In the Matter of the Complaint Against

INTERNATIONAL SEWING MACHINE DISTRIBUTORS
Post Office Box 924 at
Norman, Oklahoma 73069

P.S. Docket No. 5/64;

09/08/77

Lussier, Edward F.

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

APPEARANCES FOR RESPONDENT:
James J. Robertson, Esq.
Kagay, Turner, Eyres & Robertson
Dallas, Texas

POSTAL SERVICE DECISION

The subject proceeding is before the undersigned on Complainant's appeal from the Initial Decision of Administrative Law Judge Rudolf Sobernheim. That decision concluded that the specific charges in the Complaint instituting this proceeding were not proven by Complainant.

Respondent sells sewing machines. Names of prospective purchasers are obtained when an individual fills out an entry blank at a cooperating local outlet. The entry blank gives the individual a chance to win a sewing machine. All entry blanks, other than the winner, are then used by Respondent to solicit the purchase of one of Respondent's sewing machines. The entrant is advised by mail that he or she has been "selected" as a "second prize winner" and entitled to a "check" good for $200 toward the purchase of a $299.95 sewing machine thereby permitting purchase for the price of $99.95. Other details are set forth in the Initial Decision and need not be repeated at length here.

The Complaint charges that Respondent falsely makes the representations that:

"(a) The recipient of the circular and proforma 'check' has been selected by the Judges as a second prize winner in the 'Win a Dressmaker' drawing; and

"(b) The 'Dressmaker' or 'Goodhousekeeper' sewing machines featured in Respondents' promotional materials (or sewing machines substantially identical thereto) are regularly and usually sold at retail for $299.95." The Initial Decision held that the first representation, although made by Respondent, was not false and that the second representation is not made by Respondent.

Complainant has filed thirteen exceptions to the Initial Decision. Although some exceptions appear minor on their face others quite obviously raise substantive questions which could affect the ultimate result. Each will be taken up in the order presented.

Exception One

Complainant takes exception to Finding No. 1 that "International Mail Order Company is engaged in the sale of sewing machines under the name and style of International Sewing Machine Distributors at Norman, Oklahoma 73069." Complainant's basis for this exception is that the Respondent in this case is a Mr. W. C. Adams who signed the answer in this proceeding. Complainant contends that International Mail Order Company is merely another trade style of Mr. Adams appearing only on the entry blank (Complainant's Exhibit 1). This may well be true but is not shown one way or the other by reference to the record. The record reveals no motion at any time to amend the Complaint to add W. C. Adams as a Respondent. Accordingly, the only proper Respondent in this case is the named Respondent, International Sewing Machine Distributors. To the extent only that Finding of Fact No. 1 may incorrectly imply that International Mail Order Company is the Respondent in this proceeding the exception is allowed.

Exception Two

Complainant takes exception to that part of Finding No. 2 that "customers for the sewing machines are obtained through 'drawings' conducted by cooperating outlets." The basis for this exception is that customers are selected through entry blanks and not "drawings" since all but the winner of the particular drawing receive the "consolation prize." I see no inconsistency in the finding. There is in fact a drawing for a winner and the Initial Decision elsewhere makes clear that all of the other entrants are treated as "second prize winners." The exception goes more to the ultimate conclusions which will be treated in a later portion of this decision. As to this specific finding it is disallowed.

Exception Three

Complainant takes exception to the phrase "second prize winner" contained in Finding No. 7 which reads in full:

"The so-called $200 check is not drawn on any bank and usable by the second prize winners or their assignees only in completing the purchase of a new sewing machine." This exception, like the previous one, is based more upon the ultimate conclusion regarding what Complainant considers the heart of the deception, i.e. the idea that the recipients have actually "won" something. The finding must be read in conjunction with Finding 31a(i) which concludes that:

"(i) No entrants can in the light of the stated rules be led to understand other than that their selection as second-prize winners is based solely on their non-selection as first-prize winner and, of course, proper completion of the entry blank." Finding No. 7 is amended to put the words "second prize winners" in quotation marks. To this extent the exception is allowed.

Exception Four

Complainant takes exception to that part of Finding No. 8 which states that "The 1977 machine . . . will make stretch stitches for sewing knit fabrics." It contends that the only evidence to so indicate is the current letter being sent by Respondent to entrants (Complainant's Exhibit 4). As I read the finding that is all it means to say. So read it is accurate and the exception is disallowed. Complainant's further comment contained in this exception regarding the inconsistency of the 1975 sales literature stating that the sewing machine has 24 cams when the accompanying picture shows 30 cams is immaterial as is Complainant's further reference to testimony regarding the capability of the machine to make a "true stretch stitch" since neither matter was made a part of the pleadings or otherwise properly made an issue in this case.

