In the Matter of the Complaint Against

MONEYMAKERS, and MONEYMAKERS, INC.
P. O. Box 200
at La Grangeville, NY 12540

P.S. Docket No. 16/1;

Cohen, James A.

APPEARANCES FOR COMPLAINANT:
H. Richard Hefner, Esq.
Brendan J. O'Brien, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260-1112

APPEARANCE FOR RESPONDENT:
Gene S. Posner
P. O. Box 200
La Grangeville, NY 12540

POSTAL SERVICE DECISION

Respondent has appealed from the Initial Decision of an Administrative Law Judge which holds that Respondent's envelope stuffing program is 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.

BACKGROUND

The Consumer Protection Division, Law Department, United States Postal Service (Complainant), initiated this proceeding by filing a Complaint which in paragraphs 3 and 4 alleges that Respondent falsely represents, directly or indirectly, in substance and effect, whether by affirmative statements, omissions or implications that:

"(a) Payment of a 'registration fee' will allow immediate participation in Respondent's promotion without further substantial financial investment by the homeworker.

(b) Respondent is offering at-home employment stuffing envelopes with circulars.

(c) A participant can expect to earn 75c / for each and every envelope he or she is able to stuff.

(d) Amounts of earnings are primarily determined by whatever amount of time participants wish to devote or can devote to the stuffing of envelopes with circulars.

(e) Respondent's program will be available for a limited time.

(f) Respondent will provide the envelopes to be used by participants for the stuffing of circulars."

Respondent filed a timely Answer to the Complaint in which it admitted that it used direct mail solicitations to induce recipients to remit money through the mail, but denied all of the other allegations of the Complaint. At a hearing before an Administrative Law Judge, Complainant presented the testimony of Postal Inspector Lawrence E. Maxwell. Respondent presented no witnesses. Both parties submitted documentary evidence. Following the filing of proposed findings of fact and conclusions of law, the Administrative Law Judge issued an Initial Decision in which he found that Respondent makes the representations alleged in the Complaint, and those representations are materially false. Respondent appealed the Initial Decision to the Judicial Officer. Both parties have filed written briefs.

RESPONDENT'S EXCEPTIONS TO THE INITIAL DECISION

In its exceptions and arguments Respondent takes issue with the Administrative Law Judge's findings that its solicitations make the representations alleged in the Complaint and that those representations are false. Respondent also contends that the Administrative Law Judge erred in other respects in reaching the conclusion that a false representation order should be issued. Each of Respondent's exceptions is considered hereafter.

Respondent has used two solicitations to obtain remittances through the mail. These solicitations are identified in the record as CX-1 and JX-1. Respondent contends that JX-1 is the only solicitation presently in use and has confined its arguments on appeal to that solicitation, although it notes that many of the same arguments apply to CX-1.

The Administrative Law Judge referred to the language of both solicitations in finding that Respondent makes the representations alleged in the Complaint. The record supports the Administrative Law Judge's finding that both solicitations were in current use by Respondent (see I.D. at pp. 13-14). Thus, his reference to both solicitations in finding that the representations are made by Respondent was proper.

In his review of Respondent's solicitations, the Administrative Law Judge correctly applied the general rule that advertisements are to be judged in their totality and the impression they would most probably convey to the ordinary reader (I.D. at p. 4). While he quoted specific language from each of Respondent's advertisements which he found makes the representations alleged in the Complaint, the Administrative Law Judge pointed out that most of the representations could be found in more than one statement of the advertisements (I.D. at pp. 4-7).

EXCEPTIONS TO FINDINGS OF FACT 2(a) and 4(a)

In Findings of Fact 2(a) and 4(a) the Administrative Law Judge found that Respondent makes the representation alleged in paragraph 3(a) of the Complaint and that such representation is false. The Administrative Law Judge cited various portions of Respondent's solicitations which would lead the ordinary reader to believe that upon payment of a registration fee "further substantial financial investment by the homeworker" would not be required (I.D. at pp. 4-5). Respondent argues that the Administrative Law Judge ignored a sentence in the first paragraph of its solicitation which alerts prospective participants to the need for classified advertising and its attendant cost. The sentence referred to by Respondent describes the program as consisting "of inserting our circulars into the envelopes secured through your classified ad insertions in the comfort and convenience of your home."

