In the Matter of the Complaint Against

SANDCO SANDCO PUBLICATIONS, and UNIVERSAL SCIENCE CHURCH, INC.
3414 Ninth Street at
Ceres, California 95307

P.S. Docket No. 5/180;

10/11/77

Lussier, Edward F.

APPEARANCES FOR COMPLAINANT:
ThomasA. Ziebarth, Esq.
Law Department
United States Postal Service
Washington, D.C.

APPEARANCES FOR RESPONDENT:
Harley C. Sanders
Ceres, California

POSTAL SERVICE DECISION

This proceeding is before the undersigned on appeal from the Initial Decision rendered by Chief Administrative Law Judge William A. Duvall. Both parties have taken exception to certain portions of that Initial Decision.

The Consumer Protection Office of the Law Department, U.S. Postal Service, as the Complainant in these proceedings, charged that the above-named Respondent was using the mails in a scheme or device to obtain money through the use of false representations in violation of 39 United States Code § 3005. Specifically the Complaint alleged that the following representations were being made by Respondent:

"(a) He is offering employment consisting simply of folding and stuffing his circulars into pre-addressed, stamped envelopes at a rate of $50.00 per hundred to any person remitting the sum of $13.20 for an 'instruction kit''

(b) He furnishes all of the circulars and envelopes already stamped and addressed;

(c) He needs homeworkers to stuff his circulars into envelopes in order to avoid the necessity of renting a larger building, hiring more inside employees, taking out insurance or working present employees overtime;

(d) The homeworker is guaranteed to earn 50c / cash for each envelope stuffed;

(e) Persons remitting the sum of $1.00 in response to Exhibit '2' (or advertisements similar thereto) will receive 'details' of a 'foolproof system' enabling them to earn '$52,000 yearly...at home, mailing letters';

(f) He will print and mail out the sales letters at his expense to persons responding to his dealers' classified advertisements under the promotion described in Exhibits '3' through '5';

(g) He will place additional classified ads for a dealer at his cost if the initial ads do not draw sufficient responses to enable the dealer to make money under the promotion described in Exhibits '3' through '5';

(h) He needs homeworkers to collect names for his mailing lists because he is unable to 'find the names to mail to' (see Exhibit '6'); and

(i) He will pay $1.00 to the homeworker for each name collected according to his instructions (see Exhibit '6')."

The Initial Decision, while finding that all the above representations were in fact made by Respondent, upheld the Complaint on the basis of the falsity of the representations charged in subparagraphs (a) and (b) and dismissed the remaining charges for lack of proof. Complainant takes exception on appeal to this dismissal except for the dismissal of subparagraph (g), the falsity of which it concedes was not shown by the evidence. Respondent principally takes exception to the Initial Decision applying to Sandco and Sandco Publications but also raises a number of other exceptions to the Initial Decision.

To understand the exceptions the matter must first be put into proper perspective which requires an explanation of what, and how, Respondent sells. There are essentially three work-at-home programs which the Complaint allegations deal with.

Although interrelated they may be separately identified as the "Stack of Cash" promotion, the "Plan 1" promotion and the "Collect Names For Us" promotion.

The "Stack of Cash" promotion is a circular soliciting $13.20 for an instruction kit for a homeworking plan for earning money by stuffing envelopes. The circular is introduced with the broad, bold print caption "YOUR CHANCE TO MAKE A STACK OF CASH with our formula..." It is best grasped only in full context. The text of the circular reads in full:

"Dear Friend:

"HOW WOULD YOU APPRECIATE THE OPPORTUNITY OF EARNING $50.00FOR EVERY ONE HUNDRED ENVELOPES THAT YOU STUFF WITH OURCIRCULARS? If you are honest and reliable, you certainly can earn this much and more working in your spare time as a homeworker for our company. There are many fine advantages working from your own home. No time clocks to punch, no traffic to get under your skin to and from work. Your age or where you live does not matter in the least. IF YOU CANFOLLOW SIMPLE EASY TO FOLLOW INSTRUCTIONS]

"YOUR WORK IS SIMPLE AND PLEASANT, NO EXPERIENCE REQUIRED]

You simply fold and insert our circulars into the furnished stamped, self-addressed envelopes you will receive by following instructions. It's as easy as that] No addressing or typing on your part required.

