In the Matter of the Complaint Against

THE ARZANA CO., INC. at
Long Island City, New York 11101

P.O.D. Docket No. 2/277

09/20/68

Rosenblatt, Peter R.

APPEARANCES:
Solomon H. Friend, Esq.;
Robert Ullman, Esq.;
Bass & Friend,
342 Madison Avenue,
New York, New York for the Respondent

John F. Ventresco, Esq.;
Office of the General Counsel,
Post Office Department,
Washington, D. C. for the Complainant

DEPARTMENTAL DECISION

STATEMENT

By complaint filed October 17, 1967 the General Counsel of the Post Office Department (the Complainant) charged that the Respondent, The Arzana Co., Inc., is engaged in a fraudulent scheme in violation of 39 U.S.C. § 4005. The Respondent denied the essential elements of the complaint in its answer, and the matter went to hearing before a department hearing examiner on December 12, 1967. The Hearing Examiner's Initial Decision filed June 18, 1968, held that the Complainant had failed to prove fraudulent intent, and therefore granted the Respondent's motion to dismiss the complaint.

On July 3, 1968 the Complainant appealed the Initial Decision to the Judicial Officer, and the Respondent filed its answering brief on July 15, 1968.

THE COMPLAINT

The complaint charges the Respondent with obtaining remittances of money through the mails by means of false and fraudulent pretenses, representations and promises, in that its advertising allegedly makes the following claims:

a. The Respondent's advertised product "Formula PA-90" (hereinafter called "the Product") will quickly and permanently overcome addiction to the use of tobacco, regardless of the extent or duration of such addiction.

b. The use of "Formula PA-90" will cause the purchaser to overcome his addiction to tobacco without any exertion or effort whatsoever.

c. "'Formula PA-90' contains '. . . NEW MIRACLE INGREDIENT, (i.e., the chemical composition of said product is unique and represents a new medical discovery which has not been previously known or available in other products).'"

d. The chemical composition of "Formula PA-90" has been scientifically tested and proven effective as a means of overcoming addiction to tobacco.

THE TESTIMONY

The Complainant called two witnesses to the stand. The first, a postal inspector, testified that he had purchased the Product from the Respondent by ordering and paying for it through the mails. His testimony and the admissions of the Respondent established jurisdiction in this case under 39 U.S.C. § 4005.

The second witness, Dr. Charles A. Ross, M.D., Chief of Thoracic Surgery at the Roswell Park Memorial Institute in Buffalo, New York, and director of its Smoking Withdrawal Clinics, was established as an expert.

Dr. Ross' uncontroverted testimony established inter alia, that two milligrams of the Product's only active ingredient, alternately called "lobeline" or "lobeline sulfate," taken three times a day (the dosage which the directions accompanying the Product prescribe) will not stop 90 per cent of people from smoking--in contradiction of one of the ad's claims. He said that the use of the Product in the dosages directed "without will power determination will not stop people from smoking" (66), * nor will it cause the craving for tobacco to disappear instantly or free the user completely of all desire for tobacco. He testified that lobeline sulfate is not a "new miracle drug," having been in use as a smoking depressant for at least 15 years (67, 127-31).

* References, unless otherwise indicated, are to pages of the official transcript of the hearing.

The doctor declared that the Product, taken in the dosages directed, has not been "proven effective as a means of overcoming addiction to tobacco" (67). He testified that lobeline had "some slight effect" (76) when compared with a placebo over a short term range of about seven days, but that there was no significant difference at the end of six months between groups of people who had been using lobeline and those who had been given a placebo. He reported that he no longer used lobeline in his clinics, does not recommend its use, and did not wish to study the drug any further.

Dr. Ross' own experiments showed that where lobeline was administered without any educational materials or instruction short term success was achieved in 6.5 per cent of cases. This increased to 62 per cent when lobeline was administered together with educational materials and counseling, which led the doctor to declare that "the educational materials were fare (sic) more important in inducing people to stop smoking than the lobeline" (80).

When asked how he could form an opinion regarding the Product's efficacy when he had not personally administered it in the thrice daily two-milligram dosage prescribed by the Respondent's directions, and did not know what the opinion of the medical community was with respect to use of lobeline in that precise dosage, he replied "My experience with lobeline sulfate in even higher doses than this has shown that it is--there is no effectiveness over a final six month study and recent analysis at a year" (95). He added that he did not think a daily dose of six milligrams of lobeline for three days would "work" (97-8). In other words, the same or higher dosages of the drug than those which the Respondent prescribed would show meager long or short term results.

In his cross-examination counsel for the Respondent questioned Dr. Ross at length in an effort to demonstrate that there were, or could be, other, conflicting expert opinions with respect to the efficacy of lobeline, particularly at the six milligram daily dosage level.

