In the Matter of the Complaint That                         )
                                                                               )
BORG-JOHNSON ELECTRONICS, INC., also          )
known as                                                               )
BORG-JOHNSON ELECTRONICS                           )
                                                                               )
at                                                                            )
                                                                               )
New York, New York,                                           ) P.O.D. Docket No. 1/10
                                                                               )
is engaged in conducting a scheme for                 )
obtaining money through the mails in                     )
violation of 39 U.S. Code 259 and 732.                  )

Ablard, Charles D.

DEPARTMENTAL DECISION

A complaint in this proceeding was filed on June 9, 1958, charging the Respondent with obtaining remittances of money through the mails by means of false and fraudulent representations about a radio sold by the Respondent for $4.95. The Complainant sought the issuance of an order in accordance with 39 U.S. Code 259 and 732. The Complainant made thirteen specific allegations of fraud in the complaint. At the time of the filing of the complain the Complainant petitioned the Judicial Officer requesting that he preside at the hearing and hear the evidence in accordance with Section 201.17, Rules of Practice of the Post Office Department. The petition was granted in an order of June 10, 1958, and on June 30, 1958, the Respondent filed an answer denying all the allegations in the complaint. The Respondent also moved that the Judicial Officer vacate the order of June 10th. This motion was denied on July 2nd and the hearing was held with the Judicial Officer as the presiding officer on July 10 and 15, 1958. Proposed findings were filed by the Respondent on August 29, 1958, and by the Complainant on September 12, 1958.

At the hearing the deposition of Mr. G. Stanley Shoup, a purchaser of the product sold by Borg-Johnson was introduced. Advertisements of the Borg-Johnson Corporation which appeared in the Washington Daily News, the New York Herald Tribune and The Wall Street Journal and a strip of film which appeared on television in Washington over WTTG were introduced. The parties stipulated that the Respondent used the mails and that the product introduced into evidence (Exhibit F) is the device sold by the Respondent and that the only variation between it and other radios sold by the Respondent was in the outside case (Tr. 30-31). The parties also introduced into evidence, along with the device, the instructions which accompanied it (Exhibit E). The radio is a small plastic device approximately the size of a king-size package of cigarettes similar to the picture which appears in the advertisement attached to the complaint (Exhibit A). However, the radio is black whereas the picture in the advertisement represents it as being white. The radio has two wires leading from it. At the end of one is a hearing aid device marked "crystal earphone," at the end of the other is an alligator clamp device. There is a projection at the top which is the control device for the radio. It is approximately 3/4 inches in length. There is no off-on switch and there is no volume control; there is only the tuning device on the top which has approximately forty turns covering the entire radio band.

The first witness for the Complainant, Mr. Gerard Mailloux, a Postal Inspector from New York City, testified that he visited the Borg-Johnson Electronics Corporation in their offices at 9 East 45th Street, New York, New York. He attempted to buy a Borg-Johnson portable on the premises. None were available. Contrary to the general impression given in the advertisement and the instructions that Borg-Johnson Electronics, Inc. is a manufacturing corporation which has made some new discovery, Mr. Mailloux found that Borg-Johnson consisted of several rooms comprising an area of about 30 x 100 feet on one of the upper floors of a downtown building. Apparently the sold activity was being performed by one man opening mail and removing money from that mail while carrying a .45 caliber revolver. Mr. Mailloux had a discussion with three of the officers of the corporation, two of whom were in attendance during the entire course of the hearing but who did not testify. The certificate of incorporation issued by the State of New York (Exhibit K) was admitted into evidence. This certificate did not bear the names of any of the officers of the corporation but only those of the attorneys for the Respondent, Mr. Milton Bass and Mr. Solomon Friend. After having refreshed his memory from notes which he made after conversations with the officers of the corporation which were made available to the counsel for the Respondent for cross-examination, Mr. Mailloux testified about a conversation in regard to the statement in the advertising, "yes, a fine precision made radio that you can slip into your pocket and take to work ... on train ... on planes ... on boats ... in stores ... to ball parks ... on fishing and camping trips ... yes, a lifetime pocket portable that you will carry with you and you will enjoy day in and day out all your waking hours."

