In the Matter of the Complaint Against

EDEN VALLEY NURSERY SALES
Caroline Road at
Philadelphia, PA 19176

P.S. Docket No. 7/23;

Cohen, James A.

APPEARANCE FOR COMPLAINANT:
SandraMcFeeley, Esq.

Consumer Protection Division
Law Department
U. S. Postal Service
Washington, D.C. 20260

APPEARANCE FOR RESPONDENT:
Charles B. Chernofsky, Esq.
Weiss, Rothfarb & Chernofsky
6 East 43rd Street
New York, N.Y. 10017

POSTAL SERVICE DECISION

Respondent has appealed from the Initial Decision of Chief Administrative Law Judge William A. Duvall which holds that, with regard to the sale of its strawberry plants, Respondent is engaged in a scheme for obtaining money through the mails by means of false representations in violation of 39 U.S.C. § 3005.

BACKGROUND

On November 22, 1978, the Consumer Protection Office, Law Department United States Postal Service, filed a complaint alleging that Respondent, under the name King of All Berries, falsely represents the characteristics of its strawberry plants and such false representations constitute a violation of 39 U.S.C. § 3005. That complaint was docketed as P.S. Docket No. 6/184 (hereafter 6/184).

During the pendency of the administrative proceeding in 6/184, Complainant filed in the United States District Court for the Eastern District of Pennsylvania an application for an order directing the temporary detention of Respondent's mail under 39 U.S.C. § 3007. Section 3007 states in part: "An action taken by a Court hereunder does not affect or determine any fact at issue in the statutory proceedings."

Before either the administrative proceeding or the District Court proceeding was concluded, Complainant and Respondent, on December 15, 1978, executed a consent agreement in which Respondent agreed to discontinue making the representations set forth in the complaint and, in the event Respondent resumed the activities covered by the agreement, the Postal Service would be authorized to take remedial action. As a result of the execution of the consent agreement, the administrative proceeding was indefinitely suspended and the parties entered into a stipulation for voluntary dismissal of the action pending before the District Court.

On February 22, 1979, in 6/184, Complainant filed a petition with the Judicial Officer of the Postal Service alleging that Respondent had breached the consent agreement and requesting issuance of a mail stop order as authorized by the terms of the consent agreement.

Also, on February 22, 1979, Complainant filed a complaint alleging that Respondent, under the name Eden Valley Nursery Sales, was conducting a scheme proscribed by 39 U.S.C. § 3005. That complaint was docketed as Postal Service Docket No. 7/23 (hereafter 7/23) and initiated the action leading to this appeal. The complaint in P.S. Docket No. 7/23 at paragraph III alleged that Respondent's advertising made the following false representations:

"III That Fragaria Cultivar, Fort Laramie Strawberry Plants,

a) Are natural climbing plants,

b) If tied so as to grow vertically along a trellis, fence or the like,

(1) Will produce larger than ordinary berries;

(2) Will produce numerous clusters of large strawberries on each plant;

(3) Will double the number of new vines produced in each successive year of growth;

(4) Will perform as in (1), (2), and (3) above in every portion of the United States."

On March 15, 1979, Respondent filed a Motion to Dismiss 7/23. The motion alleged that Complainant simultaneously brought two actions against Respondent, both of which addressed essentially identical issues, that oral argument had been held on the petition for breach of consent agreement in 6/184, that a decision in that matter should be forthcoming and that the decision in 6/184 would, under the doctrines of collateral estoppel and res judicata, preclude further action in 7/23.

In the presentation of its position with regard to the breach of consent agreement under 6/184, Complainant's only allegation of breach was that Respondent misrepresented its strawberry plants as natural climbing plants. That is the same representation challenged in subparagraph (a) of the complaint in 7/23.

On April 6, 1979, the Judicial Officer issued a Postal Service Decision in 6/184 holding that Respondent's advertising did not represent that its strawberry plants were natural climbing plants and that no breach of the consent agreement had been established.

On April 11, 1979, the Chief Administrative Law Judge issued an order which, on the basis of the Judicial Officer's decision on breach of the consent agreement in 6/184, granted Respondent's Motion to Dismiss subparagraph III(a) of the complaint in 7/23 but denied the motion with regard to subparagraph III(b).