Exception Five

Complainant takes exception to that part of Finding No. 13 which states that "All entrants are plainly informed on the entry blank that they will receive a 'consolation prize' if not the first place winner and that such price is in effect the so-called check toward the purchase of merchandise offered by International Mail Order Company." Here again Complainant's basic assignment of error is not addressed to the literal finding but rather to the conclusions to be drawn from it. The matter is raised again in Exception 11 infra and will be taken up in connection with the exception and argument dealing with ultimate conclusions. Literally Finding No. 13 is supported by the language of the entry blank which advises that " other than the winner all other entrants will be mailed a consolation prize of a $200 merchandise certificate good toward the purchase of merchandise offered by I.M.O. Co." This exception accordingly must be disallowed.

Exception Six

Complainant takes exception to Finding No. 14 to the extent that it fails to find the use of the $299.95 figure in the context of the advertising materials, i.e. the use of the discount "check," is a representation as to "regular" or "usual price." The ruling on this exception goes to the most material part of the appeal and is reserved for treatment with Complainant's later exception to the ultimate findings and the arguments therein.

Exception Seven

Complainant takes exception to that part of Finding No. 15 which states that "the 1977 version has a stretch-stitch capability which the 1975 version lacked." This exception is disallowed as immaterial for the reasons given in connection with Exception Four above.

Exception Eight

Complainant takes exception to the reference in Finding No. 18 to the "stretch stitch attachment to the 'Dressmaker'." It contends that to give the machine a "true stretch stitch capability" it would be necessary to employ a mechanism increasing the cost from $15 to $40. The existence of such an attachment is recognized by Finding No. 18. Complainant's main thrust here appears to be the same as its contention in connection with Exceptions Four and Seven above, namely that the machine does not have a true stretch stitch capability. The exception is disallowed for the reasons previously given.

Exception Nine

Complainant takes exception to Finding No. 19 which found that as of December 1976 Respondent had sold approximately 16,000 to 17,000 "Dressmaker" sewing machines to entrants in the drawings. Complainant would correct this finding to show that the figures given are only for a one-year period and the promotion was in operation for a longer period. The record supports the correction and the finding is so modified (Tr. 6, 287).

Exception Ten

Complainant takes exception to Finding No. 21 in that it failed to also find that the sales made via Respondent's newspaper advertisements featured "No Money Down--No Interest--No Credit Check." This fact is clearly established by the newspaper advertisements (Respondent's Exhibits 8, 9) and the finding is hereby modified to include it. Respondent contends it is irrelevant and an attempt to introduce a new issue but the advertisements are Respondent's own exhibits and this term of the advertisement is as relevant as the others mentioned in Finding No. 21. The exception is allowed.

Exception Eleven

Complainant here refers back to Finding No. 4 and excepts to the finding that the entry blank which is in current use ends with the sentence:

"All other entrants will be mailed a consolation prize of a $200 merchandise certificate good toward the purchase of merchandise offered by I.M.O. Co."

(Complainant's Exhibit 1)

Complainant's basis for this exception is that the quoted sentence is taken from an entry form which was formerly in use and that the current entry blank contains no mention of the dollar value but states simply that:

"All other entrants will be mailed a consolation prize of a merchandise certificate good toward the purchase of merchandise offered by International Mail Order Co., 334 West Hurst Blvd., Hurst, Texas."

(Complainant's Exhibit 4)

The Initial Decision cites transcript page 309 as the basis for the statement that the entry blank in evidence as Complainant's Exhibit 1 is the current form. The cited testimony which is that of Mr.Don R. Ball, a management consultant to Respondent, so indicates. However, this is contradicted by Complainant's Exhibit 4, and the representations made by Counsel for Respondent, and Mr. Ball, regarding the discontinuance of the use of Complainant's Exhibit 1 in 1976 and use of Complainant's Exhibit 4. But whether Complainant's Exhibit 1 is currently in use or not it is clear that Complainant's Exhibit 4 is also in use and the finding is hereby so modified.

Complainant also considers Finding No. 4 deficient for its failure to mention that each of the entry blanks has a prominent headline which reads:

"FREE - FREE - FREE

REGISTER HERE AND WIN FREE PRIZES". The quoted language is relevant to the issue in this case and the finding is accordingly modified to include it.

Exception Twelve

Complainant takes exception to the absence of the following findings of fact in the Initial Decision:

"(a) Only a tiny fraction (less than 1%) of International Sewing Machine Distributors' total sales were at prices higher than the $99.95 net price paid by persons utilizing the so-called 'check'; (Proposed Findings, p. 13.)

"(b) Respondent's regular and usual price for the 'Dressmaker 2400' sewing machine is $99.95; (Proposed Findings, pp. 13, 14.)

