In the Matter of the Complaint Against

NATIONAL OPPORTUNITY RESEARCH SERVICE,
199 Nassau Street at
Princeton, New Jersey 08540

P.S. Docket No. 2/125

Rudolf Sobernheim Administrative Law Judge

APPEARANCES:
James J. Robertson, Esq.
Law Department U.S. Postal Service
Washington, D.C. 20260 for Complainant

Sidney Schreiberg, Esq.
233 Broadway New York,
New York 10007 for Respondent

INITIAL DECISION

This is a proceeding by Complainant against Respondent under 39 U.S.C. 3005 which authorizes action against Respondent upon evidence satisfactory to the Postal Service that Respondent "is engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations."

Complainant alleges that Respondent is selling membership in its organization at $10.00 per member by the use of advertising material by which Respondent, directly or indirectly, in substance and effect represents:

"(1) That members of Respondent's program earn $10.00 to $50.00 for less than an hour's pleasant endeavor;

(2) That members of Respondent's program will earn up to $10,000 return for each dollar they invest in Respondent's program;

(3) That members of Respondent's program will be supplied free products by nationally known research organizations and that these members will be paid substantial sums for their written opinions about these products;

(4) That the members of Respondent's program will be shown how to get thirty cents a word for each word they write in opinions about the free products;

(5) The cost of membership in Respondent's program for two years, has been reduced from its normal cost of $24.00 to $10.00;

(6) That members of Respondent's program will be eligible to purchase all types of merchandise at costs 35 percent below wholesale."

A copy of the letter sent by Respondent to those whose membership it solicits, of a supplemental advertising pamphlet, of its mailing envelope and membership application form were attached to the complaint as Exhibits A through D.

Respondent entered a general denial and a hearing for the presentation of evidence was held on 26 October 1973. At the hearing Complainant offered in evidence over Respondent's objections: (1) a copy of the transcript of the oral argument in the U.S. District Court for the District of New Jersey on the application of the U.S. Postal Service for a temporary restraining order against Respondent under 39 U.S.C. 3007; (2) a copy of the depositions of John Gallo and Jack Freid, taken in August 1973 in behalf of the defendants in Respondent's action against the Better Business Bureaus, Inc. in the Superior Court of New Jersey, Mercer County; (3) a copy of interrogatories, addressed by the defendants in the New Jersey action to Respondent, and of Respondent's answers thereto, given in April 1973; and (4) a copy of additional answers to the foregoing interrogatories, given in July 1973. The materiality and relevance of the information disclosed by these exhibits to the issues in this proceeding were not denied. Theri admissibility, in the light of Rule 32 of the Federal Rules of Civil Procedure as to depositions and federal court decisions on the points at issue, cannot be doubted. See Continental Casualty Company v. United States for the use of Conroe Creosoting Company , 308 F.2d 806 (5th Cir., 1962) as to the admissibility of the interrogatories; State Farm Mutual Auto Insurance Co. v. Porter , 186 F.2d 834 (9th Cir., 1951) as to the admissibility of the statements of Respondent's counsel in the argument on the temporary restraining order as admissions against the interest of his clients. In his brief Respondent's counsel has, however, withdrawn his objections and it is thus unnecessary to pass on the issue. The cited documents are considered in evidence and part of the record.

Apart from the documentary evidence referred to, Complainant's only witness was the Postal Inspector who made the customary investigation of complaints against Respondent received by the Postal Service. Respondent called neither of its principals on the ground, stated by counsel, that they and Respondent had been indicted for violation of the United States Criminal Code. Respondent called, however, a number of members of Respondent and representatives of its client firms who testified on their relations and experience with Respondent.

FINDINGS OF FACT

1. Respondent was incorporated in January 1972 by John Gallo of Stratford, Connecticut, its sole officer and stockholder (Ex. C-3, Int. 1-3).