A hearing in 7/23 was held on April 24, 1979. During the course of the hearing Respondent made a motion for a directed verdict which was denied by the Chief Administrative Law Judge. On June 5, 1979, the Chief Administrative Law Judge issued his Initial Decision. In that decision he held that Respondent made the representations set forth in paragraph III(b) of the complaint, that those representations were materially false and that Respondent was engaged in conducting a scheme for obtaining money through the mail in violation of 39 U.S.C. § 3005.

RESPONDENT'S EXCEPTIONS

On June 19, 1979, Respondent filed its appeal from the Initial Decision. Respondent takes four (4) exceptions to the Initial Decision of the Chief Administrative Law Judge. These exceptions are addressed below.

EXCEPTION 1

Respondent's Motion to Dismiss

Respondent claims the Chief Administrative Law Judge erred in denying its motion to dismiss the allegations contained in paragraph III(b) of the complaint. Respondent's motion to dismiss dated March 15, 1979, alleged that under the doctrine of res judicata Complainant is precluded from raising in a separate proceeding the allegations of paragraph III(b) of the complaint. In support of its position Respondent relies on the following:

"The general rule of res judicata is that a valid, final judgment, rendered on the merits, constitutes an absolute bar to a subsequent action between the same parties, or those in privity with them, upon the same claim or demand. It operates to bind the parties both as to issues actually litigated and determined in the first suit, and as to those grounds or issues which might have been, but were not, actually raised and decided in that action. The first judgment, when final and on the merits, thus puts an end to the whole cause of action. Saylor v. Lindsley, 391 F.2d 965, 968 (2d Cir. 1968)" (Emphasis supplied by Respondent.)

Respondent compares the alleged misrepresentations set forth in the complaint in 6/184 with those set forth in the complaint in this proceeding and concludes that the allegations of the present complaint were or could have been presented in the complaint in 6/184. Therefore, Respondent argues that the action taken by the District Court in dismissing the suit filed under 39 U.S.C. § 3007 was final and that this proceeding is barred under the doctrine of res judicata.

Respondent also argues that the doctrine of res judicata applies equally to administrative proceedings and that the Judicial Officer's Decision of April 6, 1979, in 6/184 was a valid final judgment rendered on the merits and is entitled to finality. Therefore, Respondent argues, that decision bars subsequent actions on those issues which were, or might have been, raised during the breach of consent agreement proceedings. In support of this position Respondent relies on the following language in the Supreme Court decision in United States v. Utah Construction & Mining Co., 384 U.S. 394, at 421-422 (1966).

"Occasionally courts have used language to the effect that res judicata principles do not apply to administrative proceedings, but such language is certainly too broad. When an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose."

Complainant does not take issue with Respondent's statement of the law. However, Complainant argues that Respondent's statement of law is incomplete. Complainant notes that the initial Postal Service and District Court proceedings in 6/184 were terminated as a result of a consent agreement and a stipulation voluntarily entered into by the parties. In such situations Complainant argues that the law is:

"Judicial finality - the predicate for res judicata arises only from a final prior decision rendered after the parties have been given a reasonable opportunity to litigate a claim before a court of competent jurisdiction. Thus, if the parties to a suit enter into an extrajudicial settlement or compromise, there is no judgment, and future litigation is not barred by res judicata or collateral estoppel though, of course, a court may dismiss litigation thereafter filed on the same claim on the basis that the parties have by contract ended their controversy." Kaspar Wire Works, Inc. v. Leco Engineering and Machine, Inc., 575 F.2d 530, 537-538 (5th Cir. 1978).

Complainant also argues that even if a final judgment had been rendered by the District Court in 6/184 it would not bar the present proceeding since the actions arise from different causes of action. Complainant acknowledges some similarity in the advertisements upon which both actions were based but argues that the advertisements are distinguishable. In addition, relying on Lawlor v. National Screen Service Corp., 349 U.S. 322, 327-328 (1955); Kilgoar v. Colbert County Board of Eductation, 578 F.2d 1033, 1035 (5th Cir. 1978); and Crowe v. Leeke, 550 F.2d 184, 187 (4th Cir. 1977), Complainant argues that it is well established that subsequent conduct, even if of the same nature as the conduct complained of in a prior law suit, may give rise to an entirely separate cause of action.