"(c) 80% or more of all of the sewing machines of the type involved in this proceeding (viz., the 'Dressmaker Model 2400' or sewing machines substantially identical thereto) are sold at retail for net prices of $99.95 or $99.50 by Respondent and one competitor, City Sewing Machine Company of Marysville, Kansas. (Proposed Findings, pp. 15, 16.)"

As to the first proposed finding the record makes it clear that only a small fraction of Respondent's total sales were at higher prices than the $99.95 net price. The record does not make it clear, however, that the proportion was less than 1%. The record reveals that during a one-year period approximately 16 or 17 thousand machines were sold at that price (Tr. 281) and that direct advertising sales between March or April 1976 and the hearing in December 1976 amounted to "several hundred" sales (Tr. 280, 295). The parties' discussion on transcript pages 282-284, with respect to some 94 copies of direct sales contracts at higher prices does not establish that number as the total of such sales and it cannot be implied in view of the direct testimony that there were several hundred such sales (Tr. 295).

As to the second proposed finding that Respondent's regular and usual price for the "Dressmaker 2400" sewing machine is $99.95 the record is clear that this is the case in fact. Its importance to the case will be taken up in addressing the major arguments to follow.

The record supports the third proposed finding, namely that 80% or more of all "Dressmaker 2400" sewing machines, or substantially identical sewing machines, are sold at retail for net prices of $99.95 or $99.50 by Respondent and one competitor, City Sewing Machine Co. of Marysville, Kansas. The finding is supported by the testimony of Mr. Joseph M. Arendash. Approximately 2,500 of these sewing machines come into the United States every month (Tr. 158). His testimony is that 1,000 to 1,100 go to City Sewing Machine Company. Eliminating 500 machines which are sold under the Nelco Model 209 label (Tr. 159), the remainder go to Respondent (Tr. 159). This means 900 machines go to Respondent and 1,100 machines go to City Sewing Machine, a total of 2,000 machines, or 80%, out of a total of 2,500 machines. Respondent's witness, Mr. Don R. Ball, testified that at the time of the administrative hearing in December 1976 the Respondent alone was bringing in 2,500 such machines and brought in 2,000 the previous month (Tr. 292). The apparent discrepancy is explained by the fact that the latest figures Mr. Arendash had were for September 1976 (Tr. 311).

Complainant's Exception Twelve is allowed to the extent above indicated in amplifying the Findings. The materiality of those findings is another matter to be taken up next with consideration of the major arguments in the cases and Complainant's last exception.

Exception Thirteen

This exception is to all of Finding No. 31 which contains all of the ultimate findings of fact in the case.

In Finding of Fact No. 31 it was concluded that the first representation charged in the Complaint was in fact made but was not materially false and that the second representation charged was not made. The first representation charged is that "the recipient of the circular and proforma 'check' has been selected by the Judges as a second prize winner in the 'Win a Dressmaker' drawing." The Administrative Law Judge found that this representation was not false because of the information contained on the entry blank from which he concluded "no entrants can in the light of the stated rules be led to understand other than their selection as second-prize winners is based solely on their non-selection as first-prize winner and, of course, proper completion of the entry blank." He further found that even assuming that the entrant entered the drawing in ignorance or incomprehension of the foregoing, any falsity in the representation would not be material because "the entrant does not likely care how he becomes second prize winner" (Findings 31a(i) and (ii)).

The second representation charged in the Complaint and which the Initial Decision concluded was not made by Respondent is that the Dressmaker ^1/ sewing machines sold by it or substantially identical sewing machines are regularly and usually sold at retail for $299.95. After so finding the Initial Decision went on to conclude in Finding No. 31c that:

"c. The representation which respondent does make is the far more nebulous one, to wit: that the Dressmaker sewing machine sold by it, whether the 1975 or 1977 model, is a '$299.95 . . . Sewing Machine.' Such an allegation may well be, and might on the record be shown to be, false and materially so since the expectation or lure of a bargain would be a powerful magnet in attracting purchasers to respondent's sewing machines. But what makes a sewing machine a $299.95 item may require evidence other than that offered here, focusing on the alleged regular and usual retail price in the light of complainant's allegation in paragraph 3(b) of the complaint."

With respect to the conclusion that the first representation, although made, is not materially false I must respectfully disagree. In my judgment the foundation for such a conclusion rests on too literal a view of the language and too narrow a view of the importance of the representation. One need only view the letter Respondent uses to see the importance Respondent attaches to creating the impression that the recipient of the letter has been "selected" as a substantial winner in a contest drawing. The distinction between being "selected" as a second place prize winner and merely receiving a consolation prize to which all entrants are entitled cannot be considered minor. The impressive response reflected in the Respondent's sales record stands as mute testimony of the effect of this sales approach upon prospective purchasers. To suggest that the prospective purchaser "does not likely care how he becomes a second prize winner" (I.D. p. 12) appears to me to beg the question in that the whole thrust of that representation creates the false impression that the individual has been singled out as a big winner in a contest drawing and nothing could be further from the truth.

