In the Matter of the Petition by

WILLIAM T. KERNS
1903 Washington Avenue,
Golden, Colorado

for a second-class mail permit for the publication "KERNELS."

P.O.D. Docket No. 2/130

Jesse B. Messitte Hearing Examiner

POST OFFICE DEPARTMENT, WASHINGTON, D.C. 20260

APPEARANCES:
Thomas J. Kerwin, Esq.
Denver Club Building
Denver, Colorado
for the Petitioner

Dean M. A. Murville, Esq.
Office of the General Counsel
Post Office Department
for the Respondent

INITIAL DECISION OF HEARING EXAMINER

The Petitioner, William T. Kerns, seeks a second-class mail permit, under 39 U. S. Code 4354, for a semi-monthly publication called "Kernels." For reasons set forth below, the publication is ineligible now for second-class mail privileges because it is designed primarily for free circulation. Therefore the permit should not be granted at this time.

Statute

Section 4354 of Title 39 of the U. S. Code provides in the part relevant to this proceeding as follows:

"(a) Generally a mailable periodical publication is entitled to be entered and mailed as second class mail if it--

(1) is regularly issued at stated intervals ***; and

* * * * * * *

(5) has a legitimate list of subscribers.

* * * * * * *

(c) A periodical publication designed primarily for advertising purposes or for free circulation or for circulation at nominal rates is not entitled to be admitted as second class mail ***."

Issue

The issue, broadly stated, is whether Petitioner is entitled to a second-class mail permit for the publication "Kernels."

Counsel for the Petitioner and counsel for the Respondent have concerned themselves mainly with the question of whether the publication was designed primarily for free circulation. That is the only issue which needs to be and should be decided on the present record. Because Petitioner's counsel made an evidential presentation on the question, which Respondent suggested, of whether the publication had a legitimate list of subscribers, incidental findings on that question are also embodied in this decision. There are some other questions pertaining to requirements for a second-class mail permit which might have been raised in this proceeding but which were not raised in such a way as to make it appropriate and advisable to pass on those matters although some mention of them will be made.

Resume of Proceedings

This proceeding began with a petition filed by William T. Kerns (herein sometimes called the Petitioner) on August 20, 1963. An answer was filed September 6, 1963 on behalf of Respondent. The Respondent is a postal official in the Bureau of Operations holding the title "Director, Classification and Special Services Division." (The Respondent, by letter dated June 28, 1963 had informed Petitioner that his request or application for second-class mail privileges for the publication "Kernels" was to be denied unless Petitioner in a proceeding such as this established that he was entitled to second-class mail privileges.)

A hearing was duly held at Denver, Colorado, on November 7 and 8, 1963. The Petitioner Kerns testified. Also testimony of one Charles E. Stevinson was presented on behalf of Petitioner. The Respondent did not testify and no witness was presented on his behalf. Various exhibits were received in evidence.

The parties filed proposed findings of fact, conclusions of law and briefs.

This Hearing Examiner has studied the entire record and arrived at the findings and conclusions stated herein.

The statute (39 U. S. Code, Section 4354) is clear that a publication designed primarily for free circulation is not entitled to second-class mail privileges.

From the first semi-monthly issue on June 15, 1962 to the October 15, 1963 issue (the latest one in the record) the publication "Kernels" has for the most part been distributed to ultimate recipients (readers or potential readers) who pay nothing for the publication.

The money needed to pay the total cost of publication (including printing and a moderate allowance, as salary or drawing account, for the living expenses of the publisher Kerns) has been realized in only minor part from the hundreds of persons (800 or less) each of whom subscribed to the publication, paid for it and is the ultimate recipient of the publication. Such persons constitute a legitimate list of subscribers for the aggregate number of 800 or less copies they receive. There may have been only 50 such persons who received the June 15, 1962 issue. The number may have grown to about 250 as of December 31, 1962. Further growth is suggested by the claim of the Petitioner that the March 1, 1963 issue went to about 400 such persons. And at the hearing in November 1963 the Petitioner claimed there were about 800 such subscribers (after excluding, for example, 135 legislators to whom the publisher and his associate, L. A. Whitney, sent the publication without any subscription or apparent request from those legislators.)