Mr. Mailloux stated to them that he did not believe the radio would operate in all these places and that one of the officers of the corporation replied saying in essence that if he read the statement closely he would see that it only said that the device could be "carried" as opposed to being "played" in these places. The witness also questioned the statement that the device is "so powerful it picks up broadcasts from as far as ten cities away." Again one of the officers of the corporation replied that this applied only to metropolitan areas and not cities spread over far distances.

The Complainant offered the testimony of two qualified experts in the field of electrical engineering. Both witnesses were employed by the Federal Communications Commission and had extensive experience in the radio and electronics field both in Government and private industry. (Tr. 62, 64 and 191). The first witness, Mr. Willmar K. Roberts, testified that the product basically consists of three internal parts. The first is a variable inductance coil containing a powdered iron core which is moved by the threaded brass screw extending from the upper portion of the case. The second part is a ceramic capacitor. The third part was described as a germanium diode. (Tr. 71). He described the device as a crystal set very similar in principal of operation to the earliest form of radio used by the general public. (Tr. 72). He testified that the device had no source of power and no capacity to generate power such as contained in the usual radio set. He testified that the germanium diode operates on one of the basic principles used in radar but as used in radar is much mor highly developed than anything contemplated by the germanium diode operation in this crystal set.

Mr. Roberts testified as to certain experiments that had been conducted by him on Exhibit F. A summary of these experiments was contained in the reports of the Federal Communications Commission introduced into evidence as Exhibits L and M. These reports and his testimony revealed that Mr. Roberts conducted approximately six tests on the Borg-Johnson device. The first test was performed at the FCC Laboratory approximately fifteen miles from Baltimore and twenty-two miles from Washington. When the clamp was attached to the metal dial stop of the telephone by careful tuning and cupping the hands over the ears Mr. Roberts was able to hear music from station WBAL 1090 kilocycles in Baltimore. When the device was clipped to the metal guide rails of an overhead garage door, "fairly acceptable signals" from WBAL were received but from no other station. Connection to an outside antenna made it possible to hear four or five stations, but connection to other suggested items in the instructions such as water pipes, plumbing pipes, office furniture and lamp shades produced no detectable signals. The second test was performed at Burtonsville, Maryland, where the clamp was attached to a steel guard cable close to the ground on low posts. Reception was received from WRC, WBAL and WTOP with satisfactory volume. This point is approximately 17 miles from Washington and 19 miles from Baltimore (Tr. 127). The third test was performed in Laurel, Maryland, where the clip was attached to the telephone dial and barely "detectable" signals were received from WTOP in Washington. Laurel is twenty-two miles from Washington and fifteen miles from Baltimore (Tr. 127). The fourth test was performed five miles east of WTOP where signals could be detected from the station when the clip was connected to metal stakes driven in the ground and not when connected to a guide cable of an electric pole. Connection to a barbed wire fence at this point gave clear reception of WTOP and "fairly good" reception of WRC in Washington. The fifth test was made without connecting the clip to anything. Signals were received up to about a half of a mile from the tower of WTOP and a quarter of a mile from WRC. The sixth test was at the same location inside a car where the clip was touched to metal parts of the car and no reception was received. This information was contained in Exhibit L, the first report of the Federal Communications Commission.

Exhibit M is the second report which was based upon a testing of a second Borg-Johnson device similar to the one which was the subject matter of L. Approximately the same results were received and were so reported in Exhibit M. Mr. Roberts testified that the earphone was an essential part of the radio and must be used to receive any transmission over the device. The advertisement indicates that the earphone device is some type of "extra" to be used only in bed or elsewhere where the listener did not desire to "disturb others." He testified that the Borg-Johnson product had no amplifying device which is a necessity in any good radio. (Tr. 77).

He testified that the device would not work on a train or on a plane but would work on a boat if the boat were in harbor and you could clamp on to some antenna. At sea one might be able to pick up the ship's radio. He testified that the device would last indefinitely because there were no wearing parts but that the device would certainly not last "forever" as advertised. He testified that the clamp was in no sense an antenna as advertised but was only a conductor which had to be used except when within several hundred feet of a radio station. He described the device as a "toy portable." (Tr. 136).