While the reference to classified advertising may give hints to the sophisticated or skeptical reader as to the real nature of the program, it is inadequate to alert ordinary readers that they must incur additional costs to obtain envelopes from other prospective participants. At best, the reference to classified advertisement insertions is ambiguous in notifying a homeworker of what will be required. See, Rhodes Pharmacal Co., Inc. v. F.T.C., 208 F.2d 382 (7th Cir. 1953). The language of the solicitations cited by the Administrative Law Judge, considered in the context of the entire wording of the advertisements, supports his finding that the impression conveyed to the ordinary reader is that they could participate in Respondent's promotion without "further substantial financial investment."

The need for "further substantial financial investment" is evident from a review of Respondent's instructions for participation in the program (CX-14b and CX-20). These instructions disclose that immediate participation is not feasible based on payment of the registration fee because an expenditure of time, effort and money for the purchase of classified advertising to solicit other participants is involved. Accordingly, Respondent's arguments regarding Findings of Fact 2(a) and 4(a) are without merit.

EXCEPTIONS TO FINDINGS OF FACT 2(b) and 4(b)

The Administrative Law Judge found in Findings of Fact 2(b) and 4(b) that Respondent falsely represents that it is "offering at-home employment stuffing envelopes with circulars" as alleged in paragraph 3(b) of the Complaint. Respondent argues that the representation is not made because the advertisement tells the ordinary reader that he or she will not be an employee of Respondent.

As Respondent argues, the wording of its advertisements informs ordinary readers that they will be working independently and not as employees of Respondent. While the allegation made in paragraph 3(b) of the Complaint specifically refers to "at-home employment," the essential thrust of the allegation is that prospective participants will be misled into believing that Respondent offers at-home work stuffing envelopes with circulars. The language cited by the Administrative Law Judge, considered in the context of the entire wording of the advertisements, creates the impression that the participant will be working at home stuffing envelopes furnished by Respondent. As previously stated, the actual program requires the placement of classified advertisements and the receipt of responses in order for a participant to obtain an envelope to stuff and for which compensation will be paid. Respondent's advertisements thus misrepresent the essential nature of the program as alleged in paragraph 3(b) of the Complaint. Accordingly, except insofar as the Initial Decision finds that Respondent represents the availability of an employment relationship with Respondent, it is affirmed with respect to paragraph 3(b) of the Complaint.

EXCEPTIONS TO FINDINGS OF FACT 2(c) and 4(c)

In Finding of Fact 2(c) the Administrative Law Judge found that Respondent's solicitations make the representation alleged in paragraph 3(c) of the Complaint that " a participant can expect to earn 75c / for each and every envelope he or she is able to stuff." The Administrative Law Judge found this representation to be made by language in the solicitations which specifically states that Respondent will pay participants 75c / for each envelope the participant stuffs and mails "following our simple instructions." In Finding of Fact 4(c), the representation was found to be false.

Respondent argues that there is a distinction to be made between the promise to "pay" and the use of the term "earn" in the Complaint allegation. According to Respondent, this distinction would be drawn by the ordinary reader based on "more than ample" information in the solicitations which advise prospective participants that they will be independent contractors rather than employees. Regardless of whether participants are employees or independent contractors they are told in Respondent's advertisements that they will be paid a specified amount for each envelope stuffed and that they "can earn a secure steady income for life." The overall impression created by Respondent's advertisements is that participants can expect to earn the amounts specified in the advertisements for every envelope stuffed. Thus, the ordinary reader would understand the representation alleged in paragraph 3(c) of the Complaint to be made in Respondent's solicitations. As the Administrative Law Judge found, persons who have paid to participate in Respondent's program learn that earnings will depend on the response rate to the classified advertising for which they have paid and not on the number of envelopes "he or she is able to stuff" (I.D. p. 10; CX-14b & CX-20). Accordingly, Respondent's arguments with respect to allegation 3(c) of the Complaint and Findings of Fact 2(c) and 4(c) are without merit.

EXCEPTIONS TO FINDINGS OF FACT 2(d) and 4(d)

Paragraph 3(d) of the Complaint alleges that earnings are:

". . . primarily determined by whatever amount of time participants wish to devote or can devote to the stuffing of envelopes with circulars."

