In the Matter of the Complaint Against

PHILLIPS ENVELOPE
P. O. Box 1501
Salinas, CA 93902

MUTUAL PUBLISHING
13001 Mt. Anderson
Reno, NV 89506

MUTUAL PUBLISHING
18 Stewart Reno, NV 89501

BENEFICIAL PUBLISHING CO.
681 Ellis Street
San Francisco, CA 94109

BENEFICIAL PUBLISHING
P. O. Box 66129
Seattle, WA 98166

MARCEL PUBLISHING
2346 Alum Rock Avenue
San Jose, CA 95116

PHILLIPS ENVELOPE COMPANY
P. O. Box 3620
Salinas, CA 93912

MUTUAL
Box 11617
Reno, NV 89501

MUTUAL PUBLISHERS
P. O. Box 11617
Reno, NV 89501

MUTUAL PUBLISHERS
18 Stewart
Reno, NV 89501

BENEFICIAL PUBLISHING
495 Ellis Street
San Francisco, CA 94102

MARCEL PUBLISHING
P. O. Box 66129
Seattle, WA 98166

ASSOCIATED PUBLISHING
8753 Windom Avenue
St. Louis, Missouri 63114

P.S. Docket No. 8/23;

Grant, Quentin E.

APPEARANCE FOR COMPLAINANT:
Sand ra McFeeley, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260 Norman Menegat, Esq.
Assistant Regional Counsel Western Region,
USPS San Bruno, CA 94099

APPEARANCE FOR RESPONDENT:
Lee H. Harter, Esq.
2256 Van Ness Avenue
San Francisco, CA 94109

INITIAL DECISION

This proceeding was initiated on March 25, 1980, with the filing of a Complaint alleging that the first six Respondents named in the caption are engaged in conducting 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 Complaint alleges, specifically, as Count I thereof, that by means of advertisements and direct mail circulars, all calculated to induce readers or recipients thereof to remit money or property through the mails, Respondents falsely and materially represent:

"(a) Respondent is offering at-home employment mailing circulars.

(b) The work offered by Exhibits 6 and 7 'consists mainly of addressing envelopes and inserting circulars into them.'

(c) The work offered by Exhibit 8 consists mainly of inserting Respondent's circulars into envelopes and sending batches of such envelopes to Respondent.

(d) All supplies required by the participant in Respondent's program will be furnished by Respondent.

(e) A participant may expect to earn 50c / for every envelope he or she is able to stuff. (Exhibit 8)

(f) A minimum of 300 envelopes per week will be available to the Cooperative Mailing Program participant for addressing and stuffing for weekly earnings of $180 (Exhibits 6 and 7).

(g) The program participant will earn $60 for every hundred envelopes he or she is able to address and stuff for Respondent. (Exhibits 6 and 7)."

Exhibits referred to are those attached to Complaint.

In Count II to the Amended Complaint, Complainant alleges that through their promotions and schemes Respondents urge and cause participants to make the above representations to third parties, and knowingly seek money or property through the mails to finance distribution of false advertisements of the type alleged in Count I.

On Respondents' motion the place of hearing was changed to San Francisco, California. The hearing was held on May 20 and 21, 1980.

At the hearing Complainant's motions to add the last seven Respondents named in the caption on this decision were granted.

All proposed findings of fact, conclusions of law, and arguments of the parties have been considered. They are found, or accepted, to the extent indicated and are otherwise denied, or rejected.

FINDINGS OF FACT

1. Lawrence Phillips owns and operates all of the Respondents named in the caption of this proceeding with the exception of Associated Publishing (Tr. 102, 254, 255). He denies ownership of Associated which is a fictitious name registered in Monterey County, California, by one or both of his two teen-age stepdaughters, Stephanie Kasmier and Raylene Thomas, who reside with him. Mr. Phillips played a very active part in establishing Associated and plays a continuing active part in advising the stepdaughters concerning the promotion involved in this proceeding; makes printing contracts in their behalf, makes arrangements for handling of their promotion-related mail by AAA Mail Center in St. Louis, Missouri; makes phone calls for them; furnishes them circulars which he has printed; sells them the same starting kits used by him in his promotions, and keeps no records of such sales (Tr. 232-255). He plays such an active and dominant part in Associated as to constitute him the operator thereof and to make Associated a proper party to this proceeding.

