In the Matter of the Complaint Against

G. R. PARO, G. R. PARO, PRESIDENT THE APARTMENT SELECTOR, INC.,
THE APARTMENT SEEKERS, INC., T.A.S. INVESTMENTS, SHEPHERD PUBLISHING,
PARO PUBLICATIONS, THE NATIONAL MAIL ORDER CONSULTANT'S CORPORATION,
NATIONAL CONSULTANT DIVISION, NATIONAL REPRESENTATIVES DIVISION,
EXECUTIVE SALES MARKETING DIVISION, FINANCIAL PUBLICATIONS DIVISION,
DOLLAR POWER,
750 North Salina Street, at
Syracuse, New York

13208 101 Kristin Road, at
North Syracuse, New York 13212, and

208 Grenadier Drive, at
Liverpool, New York 13088

P.S. Docket No. 6/111;

05/31/79

Cohen, James A.

APPEARANCES FOR COMPLAINANT:
Thomas A.Ziebarth, Esq.
Sandra C. McFeeley, Esq.
Consumer Protection Office
Law Department U.S. Postal Service
Washington, D.C. 20260

APPEARANCES FOR RESPONDENT:
Emil M. Rossi, Esq.
Jerry, Rossi, Tisdell & Moore
University Building, Suite 615
Syracuse, New York,
13202 Eric M. Alderman, Esq.
Alderman, Alderman, Samuels & Schepp
512 Loew Theatre Building
Syracuse, New York 13202

POSTAL SERVICE DECISION

Respondent has appealed from the Initial Decision of Chief Administrative Law Judge William A. Duvall holding that Respondent is engaged in the conducting a scheme for obtaining money through the mail by means of materially false representations in violation of 39 USC § 3005.

The allegations of the complaint which were considered in the Initial Decision are stated in two counts. Count I, in part, alleges that Respondent seeks remittances through the mail by falsely representing that:

"(3) ...

(a) The 'certified' mail order distributorship programs featured in Respondent's promotional materials are 'proven sales plans' in which the participating distributor is assured of profits ranging from $1000 to $3000 within thirty days for only a few hours work;

(b) The 'proven money making distributorship s ' featured in these promotional materials involve 'absolutely no major risks';

(c) The mail order distributorship programs featured in Respondent's promotional materials involve the same method utilized by Gary R. Paro in 'making a fortune' even when he was 'away on a 3 month vacation or at home in bed with a cold';

(d) The 'guaranteed' potential income projections set forth in Respondent's promotional materials are based on an actual 'test analysis...and active classified ad participation';

(e) Respondent's mail order distributors will be furnished with the names and addresses of 'fresh guaranteed mail order buyers' already typed on gummed labels;

(f) Respondent's mail order distributors will be furnished with 'proven' direct mail circulars 'absolutely guaranteering a $1,990 profit within 30 days';

(g) Respondent's advertising circulars, when mailed by participating distributors to the persons whose names and addresses appear on the gummed labels furnished by Respondent, are assured of a response rate of at least 10% thereby providing the distributor with a minimum gross return of one dollar for each circular that is mailed;

(h) Persons who elect to become an 'Executive Sales Marketing Coordinator' by investing in an inventory of Respondent's books are assured of substantially higher profits than those to be realized by ordinary distributors."

Count II alleges that by means of the Respondent's publication DOLLAR POWER Respondent knowingly seeks money through the mail to finance the distribution of false advertisements of the type described in Count I.

The Initial Decision found that the representations set forth in Count I, paragraphs 3(a), (b), (d), (e), (f), (g), (h), and Count II were material representations and that they were false. On the basis of the findings it was recommended in the Initial Decision that an order under 39 USC § 3005 be issued.

In its brief on appeal, Respondent has taken 17 exceptions to the findings and conclusions of the Initial Decision. These exceptions are considered in the order presented.