In Finding of Fact 2(d) the Administrative Law Judge found this allegation to be made in the advertising statement delineating payments for sending Respondent 50, 100, and 500 envelopes at 75c / per envelope and promising a "secure steady income for the rest of your life." In Finding of Fact 4(d), the representation was found to be false. Respondent argues that the language cited is merely a numerical example which expands on information provided elsewhere in the advertisement, and that the Administrative Law Judge ignored the advertisement's reference to "envelopes secured through your classified ad insertions." According to Respondent, because the representation is not made there can be no finding that it is false.

In addition to the language cited by the Administrative Law Judge, the overall impression of the advertisement is that Respondent will provide stamped envelopes and circulars, and participants will be paid 75c / for each circular they stuff into an envelope. The qualifying information which Respondent relies on does not detract from this conclusion. The ordinary reader would be left with the impression that his or her earnings would be governed by the amount of time it took to perform the mechanical task of stuffing the envelopes provided. Therefore, Respondent's solicitations make the representation alleged in paragraph 3(d) of the Complaint. Respondent's program materials make clear that participants will only be paid for envelopes they receive in response to classified advertising. Thus, the earnings of participants will not be determined primarily by the amount of time the participant devotes to the stuffing of envelopes. Accordingly, Respondent's arguments with respect to this allegation are without merit.

EXCEPTIONS TO FINDINGS OF FACT 2(e) and 4(e)

In Finding of Fact 2(e) the Administrative Law Judge found that Respondent's advertisements represent, as alleged in paragraph 3(e) of the Complaint, that the program will be available for a limited time. The representation was found to be false in Finding of Fact 4(e) based on the "exhibited persistence of Respondent in the present type of business" (I.D. at p. 10). Respondent argues that one of its solicitations, JX-1, represents that the program "may," not "will," be available for a limited time, and that the representation is merely harmless "puffery." It also argues that the representation is not material and that if it were not to reserve the right to limit participation, the program might have so many independent distributors it could run afoul of Postal regulations.

Respondent's solicitation CX-1 clearly makes the representation alleged in paragraph 3(e) of the Complaint. The overall impression of JX-1 is such that a person of ordinary mind would understand that Respondent was representing that the program was of limited duration. While this statement alone might not be material, when considered with the remainder of the representations which have been found to be false, it would serve as additional inducement for the ordinary reader to remit the amount sought in the solicitation. Furthermore, this representation is not mere "puffery" since it falsely represents a matter of fact. Accordingly, there is no merit to these exceptions.

EXCEPTIONS TO FINDINGS OF FACT 2(f) and 4(f)

In paragraph 3(f) of the Complaint it is alleged that Respondent "will provide the envelopes to be used by participants for the stuffing of circulars." In Finding of Fact 2(f), the Administrative Law Judge found the advertisement strongly implies that everything necessary will be provided by Respondent. The representation was found to be false in Finding of Fact 4(f). Respondent argues that the advertisement's reference to "the envelopes secured through your classified ad insertions" tells the reader that Respondent does not provide envelopes. Regarding falsity, Respondent reiterates the argument that the representation is not made.

The overall impression created by the advertisement is that all elements of the program are provided by Respondent. Since the activity for which participants are paid is stuffing envelopes, the ordinary reader would conclude that envelopes are provided by Respondent. The statement in the advertisement about envelopes secured through "your classified ad insertions" leaves too much about the program unsaid. The information contained in that one statement is inadequate to overcome the impression that is created by the artful design of the advertisement. The overall impression on the potential participant arises not only from what is said but from what is implied. Original Cosmetics Products, Inc. v. Strachan, 459 F.Supp. 496 (S.D.N.Y. 1978), aff'd, 603 F.2d 214 (2nd Cir. 1979), cert. denied, 444 U.S. 915 (1979). The representation is made and, as Respondent does not provide envelopes (CX-14b and CX-20) it is false. Accordingly, Respondent's arguments are without merit.

EXCEPTION TO FINDING OF FACT 5

Respondent argues that the representations alleged in paragraphs 3(e) and (f) of the Complaint are not material. The representation alleged in paragraph 3(e) has been previously found to be material. Respondent's arguments under this exception do not establish that this conclusion is erroneous.