However, the major part of the cost of the publication (including an allowance as aforesaid for the publisher Kerns) is supplied by a few persons who are not subscribers of the relatively large number of copies (over 2,000) the printing and distribution of which they help finance. One such person (L. A. Whitney) is primarily interested in sending out free samples of the publication in his hope (once strong, now fading) of persuading the recipients to subscribe to and pay for the publication. Another such person is Adolph Coors Company, a large brewery organization, which was perhaps favorably impressed with the publication's specific effort to fight the imposition of higher taxes on the brewery. ^1/ Or perhaps the brewery was only responding to the publication's frequent calls for financial help. ^2/

A third person or group (Hackstaff and associates, sometimes known as the Downtown Improvement Association) is engaged in real estate activity in Colorado and was perhaps favorably impressed by the publication's push for lower taxes and fight against urban renewal. Or perhaps Hackstaff et al. were only responding to the publication's calls for financial help. ^3/

The above-named three persons, says the Petitioner, bought 2,750 copies of the March 1, 1963 publication. This is out of a total print of 4,000 of which only 3,455 approximately were actually distributed.

The first person mentioned above (L. A. Whitney), sent out 1,000 copies without charge to recipients and he expected to collect 50 cents out of each annual subscription he thereby obtained. Mr. Whitney followed substantially the same procedure on many issues before and after the March 1, 1963 issue. ^4/

See also "Kernels" for: April 15, 1963; April 1, 1963; March 15, 1963; March 1, 1963; February 15, 1963; February 1, 1963 and five preceding issues.

Why did Mr. Whitney do this? He hoped to build up a subscription, paid by recipients of the publication, of 100,000 and to share in the proceeds of those subscriptions. Mr. Whitney has been closely associated with the Petitioner Kerns and the publication "Kernels" in many ways. Mr. Whitney sometimes designated himself as the business manager of the publication. He wrote letters to many persons to promote subscriptions. He time and time again tried to build up the circulation of the publication with numerous free samples he sent out under the name "Kerney," being a composite of most of the Petitioner's name " Kerns " and the end of the name "Whitn ey ." These things he did with the acquiescence and apparent approval of the Petitioner Kerns. In addition, Whitney wrote various items which were printed in the publication "Kernels." ^5/

The second person listed above (Adolph Coors Company) apparently never even received temporary possession of the 1,000 copies (March 1, 1963 issue) that the Petitioner Kerns says it paid for. Instead, Kerns himself hired boys to spread the 1,000 copies around Golden, Colorado, and he (Kerns) paid the boys for making such distribution ^6/ Another 1,000 copies (the March 15, 1963 issue) were similarly distributed by Kerns to unknown persons, without cost to them, and the alleged price of the copies ($100) was charged by Kerns to Adolph Coors Company and allegedly paid by that company for the papers.

The third person (Hackstaff - Downtown Improvement Association) delivered 750 copies of the March 1, 1963 issue apparently without charge to recipients in order, it may well be, to promote real estate and related financial objectives.

In respect to the March 1, 1963 issue this Hearing Examiner finds nothing in the record to show that any significant number of those, to whom the free copies were sent or delivered, even wanted the publication at no cost. The same is true of other issues of "Kernels." ^7/

Surely the publisher failed to show that most of his March 1, 1963 issue went ultimately to paying subscribers. The evidence on any fair interpretation is quite the other way and the primary pattern of free circulation is much the same before and after the March 1, 1963 issue. ^8/ And those to whom the publication was circulated free, as aforesaid, may not be included in the legitimate list of subscribers.

Court decisions and previous decisions within the Post Office Department all tend to support the findings and conclusions reached in this decision.