Exception 1

Respondent takes exception to the characterization of its program as a "chain letter" at pp. 3 and 18 of the Initial Decision. On the cited pages of the Initial Decision, Respondent's programs are likened to a chain letter because they are designed to operate with each set of distributors or investors selling to another similar group ad infinitum. A review of the record supports the finding that Respondent's programs operate in this fashion. Although Respondent's programs differ from the typical chain letter there is sufficient similarity in the manner in which the programs perpetuate themselves to analogize to a chain letter. Thus, the analogy used in the Initial Decision is proper.

Exception 2

Citing pp. 4 and 27 of the Initial Decision, Respondent takes issue with the finding that Respondent's promotions place greater emphasis on purchasing Respondent's materials than the "no investment plan." Support the findings of the Initial Decision that greater emphasis is indeed placed on programs requiring an investment as opposed to the no investment plan is found in the reference to CX-3 on p. 27 of the Initial Decision. Further support for the finding in this regard is found in the remainder of the exhibits of record. Thus, the evidence supports this finding and the finding is proper.

Exception 3

Respondent alleges that contrary to the finding and discussion at p. 13 of the Initial Decision there was no pervasive aura of a hard sell approach as there were warnings throughout Respondent's promotional materials. A reading of Respondent's promotional materials and consideration of those materials in light of the cited cases support the aura of hard sell found in the Initial Decision. The warnings in Respondent's promotional materials enhance the pervasive aura of the representations rather than detracting from them. The warnings themselves persuade each individual reader that he or she can and will be the one who will achieve riches through Respondent's programs. Thus, there is no error in this regard in the Initial Decision.

Exception 4

Respondent by this exception challenges the reliance placed on the testimony of Inspector Kormann at p. 14 of the Initial Decision. According to Respondent reliance on Inspector Kormann's statements are misplaced because the Inspector mistated that "all the books sold by the Respondent are similar and that it was necessary to make a $60.00 investment." Respondent has pointed out no other alleged errors in the Inspector's testimony and on review of the record no others have been found. With regard to the two alleged errors neither taints the remainder of the Inspector's testimony nor affects the ultimate conclusion in this case. Based on a review of the Inspector's testimony and considering the testimony of the Inspector with the testimony of the other witnesses and the exhibits, the record does not reveal that the Inspector's testimony is erroneous. The "similarity" referred to by the Inspector relates to the method of operation of the programs and the $60 investment relates to the purchase of flyers (Tr. 139, 189). The record supports this testimony. Thus, it was not improper to rely on the testimony of Inspector Kormann.

Exception 5

Respondent alleges that the Initial Decision on pp. 16 and 17 implies that the distributorship costing $10.00 is a better deal than the program involving the purchase of its book entitled "The Apartment Selector" at a cost of $19.95. According to Respondent this implication disregards the value of the book "The Apartment Selector." The implication alleged by Respondent can be found in the language of the Initial Decision. Insofar as a distributorship is concerned a reasonable argument can be made that the $10 investment is a "better deal." However, regardless of which is the better of the deals, on the facts presented neither turns out to be the good deal represented in Respondent's promotional materials. Thus, whatever is implied by the language of the Initial Decision does not affect the outcome of the case.

Exception 6

Respondent alleges that the discussion in the Initial Decision at pp. 14-15, 18, and 39, relating to Program No. 4 are improper inasmuch as there was no proof produced that anyone engaged in this program. As Complainant correctly points out on p. 12 of its brief, its evidence as to the falsity of representations made in connection with Programs 1-3 is essential to the findings relative to Program 4, since Program 4 involves nothing more than a combination of the first three. Having found false representations in connection with Programs 1-3 it was proper to find that the representations in connection with Program 4 were also false.

Exception 7

Respondent alleges that it was improper to rely on the testimony of Inspector Kormann on p. 19 of the Initial Decision because the Inspector did not engage in classified advertising and did not take advantage of Mr. Paro's offer of help.

