either making or losing money using the program alleged. Finally, Respondent contends that neither the testimony nor exhibits establishes that Respondent is engaged in the promotion which is the subject of this proceeding.
Complainant in response argues that Exhibits CX-1, -2 and -3 were properly admitted into the record. According to Complainant, these documents were admitted in order to assure a fair hearing since Respondent failed to respond to Complainant's discovery requests and the Administrative Law Judge's Order to compel such responses. Complainant also claims that the exhibits were properly admitted for the purpose of showing the existence of the documents and the statements contained therein, and not for the purpose of showing the truth of the matters asserted. Complainant in addition asserts that the exhibits are clearly relevant and not prejudicial since they are directly related to the challenged promotion and their probative value substantially outweighs the danger of any unfair prejudice.
As Complainant points out, Respondent refused to properly respond to Complainant's discovery requests and the Administrative Law Judge's Order to compel responses (Tr. 3-7; Order issued May 3, 1991; I.D., at 2). Although the Administrative Law Judge did not impose sanctions for Respondent's failure to provide discovery responses, the sanctions authorized by 39 C.F.R. § 952.21(j)7/ could have been invoked based on Respondent's refusal to provide the documents requested and his failure to admit or deny each of the facts set forth in Complainant's requests for admissions (Tr. 5-7). As a result, the statements in Complainant's requests for admissions could have been deemed admitted,8/ the facts set forth in Complainant's exhibits could have been deemed established,9/ and the solicitation and homemailer's program included in the exhibits could have been found to have been distributed by Respondent. Nevertheless, the Administrative Law Judge did not impose such sanctions, but instead relaxed the rules of evidence in order to assure a fair hearing.10/ Such relaxation was not improper under the circumstances. Therefore, despite Respondent's contentions to the contrary, the Administrative Law Judge did not err in admitting Exhibits CX-1, -211/ and -3 into the record under the relaxed evidentiary standard or in allowing the testimony of Inspector DeMuro or Mr. Lourie to be presented at the hearing.12/
Even without a relaxed evidentiary standard, Exhibits CX-1, -2 and -3 could have been admitted into evidence. Although, as Respondent argues, better evidence authenticating Exhibits CX-1 and -2 could have been presented, evidence that Respondent operated a business using P.O. Box 772, Fairview, NJ 07022 (Exh. CX-3) provides a sufficient basis for concluding that Exhibits CX-1 and -2 are authentic and for admitting those exhibits into the record. Exhibit CX-3 is a business record of the Fairview, NJ Post Office and is admissible under the business records exception to the hearsay rule. See Fed. R. of Evid. 803(6). In addition, the letter to the Fairview Postmaster included in Exhibit CX-3, which was signed by Respondent, qualifies as an admission of a party-opponent, and therefore is admissible under Federal Rule of Evidence 801(d)(2). Moreover, the Administrative Law Judge's comparison of Respondent's signature on that letter to his signature on a post office box application was sufficient to authenticate the letter13/ (Tr. 21-22).
Respondent's argument that the admission of Exhibits CX-1, -2 and -3 was unduly prejudicial is also not persuasive. While these documents were adverse to Respondent's case, they were not the type of documents inadmissible because of their prejudicial effect on the trier of fact. Therefore, the admission of the exhibits was not unduly prejudicial and the Administrative Law Judge did not err in receiving the exhibits into evidence.
Respondent also incorrectly contends that the testimony and exhibits offered by Complainant do not establish that he distributes the solicitation and program in issue in this proceeding or that he is responsible for making the representations alleged in the Complaint. The classified advertisement directs inquiries to be sent to National Mailing Systems, Box 772 H, Fairview, NJ 07022 (CX-1, p. 4). Individuals responding to that advertisement receive a circular which requests remittances be sent to National Mailing Systems at Box 772 (CX-2, p. 2). Individuals sending the requested remittance to that name and address most probably receive the homemailer's program contained in Exhibit CX-1 since that program contains informational materials which are identical to those distributed under the name National Mailing Systems. The business records maintained by the Fairview Post Office establish that at the time the solicitations were distributed, Box 772 was rented to Respondent (Exh. CX-3). Thus, the unrebutted evidence establishes a prima facie case that Respondent distributes the solicitation and program in issue in this proceeding, that he makes the representations alleged in Paragraphs 8(a), (b) and (d) of the Complaint, and that he causes those same representations to be made to third parties as alleged in Paragraph 11 of the Complaint.