In Lewis Pub. Co. v. Wyman , 182 F. 13, 16, CCA 8 (1910), aff'd. 228 U. S. 610 (1913), the Court of Appeals considered the matter of exclusion from the second-class mail rate of "publications designed primarily for advertising purposes, or for free circulation, or for circulation at nominal rates." Said the Court, per Hook J.:

"In the sense of the statute, 'primarily' means 'chiefly or principally.' The second-class pound rate of postage was intended for newspapers and periodicals *** circulated for the most part among bona fide subscribers, and not for publications designed principally *** for free circulation

***. Obviously the number of copies distributed gratuitously has a direct bearing upon the primary or chief design of the publication ***."

In Myrick v. U. S. , 219 F. 1, CCA 1 (1915) the court considered the second-class mail statute in relationship to the phrase "a legitimate list of subscribers" and said in pertinent part at pages 4 and 5 "***if it appears as to a substantial number of subscriptions *** that they were paid for by others than the recipients of the publication -- such facts would be material evidence for the Post Office Department to consider in determining whether the publication was primarily designed *** for free circulation." The same court noted at page 4 as follows:

"The phrase 'a legitimate list of subscribers' evidently means a list of subscriptions taken at more than a nominal price, and the price must have been paid, or the subscriber, or some one in his behalf, be under obligation to pay the agreed price; and *** subscriptions taken *** without price, do not answer the requirements *** and cannot be counted in making up a legitimate list."

In one of the leading cases decided in the Post Office Department the pertinent facts were as follows: Each of 168 business firms (distributors of labor saving machinery) sent the publisher of "Mill & Factory" a list of persons (production and maintenance engineers in industry) to whom it wished the publication to be sent. The publisher later billed each of the 168 firms (about 10 cents a copy) for the number of copies to be so distributed. About 87% of the total printing (over 50,000) was thus distributed without cost to the ultimate recipients. It was found, among other things, as a fact, that the publication was designed primarily for free circulation. Second-class mail privileges were denied. (An independent ground for denial was the finding, based on the foregoing evidence and certain other evidence not here set forth, that the publication was designed primarily for advertising purposes.) In the Matter of *** Conover-Mast Publications , H.E. Docket No. 5/173; Hearing Officer's Report dated April 18, 1958; Departmental Decision dated May 9, 1958.

In another important Post Office Department decision relating to free circulation the facts were as follows: About 800 druggists bought (for 3 cents a copy) from the publisher approximately 160,000 copies of each issue of a weekly called "Channel" (consisting mostly of descriptions of television programs to be broadcast.) The druggists generally distributed the publication to their customers without charge. Held: The publication is designed primarily for free circulation and a second-class mail permit should not be issued. (The above facts and certain others not here set forth resulted in the additional finding that the publication was primarily designed for advertising purposes.) In the Matter of *** Channel Northwest, Inc. , H.E. Docket No. 5/178; Hearing Officer's Report dated March 12, 1958; Departmental Decision dated May 23, 1958.

In a third important Post Office Department case a second-class mail permit was sought by a publisher for the publication "Swimming Pool Weekly." It appeared that 786 persons had actually paid $5.00 each for a year's subscription. These 786 persons were found to constitute a legitimate list of subscribers. However, the publication was mailed to over 3,000 persons who Petitioner believed were in some way part of the swimming pool industry, together with a request that each such person remit $5.00 for a subscription or if such person did not wish to continue to receive the publication to so notify the publisher. About 400 persons informed the publisher that they did not want to receive the publication. The remaining 2,600 or more persons were thereafter billed by Petitioner for $5.00 each but such billings were generally not paid and were designated on the publisher's books as overdue accounts. Apparently more than half of the copies of the publication distributed were distributed to recipients without payment or valid contractual obligation to pay for the publication. It was held that the publication was designed primarily "for free circulation" and second-class mail privileges were denied. In the Matter of Pool Publications, Inc. ,P.O.D. Docket No. 1/143; Initial Decision of Hearing Examiner dated October 21, 1959 became the Departmental Decision because no appeal was taken.

