In the Matter of the Complaint Against

KARFAX and KARFAX INDUSTRIES Rt. 2,
Box 60 Swaggertown Road at
Scotia, NY 12302

P.S. Docket No. 7/36;

12/07/79

Cohen, James A.

APPEARANCE FOR COMPLAINANT:
Thomas A.Ziebarth, Esq.
H. Richard Hefner, Esq.
Consumer Protection Division
Law Department
U.S. Postal Service
Washington, D. C. 20260

APPEARANCE FOR RESPONDENT:
Donald F. Conine President
Karfax Industries
Scotia, NY 12302

POSTAL SERVICE DECISION

Respondent has appealed from the Initial Decision of Administrative Law Judge Quentin E. Grant in which Judge Grant recommends the issuance of an order under 39 U.S.C. § 3005 based on the conclusion that Respondent, by means of its envelope stuffing plan, is engaged in a scheme for obtaining money through the mail by means of false representations.denied

BACKGROUND

On March 14, 1979, the Consumer Protection Office, Law Department United States Postal Service filed a complaint alleging that Respondent was engaged in conducting a scheme for obtaining money through the mail in violation of 39 U.S.C. § 3005. Specifically, Complainant alleged in paragraph V of the complaint:

"Respondent expressly or impliedly represents to the public in substance and effect, that:

(a) Respondent will employ and compensate persons 'Stuffing Envelopes.'

(b) Respondent will provide 'Free Supplies and stamps' to persons whom he employs stuffing envelopes.

(c) Respondent will compensate persons at a rate of 'Hundreds weekly stuffing envelopes]'

(d) Persons participating in 'THE KARFAX STUFF ENVELOPES PLAN' will thereby earn '...$1200, or more each month... .'

(e) Participants in 'THE KARFAX STUFF ENVELOPES PLAN' will receive '...$500 in net profits...' for '...each 1000 envelopes they stuff.'"

Respondent filed an answer to the complaint, but failed to appear at a hearing which was held to take evidence on the allegations contained in the complaint. Complainant's evidence was received in accordance with Section 952.11 of the rules (39 CFR 952.11). Thereafter, Administrative Law Judge Grant issued his Initial Decision holding that Complainant had failed to establish that Respondent made the representations alleged in paragraphs V (a), (b) and (c) of the complaint, but that it had established that Respondent made the representations alleged in paragraphs V (d) and (e), and that those representations are materially false in fact in violation of 39 U.S.C. § 3005.

RESPONDENT'S EXCEPTIONS

On appeal Respondent takes exception to portions of Findings of Fact 5, 6, 7 and 8 and Conclusions of Law 2, 3, 5 and 7. Each of Respondent's exceptions is addressed below:

EXCEPTIONS TO FINDING OF FACT NO. 5

Respondent first challenges the accuracy of those portions of Finding of Fact 5(b), which state: "Respondent's letter (CX-4) indicates that sales letters, order forms, and stamped envelopes will be supplied by Respondent free." and "The Plan Itself (CX-5a) discloses that these representations are false." These findings were made in connection with the analysis of the representation alleged to be false in subparagraph V (b) of the complaint. However, the presiding Administrative Law Judge found that the allegation of subparagraph V (b) had not been proven to be false and therefore the challenged findings were not relied upon by the Judge in reaching the conclusion that Respondent was in violation of 39 U.S.C. § 3005. Thus, even if Respondent's exception in this regard is sustained the result reached in the Initial Decision would not be altered.

Nonetheless, since Respondent has raised the issue, the record has been reviewed to determine the accuracy of the statements in the Finding. This review reveals that the statements in Finding of Fact 5(b) are not in error. Respondent's classified advertisements (CX-1A, B, C and D) clearly say "Free Supplies, Stamps" and coupled with the statement in Respondent's promotional letter (CX-3D) "It's just a matter of placing a sales letter and an order form in stamped envelopes supplied free..." would reasonably be understood to be an offer by Respondent to supply free sales letters, order forms and stamped envelopes. It is also clear from Respondent's plan (CX-5A) that these items are not supplied free by Respondent. Accordingly, the statements in the Finding are accurate and there is no merit to this exception.

With regard to the last paragraph of Finding of Fact 5, Respondent challenges the use of the word "scheme." Respondent argues that the use of the word "scheme" is synonymous with willful deception and denies that any willful deception is involved. The use of the word "scheme" in the Initial Decision was, in all probability, taken from the language of 39 U.S.C. § 3005 which does not require a finding of willfulness in order to establish a statutory violation. Moreover, one of the common definitions of the word "scheme" is a plan or program often involving secretive actions. See Websters Third New International Unabridged Dictionary (1961); The Compact Edition of the Oxford English Dictionary (1971); Funk & Wagnalls New Comprehensive International Dictionary of the English Language (1977). In view of the fact that Respondent did not disclose the true nature of its plan until payment had been received, identification of Respondent's plan as a scheme is both appropriate and accurate.