With regard to allegation 3(f) of the Complaint, Respondent argues that the source of the envelopes is immaterial. However, the source of the envelopes is the crux of the misrepresentation inherent in Respondent's overall scheme. Respondent's advertising creates the impression that envelopes and circulars are provided by Respondent, and that participants will be paid for the mechanical act of stuffing the circulars into the envelopes. The fact that the source of the envelopes is other prospective participants obtained through classified advertising entirely changes the nature of the program. The belief that Respondent provides the envelopes and the circulars to be stuffed, leaving nothing to be obtained by participants, constitutes a material factor in the decision to participate. F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374 (1965). Accordingly, Respondent's argument is without merit.

EXCEPTION TO FINDING OF FACT 7

In Finding of Fact 7 the Administrative Law Judge concluded that representations may be made by omissions, as well as by direct statements. The Administrative Law Judge further concluded that material misrepresentations resulting from omissions may be prohibited. Respondent does not take exception to the principle of law stated by the Administrative Law Judge and the cases cited to illustrate the point, but rather, argues that the principles do not apply because its advertisements are not misleading. Once again, Respondent raises arguments addressed to whether the representations are made. The Administrative Law Judge's findings that the representations are made have been reviewed and to the extent indicated in this decision are supported by the record. Respondent has raised no new contentions under its exception to Finding of Fact 7. Its arguments are without merit.

EXCEPTIONS TO CONCLUSIONS OF LAW 1, 2 and 3

The Administrative Law Judge, in Conclusion of Law 1, incorporated Findings of Fact 2, 4(a) through (f) and 5(a); in Conclusion of Law 2, rejected Respondent's affirmative defense that 39 U.S.C. § 3005 violates the Constitution; and in Conclusion of Law 3, concluded that Respondent is in violation of 39 U.S.C. § 3005. With regard to Conclusions of Law 1 and 3, Respondent again argues that it does not make the representations alleged in the Complaint. As the contrary conclusion has been reached elsewhere in this decision, these arguments are rejected here. With respect to Conclusion of Law 2, Respondent argues that its advertising is truthful and therefore enjoys the protection of the First Amendment of the United States Constitution. However, it has been found that Respondent's advertisements contain material misrepresentations. As such, the contents of the advertisements are not Constitutionally protected speech. See, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748 (1976); United States Postal Service v. Athena Products, Ltd., 654 F.2d 362 (5th Cir. 1981). Accordingly, there is no merit to Respondent's arguments with respect to these exceptions.

FURTHER EXCEPTIONS

Respondent argues that Complainant is guilty of laches and that the Administrative Law Judge failed to address this defense in the Initial Decision. According to Respondent, the Administrative Law Judge erred in not addressing this "valid point." As a general rule, laches is no defense to a suit by the Government to protect the public interest. See, Utah Power & Light Co. v. United States, 243 U.S. 389, 409 (1917); The House of Renee, P.S. Docket No. 10/9 (P.S.D. Oct. 28, 1982). No showing has been made to support the application of the doctrine of laches in this case. Thus, no error was committed by the Administrative Law Judge.

Respondent argues that its initial advertisement, CX-1, has not been proved to be in current use. However, as previously stated, the record supports the Administrative Law Judge's finding of current use of this advertisement. In this regard, Complainant presented the testimony of Inspector Maxwell to the effect that the advertisement was still in use (Tr. 37, 57, 60-65). Respondent presented no evidence to the contrary. Accordingly, there is nothing in the record to substantiate Respondent's argument that use of CX-1 has been discontinued. A review of the record, including a comparison of CX-1 with descriptions of Respondent's program as contained in its instructions to homeworkers (CX-14b and CX-20), supports the Administrative Law Judge's findings that CX-1 also makes the representations alleged in the Complaint and that those representations are false.

Respondent's final argument is that the Administrative Law Judge ignored certain aspects of Respondent's program. This argument is rejected, as Respondent's description of the program only reinforces the differences between the actual business opportunity being offered, and that which is represented by Respondent's advertisements (Resp. Brief, p. 19). Thus, there is no merit to this argument.

CONCLUSION

After consideration of the entire record and Respondent's exceptions to the Initial Decision, it is concluded that Respondent is engaged in a scheme to obtain money through the mail by means of materially false representations. Accordingly, a false representation order under 39 U.S.C. § 3005 is being issued with this decision.