"MANY PEOPLE ASK WHY DO WE NEED HOMEWORKERS, WHY DON'T WE DOALL THE WORK OURSELVES? Answer: Because we are currently expanding our mailing program, we don't have the time or necessary space to hire more inside employees without having to obtain more space. By you and many others doing the envelope stuffing and mailing work from your home, you save us 1,000's of dollars yearly. We don't have to buy or rent a larger building, hire more inside employees, take out insurance, or work our present employees over time.

"HOW MUCH MONEY CAN I EXPECT TO EARN? Answer: For each envelope you stuff with our circulars, WE STRICTLY GUARANTEEYOU WILL EARN 50c / CASH]Just think] 100 envelopes....$50.00, 200....$100.00, or 1,000 and you earn a whopping $500.00 CASH] In short, what you earn is strictly up to you] Keep in mind, you work from the complete comforts of your home] Put in the hours of your choice and your earnings are unlimited] A few hours a day or weekend is really all the time needed.

"MANY OF OUR PRESENT HOMEWORKERS ARE EARNING $150.00 WEEKLYBY STUFFING AS LITTLE AS 300 ENVELOPES PER WEEK IN THEIRSPARE TIME] You can do it, too] The best thing about this kind of homework is that it is so easy to get started. All your dealings with us are done entirely by mail. Therefore, there is no time lost for pickups and deliveries. We furnish all circulars to be stuffed, the envelopes that you will receive by following instructions will be already stamped and addressed.

"In addition to showing you how to earn 50c / or more for each envelope stuffed for us, we also show you how to obtain addressing work from local businessmen, professional men, private individuals and by mail from 'MAIL ORDER FIRMS' listed with us.

"Now, in order to get started right away stuffing envelopes with our circulars, we have prepared an 'Instruction Kit' to guide you every step of the way. Before you start doing the actual work we want you to know of the many fine opportunities opened to you in this field. Our plan is indeed unique and offers so many benefits that they are much too numerous to mention here.

"If you have tried only plans that have failed, then you owe it to yourself to give this program a fair trial as you have absolutely nothing to risk. We guarantee that if you follow our instructions, you will definitely earn $50.00 for every 100 envelopes you stuff.

"REGISTER NOW AND GET STARTED AT ONCE] We want you to become one of our happy homeworkers. To keep out curiosity seekers and those only interested in wasting our valuable material, we must protect our interests by requiring a small Registration Fee of only $13.20. This fee makes you a permanent homeworker and active member of our COOPERATIVEMAILING ASSOCIATION which provides you with work to do in your home.

"ACT NOW] We give preference to prompt applicants. No further information can be given without an order for our instruction kit. Send in your application and $13.20 Registration Fee today. By return mail your kit containing the required instruction material will be rushed to you as fast as humanly possible.

"PERSONAL CHECKS ACCEPTED]...However, we reserve the rights to hold all such orders until check clears. Orders paid for with money-orders, certified checks or cash can be shipped in five (5) working days or less. Due to the nature of this offer, all sales are final."

The instruction kit which is received is entitled "Stuffing Envelopes: Road to Riches" by Harley Sanders, the owner of Respondent Sandco and Respondent Sandco Publications and the founder of the Respondent Universal Science Church. It was his testimony at the administrative hearing that Sandco and Sandco Publications ceased sending out directly to consumers the "Stack of Cash" circular in late 1976 (Tr. 4, 91, 92). Respondent Universal Science Church does send the circular out, however (Tr. 99). The differences in the circulars are minor and explained in the Initial Decision. Mr. Sander's further testimony is that he started in this mail order business four years ago and in his first year lost $13,000. In his second year he made $52,000 and within six months was making $1,000 a day which continues to be his present rate of income (Tr. 85, 86, 100).