The Hearing Examiner need not now consider the nice question of whether the publication "Kernels" was designed primarily for advertising, in the sense of (a) promoting with thousands of free samples, subscriptions to the publication (promoters - Kerns, Whitney, Kerney Company) or (b) propagandizing (for a quid pro quo) low taxes for a brewery (Adolph Coors Company) or (c) propagandizing (for a quid pro quo) anti-urban renewal sentiment and low taxes favored by certain real estate groups (Hackstaff et al.) or (d) furthering (for a quid pro quo) the efforts of a certain bowling alley operator (Bunzell) to have his beer license restored or (e) seeking directly or indirectly contributions, payments, fees or loans for the publisher from the aforesaid business operators and others like them whose financial or business objectives were supported by the publication. ^9/ Nevertheless, those are nice questions which the Respondent may wish to investigate and contemplate further in connection with publications of this type and second-class mail applications.

Nor does this Hearing Examiner consider it appropriate now to consider the possible problem of irregularity of the issuance of the publication "Kernels." The publisher missed two issues (October 15, 1962 and July 15, 1963). The publisher was in some instances late or early in coming out with other issues of the publication.

It is enough to say here that because the pattern of distribution shows most copies of the total number distributed went to ultimate recipients who do not pay and are not obligated to pay, under the circumstances above described, the publication clearly, until now, has been designed primarily for free circulation. Of course, when this is no longer so, there is no reason why the Petitioner may not apply for second-class mail privileges and if the publication then meets all the requirements of the law for a second-class mail permit, the Respondent will no doubt proceed accordingly.

In view of the foregoing, this Hearing Examiner has not considered it necessary or advisable to pass upon the meaning or applicability of various pertinent regulations promulgated by officials of the Post Office Department. However, it is clear that such regulations are within the power of the Post Office Department so long as they implement or provide for the execution of the general statutory provisions and are not inconsistent with those statutory provisions. The regulations - 39 C.F.R. 22.2(b)(7) and 39 C.F.R. 22.4(f)(3) - referred to by Respondent in his briefs do not appear inconsistent with the conclusions reached in this decision.

Summary of Ultimate Findings of Fact

1. Less than one-fourth of the copies of the publication "Kernels" printed or distributed are circulated to a list of legitimate subscribers.

2. More than three-fourths of the total number of copies of the publication "Kernels" printed or distributed are circulated free to the ultimate recipients.

3. Each person the Petitioner designates as the alleged purchaser of a large number of copies of the publication either (a) is promoting a financial interest in enlarging the number of paying subscriptions by distributing free samples or (b) otherwise promoting particular business or financial interests (including good will) by helping to bring about the actual distribution of the publication free to ultimate recipients.

4. The publication "Kernels" has a legitimate list of subscribers but such persons receive and subscribe to less than one-fourth of the total number of copies printed or distributed.

5. The publication "Kernels" is designed primarily for free circulation.

Summary of Conclusions of Law

1. The publication "Kernels" is designed primarily for free circulation within the meaning of 39 U.S.C. 4354.

2. Copies of "Kernels" distributed by the Petitioner or his associate and benefactor L. A. Whitney as free samples, designed to promote additional subscriptions, constitute free circulation within the meaning of 39 U.S.C. 4354.

3. Alleged bulk copy purchases by persons such as Adolph Coors Company or Hackstaff to promote their own business interests in lower taxes or anti-urban renewal sentiment or good will, by enabling the Petitioner to have the financial means to make free distribution of the copies to ultimate recipients are not subscriptions but constitute free circulation within the meaning of 39 U.S.C. 4354.

4. The publication "Kernels" does not satisfy all statutory conditions of 39 U.S.C. 4354 for entry as second-class mail matter.