The principal thrust of Respondent's programs is the use of its promotional materials not the use of classified advertising or Mr. Paro's assistance. Successful use of Respondent's promotions is not conditioned on the use of either. Rather, the overwhelming bulk of the promotion of Respondent's programs is directed at the use of its mail order circulars. Reference to the use of classified advertising in conjunction with mail order circulars is, at best, an oblique suggestion as found in the Initial Decision (ID p. 28). Moreover, classified advertising is primarily an alternate program, which is not as highly regarded by Respondent as its printed mail order circulars. Complainant's Exhibit 7 is a clear illustration of this. On p. 7 there is a single reference to classified ad participation in contrast to many pages of promotion of the use of mail order circulars. Then on p. 13 of the Exhibit, classified advertising is clearly stated to be an alternate program. On this page it is stated:

"The printed circular mail-order method is in our estimation the best program for investment of money by the beginning mail-order entrepreneur. However, many distributors are earning several hundred dollars each and every month utilizing our exclusive 'all profit, no investment' deal.

The 'no-investment' plan involves NO printed circulars or literature: You operate this idea with small direct-selling classified advertisements, covering as much territory as you wish: no more, no less. Classified advertising is very inexpensive and the profit margin is tremendous.

You could promote the sale of The Million Dollar Idea with any of the example classified ads listed below. You might think up advertising of your own that would be more suitable to the market you wish to reach. Read through these and determine if any of them suits your purpose."

Viewing Complainant's Exhibit 7 as a whole, the principal use of the classified ad participation is the orders it would generate under the no investment plan, not as an adjunct to the distribution of printed circulars. From a reading of this Exhibit as well as the others of record, I am not persuaded that an ordinary reader would consider classified advertising as part of Respondent's mail order circular program. Thus, the failure of the Inspector to use classified advertising does not diminish the weight of his testimony.

Further, although Mr. Paro's assistance is offered, success with the programs is not conditioned on this assistance. Accordingly, the failure to seek such assistance does not affect the weight of the testimony.

Exception 8

Respondent takes exception to the reliance placed on the expert testimony of Mr. Lourie at p. 24 et seq. of the Initial Decision. According to Respondent, Mr. Lourie has no experience in direct mail marketing which is the part of the mail order field being examined in this proceeding. Respondent also claims that the testimony of its expert witness went beyond the extent described in the Initial Decision at p. 33.

Mr. Lourie has extensive experience in the mail order field, no, admittedly not in the type of promotions used by Respondent. From a reading of Mr. Lourie's testimony, as well as that of Professor Wasserman, I can find no reason why Mr. Lourie's general knowledge and experience in direct mail marketing would not qualify him to testify with respect to the promotion involved in this proceeding. Accordingly, I am persuaded it was proper to allow Mr. Lourie to testify as an expert on direct mail solicitations and to rely on his testimony in resolving the disputed matters in this proceeding.

Professor Wasserman's testimony was characterized on p. 33 of the Initial Decision, with one exception, as being exclusively related to CX 35-42. Professor Wasserman's testimony on cross examination went beyond these exhibits. However, his testimony does not persuade me that the conclusions reached in the Initial Decision are incorrect. Accordingly, although the testimony was somewhat improperly characterized in the Initial Decision, the result reached is not affected.

Exception 9

This exception related to Inspector Kormann's testimony on the results of a questionnaire circulated by him and the alleged inference drawn from that testimony on pp. 30-32 of the Initial Decision. These pages have been reviewed but the inference alluded to is not apparent from the decision or further explained by Respondent. The exhibits which form the basis of the testimony were not admitted into the record and no reliance was placed on the contents of the exhibits. Thus, there is no merit to this exception.

Exception 10

Exception is taken to the finding that the representation charged in Count I, paragraph 3(a) of the complaint is false. According to Respondent it is unrealistic to require that each and every subscriber must make a profit. However, what Respondent overlooks is that it promotional materials, considered and interpreted in light of the decisions cited on pp. 11 and 12 of the Initial Decision, convey this impression to a reasonable reader. Thus, since it makes this representation it must meet this standard. The evidence establishes that in the instances in which Respondent's programs were tried they did not result in a profitable operation. On the basis of this evidence I am persuaded it is most probable that a profit cannot be made by subscribers to Respondent's programs. Therefore, I find no merit in this exception.