The instruction pamphlet, above referred to, describes for the first time to the prospective homeworker the envelope stuffing plan. What he is told now to do for the envelope stuffing employment is to place an advertisement in a newspaper or magazine, reading as follows:

"HOMEWORKERS WANTED. Stuff envelopes with our letters in pre-addressed, pre-stamped envelopes for 50c / each. Send a self-addressed, stamped envelope for details. Your name, your address." It is the responses he receives from such an advertisement which will provide him with the self-addressed stamped envelopes mentioned in the "Stack of Cash" circular. Into each such envelope, if indeed any are received, he is told to place a sales letter the further response to which, if again, there is any, will result in his receiving $1. He is told that the long range response to be expected to the sales letter is 50% thus giving him a return of 50c / for each such sales letter he stuffs as promised in the "Stack of Cash" circular.

In effect the money-making opportunity described in the "Stack of Cash" circular in terms of envelope stuffing is revealed, in truth, as depending upon the placement, at the homeworker's expense, of independent advertising and the obtaining of a favorable response thereto before any stuffing is even involved, and then a second favorable response to the circular being stuffed before any money return is realized.

Respondent's own instruction pamphlet in comparing the pulling power of an advertisement which leads the reader to believe he is becoming involved in simple envelope stuffing as against an advertisement which clearly indicates he is going into his own mail order business recognizes that the reader of the pamphlet may not see the distinction as quite so honest as the pamphlet contends by also pointing out that:

"Perhaps you have objections to using this method of stuffing envelopes because you feel it is 'an endless chain.' That is, it is an ad that sells an ad that sells an ad, etc., etc., adinfinitum. This is not true, because you do sell other things as well (or at least we advise you to) so it is not an endless chain. True, you may work it this way if you choose, but you are not required to. Nor are the dealers you recruit required to become a part of an endless chain. They, too, have the option to 'go off on a different tangent' if they so choose. Here's how:" It then goes on to offer the option of the homeworker going into the "Collect Names For Us" promotion as follows:

"Instead of running the ad for homeworkers, you may use the 'COLLECT NAMES' ad and mail out the collect names circular to supply the inquirer with details. In fact, this program is more profitable than the 'Dear Homeworker' program.

"It pulls in $2 orders where the DH plan only pulls in $1 orders. You are selling information that instructs the reader how to make money collecting names. And it is a good, legitimate plan. You merely run an ad that says something like this:

COLLECT NAMES FOR $1 EACH. WE PAY. INSTRUCTION KIT $2 or FREE DETAILS. YOUR NAME AND ADDRESS.

"When the reader responds you either have an inquiry or a $2 sale. If he wants details, you send him a copy of the COLLECT NAMES circular and he will buy from that. In either case, you make $1 on each sale, send us $1 and we fill the order for you." The "free details" consist of a "Collect Names For Us" circular asking the inquirer to purchase the instruction kit for $2. The "instruction kit" is another circular which advises the purchaser to place an advertisement similar to the one quoted above which he replied to, and how to use the "Collect Names For Us" circular himself. While the instruction kit also advises that the names so "collected" may be used to sell other unnamed commission products through the mail the main thrust is addressed to the repetition of the "Collect Names For Us" plan.

Viewed from any perspective the misrepresentations are obvious and they are doubly invidious because of their self-perpetuating aspects which directly promote their deliberate spread to unwitting third parties. In essence the prospective purchaser, by carefully couched language, is being led into the belief that he will receive employment whereas in fact he is being sold a program to go into the mail order business by misleading others in the same fashion.

