In the Matter of the Complaint Against

MEDICAL FACTS, INCORPORATED
at New York, New York

P.O.D. Docket No. 1/74;

APPEARANCES:
Bass & Friend
342 Madison Avenue
New York, New York
for the Respondent

Richard S. Farr, Esq. and
J. Carroll Schueler, Esq.
for the Complainant

DEPARTMENTAL DECISION

The Respondent, Medical Facts, Inc., is charged by a complaint of the General Counsel of the Post Office Department with conducting a fraudulent enterprise through the mails by means of the sale of a book entitled "Arthritis Can Be Cured". The complaint was issued against the Respondent on October 22, 1958, specifically alleging that the Respondent made nine misrepresentations in the sale of the book. An answer was filed admitting use of the mails and that the exhibit attached to the complaint was a true copy of the newspaper advertisement used by it in advertising the book. All material allegations of the complaint were denied.

A hearing was held and the Hearing Examiner rendered an Initial Decision in which he found that the allegations of the complaint had been proved and recommended the issuance of a fraud order. The examiner based his conclusions upon a finding that the Respondent was representing that the book offered a self-treatment and that the book did not provide such.

The Respondent filed exceptions in a brief on appeal in which it excepted to the findings.

1. that the Respondent made false representations in its advertisement;

2. that the representations were made with an intent to deceive and;

3. that the Rules of Practice of the Post Office Department are in compliance with the Administrative Procedure Act, 5 U.S.C. 1001 et seq. The Complainant replied to these exceptions. On April 30, 1959, oral arguments on the first exception were held before me and the Complainant filed a supplemental brief on May 22, 1959.

The second exception of the Respondent is the one dispositive of the issues in this case. A unique situation is presented because of the relationships between the Respondent and others not directly involved in this proceeding. The Respondent is a New York corporation which has the national sales right to the book in question. The book was written by Bernard Aschner, M.D., and published by the Julian Press, Inc. The Respondent is neither the publisher nor the author of the book. Medical Facts, Inc. is owned by Mrs. Ruth Goodelman. She testified at the hearing that she has been the president and sole owner of the company since January 1958. Prior to that time her husband, Mr. Leon Goodelman, was the owner.

In December 1957, her husband died and she inherited the business. (Tr. 75 and 76). He was a personal friend of Dr. Aschner, the author of the book (Tr. 86). Her husband had drafted the advertisements for the book which were introduced into evidence and they are the same advertisements now in use. She testified that she had never submitted the book to a medical doctor for advice. She was under the impression that an advertisement had been rejected by the New York Times but did not know the reason for the rejection. Prior to January 1958, Mrs. Goodelman was a housewife and was not involved in the business.

An excerpt from the Bulletin of the History of Medicine, Vol. 32, No. 5., September-October 1958, published by Johns Hopkins University School of Medicine was introduced into evidence. The publication contains a review of the book by Dr. Walther Riese, Chairman of the Department of the History of Medicine and Associate Professor of Psychiatry at the Medical College of Virginia, Richmond, Virginia. ^1/ The book is published by the Julian Press Inc., New York 3, New York, a reputable publishing house. The Publishers' Trade List of 1958, which gives information on all publishers, lists its publications. From this list which includes "Sexual Offender and His Offenses" by Karpman and "Meaning of Love" by Montagu, I would categorize this house as one which deals with unique medical publications for lay reading. Their reputation is unchallenged by the Complainant.

Thus as a Respondent we have a person who was a housewife until January of 1958, and who inherited a company from her husband which was engaged in selling a book published by a reputable publishing house. The book had been written by a medical doctor, whose views were apparently considered of sufficient significance to be reviewed in a reputable medical journal by a reputable doctor. The book was sold through the mails by means of an advertisement written by her husband who was a personal friend of the author.

The Complainant cites Securities Exchange Commission v. Mono-Kearsage, 167 F.Supp. 248 (D. Utah, 1958), which held that a person cannot blithely ignore "red flags" which should put them on notice that something may be amiss in a business operation and thereby escape liability. The Complainant avers that there were "red flags" in this proceeding which should have placed Mrs. Goodelman on notice and that, therefore, she must be held responsible. They are the facts that: (a) a new corporation was organized in January 1958; (b) the New York Times would not take the advertisement; (c) the Post Office Department issued a fraud complaint on October 22, 1958. What is the effect of these facts?

Mrs. Goodelman testified that the only reason the corporation was reorganized was because of the death of her husband. This assertion was unchallenged by the Complainant. Mrs. Goodelman testified that it was her impression that the New York Times had rejected the advertisement but that she did not know the reason. Complainant asked that official notice be taken of the fact that the New York Times rejects advertisements which are misleading. This does not

seem to be a proper matter for official notice and, even if such fact were shown to have been true, unless it were proved that Mrs. Goodelman should reasonably have known such fact, it would be immaterial. It is undisputed that the rejection occurred prior to her assuming control of the company.

As to the third fact the Complainant apparently contends that the Respondent should have immediately changed her advertising upon receipt of the complaint which initiated this proceeding. Such a contention is not well-founded. I do not believe that the facts in this case warrant the same inference as was drawn by the court in Mono-Kearsage.

The Hearing Examiner who heard the testimony of Mrs. Goodelman found that she had made the alleged misrepresentations with an intent to deceive. ^2/ While the conclusion of the person who heard the testimony and observed the demeanor of the witness should be given considerable weight on such a question, it is not conclusive and may be reversed even when not clearly erroneous, ^3/ and the reversal is not required to be supported by a very substantial preponderance of the evidence. ^4/ Assuming, arguendo, that sufficient evidence was introduced to raise a presumption of an intent to deceive the evidence of the Respondent was sufficient to rebut the presumption. I disagree with the conclusion of the examiner.

Upon these facts the second exception of the Respondent is allowed. Because of this finding there is no necessity to pass on the other exceptions. The Initial Decision of the Hearing Examiner is reversed.

06/24/59

Ablard, Charles D.

1/ The Medical College of Virginia is one of two accredited Medical Schools in the State of Virginia. American Medical Directory, 1958.

2/ This finding is required in Post Office Department proceedings, but not in those of the Federal Trade Commission. Reilly v. Pinkus, 338 U.S. 269.

3/ Universal Camera Corp. v. N.L.R.B., 340 U.S. 474.

4/ F.C.C. v. Allentown Broadcasting Corporation, 349 U.S. 358.