Exception 11

Respondent excepts to the finding at p. 35 of the Initial Decision that the representation charged in Count I, paragraph 3(b) of the complaint is false. Respondent claims it does not represent that a subscriber would take no major risks. Also it claims that no evidence was presented that its programs in fact were not proven money making propositions.

Respondent's promotions represent that their author took no major risks and that he is going to show a subscriber "how it's done." In context Respondent is clearly representing that a subscriber will take no major risks. The testimony of the subscribers to Respondent's programs persuades me that there are major risks involved in following Respondent's programs.

In connection with Exception 10, it was pointed out that there is evidence in the record establishing that in the instances in which Respondent's programs were tried they did not result in a profitable operation. This evidence persuades me that Respondent's programs are not proven money propositions.

Exception 12

By this exception Respondent takes issue with the reliance on Mr. Lourie's testimony at p. 37 of the Initial Decision. Respondent's position is that reliance should not be placed on the testimony of Mr.

In connection with Exception 8 it was stated that Mr. Lourie was competent to testify as an expert on direct mail solicitations and that, absent contradictory testimony of greater weight which is not found in the testimony of Professor Wasserman, reliance on Mr. Lourie's testimony was proper. This conclusion is equally applicable in connection with this exception.

Mr. Lourie's lack of direct personal experience in connection with work-at-home schemes does not diminish the reliance which should be placed on his testimony. Moreover, it should be pointed out that Respondent's expert witness did not directly contradict the testimony of Mr. Lourie, nor did he have any background in the mail order field.

Exception 13

Respondent alleges that the Initial Decision at pp. 20, 22, and 37 incorrectly find that the statements charged in paragraph 3(e) of the Complaint are false. The issue presented by paragraph 3(e) of the Complaint and Respondent's Exception 13 is whether Respondent's distributors were furnished with a list of fresh guaranteed mail order buyers. Relying heavily on the testimony of Mr. Lourie, the Initial Decision established a two-fold test to determine whether the mailing lists furnished by Respondent were lists of "fresh guaranteed mail order buyers" as represented. The first test is whether the mail was deliverable to the listed names, and the second test is whether orders were placed by persons on the list receiving mail order circulars.

With respect to the first test, three of the five sample mailings had an unacceptable rate of undeliverables. In the industry the lists from which these mailings were made would be considered to be "bad" to "dirty" (ID p. 37). The mailings based on two other mailing lists showed acceptable results. The total number of mailings of 2503 pieces from five mailing lists had a total of 373 undeliverables. This establishes an undeliverable rate of almost 15%, which in the mail order industry, signifies a "bad" list.

In connection with the second test four out of the six mailings resulted in unacceptable results in that the number of orders placed was less than .5%. Two of the six mailings resulted in acceptable results. The total number of mailings of 3003 pieces from six mailing lists resulted in a total number of 12 orders, or a response rate of .004%. This response rate is considered unacceptable in the mail order industry. None of the mailings approached the 10% return rate which was used as an example in Respondent's advertising.

Based on the evidence in the record the tests used were proper to determine whether Respondent furnished lists of "fresh guaranteed mail order buyers." The results of the tests are persuasive that Respondent did not furnish its customers with the names and addresses of "fresh guaranteed mail order buyers."

Exception 14

Respondent's Exception 14 takes issue with the finding in the Initial Decision that the allegations made in paragraphs 3(f) and (g) of the complaint are false. According to Respondent these findings are based on no more than an inference upon an inference and, as such, are without a sound foundation in the evidence. Respondent makes the representations contained in Count a the evidence presented establishes that the results represented in those paragraphs of the complaint will not be achieved by following the program advertised by Respondent. The findings of the Initial Decision are, therefore, correct.