Respondent next contends that Inspector DeMuro had no firsthand knowledge of Exhibits CX-1, -2, or -3, and therefore should not have been allowed to testify with respect to those exhibits. However, Inspector DeMuro is a Postal Inspector who, as part of his official duties, was assigned to investigate the promotion which is the subject of this proceeding. Having determined that Inspector DeMuro received these exhibits in the course of his investigation, the Administrative Law Judge did not err in allowing his testimony with regard to these exhibits (Tr. 14-22).14/ See Project Prayer, P.S. Docket No. 8/68 at 6.
Since the advertisements and program which were admitted as part of Exhibits CX-1 and -2 were most probably distributed by Respondent, there is no merit to Respondent's contention that Mr. Lourie should not have been allowed to testify regarding those exhibits. Respondent's contention that Mr. Lourie's testimony was based on speculation with no basis in fact is equally lacking in merit. It has been consistently held that expert opinion testimony need not be based on personal knowledge, and may be based on the facts or data presented at the hearing. See Fed. R. of Evid. 703; Cabrales v. County of Los Angeles, 864 F.2d 1454, 1460 (9th Cir. 1988), aff'd, 886 F.2d 235 (1989), cert. denied, 494 U.S. 1091 (1990); Carter v. Massey-Ferguson, Inc., 716 F.2d 344, 349-350 (5th Cir. 1983); Teen-Ed., Inc. v. Kimball Int'l, Inc., 620 F.2d 399, 403-404 (3d Cir. 1980); Standard Research Labs, P.S. Docket No. 7/78 & 7/86 at 11 (P.S.D. Oct. 27, 1980); Eden Valley Nursery Sales, P.S. Docket No. 7/23 at 14 (P.S.D. Feb. 15, 1980). Thus, the Administrative Law Judge properly allowed Mr. Lourie to testify on the basis of his review of Complainant's exhibits. Moreover, the Administrative Law Judge did not err in relying on Mr. Lourie's opinion in reaching the conclusion that Respondent's program does not consist primarily of stuffing envelopes, that participants in the program would not realize the monetary returns represented and that additional funds would be required beyond the initial registration fee requested in order to participate in the program (Tr. 47-54) (I.D., FOF ¶ ¶ 7, 9 & 13-14 & COL ¶ ¶ 2-3 & 8).
Respondent suggests that the allegations in the Complaint and the arguments presented in this case are identical to those presented in United States v. Stimpson, 515 F. Supp. 1149 (N.D. Fla. 1981), in which the court found that the Postal Service had not substantiated its claim that a violation of 39 U.S.C. § 3005 had occurred. Complainant counters that the holding in Stimpson is not controlling since it involved a proceeding under 39 U.S.C. § 3007,15/ and the same court subsequently upheld the Postal Service Decision which found a violation of 39 U.S.C. § 3005.
As Complainant contends, and as stated by the Stimpson court, its decision concerning the issuance of a temporary restraining order is not dispositive of the issues presented in a § 3005 proceeding. See N. Stimpson v. USPS, GCA 82-0024, slip op. at 1-2 (N.D. Fla. 1982), citing Berrigan v. Sigler, 499 F.2d 514 (D.C.Cir. 1974). Moreover as Complainant also points out, the court in Stimpson ultimately concluded that there was substantial evidence to support the administrative determination that the advertisements contained materially false representations in violation of 39 U.S.C. § 3005. See N. Stimpson, slip op. at 2-3; N. Stimpson, P.S. Docket No. 11/80 (I.D. Oct. 16, 1981), aff'd, (P.S.D. April 30, 1992). Accordingly, Respondent's contention that Stimpson establishes that the allegations of the Complaint are unsubstantiated is without merit.