2. Actually 80% or more of Respondent's work is performed by Jack Freid whom Respondent retained as a consultant and paid on a weekly basis (Ex. C-2, pp. 15, 19 (Depos'n. Gallo); id ., p. 34 (Dep'n. Freid)). In fact, Freid makes most business decisions ( id ., p. 35 (Dep'n. Freid)) and seems to be the true "spiritus rector" of Respondent's enterprise.

3. Before becoming Respondent's consultant Freid was associated with World Field Research, of which his brother was president ( id ., p. 12 (Dep'n. Gallo); p. 37 (Dep'n. Freid)). This firm, now bankrupt ( id ., p. 37 (Dep'n. Freid)), was the subject of a proceeding under 39 U.S.C. 3005 (then "4005") (P.O.D. Docket No. 3/62), subsequently dismissed by agreement.

4. It is the business of Respondent to solicit memberships in return for which the member receives a list of firms that offer business opportunities, mainly in selling and interviewing, of which the members are free to avail themselves.

5. For this service Respondent charges a fee of $10.00 for a two-year membership (Compl. Ex. A; Ex. C-3 (Interrog.), Ex. B). This is the fee paid by those whose actual payments to Respondent are shown (T 39, 47, 87 et seq ., passim ). A total of approximately 3,500 membership fees have been refunded (Ex. C-3, Interrog. (1)). Respondent claims, however, that it originally charged an annual $24.00 membership fee which it promptly abandoned when at most a very few, perhaps less than one hundred, subscriptions were obtained (Ex. C-2, pp. 30-32 (Dep'n. Freid); p. 63 (Dep'n Gallo)). The record provides no documentary substantiation for the $24.00 fee. The record on this point is very unsatisfactory but, if such a $24.00 fee was actually charged, it had been completely abandoned at the time when the present brochure (Compl. Ex. A; Ex. C-3 (Interrog.), Ex. B) was used by Respondent to solicit memberships. At that time no $24.00 fee was maintained by Respondent.

6. Respondent's operation was essentially as follows:

a. Respondent obtained from advertisements and publications a list of firms which were willing to utilize the services of Respondent's members.

b. On the application form a member was given an opportunity to indicate that he or she wanted to earn money "for my opinions" and to check desired annual earnings ($2,000 to $3,000; $5,000 to $10,000; $10,000 to $25,000; over $25,000) or to write in a desired amount (Compl. Ex. C-2).

c. After a member joined, he or she was given from 15 to 25 references on the average which the member was free to contact to obtain paid work. No difference in the references was made regardless of the earning bracket designated by the member (Ex. C-2, p. 45 (Dep'n. Freid)).

d. With few exceptions the firms to which the member was referred were engaged wholly or partly in direct selling of miscellaneous merchandise or in public opinion polling. Some of the merchandisers required a purchase of merchandise at a lower price for resale at a higher price, the difference being the member's earnings. Others provided for sales from catalogues with a commission going to the member. One or two of the references were organizations similar to Respondent which would for payment of a fee provide further business opportunities to the member.

7. The record provides no instance and shows no connection with any firm which would pay a member to test a product supplied free, to write down his or her opinion about the product and reply to a few questions. The only witness who testified to seeking members' opinions on any matter did not run a business which furnished them a product free for testing (T 150 et seq .).

8. Admittedly, Respondent had no connection with any firm that would employ Respondent's members in writing tasks at 30 cents per word or at any price (Ex. C-2, p. 61 (Dep'n. Gallo)).

9. The record contains substantial evidence as to the earnings of Respondent's members who testified. None, however, were able to testify reliably as to what the wholesale price of the merchandise was which they bought or whether their purchase price was in any true sense a wholesale rather than an intermediate distributor's price (T 87 et seq ., 107 et seq ., 129 et seq .). The testimony of the only merchandiser who testified (T 150 et seq .) was equally ambivalent. On the record as a whole a finding that Respondent offered its members an opportunity to purchase all types of merchandise at as much as 35% below wholesale its not supported by the record. Such discount purchases as Respondent's members were offered extended only to the types of merchandise sold by the firms offering Respondent's members selling opportunities and they were not an added extra benefit.