2. Respondents are engaged in selling through the mails a starting kit and related materials to be used by purchasers in a program called the Cooperative Mail Program. Attention is drawn to this promotion by means of classified advertisements in newspapers (CX-1, 16, 21, 26). Examples of such advertisements are attached hereto as Exhibit A. These advertisements represent that Respondents are offering at-home employment mailing circulars. The terms employment is used here to mean "work" and not to mean or imply the legal relationship of employer and employee.

3. Persons responding to the classified advertisements with the stamped, self-addressed envelope specified therein, are sent one of three circulars (CX 3, 14(a), 34; McKim testimony). For convenience these circulars will be referred to herein as the "Earn $180," the "Would You," and the "We'll Pay You 50c /" circulars. Copies of these circulars are attached hereto as Exhibits B, C and D, respectively. These circulars represent expressly that the work offered consists mainly of addressing envelopes and inserting circulars into them (CX-3, 14(a) or, in the case of the "We'll Pay You 50c /" circular (CX-34), that the work offered consists mainly of stuffing envelopes with Respondent's circulars and sending them to Respondent.

4. The circulars represent that substantially all of the supplies required to participate in Respondent's program will be furnished by Respondent or by others. For example, the "Earn $180" circular states "You will not be requires to buy anything else from us. You will be shown how to get your envelopes, circulars, mailing lists, and postage." It also states that "the income we are talking about is not money that you must use to pay for supplies." The "Would You" circular contains substantially the same wording. The "We'll Pay You 50c /" circular says "You are not required to buy either the envelopes or the stamps you use in our program. We furnish all the circulars and supplies as long as you wish to work with us."

The "Would You" circular on its reverse side indicates the need of a nominal investment in a rubber stamp, 10-20 envelopes, shipping labels, and $2.00 worth of copies but in wording such as the following there is clear implication that everything else required for participation will be furnished:

". . . address and stuff envelopes for us,

". . . you will not be required to buy anything else from us," "you will be shown how to get your envelopes, circulars, mailing lists and postage," "The income we are talking about is money you can put in your pocket and spen. . . ."

5. The "We'll Pay You 50c /" circular represents that a partici- pant in that promotion may expect to earn 50c / for every envelope he or she is able to stuff. This representation is found in the following portions of the circular:

"WE'LL PAY YOU 50c / for EACH ENVELOPE you STUFF & SEND to us"

"Send us 1000 stuffed envelopes , we'll send you $500.00 and on and on"

". . . we will definitely . . . mail you a check for 50c / for each envelope stuffed"

6. The "Earn $180" and "Would You" circulars represent that a minimum of 300 envelopes per week will be available to The Cooperative Mailing Program participants for addressing and stuffing for weekly earnings of $180. This representation is found in the combination of the representations that envelopes and circulars will be furnished to participants (see Findings of Fact No. 4, above) and the statement in the circulars that you can easily do 300 envelopes a week with earnings of $180. The circulars imply that such earnings depend simply on physical ability to stuff 300 furnished envelopes per week.

7. The "Earn $180" and "Would You" circulars represent that participants in The Cooperative Mailing Program will earn $60 for every 100 envelopes they are able to address and stuff for Respondents. This representation is found in the following:

"How much money you make is up to you. We do not require that you address a certain number of envelopes each week. You can do what you have time for. But we strictly guarantee that you will earn $60 for every 100 envelopes that you address and stuff according to directions."

Ability and time to address and stuff envelopes are, implicitly, the keys to earning the $60 for every 100 envelopes promised.