Complainant also argues that even if all of the prerequisites for the application of the doctrine of res judicata are satisfied, the present proceeding should not be barred since application of the doctrine may be limited by overriding policy considerations. It is Complainant's position that the public interest requires that the Postal Service be permitted to proceed in this case. Complainant does not specifically address the effect of the doctrine of res judicata on the present case as the result of the Postal Service Decision in 6/184 which denies the petition for breach of consent agreement.

The cases cited and relied on by the parties are not in conflict and generally reflect the existing state of the law. The Kilgoar case relied on by Complainant cites Stevenson v. International Paper Co., 516 F.2d 103 at 108-109 (5th Cir. 1975) in which a more detailed analysis of the doctrine of res judicata appears:

"For a prior judgment to bar a subsequent action, it is firmly established (1) that the prior judgment must have been rendered by a court of competent jurisdiction; (2) that there must have been a final judgment on the merits; (3) that the parties, or those in privity with them, must be identical in both suits; and (4) that the same cause of action must be involved in both suits. Wasoff v. American Automobild Ins. Co., 451 F.2d 767 (5th Cir. 1971). If these elements are established, then the judgment or decree upon the merits in the first case is an absolute bar to the subsequent action or suit, not only in respect of every matter which was actually offered and received to sustain the demand, but also as to every ground of recovery which might have been presented. Baltimore S. S. Co. v. Phillips, 274 U.S. 316, 47 S.Ct. 600, 71 L.Ed. 1069 (1927), as cited in Astron Industrial Associates v. Chrysler Motors Corp., 405 F.2d 958 (5th Cir. 1968)."

The Court goes on to describe the difficulty in applying the doctrine at p. 109:

The principle difficulty in applying the doctrine of res judicata is determining whether the cause of action in the first suit is identical to that in the second. This court has recognized that 'the principle test for comparing causes of action is whether or not the primary right and duty and delict of wrong are the same in each action.' Seaboard Coast Line R. R. Co. v. Gulf Oil Corp., 409 F.2d 879, 881 (5th Cir. 1969). In the Seaboard Coast Line case, the court quoted from Baltimore S. S. Co. v. Phillips, supra,

'A cause of action does not consist of facts, but of the unlawful violation of a right which the facts show. The number and variety of the facts alleged do not establish more than one cause of action so long as their result, whether they be considered severally or in combination, is the violation of but one right by a single legal wrong. 409 F.2d at 881.'

"There is no one test for deciding whether the substances of two actions are the same for the purpose of res judicata. As the Court noted in Acree v. Air Line Pilots Assn, 390 F.2d 199 (5th Cir.), cert. denied. 393 U.S. 852, 89 S.Ct. 88, 21 L.Ed.2d 122 (1968), various tests have been advanced, including

'Is the same right infringed by the same wrong? Would a different judgment obtained in the second action impair rights under the first judgment? Would the same evidence sustain both judgments?'

"Where a second action between the same parties is upon a different cause of action, the principle of res judicata is applied much more narrowly. In this situation, the judgment in the prior action operates as an estoppel, not as to matters which might have been litigated and determined, but only as to those matters in issue or points in controversy which were actually litigated and determined in the first proceeding. In this sense, res judicata is usually and more accurately referred to as an estoppel by judgment, or collateral estoppel. See Commissioner of Internal Revenue v. Sunnen, 333 U.S. 591, 68 S.Ct. 715, 92 L.Ed. 898 (1948); Cromwell v. County of Sac, 94 U.S. 351, 24 L.Ed. 195 (1876)."

The two issues presented by this exception are (1) the effect of the consent agreement in 6/184 and the voluntary dismissal of the action filed under 39 U.S.C. § 3007 in the United States District Court, and (2) whether identical causes of action exist which serve as a bar to the present proceeding because of the prior decision on breach of the consent agreement in 6/184.