The second expert witness was Mr. Frank Palik, also of the Federal Communications Commission, who tested another Borg-Johnson product and received even poorer results. He compared the device to the old type crystal set which his son had built and found that it was no better as a reception device. He explained the variation between the results reached by him and those reached by Mr. Roberts as dependent upon the length of antenna used or possibly owing to a slight variation in the product. Both witnesses testified that there were no apparent defects in the product. No evidence to the contrary was offered by the Respondent. The Respondent cross-examined both witnesses as to certain tests which might be performed on the product in order to establish that their testing was adequate. Both witnesses characterized the type testing to which the Respondent referred as being that which is done by manufacturers of component parts and that it was not essential to determine whether the device worked. There is enough consistency between the reports of both witnesses to establish that the devices were basically the same and were typical of the Borg-Johnson product. This was also borne out by the testimony of the lay witnesses. Mr. Palik characterized the Borg-Johnson product as a "hay-wire job." He said that it was put together rather poorly (Tr. 200). Proposed finding number one of the Respondent is rejected. Proposed findings numbers one and two of the Complainant are adopted.

Over the objection of the Respondent two lay witnesses who had purchased the product testified (Tr. 263 and 270). One was a seventy-four year old resident of the District of Columbia, Mr. Frank Egan. The other was an engineer who had graduated from the University of Athens, Greece, and was employed by the United States Government. His name was Mr. Steven Dukson. Both witnesses testified that they had purchased the product and were exceptionally displeased with the results they received. Mr. Dukson made tests of the device clamping the conductor on a great variety of metal objects which exceeded the number of those described in the instructions accompanying the product. He had exceptionally poor results. Both witnesses testified that they had requested a refund and had received it. The attitude of both could be described as righteously indignant. The Respondent in his proposed findings objects to the consideration of this testimony. In Linden v. U.S., 254 F.2d 560, 567, the court held that it was not error to allow persons who had been defrauded to testify as to the interpretation which they had placed on the advertisement. Respondent's proposed finding number three is rejected.

The Respondent introduced two reports made by the York Research Corporation which were apparently furnished to Borg-Johnson. These reports are vague and inconclusive as to any issues presented in this case. Exhibit 1 describes a device that is not identical to the device sold by Borg-Johnson (Tr. 283), but is a "classic" crystal set with three more parts than the Borg-Johnson device (Tr. 283). The report of the laboratory does not indicate that the device will perform in the manner described in the advertising of the Respondent. In fact there was not even an express showing by the Respondent that these reports were furnished to him or that this was a basis for the advertising. Assuming that this was true, to give the Respondent the benefit of every doubt, the claim of the advertising so far exceeded the reports furnished by the laboratory as to negate any intent of an honest belief in the efficacy of the product. See Vibra Brush v. Schaffer, 152 F.Supp. 461.

Respondent contends that because the money-back guarantee was offered to all purchasers the doctrine of Jarvis v. Shackleton Inhaler, 136 F.2d 116, should apply. There has been no showing that the product has the efficacy claimed for even a single purchaser. This is essential under the theory of that case. The only evidence in the record was the testimony of the expert witnesses who tested it, the two lay witnesses and the reports of the York Research Corp. The device falls so short of the claims made for it in the advertising that to hold that merely because a refund was offered no fraud is involved would do violence to the historical concept of fraud and the enforcement of the postal fraud statute. Would that every purchaser of these "radios" were as indignant as Mr. Egan and Mr. Dukson. Unfortunately, many gullible members of the public are not of like temperament but would be content to reluctantly accept the fact that they were defrauded. It is for the protection of these persons that the postal fraud statute exists.

The fact that the product may be worth the $4.95 price is immaterial. The fact that a product of a much greater value was offered and was not furnished is plainly indicative of an intent to defraud. Farley v. Heininger, 105 F.2d 79, 84. Proposed finding number two of the Respondent as to the intent of the Respondent is rejected and proposed finding number three of the Complainant is adopted.

Respondent contends that it was error to admit the television film into evidence since it was not specifically alleged in the complaint. The television film is not substantially different from the other advertisements which were placed in the newspaper and the Respondent was not prejudiced by the introduction of the film. The rules of evidence in administrative hearings are not restrictive. Respondent's proposed finding under four is rejected.