Respondent also takes exception to the use of the word "hoax" in the last paragraph of Finding of Fact 5. It supports this exception with several arguments, generally unsupported by evidence in the record, which it believes show that the plan is not a hoax. A hoax is commonly defined as : "a deception." See Websters Third New

International Unabridged Dictionary (1961); The Compact Edition of the Oxford English Dictionary (1971); Funk & Wagnalls New Comprehensive International Dictionary of the English Language (1977). Based on a review of the record it is concluded that Respondent's promotional activities are deceiving and, therefore, the term "hoax" was not improperly used in the Initial Decision.

Respondent takes exception to all connotations of the word "disclose" as used in Finding of Fact 5. This finding contains the sentence: "The booklet sold by Respondent (CX-5a) discloses that to operate the scheme..." Respondent alleges that the function of the plan is to teach not disclose and, therefore, the sentence in the finding is erroneous. It is not clear what the connotations of the word "disclose" are that Respondent takes issue with. However, as used in the text of the Initial Decision, the word "disclose" is appropriate.

Although Respondent's exceptions relating to the terms used in Finding of Fact 5 of the Initial Decision have been discussed, the challenged terminology is of minor import. The essential consideration is the accuracy of the underlying facts which led Judge Grant to use those terms. Respondent has not shown any error of fact or that Finding of Fact 5 is in any way incorrect.

EXCEPTION TO FINDING OF FACT NO. 6

Respondent challenges Finding of Fact No. 6 which held that the representations set forth in paragraphs (d) and (e) of the complaint are materially false. Respondent asserts that the Complainant has never operated a business like Karfax and, therefore, it cannot prove that any person who follows Karfax's plan could not achieve profits in the amount represented. Respondent apparently misinterprets the basis of this finding. The Initial Decision does not hold that some individuals could not realize the monetary returns represented. The falsity flows from the representation that such a return can be realized through a simple and easy envelope stuffing operation from in fact substantial planning, advertising and effort would be required to achieve such results. That falsity has been established on the record.

EXCEPTION TO FINDING OF FACT NO. 7

Respondent challenges Finding of Fact No. 7 and the use and reference therein to its letter of November 24, 1978, to Postal Inspector Pritchard. In support of this exception Respondent attempts to introduce new facts and advances speculative arguments as to how some of the statistical data in this letter should be interpreted.

Finding of Fact 7 is almost a direct quote from Respondent's letter with regard to that portion which states that only one percent of the purchasers of the plan become dealers, and that Respondent had at that time three active dealers who as a group sent him ten orders per week. The remainder of the finding represents a simple mathematical calculation based on this data and other data taken from Respondent's plan. On the basis of evidence in the record, the finding is correct. If Respondent desired to introduce evidence to be considered in interpreting the meaning of its letter of November 24, 1978, or its other exceptions, it should have done so at the hearing where it would have been subject to cross-examination by the Complainant and evaluation by the presiding Judge.

EXCEPTION TO FINDING OF FACT NO. 8

Respondent takes exception to the conclusions of fact expressed in Finding of Fact No. 8 because a to they are based on Findings of Fact 6 and 7 which Respondent considers to be inaccurate, b) they inaccurately describe Respondent's plan as a pamphlet selling plan and not an envelope stuffing plan, and c) they erroneously conclude that achievement of the earnings represented is a practical impossibility. The basis for Respondent's position is essentially the same as that presented in connection with Respondent's previously discussed exceptions which were found to be without merit.

EXCEPTION TO CONCLUSIONS OF LAW

Respondent takes exception to Conclusions of Law 2, 3, 5 and 7 because it believes they are based on an incorrect interpretation of the facts. By these conclusions, the presiding Administrative Law Judge held that the average person reading Respondent's promotional materials would interpret them substantially as set forth in subparagraphs (d) and (e) of the complaint, that these representations are materially false in fact, that Respondent's argument that it is only selling a self help book is not a valid defense and that Respondent is engaged in a scheme to obtain money through the mail by means of false representations in violation of 39 U.S.C. § 3005. Respondent's exceptions to these conclusions of law consist of further representations and allegations concerning what Respondent claims are relevant facts. These representations and allegations are unsupported by evidence in the record. Respondent has provided no legal citations which show that, on the basis of the evidence in the record, the conclusions of law set forth in the Initial Decision are erroneous.

CONCLUSIONS

After consideration of the entire record and the exceptions taken to the Initial Decision, it is concluded that Respondent is engaged in a scheme for obtaining money through the mail by means of materially false representations. Accordingly, Respondent's appeal is denied and a remedial order under 39 U.S.C. § 3005 is being issued contemporaneously with this decision.