By virtue of the terms of 39 U.S.C. § 3007, a Court decision in an action brought under that section does not affect or determine any fact at issue in a proceeding under 39 U.S.C. § 3005. Therefore, had the Court issued a final decision in the suit brought against Respondent under § 3007, its decision would not have served as a bar to the present action. Moreover, there was no final Court action, but rather the matter was resolved by voluntary dismissal which, under the Kaspar Wire Works, Inc., supra, and Stevenson, supra, cases does not support the application of the doctrine of res judicata. The same holds true with regard to the effect of the execution of the consent agreement. The consent agreement is similar to a voluntary dismissal and is not a final determination which would serve as a bar to a subsequent action.

Although Respondent's advertisement which was the basis for the breach of consent agreement action also served as the basis for this action, the causes of action arising in connection with the advertisement are different and distinct. The representations which could be adjudicated in the breach action, while possessing certain similarities, also include substantial differences. In addition, the breach of consent agreement action was essentially a breach of contract action, whereas the pending action is predicated upon Respondent's alleged violation of 39 U.S.C. § 3005. While there are some similarities in proof, such as the content of the advertisement, other elements of proof are significantly different, such as the material falsity of the representations under the statute versus the resumption of representations agreed to be discontinued under the consent agreement. It is concluded, therefore, that the action on breach of consent agreement and the pending action arose from separate and distinct causes of action. Therefore, the doctrine of res judicata is inapplicable.

Respondent's motion to dismiss would have merit under the doctrine of collateral estoppel with regard to any issues present in the pending appeal which have been previously litigated and decided by a court or administrative body. The Chief Administrative Law Judge concluded that the question of whether Respondent's strawberry plants had been represented as being natural climbing plants had been litigated and finally decided in the Postal Service Decision in the breach of consent agreement action. Accordingly, he properly granted Respondent's motion to dismiss that issue. However, since no other issues were litigated in the action on breach of consent agreement in 6/184, the Chief Administrative Law Judge correctly declined to grant Respondent's motion to dismiss with regard to those unlitigated representations.

In summary, since the pending action arises from a different cause of action and involves issues not previously litigated, this proceeding is not barred under the doctrine of res judicata or collateral estoppel. Accordingly, the Chief Administrative Law Judge properly denied Respondent's motion to dismiss the allegations of paragraph III(b) of the complaint.

EXCEPTIONS 2 AND 3

Respondent's Motion For A Directed Verdict And

Respondent's Exception To Dr. Galletta's Testimony

Respondent claims its Motion for a Directed Verdict should have been granted because Complainant did not purchase the plants advertised by Respondent which are the subject of the complaint, the product that was test grown by Complainant's expert witness was not shown to have been identical to that sold by Respondent, and Complainant's test plants were not grown outdoors and according to Respondent's instructions. Respondent also claims that the testimony of Complainant's expert, Dr. Galletta, upon which the Initial Decision was primarily based, was speculation since the witness could not establish with absolute certainty that the plants grown by him were the same plants sold by Respondent.

Complainant argues that Dr. Galletta's testimony was based on his expertise and experience with Fort Laramie strawberry plants, that it provided a proper basis for the Chief Administrative Law Judge to reject Respondent's Motion for a Directed Verdict, and that the testimony provided a sound basis for the Initial Decision.

There is no dispute with regard to the facts relevant to these two exceptions. The record sets forth Dr. Galletta's education and experience in horticulture. His general knowledge of the state of development of strawberry plants in general, and of Fort Laramie plants, in particular, is extensive. The witness acknowledged that he was not absolutely positive that the Fort Laramie plants he tested were identical to the Fort Laramie plants being sold by Respondent. Also, it is undisputed that Complainant's expert witness did not purchase or test plants obtained from Respondent in response to Respondent's current advertising. Furthermore, the plants he did test were not grown according to Respondent's growing instructions.

In Michigan Bulb Company, P.S. Docket No. 7/43, (P.S.D. 1979), a similar issue was presented except there Complainant's expert was not aware of the variety of strawberry plants which were alleged to be falsely represented in the Respondent's advertising. In holding that the testimony of the expert was sufficient to support a prima facie case it was stated:

"Expert opinion testimony need not be based on personal knowledge of a specific product and a prima facie case may be established on the basis of an expert's overall knowledge and his opinion as to the probability of something occurring or existing. Reilly v. Pinkus, 338 U.S. 269, 274 (1949); J. E. Todd, Inc. v. FTC, 145 F.2d 858 (D.C. Cir., 1944); Charles of the Ritz Dist. Corp. v. FTC, 143 F.2d 676, 678 (2nd Cir. 1944); 2 K. Davis, Administrative Law Treatise, § 14.13 (1958). With regard to the truthfulness of representations made about a specific product, such opinion evidence may be readily rebutted by the reputable dealer through the presentation of studies, tests, contrary opinion or other data upon which the representations it makes for its product are based."