The fifth proposed finding of the Respondent is that the Rules of Practice, Procedure and Organization of the Post Office Department constitute a breach of the Administrative Procedure Act and are a deprivation of procedural due process. The Respondent specifically avers that the Rules of Practice are defective in that they establish a Judicial Officer who is given the right to conduct hearings and render agency decisions. This was accomplished by the Post Office Department Headquarters Circular No. 87 and the Rules of Practice effective April 26, 1958. The Administrative Procedure Act, 5 U.S.C. 1001(a), defines "agency" as follows:

"Agency means each authority (whether or not within or subject to review by another agency) of the Government of the United States other than Congress, the courts, or the governments of the possessions, Territories, or the District of Columbia. Nothing in this chapter shall be construed to repeal delegations of authority as provided by law. Except as to the requirements of section 1002 of this title, there shall be excluded from the operation of this chapter (1) agencies composed of representatives of the parties or of representatives of organizations of the parties to the disputes determined by them, (2) courts martial and military commissions, (3) military or naval authority exercised in the field in time of war or in occupied territory, or (4) functions which by law expire on the termination of present hostilities, within any fixed period thereafter, or before July 1, 1947 ..."

Thus, the term "agency" means each authority of the United States Government including executive departments. Delegations of authority were expressly mentioned. Since prior delegations were not deemed to be repealed certainly delegations made after passage of the act were contemplated by the framers. The delegation of authority to the Judicial Officer from the Postmaster General was authorized by the Reorganization Act of 1949. The Post Office Department is an "agency" within the meaning and the definition of the Administrative Procedure Act and the Postmaster General, as the head of that Department, can delegate his authority within the Department.

The Respondent also specifically objects to the Rules of Practice contending that the requirement of publication was not met. These Rules were published on April 26th and were made effective as of that date. The Post Office Department has interpreted the exception of the Administrative Procedure Act in regard to rule-making contained in 5 U.S.C. 1003 (2) as being applicable to it. The court in Doehla Greeting Cards Inc. v. Summerfield, 116 F.Supp. 68 said,

"the hearing provisions of the Administrative Procedure Act do not apply as mail rates are within the second exception 'any matter relating to agency management or personnel or to public property, loans, grants, benefits or contracts.'"

The instant proceeding was not instituted until June 9, 1958, almost a month and a half after the publication of Rules. The Respondent also objects to the alleged supervision of the Hearing Examiners by the Judicial Officer and specifically to the assignment of cases. The Rules of Practice amended effective May 30, 1958, provide as follows: "A Proceeding shall be assigned to a Hearing Examiner by the Docket Clerk on rotation (emphasis supplied) and notice of the assignment given to the parties. Section 201.18, 23 F.R. 3775." The Judicial Officer supervises the Hearing Examiners in the same manner that an independent regulatory commission would supervise Hering Examiners assigned to them. The Post Office Department as an agency of Government must of necessity exercise some supervision over all employees including Hearing Examiners for administrative purposes.

Respondent also specifically objects to the rules in that when the Judicial Officer presides at the hearing as was done in the instant proceeding there is no opportunity for the filing of exceptions. 5 U.S.C. 1007(b) provides as follows:

"Prior to each recommended, initial, or tentative decision, or decision upon agency review of the decision of subordinate officers, the parties shall be afforded a reasonable opportunity to submit for the consideration of the officers participating in such decisions (1) proposed findings and conclusions, or (emphasis supplied) (2) exceptions to the decisions or recommended decisions of subordinate officers or to tentative agency decisions."

It thus appears that it was contemplated that if the agency presided at the reception of evidence, opportunity would be furnished for the filing of proposed findings, and when a Hearing Examiner presided at the reception of evidence opportunity would be provided for both proposed findings and exceptions. Thus the framers permitted every Respondent the opportunity for a written presentation in the record. Adequate opportunity was afforded the Respondent for the filing of proposed findings. They were filed and have been considered by me in making this decision.

Respondent also specifically objects to the provisions of the Rules requiring certain time periods for the filing of papers. For the protection of the public interest in both fraud and other administrative proceedings, it is essential that hearings be conducted as expeditiously as possible and yet be within the framework of procedural due process. The Post Office Department through the Rules of Practice have attempted to accomplish this result. To permit the operator of a fraudulent enterprise to delay the actions of the regulating governmental body and frustrate its statutory purposes and duties does violence to our concepts of justice. These are not inflexible rules and in this proceeding the Respondent was granted a seventeen day continuance for the filing of his proposed findings and conclusions of law upon cause shown. This proposed finding of the Respondent is rejected.

It is hereby concluded that the Respondent is operating a scheme through the United States mails for the obtaining of money by false and fraudulent representations and that an appropriate order will be issued in accordance with 39 U.S. Code 259 and 732.