In the Matter of the Complaint Against

TARRAGON,
3404 Michael at
Waukegan, IL 60085, and
P. O. Box 87363 at
Chicago, IL 60680,

P.S. Docket No. 6/169

February 9, 1979

Quentin E. Grant Administrative Law Judge

Appearance for Complainant:
Thomas A. Ziebarth, Esq.
Consumer Protection Office
Law Department U. S. Postal Service
Washington, D.C. 20260

Appearance for Respondent:
Raymond Waters, Promoter, pro se
3404 Michael Waukegan, Illinois 60085

INITIAL DECISION

In a complaint filed October 16, 1978, complainant alleged that respondent is engaged in various schemes or devices to obtain money or property through the mails by means of false representations in violation of 39 U.S.C. 3005.

The specific allegations of the complaint are as follows:

COUNT ONE

(1) Attention is attracted initially to said schemes by means of advertisements appearing in publications of general circulation which typically state:

"EARN MONEY stuffing our circulars into preaddressed envelopes. Send self-addressed, stamped envelope for complete details. Tarragon, 3404 Michael, Waukegan, IL 60085."

Persons responding to such advertisements are sent an advertising circular which is calculated to induce the recipients thereof to remit money through the mail. These advertising materials are placed or distributed by Respondent directly or indirectly through "dealers" acting by and at Respondent's suggestions and directions;

(2) Attached hereto as Exhibits "1" and "2" are copies of advertising and promotional materials which are typical of those referred to in paragraph (1), supra;

(3) By means of such materials, and others similar thereto, Respondent represents, directly or indirectly, in substance and effect, whether by affirmative statements, omissions or implication that:

(a) He will furnish "complete details" on how to "earn money stuffing [his] circulars into preaddressed envelopes" to anyone sending him a self-addressed, stamped envelope;

(b) He is offering employment which consists simply of folding and stuffing his circulars into preaddressed, stamped envelopes at a rate of $50.00 per hundred to any person remitting the sum of $13.20 for an "instruction kit";

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

(d) 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; and

(e) The homeworker is guaranteed to earn 50[ cash for each envelope stuffed;

(4) The aforesaid representations are materially false as a matter of fact.

COUNT TWO

(5) The allegations of the introductory paragraph and paragraphs (1) and (2), supra, are realleged and incorporated herein by reference;

(6) Attention is attracted to this scheme by means of the "instruction kit" furnished by Respondent to those who remit money through the mail in response to the "STACK OF CASH" circular (Exhibit "2", supra);

(7) By means of this "instruction kit" Respondent advises and encourages his homeworker customers to become his dealers by running advertisements which are the same or substantially similar to his (Exhibit "1") and by furnishing the same "STACK OF CASH" circular (Exhibit "2") to those who respond, thereby perpetrating the scheme described in COUNT ONE, supra;

(8) Respondent participates in this scheme by seeking the remittance through the mail of 50% of the cash proceeds received by his homeworker dealers for the fulfillment of orders for the "instruction kit";

(9) Under this scheme, Respondent knowingly seeks the remittance of money through the mails by means of the false representations made by his homeworker dealers at his express direction.

A hearing in the matter was held in Chicago, Illinois, at respondent's request. Both parties presented evidence thereat. Complainant filed proposed findings of fact and conclusions of law. Respondent's time to file proposed findings and conclusions was extended at his request to January 15, 1979. On January 18 it filed some comments on complainant's proposed findings and conclusions.

Under date of December 13, 1978, complainant moved to amend the complaint to add the address Post Office Box 87363 at Chicago, Illinois 60680 to conform to testimony and documentary evidence offered and received at the hearing without objection by respondent. The motion is hereby granted.

FINDINGS OF FACT

1. Based on the testimony of Postal Inspector Jan Cooper (Tr. 3-11), complainant's Exhibits CX-1 through CX-5, and the admissions contained in respondent's answer to the complaint, I find that respondent is engaged in a scheme to obtain money or property through the mail.

2. I find that respondent's promotional material makes, directly or indirectly, the representations alleged in paragraph (3) of the complaint. The representations alleged are repeated below, followed by reference to the portions of respondent's promotional material in which they are found:

(a) He will furnish "complete details" on how to "earn money stuffing our circulars into preaddressed envelopes" to anyone sending him a self-addressed, stamped envelope;

This representation is virtually a direct quotation from Respondent's classified advertisements (CX-1, 2).

(b) He is offering employment which consists simply of folding and stuffing his circulars into preaddressed, stamped envelopes at a rate of $50.00 per hundred to any person remitting the sum of $13.20 for an "instruction kit";

This is an indirect representation. Respondent's circular (CX-3) contains a number of words and phrases which would lead the ordinary reader to believe that employment is being offered. The following are illustrative:

"...working in your spare time as a homeworker for our company."

(p. 1, lines 3 and 4)

"Many people ask why do we need homeworkers," etc.

(p. 1, paragraph 3)

"We want you to become one of our happy homeworkers."

(p. 2, paragraph 4)

"You simply fold and insert our circulars into the furnished stamped, self-addressed envelopes..."