DISCUSSION

In this the Respondent was entirely successful. In fact, Dr. Ross freely stated on a number of occasions that there were, or might be, opinions opposed to his own.

The Respondent's concentration on this line of questioning is a function of the fact that the Complainant's charges must be supported by proof that the advertising claims at issue are not only false in fact, but the product of an intent to deceive. The latter factor "is rarely capable of direct proof, since this involves what is in a man's mind. It is hornbook law that this subjective element may be established by circumstantial evidence" [Gottlieb v. Schaffer (S.D.N.Y. 1956) 141 F. Supp. 7.]

Respondent argues that the Complainant has failed to produce circumstantial evidence of fraudulent intent of the kind required by the leading case of Reilly v. Pinkus (1949) 338 U.S. 269. There the Supreme Court established the doctrine that, in the absence of direct proof thereof, "An intent to deceive might be inferred from the universality of scientific belief that advertising claims are wholly unsupportable" (338 U.S. 276). Hence Respondent's persistent and successful efforts to demonstrate, by cross-examination, that Dr. Ross does not speak for the entire scientific community and that others of its members might take issue with at least some of his views.

The extent to which Dr. Ross' testimony--and his is the only scientific testimony in this case--represents scientific fact is therefore crucial to both essential elements of the Complainant's case, the falsity of the claims and the fraudulence of the Respondent's intent.

It must be noted that Dr. Ross at no time claimed that his testimony represented the "universality of scientific belief", or that it was based upon anything other than his obviously extensive personal experience with the problem of smoking withdrawal and the drugs and treatment used therein. The particular authority claimed for his testimony about the Product, in other words, was based upon his personal work with lobeline and smoking withdrawal rather than upon his familiarity with the work of others (though considerable familiarity may be presumed from his status as an expert).

Counsel for the Respondent's attempt to shake Dr. Ross' strong testimony took two forms. Firstly, he asked the witness repeatedly whether there were others in the scientific community who held views contrary to his. To this, in most cases, Dr. Ross responded in the affirmative. Secondly, he attempted to cross-examine him on the basis of scientific writings which, presumably, supported views contrary to Dr. Ross'.

The Hearing Examiner sustained objections to this second line of questioning upon the ground, basically, that counsel's only legitimate reason for wishing to cross-examine Dr. Ross on the scientific authorities was to buttress the first line--that is, to demonstrate the existence of opposing views, which Dr. Ross freely and repeatedly conceded. Hence the Hearing Examiner held that anything beyond that which counsel might wish to show with respect to the authorities would have to be introduced through the testimony of their authors in the Respondent's own case. Moreover, counsel himself stated that his only purpose in attempting cross-examination with the aid of authorities was to demonstrate the existence of scientific views opposed to Dr. Ross', and that he was willing to accept Dr. Ross' statement to the effect that there were opposing views in lieu of such cross-examination (100-102).

I find, therefore, that the Complainant has not demonstrated by a "universality of scientific belief" that the Respondent's advertising claims are "wholly unsupportable." This in no way impugns the witness' strong and uncontradicted testimony on the value of the Product and of lobeline. However, since he proved unwilling to characterize his testimony as representative of the "universality of scientific belief", proof of the claims' falsity was of insufficient quality to sustain a finding of actual intent to deceive.

While the precedents clearly indicate that "universality of scientific belief" is not the only test by which fraudulency may be proved circumstantially, it is the most permissive, in that it permits a finding of fraudulency to be founded on less than utterly unambiguous factual evidence of falsity. Other circumstantial tests of fraudulency sanctioned by previous holdings have involved situations in which the falsity of the claims at issue could somehow be established without heavy dependence upon expert and sometimes conflicting scientific opinion--as distinguished from the factual testimony of a scientific expert. Thus:

--The claims so defied "universality of experience" and appeared in such a context as to leave no reasonable room for doubt that the advertiser was aware of the claims' falsity. [Gottlieb v. Schaffer, supra, 141 F. Supp. at p. 17, see also Vibra Brush Corp. v. Schaffer, (S.D.N.Y. 1957) 152 F. Supp. 461, 468], or

--"The known misleading tendency of a scheme is indicative of the defendants' criminal intent, and the trier of the facts may reasonably in such circumstances apply the presumption, founded upon common experience and recognized in law, that a person intends the consequences of his acts" [Linden v. U.S. (C.A. 4, 1958) 254 F.(2d) 560, 566], or

--"The artful wording of the advertisements" was such as to give rise to an inference of intent to deceive, though express misrepresentations were avoided. [Borg-Johnson Electronics, Inc v. Christenberry (S.D.N.Y. 1959) 169 F. Supp. 746, 751] , or

--The issue of falsity could be determined conclusively without resort to expert opinion (See Irwin v. U.S., supra)--there is, in fact, an "exact standard of absolute truth" against which the advertising claims could be measured (Reilly v. Pinkus, supra, p. 273).