Thus, it can be readily seen that in the "Stack of Cash" promotion the representation which Respondent makes that he needs homeworkers to stuff circulars in order to avoid the necessity of renting a larger building, hiring more inside employees, and taking insurance or working present employees overtime (Complaint allegation (c)) is materially false when viewed in context It is calculated to convey the paramount need for labor whereas Respondent is in reality interested in selling the "homeworker" a $13.20 instruction kit and also receiving a part of any profit from the "homeworker" acting as his agent to extend the scheme to others. Any argument that the representation has elements of literal truth to it becomes a sham under these circumstances. The same conclusion must be reached for the representation that the homeworker is guaranteed to earn 50c / cash for each envelope stuffed (Complaint allegation (d)). As previously noted the 50c / is not received for the simple task of stuffing an envelope but rather is dependent upon the purchaser going into his own mail order business and developing business. The misrepresentations can hardly be viewed as not material. See R. P. Sales, P.S. Docket No. 6/1 (Aug. 24, 1977).

The same conclusion follows for the "Collect Names For Us" promotion. Complaint allegations (h), that Respondent needs homeworkers to collect names for his mailing lists because he is unable to find the names to mail to and (i), that he will pay $1.00 to the homeworker for each name collected according to his instructions, are specifically related to this promotion. It has the same inherent chain of misrepresentation. Even though Respondent might use the names for other sales promotions the heart of the "Collect Names For Us" promotion is not collecting "names" but in inducing others to make the same purchase of the "Collect Names For Us" promotion ad infinitum. While these two charges could have been phrased differently they nevertheless highlight two of the larger inducements to the ordinary reader of the "Collect Names For Us" promotion which, taken in context, form an essential part of the underlying misrepresentations. I consider them sufficiently infected thereby to support the charge of misrepresentation.

Coming now to the "Plan I" promotion a brief description is necessary here. The "Plan I" promotion put out under the name of Sandco Publications, consists of three circulars sent out at one time, either unsolicited (Tr. 9, 29) or in response to an advertisement. The particular advertisement in evidence was in "Moneysworth" magazine and reads as follows:

"I MAKE

BREAD]

(LOTS OF IT])

$52,000.00 YEARLY, TO BE EXACT...

At home, mailing letters. So can you.

Easy, pleasant work. Full or part

time. Proof authenticated by Wells-

Fargo Bank. Not a course or book but

a fool-proof system. Details & proof,

$1. SANDCO-11, Ceres, CA 95307."

(Complainant's Exhibit 4)

The circulars constituting what has been termed the "Plan I" promotion solicit $100 in return for the Respondent's starting the "Plan I" purchaser in the mail order business by placing two classified advertisements in a national magazine and furnishing 500 each of a certain sales letter with envelopes and return envelopes. ^1/ The way it works, as described in the circular, is that Respondent is to place the classified advertisement so that the response to the advertisement will come to the "Plan I" purchaser. He in turn will send it to Respondent along with a completed mailing label with the customer's name and address. Respondent will then send out the sales letter and return envelope "so it appears you yourself mailed it out." While not stated in the circular the sales letter being utilized by Respondent is the "Stack of Cash" circular (Tr. 67, 68, 81). For every order for the product, i.e., the "Stuffing Envelopes Road to Riches" pamphlet, so sold the "Plan I" purchaser keeps $9 and remits the other $4.20 to Respondent.

Subparagraphs (e) and (f) of paragraph 3 of the Complaint charging certain specific material misrepresentations in connnection with "Plan I" were found unproven by Judge Duvall and to these conclusions Complainant has taken exception. The representations are that persons remitting the sum of $1.00 in response to the "Moneysworth" advertisement will receive details of a foolproof system enabling them to earn $52,000 yearly at home mailing letters (subparagraph (e)) and that Respondent will print and mail out the sales letters at his expense to persons responding to "Plan I" advertisements (subparagraph (f)).

While two witnesses testified that Respondent did not uphold his part of his bargain as to mailing out letters, I agree with Judge Duvall that the evidence falls short of establishing that the representation is therefore false. One witness testified he at one time received a note from Respondent returning the labels with advice that Respondent had a press breakdown and was going to send him the envelopes and circulars for his own mailing but never did so (Tr. 22). The other witness testified that he received 500 circulars from Respondent with a note saying he should send them out and would only have to send the Respondent $3.50 instead of the $4.20 (Tr. 67). These two occurrences, however suspicious, are not shown to be other than isolated instances and are insufficient to establish material falsity of the representation.