Respondent next contends that the Postal Service failed to make a test purchase under 39 U.S.C. § 3005(e)(1), and that such failure somehow constitutes prejudicial error. Complainant counters that § 3005(e)(1)16/ authorizes, but does not require, the Postal Service to make such a purchase.
Respondent's contention that the Postal Service is required to make a test purchase is without merit. While § 3005(e)(1) authorizes the Postal Service to make a test purchase during an investigation, no test purchase is required. See Barbara Ann Moore, P.S. Docket No. 36/164 at 8 (I.D. Mar. 19, 1991), finalized, (Order April 30, 1992); Athena Products, Ltd., P.S. Docket No. 12/136 at 30 (I.D. Aug. 13, 1982), aff'd, (P.S.D. May 6, 1983); Athena Products, Ltd., P.S. Docket No. 11/77 at 12-13 (I.D. Nov. 24, 1981), aff'd, (P.S.D. June 21, 1982). Thus, the failure to make a test purchase does not provide any basis for granting Respondent's appeal.
Finally, Respondent contends that Complainant attempted to "extort" a consent agreement from him by threatening litigation, and that the current proceeding is a matter of malicious prosecution initiated by Complainant and continued by the skillful manipulation, misstatement, and omission of fact by the Administrative Law Judge. Respondent has offered no support for his allegation of impropriety on the part of Complainant or the Administrative Law Judge. As the Administrative Law Judge stated in his Order issued May 29, 1992, it is not inappropriate for Complainant to seek a consent agreement prior to the filing of a complaint or at any time during the course of a § 3005 proceeding. Further, Respondent has not shown, and nothing in the record reflects, that the Administrative Law Judge committed any improprieties prejudicial to Respondent or improperly decided the merits of the issues presented. Accordingly, Respondent's unsupported contention of wrongdoing has no merit.
Based on a review of the entire record and Respondent's exceptions on appeal, it is concluded that Respondent was engaged in conducting a scheme or device for obtaining money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Accordingly, the Initial Decision is affirmed and the cease and desist order authorized by 39 U.S.C. § 3005 is issued with this decision.
James A. Cohen Judicial Officer
1/ The burden of establishing that there is no reasonable expectation that the wrong will not be repeated lies with Respondent. See United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953). Respondent failed to present any evidence to sustain his burden in this case.
2/ Respondent additionally contends that the Administrative Law Judge intentionally misapplied the law established in United States v. W. T. Grant, Co., 345 U.S. 629. Since the holding of the Grant case has not been misapplied, there is no merit to his contention.
3/ Mr. Lourie has been accepted and recognized as an expert in prior § 3005 proceedings and such acceptance was upheld in N. Stimpson v. USPS, GCA 82-0024, slip op. at 4 (N.D. Fla. 1982).
4/ Expert testimony may be admitted at the discretion of the presiding officer in order to aid the trier of fact. See N. Stimpson, slip op. at 4. Since the presiding officer in this case was also the trier of fact, it was clearly within his discretion to accept Mr. Lourie as an expert witness.
5/ Exhibit CX-3 is a letter to the Fairview Postmaster signed by "Arthur Mourad," which states that he is terminating his "enterprise" and requests that Post Office Box 772 be closed and all mail returned to sender.
6/ Exhibits CX-1 and -2 are consumer complaints filed with the Inspection Service against National Mailing Systems, with attachments consisting of a solicitation for a work-at-home envelope stuffing promotion which requests that remittances be sent to P.O. Box 772, Fairview, NJ. Exhibit CX-1 also includes a copy of literature for a homemailer's program.