Here Complainant's expert testified both with respect to his opinion and personal knowledge of Fort Laramie strawberry plants. It is true that he did not purchase the plants from Respondent in response to Respondent's then current advertising, but he did purchase and test Fort Laramie plants, which are the same variety advertised by Respondent. It is also true that he did not follow the growing and fertilization instructions recommended by Respondent. However, according to his testimony (Tr. 88), and it is so found, following the recommended growing and fertilization instructions would not have affected the test results.

Respondent's argument concerning Dr. Galletta's testimony would place on Complainant the burden of establishing its case with absolute certainty. This is not the standard of proof required in this administrative Proceeding. Complainant is only required to prove its case by a preponderance of the evidence (Michigan bulb Company, P.S. Docket No. 7/43 (P.S.D. Oct. 30, 1979)). This it has done through the testimony of Dr. Galletta, based upon his expertise and experience with Fort Laramie strawberry plants.

Accordingly, the Chief Administrative Law Judge properly denied Respondent's motion for a directed verdict and correctly relied on the testimony of Complainant's expert, Dr. Galletta, in issuing the Initial Decision.

EXCEPTION 4

Evidence Supporting Allegations

Respondent contends that the Initial Decision is in error because (a) the findings on the allegations of paragraph III (b)(1) and (2) of the complaint are based on the unreliable testimony of Dr. Galletta, (b) the findings with regard to the allegations of paragraph III(b)(3) are contrary to the evidence as found by the Chief Administrative Law Judge and (c) the record contains no testimony to support the finding pertaining to the allegation of paragraph III(b)(4) of the complaint.

It is Complainant's position that the evidence clearly establishes that Respondent's advertising makes the representations alleged in the complaint and that those representations, which pertain to material facts, are false.

a) Allegations of Paragraph III(b)(1) & (2)

Respondent does not take issue with the finding that its advertising makes the representations alleged in paragraph III(b)(1) and (2) of the complaint. However, Respondent argues that the Initial Decision erred in relying on the testimony of Dr. Galletta to support the finding that these allegations are materially false.

The testimony of Dr. Galletta was previously addressed in this decision and it was concluded that Dr. Galletta's testimony was based on his expertise and experience with Fort Laramie strawberry plants and that it provided a sound basis for the Initial Decision.

With regard to the allegations of paragraph III(b)(1) and (2) of the complaint, Dr. Galletta unequivocally expressed his opinion that Fort Laramie strawberry plants would not produce the results represented. Although somewhat contrary testimony was presented by Respondent through two witnesses, as concluded in the Initial Decision, their qualifications and experience do not entitle their testimony to the weight accorded Dr. Galletta's testimony.

On the basis of a review of the entire record it is concluded that Complainant's expert witness presented persuasive testimony with regard to the characteristics of Fort Laramie strawberry plants and that Respondent failed to present evidence which effectively rebutted or raised any reasonable doubt as to the applicability of that testimony to the strawberry plants offered for sale by Respondent.

Accordingly, the Initial Decision correctly relied on the testimony of Dr. Galletta to conclude that Respondent's strawberry plants will not produce the results represented in paragraph III(b)(1) and (2).

b) Allegations of Paragraph III(b)(3) & (4)

With respect to these portions of the complaint, Respondent argues that the Initial Decision incorrectly found that its advertising makes the representations alleged.

The Initial Decision (at page 6) quotes the specific language from Appellant's advertisements upon which these findings are based. The Initial Decision followed the well established principle that an advertisement is to be interpreted in light of the effect the advertisement would most probably produce on ordinary minds. On these two points Respondent presented no factual or legal basis which persuasively support its allegation of error. It is concluded that the Chief Administrative Law Judge's findings concerning these two representations are correct.

CONCLUSION

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 USC § 3005 is being issued contemporaneously with this decision.