As to the representation in subparagraph (e) the matter is somewhat different. This relates to the "Moneysworth" advertisement claim that the purchaser will receive "Details" of a "foolproof" system for making $52,000 a year "mailing letters." Complainant urges in essence that the most important detail, the nature of the sales letter, is missing from the "Plan I" circulars and that the emphasis upon "mailing letters" is materially misleading. I believe this is an accurate evaluation. Even though there is some literal truth to the advertisement it is the deliberate first step in involving others unwittingly in the "Stack of Cash" schemes against third parties. As held in Donaldson v. Read Magazine, 333 U.S. 178 (1948) at p. 188:

"Advertisements as a whole may be completely misleading although every sentence separately considered is literally true. This may be because things are omitted that should bee said or because advertisements are composed or purposefully printed in such a way as to mislead."

Here the scheme not only dupes the initial purchaser but draws him into participation in the broader self-perpetuating scheme.

Thus I agree with Complainant's conclusion citing from UnitedStates v. International Term Papers, Inc., 477 F.2d 1277 (1973), that the subject case involves not only the conventional two-party arrangement where

". . . the seller of . . . investment opportunities, or services sends false information about them through the mails to the intended victims . . . . " but also a more sophisticated scheme for "exploiting third party victims. United States v. International Term Papers, Inc., supra, at p. 1279. The essential element in the third party exploitation as expounded by the court is that that seller Respondent possess knowing cooperation in the scheme. That element is obvious in this case.

Respondent's argument that Sandco and Sandco Publications no longer solicit directly with the "Stack of Cash" circular to avoid competition with their "dealers" and that Universal Science Church only uses it directly on occasion (Tr. 99, 116) does not support Respondent's request that the mail stop order be in the nature of a "cease and desist" order which is not the type of order contemplated by the statute. Moreover, it completely overlooks the snowball effect of the schemes in issue. Respondent Sandco and Sandco Publications' continued operation in support of the "dealers" is so inextricably woven into the scheme that a mail stop order which did not recognize this would do violence to the intent to be served by the false representation statute which is the protection of the public. Thus the use of the mail by any of the entities named as a Respondent herein to further promote, or cooperate in, any of the three promotions at issue in these proceedings is the proper subject of a remedial mail stop order issued under 39 U.S.C. § 3005.

With respect to Respondent's concern over potential disruption to its business activities as a result of a mail stop order my comments in Jay Norris Corp., P.S. Docket No. 4/152, are equally applicable here.

"The need for Respondent to open its mail at the post office to ascertain which is deliverable to it and which must be returned to senders imposes a necessary burden on both parties. However, it is appropriate to note also that when a firm utilizes the mails for the conduct of its business and in the course thereof falsely represents a product it must bear a certain burden of inconvenience normally flowing from its own actions."

Respondent's other exceptions which go to the merits of the material misrepresentation issues have been considered and are implicitly rejected by my findings and conclusions contained in the body of this Decision. With respect to Respondent's exceptions to the testimonial evidence it must be noted that it is not the testimony of the users but rather the very materials which Respondent uses and the manner of their use which constitute the hard evidence of misrepresentation in this case. Finally, its newly raised objection to the amendment of the Complaint prior to the hearing to include the Respondent Universal Science Church is seen as without merit when the record of proceedings is reviewed.

Conclusion

I am upholding the dismissal of Complaint allegations 3(f) and (g) but as to Complaint allegations (c), (d), (e), (h), and (i) I find that, taken in context, they are materially misleading and accordingly Complainant's exceptions to the dismissal of those charges are upheld. Respondent's exceptions to the Initial Decision are disallowed. An appropriate remedial order under 39 U.S. Code § 3005 is being issued forthwith.

1/ Plans 2 and 3, also mentioned in the circulars, are for double and triple the number of advertisements and materials at double and triple the price.