Exception 15

Respondent alleges that the allegations and misrepresentations contained in Count I, paragraph 3(g) of the complaint, do not constitute misrepresentations but rather are no more than puffing. A reading of Respondent's promotional materials persuades me that an ordinary reader would reasonably understand that Respondent was representing that a 10% rate of return would be experienced and that this 10% was not merely puffing. This representation is not in accordance with the experience of those who followed Respondent's programs nor the response rates which are normally achieved in the direct mail order industry. Thus, the Initial Decision correctly concludes that Count I, paragraph 3(g) of the complaint has been proven.

Exception 16

Exception 16, in essence, is a reiteration of Exception 6. The evidence supports the finding that the representations relating to Program 4 are false.

Exception 17

In this exception, Respondent takes issue with the findings in the Initial Decision that Count II of the complaint is supported by the evidence and constitutes false representations in violation of 39 USC § 3005. Respondent reiterates all of the exceptions with respect to Count I of the complaint and in addition argues that there is no evidence in the record that this program was used or that there were unsatisfactory results. Also, Respondent alleges that the guarantee negates the falsity of the claim.

Having found that the allegations in Count I of the complaint have been proven to be false, the issue in Court II is whether these representations are knowingly being made for others to make. The Initial Decision imputes such knowledge to Respondent. The Initial Decision states:

"The low rates of responses to solicitations in respect to this program, the high number of names on the mailing lists to which mail containing solicitations was undeliverable, and the large loss percentages incurred by those investing in the TAS program are matters which Respondent either knows, or has the duty to know. If Respondent lacks knowledge that the results of engaging in his programs are such losing undertakings as are disclosed by this record, then Respondent displays such a reckless disregard for what the truth may be that such knowledge on his part may be inferred. Parker v. Summerfield, 265 F.2d 359 (1959); Darnall v. Darnall, 200 F.2d 747 (1952); United States v. Sylvanus, 192 F.2d 96, 105 (1951), cert den. 342 U. S. 943; Schwinn v. United States, 112 F.2d 74 (194), aff'd. 311 U.S. 616; Lehigh Zinc & I. Co. v. Bamford, 150 U.S. 665 (1893); Cooper v. Schlesinger, 111 U.S. 148 (1883) 30 Am. Jur, 2d Fraud and Deceit § 203; United States v. Cooperative Grain & Supply Co., 476 F.2d 47 (1973); Jones v. Fenton Ford, Inc., 427 F.Supp. 1328 (1977)."

Based on my review of the record, I am also persuaded that if Respondent is not aware that his programs are losing undertakings then of he displays such a reckless disregard of the truth that such knowledge on his part may be inferred. Further, the guarantee does not negate the falsity of the representations of Respondent's knowledge of such falsity.

Accordingly, I find no merit in Respondent's exception to the findings and conclusions relating to Count II of the complaint.

Following the 17 specific exceptions, Respondent reviews the testimony presented at the hearing in an effort to establish that the evidence does not support the conclusions reached in the Initial Decision. My review of the evidence of record persuades me that the allegations of the complaint have been proven. A review of Respondent's analysis of the evidence does not persuade me otherwise.

Respondent also argues that Complainant's reliance on Unique Ideas, Inc. v. United States Postal Service, 416 F.Supp. 1142 (S.D.M.Y. 1976) and United States v. International Term Papers, Inc., 477 F.2d 1277 (1st Cir. 1973) is misplaced. According to Respondent neither decision serves as precedent for the result reached in this case. Regardless of how Complainant went about selecting the method of proving its case, it has been established by a preponderance of the evidence that Respondent falsely represents the results which can be achieved by following its programs. It has also been established by means of reasonable inference that Respondent has knowledge of the falsity of its representations. On these findings the issuance of an order under 39 USC § 3005 is proper.

Accordingly, the Initial Decision is affirmed and a remedial order under 39 USC § 3005 is being issued contemporaneously with this decision.