7/ Section 952.21(j) provides that a party's failure to respond to the presiding officer's order compelling discovery may result in the admission of the facts to which the Order related. This rule is similar to Federal Rule of Civil Procedure 37(b)(2)(A) which provides that the failure to obey an order to provide discovery may result in the "matters regarding which the order was made or any other designated facts" being deemed established.
8/ See, e.g., United States v. Linnas, 527 F. Supp. 426, 429 (E.D.N.Y. 1981) (relevant facts pertaining to unanswered interrogatories deemed admitted); International Union UAW v. National Right to Work Legal Defense and Educ. Found., Inc., 433 F. Supp. 474, 477-78 (D.D.C. 1977) (count I of complaint deemed established); Center On Corporate Responsibility, Inc. v. Shultz, 368 F. Supp. 863, 873 (D.D.C. 1973) (allegation in complaint deemed established).
9/ See, e.g., United States v. ACB Sales & Serv., Inc., 95 F.R.D. 316, 318 (D. Ariz. 1982) (facts set forth in 145 consumer complaints deemed established based on failure to produce documents); Hammond v. Coastal Rental & Equip. Co., Inc., 95 F.R.D. 74, 78 (S.D. Tx. 1982) (plaintiffs' audit taken as true based on defendants' failure to produce payroll records); Black v. Sheraton Corp. of Am., 371 F. Supp. 97, 102 (D.D.C. 1974) (failure to produce FBI reports resulted in certain facts being established as true).
10/ The rules of evidence have consistently been relaxed in administrative proceedings. See, e.g., Richardson v. Perales, 402 U.S. 389, 400 (1971); Brousseau v. United States, 640 F.2d 1235, 1241 (Ct. Cl. 1981); Grover v. United State, 200 Ct. Cl. 337, 351 (1973); Reil v. United States, 456 F.2d 777, 780 (Ct. Cl. 1972); Jacobowitz v. United States, 424 F.2d 555, 559 (Ct. Cl. 1970); Scott David Wilcox, P.S. Docket No. 18/147 at 5 (P.S.D. Oct. 27, 1988); Project Prayer, P.S. Docket No. 8/68 at 6 (P.S.D. May 29, 1981).
11/ Consumer complaints have previously been deemed admissible as evidence in a § 3005 proceeding, and may be relied on to prove the existence of a false representation. See Card Redemption Center, P.S. Docket No. 30/35 at 14 (P.S.D. June 30, 1989).
12/ Although Respondent was given a full opportunity to present evidence on his own behalf, see Harlan Bell Coal Co. v. Lemar, 904 F.2d 1042, 1048-50 (6th Cir. 1990); Ralpho v. Bell, 569 F.2d 607, 628-29 (D.C.Cir. 1977), he nevertheless did not testify at the hearing nor introduce any evidence which would rebut the allegations of the Complaint or the evidence offered by Complainant in this proceeding.
13/ Under Federal Rule of Evidence 901(b)(3), authentication of Exhibit CX-3 for the purpose of admission may be made by comparing Respondent's signature on Exhibit CX-3 with his signature on the documents filed in this proceeding. See, e.g., Stokes v. United States, 157 U.S. 187, 194-195 (1895); Desimone v. United States, 227 F.2d 864, 867 (9th Cir. 1955); Shelton v. United States, 205 F.2d 806, 814 (5th Cir.), cert. denied, 346 U.S. 892 (1953); Reining v. United States, 167 F.2d 362, 364 (5th Cir.), cert. denied, 335 U.S. 830 (1948).
14/ Once Exhibits CX-1 and -2 were shown to be connected to Respondent, the Administrative Law Judge did not err in determining that Respondent made the false representations alleged in the Complaint based on the statements made in the classified advertisement, circular, and homemailer's program included in Exhibits CX-1 and -2 since those documents qualify as an admission of a party opponent, and as such, are not hearsay. See Fed. R. of Evid. 801(d)(2).