It is clear from the foregoing that the "universality of scientific belief" doctrine provides a means whereby the falsity of an advertising claim can be established on the basis of scientific opinion; a criterion which, since American School of Magnetic Healing v. McAnnulty (1902) 187 U.S. 94, had been viewed with considerable reserve as the measure of an advertising claim's falsity and an advertiser's intent to deceive. Any advertising claim rebutted by the opinion testimony of an expert scientific witness who does not purport to speak for the scientific community will, therefore, have failed of the high degree of proof which Reilly v. Pinkus demands, where falsity is to be shown by opinion testimony.

For this reason I am constrained to sustain the Hearing Examiner's holding that the Complainant has failed to prove fraudulent intent with respect to claims a, b and d (as identified in the complaint and on pp. 2-3 hereof); that is, that the Product will overcome addiction to tobacco, requires no exertion or effort whatsoever, and has been scientifically tested and proven effective.

Not so, however, with respect to claim c, in which the Respondent declares that the Product contains a "new miracle ingredient." For this claim is, indeed, subject to absolute factual verification, independent of the opinion of experts. There is an "exact standard of absolute truth" against which the claim can be measured.

The record shows that the Product has one active ingredient only, lobeline. This ingredient is either a "new miracle ingredient," or it is not. His testimony, uncontradicted on the record, is quite sufficient to prove the claim false. The claim is a factual representation which can neither be supported as a matter of opinion, nor characterized as mere hyperbole or puffing "of which any layman can easily take cognizance" [U.S. Nature Products Corp. v. Schaffer (S.D.N.Y., 1954) 125 F. Supp. 374, 378-9]. If Dr. Ross was wrong about the length of time which lobeline has been known to medicine, "it was the duty of the appellant to produce evidence showing the same before the examiner, but this he chose not to do" [Shaw v. Duncan (C.A. 10, 1952) 194 F.(2d) 779, 782].

The "new miracle ingredient" claim is central to the advertisement against which the complaint is directed, for the ad's headline, appearing in large, bold type across its entire width reads as follows:

"LEADING MEDICAL AUTHORITIES REPORT

ON NEW MIRACLE INGREDIENT]]]"

Immediately below, but in slightly smaller type:

"AN AMAZING TABLET THAT MAKES YOU STOP SMOKING"

Since the Product's only active ingredient is lobeline, and lobeline is not a "new miracle ingredient," and the claim is central to the ad's appeal, I find that the claim is false and that it was made with intent to deceive. Those who made it may be presumed to have known of the claim's falsity or to have acted in "reckless indifference" towards the truth, which is the equivalent of fraudulent intent [Irwin v. U.S. (C.A. 9, 1964) 338 F.(2d) 770, 774; U.S. v. Meyer (C.A. 7, 1966) 359 F.(2d) 837, 839]. ". . . persons who make or deal in substances, or compositions, alleged to be curative, are in a position to have superior knowledge and may be held to good faith in their statements" [Seven Cases v. U.S. (1915) 239 U.S. 510, 517-18] .

Respondent further argues that "positive evidence" of its lack of fraudulent intent appears from its "clear, precise and unequivocal money back guarantee", citing Jarvis v. Shackleton Inhalor Co. (C.A. 6, 1943) 136 F.(2d) 116, 120-1. In that case as well as in Jeffries v. Oleson (S.D. Cal. 1954) 121 F. Supp. 463, 473 and others in which the effect of a money-back guarantee has been considered, the court's attitude seems to have turned on the extent to which the respondent's offer evidenced a general lack of fraudulent intent. In other words, the presence of a guarantee is merely one item of evidence which may or may not negative fraudulent intent. In the Jarvis Case the court was unable to find anything that disclosed "a scheme or stratagem to take money with fraudulent misrepresentation", and the guarantee was viewed in that light. On the other hand, where actual falsity and fraudulent intent was discerned a court has held that "such a guarantee does not necessarily disprove an intent to defraud" [G. J. Howard Co. v. Cassidy (E.D.N.Y., 1958) 162 F. Supp. 568, 572-3; see also Borg-Johnson Electronics, Inc. v. Christenberry, supra, 169 F. Supp. 746, 751 and the citations in both of those decisions] . In this case I cannot agree with counsel that the guarantee constitutes "positive evidence of lack of intent and absence of fraud."

For all of the foregoing reasons the Initial Decision herein is reversed. A fraud order will issue against the Respondent pursuant to the provisions of 39 U.S.C. § 4005.