10. On the record of the testimony of Respondent's members it is found that some at least earned between $10.00 and $50.00 per hour.

11. The record does not disclose that Respondent offered any opportunities which afforded a return or up to a thousand dollars for each dollar invested or at least $10,000 in financial rewards for the ten dollar cost of the membership. The record shows that returns from the selling opportunities offered by Respondent to its members yielded modest returns falling far short of the "at least" and "up to" figures quoted in Respondent's brochure (Compl. Ex. A-1, A-3). Opinion polling paid only $2.50 per hour (T 122 et seq .). One witness testified to an alleged opportunity to earn large finder's fees through one opportunity offered by Respondent (T 129 et seq .) but his testimony was so vague and general that no finding can be based thereon that the returns held out by Respondent could actually be earned.

12. On the basis of the foregoing findings and of the record as a whole I find that the brochure used by Respondent in soliciting memberships in its organization (Compl. Ex. A; Ex. C-3 (Interrog.), Ex. B) falsely represents that:

a. A member of Respondent may earn up to a thousand dollars of return for each dollar he or she may decide to invest or may obtain at least $10,000 in financial rewards and benefits ( cf . Compl., par. V (2)).

b. A member of Respondent will receive an opportunity to test various products that organizations supply free requiring the member merely to write down his or her opinion about the product being tested and to reply to a few questions ( cf . Compl., par. V (3)).

c. Respondent can also show its members how and where to get thirty cents (30[) a word for what they write ( cf . Compl., par. V (4)).

d. Respondent is offering a short-term experimental membership at less than 1/2 price and that its normal membership fee is $24.00 a year ( cf . Compl., par. V (5)).

e. Respondent's members as an extra added benefit will be eligible to purchase all types of merchandise for as much as 35% below wholesale ( cf . Compl., par. V (6)).

13. Respondent's claim that a member can earn money, at the rate of $10.00 to $50.00 per hour, is supported by the record and is not false ( cf . Compl., par. V (1)).

CONCLUSIONS OF LAW

1. Respondent is engaged in a scheme or device for obtaining money or property through the mails by means of false representations within the meaning of 39 U.S.C. 3005.

2. The representations made by Respondent, as alleged in paragraph V (2) through (6) of the complaint and as summarized in Finding 12 are false even if Respondent's brochure, if carefully parsed, is seen to contain some indirect limitations thereon. The scope of the protection of 39 U.S.C. 3005 is not measured by the perception of the exceptionally acute and sophisticated and extends to the trusting as well as the suspicious. Donaldson v. Read Magazine , 333 U.S. 178, 189 (1948). On ordinary minds the referenced portions of Respondent's brochure will produce exactly the impression stated in paragraph V (2) through (6) of the complaint that Respondent offers benefits which it does not in fact coner. Such an accumulation of false representations is material and far exceeds the bounds of extravagance or puffing. Lynch v. Blount , 330 F. Supp. 689, 693 (S.D.N.Y. 1971).

3. Respondent's argument that the Postal Service has failed to prove scienter or intent to defraud, citing Reilly v. Pinkus , 338 U.S. 269 (1949), misses the mark. For the amendment to 39 U.S.C. 3005, adopted in 1968 (82 Stat. 1153), eliminates the requirement that fraudulent intent be shown as a condition for action under 39 U.S.C. 3005. The 1968 amendment substitutes therefor ^1/ the requirement that the representation used in a scheme or device to obtain money or property through the mail be false in fact and, as the courts have said, be a substantial and material false representation. Lynch v. Blount , supra , aff'd. w.o. op. 407 U.S. 1007 (1972); U.S. v. International Term Paper Co. , 477 F.2d 1277, 1280 (1st Cir., 1973). These requirements are met here in full.

4. The representation made by Respondent, alleged in paragraph V (1) of the complaint, has not been shown to be false and to that extent the complaint cannot be upheld.

5. Accordingly, it is recommended that an order in the form attached as provided in 39 U.S.C. 3005 be issued.

1/For the legislative history see Lynch v. Blount , 330 F. Supp. at p. 693 and note 6.