Even if one assumes some entrants may have read and remembered the advice on the entry blank that all entrants other than the winner of the machine would be mailed a consolation prize of a $200 merchandise certificate it cannot be assumed for all entrants. Moreover, the current entry blank does not mention any amount for the merchandise certificate and to expect the ordinary person to associate this with the letter of "congratulations" advising that "The Judges have selected your entry as a second prize winner" is unrealistic. It may be that a certain proportion of the population would look with askance upon any "prize" which requires a further payment to obtain. But it is certain that a goodly number of the general populace would not. These would most certainly be misled. They have in fact won nothing. Rather by simply filling out legibly their names and addresses they are being solicited to purchase a sewing machine for $99.95 which is the price at which Respondent sells this particular machine for all intents and purposes. ^2/

This leads to the second conclusion of the Initial Decision with which I also disagree, namely that the promotional material used by Respondent do not represent that the "Dressmaker" sewing machines are generally and usually sold at retail for $299.95. The Initial Decision implies that had the Complaint alleged instead that the promotion represented the value of the machine as $299.95 this might have been upheld but makes no holding as that charge is not made. It is to be observed that the findings of fact also make note of the evidence with respect to retail sales of this type machine by others than Respondent at asking, and sometimes actual sales, prices, above the $99.95 and point out the great divergence of prices and the fact that sales at discount are the normal rule than the exception.

As to the specific charge it is not at all clear that the avoidance by Respondent of words such as "retail price" or "regular price" require drawing the conclusion that the representation charged was not in fact made. What is clear from this record is that $299.95 is not the Respondent's regular and usual selling price in the sense that it is what its customers would be either asked, or expected, to pay. A person being given a $200 "check" toward the purchase of a $299.95 machine would reasonably conclude that without the "prize" the machine would cost $299.95. ^3/ The "winner" has every reason to believe, therefore, that he is getting what he is told he is getting, something special, that is not available to the majority of people who pay $200 more. This is in simple truth the impression conveyed. It is inescapably the intended impression. It is not true and the lack of its truth hardly can be said not to be material.

Respondent as part of its Reply Brief request that should the Judicial Officer be "in any way inclined to reverse the Initial Decision" Respondent should be given further opportunity to develop an issue with regard to the manner in which one of Respondent's sewing machines came into the possession of Complainant. In so doing it refers to pages 7 and 8 of its Proposed Findings of Fact and Conclusions of Law filed with the Administrative Law Judge prior to the Initial Decision. Those pages refer to statements by Respondent's counsel reserving the right to raise the issue.

Respondent may, of course, reserve its right to argue an issue it puts the other party and presiding officer on notice of, but it has not argued this issue either to the Administrative Law

Judge initially or to the undersigned on appeal. It has no right to withhold argument, and much less evidentiary presentation, of an issue until completion of the administrative proceedings. It has not shown, nor does there independently appear, any valid reason for so doing here. Moreover, the particular sewing machine was never introduced into evidence and is not an evidentiary basis for this decision.

Respondent also contends that the Initial Decision in Security National Rare Coin Corporation et al., P.S. Docket No. 5/130 (Decided May 10, 1977) is compelling authority for the proposition that the money back guarantee controls. The unique facts existing in that case make it no precedent here for deviating from the time honored maxim that a money back guarantee does not suffice to overcome a material misrepresentation. See G. J. Howard v. Cassidy, 162 F.Supp. 568 (USDC ED NY, 1958); Iso-Tensor, P.S. Docket No. 3/30 (1975).

For the foregoing reasons I am compelled to reverse the Initial Decision and uphold the charges specified in the Complaint. Accordingly, an appropriate remedial order under the provisions of 39 U.S.C. § 3005 will be issued forthwith.

1/ The reference in this Complaint allegation to "Goodhousekeeper" sewing machines was properly dismissed in the Initial Decision.

2/ The evidence with respect to the few sales at higher prices by newspaper advertising beginning in March or April reveals that 82 out of the 93 sales contracts, offered presumably as representative, involved "free" sets of cookware which Respondent's own witness testified could range in value from $37 to $300 but for the most part consisted of the expensive cookware (Tr. 302).

3/ Either that or the "check" is not worth $200. Put that way, of course, the issue of value becomes apparent. The Complaint could have alleged it more broadly to cover the issue of market value, but not doing so this is not an issue in the instant proceeding.