(p. 1, paragraph 2)

"For each envelope you stuff with our circulars, we strictly guarantee you will earn 50[ cash]"

(p. 1, paragraph 4)

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

This is also an indirect representation. The key words are, "...the furnished stamped, self-addressed envelopes you will receive by following instructions."

(p. 1, paragraph 2)

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

This representation is found in paragraph (3) of Respondent's circular (CX-3).

(e) The homeworker is guaranteed to earn 50[ cash for each envelope stuffed;

This representation is found in paragraph (4) of Respondent's "Stack of Cash" circular (CX-3).

3. I find that the representation alleged in paragraph (3)(a) of the complaint is false. Respondent does not furnish "complete details" to persons sending in a stamped, self-addressed envelope. Rather, the sender receives respondents' "Stack of Cash" circular which promises the details of the envelope stuffing program in the form of an instruction kit on receipt of $13.20 from interested persons (Tr. 32).

4. I find that the representation alleged in paragraph (3)(b) of the complaint is false. Mr. Waters admitted that he employs no one (Tr. 32) but that this becomes apparent only after interested persons receive respondent's instruction kit on payment of $13.20.

5. I find that the representation alleged in paragraph (3)(c) of the complaint is false. Respondent does not furnish to his homeworkers the circulars and envelopes already stamped and addressed. Once the prospective homeworker receives his "instruction kit" he realizes for the first time that he must buy the circulars or have them printed at his own expense (Tr. 19). The stamped, self-addressed envelopes are obtained by running and paying for advertisements costing $50.00 to $50.00 per ad, similar to that to which he initially responded (CX-1, 2). This obviously involves a significant risk on the part of the homeworker (Tr. 15).

6. I find that the representation alleged in paragraph (3)(d) of the complaint is false. Respondent does not need homeworkers to stuff his circulars into envelopes to avoid the necessity of renting a larger building, hiring more inside employees, taking out insurance or working present employees overtime. Mr. Waters admitted in testimony that he is able to take care of his own participation in the envelope stuffing business, involving about 1000 envelopes per month, spending not more than three hours per day on it. He also acknowledged that if he personally devoted eight-hour days to the business, the volume thereof would have to "about triple" before he would need a second employee (Tr. 35, 36).

7. I find that the representation alleged in paragraph (3)(e) of the complaint is false. Respondent's "Stack of Cash" circular (CX-3) would lead the ordinary reader to believe that he would receive 50[ for each envelope stuffed. The record makes it clear that the homeworker's compensation per envelope stuffed is not determinable in advance and that it involves a significant degree of risk (Tr. 14, 15). The homeworker's compensation depends on the cost of the advertisement's placed, response rate to such advertisements, and, thereafter, on the response to the "Stack of Cash" circular. Only after deducting all expenses for advertising, printing, and supplies can the homeworker's net compensation per envelope be determined (Tr. 16-18).

8. Respondent's promoter, Ray Waters, testified that out of his own participation in the "Stack of Cash" envelope stuffing program he has realized as much as $260 profit in a week, and as little as $80 per week, averaging about $160 per week. He has made in excess of 50[ per envelope stuffed. He realized sufficient income therefrom to enroll in the Illinois Institute of Technology on a degree program from which he has since withdrawn at substantial financial loss due to the uncertainties in his income prospects created by the bringing of this proceeding against respondent (Tr. 26, 29, 30).

9. I am persuaded that Mr. Waters is an honest and industrious person, that he has not intended to misrepresent this envelope stuffing program and that he sincerely does not believe that he has misrepresented it.

10. Complainant's Exhibits CX-1, 2, and 5 support the allegations contained in paragraphs (5), (6), and (7) of Count Two of the complaint. Complainant's counsel admits, however, that the record does not support the allegations contained in paragraph (8) of that Count. Neither does the record support the allegations of paragraph (9) of the complaint.

CONCLUSIONS OF LAW

1. The meaning of advertising representations is to be judged from a consideration of an advertisement in its totality and the impression it would most probably create in ordinary minds. Donaldson v. Read Magazine, 333 U.S. 178 (1948); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y., 1957); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y., 1959). Express representations are not required. It is the net impression which the advertisement is likely to make upon purchasers to whom it is directed which is important, and even if an advertisement is so worded as not to make an express representation, if it is artfully designed to mislead those responding to it the mail fraud statutes are applicable. G. J. Howard v. Cassidy, 162 F. Supp. 568. See also Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976).

2. The average person reading respondent's advertisements and "Stack of Cash" circular would interpret them substantially as characterized in paragraph (3) of the complaint.

3. Such representations are materially false in fact.

4. Since proof of intent to misrepresent is not required in this type of proceeding, Mr. Waters' apparent good faith in connection with the promotion of the scheme is no defense.

5. Complainant has failed to support the critical allegations (paragraphs (8) and (9)) of Count Two of the complaint. Count Two of the complaint is dismissed.

6. Respondent is engaged in a scheme to obtain money or property through the mails by means of representations materially false in fact in violation of 39 U.S.C. 3005.

7. An order pursuant to that statute in the form attached should be issued.