5. The Petitioner is not now entitled under 39 U.S.C. 4354 to second-class mail rates for the publication "Kernels."

The findings of fact and conclusions of law submitted on behalf of the Petitioner and those submitted on behalf of the Respondent are adopted but only to the extent embodied in this Initial Decision. In all other respects they are rejected because not relevant, not material or not consistent with the persuasive import of the evidence.

/s/

1/ Thus, in the July 1, 1962 issue of "Kernels" an article on taxation included the following item: "If you raise school taxes by 3 mills this will cost the Adolph Coors Co. *** $39,000 as the total brewery complex is assessed for $13,000.000. This added cost is something that they must collect from the consumer, YOU.***"

2/ Thus, for example the May 1, 1963 issue of "Kernels" contains the following:

"YOU SHOULD BE A SUPPORTER OF KERNELS" "If you believe that this nation is great, if you believe that we must keep this nation great and not allow the cannibals to consume us, then support Kernels. Individual support ranges from $10 to $100; Corporate from $50 to Joint (sic) the fight] We are not dead yet."

See also "Kernels" for: April 15, 1963; April 1, 1963; March 15, 1963; March 1, 1963; February 15, 1963; February 1, 1963 and five preceding issues.

3/ See footnote 2, supra.

4/ Included in the free distributions made through Mr. Whitney were the following in 1963: February 1, 2,300; February 15, 2,100; March 15, 2,000; April 1, 2,100; April 15, 2,300; May 1, 2,800; May 15, 2,600; June 1, 3,000; June 15, 3,000; July 1, 2,500; August 1, 2,000; September 1, 250, and October 15, 1,000. In some instances publisher Kerns says: Whitney paid more than 12 cents for the paper whose list price is 10 cents (June 1, 1963 issue) and sometimes paid more than 16 cents per issue (September 1, 1963). In another instance the payments by Mr. Whitney, if related to the purchase of "Kernels" as Petitioner contends, would amount to less than 4 cents a copy ($1 dollar for 26 copies a year to be sent to each of a hundred or more members of the Federal legislatures). Such "price" variations tend (a) to support a finding that Mr. Whitney was generally financing the publication, with which he was associated as promoter and business manager, and (b) to weaken very much the apparent contention of Petitioner that Mr. Whitney bought many thousands of copies of "Kernels" for his own independent purposes.

5/ Mr. Whitney was the benefactor of Kerns so as to help Kerns meet his living expenses while Whitney and Kerns were trying to build up a paying circulation adequate at least to cover costs of publication. Thus, Whitney provided a home for the publisher Kerns in Colorado for some months without charge to Kerns. Whitney from time to time loaned money to Kerns ($1,500) to be repaid if and when Kerns no longer needed it.

6/ Although Kerns admitted at the hearing that he himself engaged the boys to distribute to unknown persons, without cost to them, these 1,000 copies allegedly purchased by Adolph Coors Company, the same Kerns in a letter dated May 16, 1963 told the U. S. Postmaster at Golden, Colorado, with respect to these 1,000 copies allegedly purchased by Adolph Coors Company "***I do not keep track of what happens to copies of my paper after they are purchased."

7/ In respect to the April 1, 1963 issue of "Kernels" out of 1,800 mailings there were 150 bad addresses. The publisher was thus even sending out many copies to possible addressees or distributees non-existent or unknown at the stated address where delivery by mail was attempted.

8/ The publisher himself in the August 15, 1962 issue of "Kernels" and other issues recognized that much of his circulation was free. He admonished the recipients of free copies of the publication "Don't Be A Communist ***" and intimated they could avoid being "A Communist" by paying for the publication instead of receiving "free copies."

9/ Thus the witness Stevinson testified his payments, which Kerns said were for the purchase of copies of Kernels, were considered by Stevinson and his accountants as expenses of advertising the Chevrolet business controlled by Stevinson and promoting good will for that Chevrolet business.