8. On payment of $12 to join the "Earn $180" or "Would You" promotions, would-be participants receive two booklets published by Respondent, Phillips Envelope Co. The booklets are entitled "Making Money in Mail Order" (CX-5) and "Earn $180 a Week" (subtitled "Cooperative Mail Program - A Plan for Success") (CX-6). The former provides ideas for setting up and operating mail order businesses. It has nothing to do with a program for addressing and stuffing envelopes. The Cooperative Mail Program booklet advises recipients how to set up an independent business, much the same as the promotions operated by Respondents. On reading the booklet the would-be participant learns that he will not be working for Respondents addressing and stuffing envelopes. Rather, he will be working for himself. He finds that envelopes for stuffing must be obtained through classified advertisements placed at his expense in newspapers. One would-be participant, Don Smith, paid $10.85 for a one-time ad, and got two responses (Tr. 188, 189). The booklet discloses that circulars for stuffing must be obtained either from "Commission mailers" or by having them printed at the participant's expense. One finds that any substantial earnings will result only from obtaining orders for books (CX-5, 6) published by Respondent, Phillips Envelope Co., and filling the orders with books purchased wholesale from that Respondent or drop-shipped by Phillips to purchasers. The Cooperative Mail Program booklet is not explicit in advice as to what kind of circular is to be used by participants to produce such sales but the implication is that it should be similar to Respondents' "Earn $180" or "Would You" circulars. In short, a would-be participant finds that he will not be an envelope addresser and stuffer for Respondents. Instead he should set up an independent business for promotion of the sale of Respondents' booklets, an effort bearing little resemblance to that expressly and impliedly represented, as found above, in Respondents' classified advertisements and circulars. He also finds that there is no truth to the representation that he will be furnished a minimum of 300 envelopes per week to produce income of $180 per week and that he will earn $60 for every hundred envelopes he is able to address and stuff for Respondents. Whether a participant receives any envelopes at all to address and stuff depends on his placement of classified advertisements and the success of such ads in drawing inquiries. Rather than being a function of time available and ability of a participant, whether or not a participant can stuff 100 envelopes to earn $60 is entirely dependent on the extent of the participant's investment in classified ads and the effectiveness of such ads.

9. On payment of $20 to Respondents for participation in the "We'll Pay You 50c /" program (CX-34 and similar circulars), would-be participants receive an instructional letter on the letterhead of Respondent Phillips Envelope Co., (CX-43b) 25 envelopes pre-addressed to one of the other Respondents (CX-43e), 25 "Would You" circulars (CX-43c), 25 coupons for ordering the $12 starting kit in The Cooperative Mail Program addressed to one of the Respondents (CX-43d), and a large air mail envelope.

On reading the instructions, the would-be participant finds that to make money he is to set himself up in business to promote the sale of Respondents' Cooperative Mail Program.

To secure the envelopes he is to stuff he is to run a classified ad prescribed by Respondents in a weekly newspaper or shopper type publication. The ad represents that circular mailers are needed. The instructional letter indicates that such ad should not cost more than $5.00. A participant who testified at the hearing found that the identical ad prescribed cost him $10.85 and drew two responses (Tr. 188, 189).

According to the instructions, when inquiries responsive to the classified ads are received, the participant is to take out the quarters, keep them towards running another ad, stuff the stamped self-addressed envelope, and an order coupon, and send them to Respondent Phillips Envelope Co. in the large air mail envelope. Phillips says that upon receipt it will pay $50c / for each stuffed envelope plus postage and a one-time payment of %5.00 to cover the cost of the first ad run by the participant. Phillips will furnish additional circulars, coupons, and preprinted envelopes as needed.

Although it would appear that the effort required of participants, assuming they get significant responses to the classified ads, is mainly stuffing envelopes with circulars and mailing them to Respondent, whether they have envelopes to stuff depends entirely on the number of ads run and their drawing power as evidenced by responsive inquiries. The only evidence in the record as to the effectiveness of the recommended ad for an average participant is the testimony of Don Smith who not only had to pay more than double the represented cost of the ad but received only two responses thereto. It is found that considering the cost of advertising and its lack of effectiveness, participants cannot expect to net 50c / for each envelope stuffed.

10. Based on the findings contained in 8 and 9, above, I find that the representations made by Respondents as alleged in paragraphs 3(a), (b), (d), (e), (f), and (g) of the Complaint and as found above are false and materially so since their naturally tendency is to induce readers of the ads and circulars to part with a substantial fee to participate in the various programs.

11. Complainant's evidence relating to the "We'll Pay You 50c /" circular and the program involved therein as described above support a finding that Respondents urge and cause participants to make exactly the same representations to third parties and knowingly seek money or property through the mails to finance distribution of false advertisements of the type alleged in Count I.

CONCLUSIONS OF LAW

1. The meaning of advertising representations is to be considered in light of the probable impact of the entire advertisement on the person of ordinary mind. Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948); Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387, 1389 (5th Cir. 1977); Unique Ideas, Inc. v. United States Postal Service, 416 F. Supp. 1141, 1145 (S.D. N.Y. 1976).

2. Persons of ordinary mind reading Respondents' classified advertisements and circulars would interpret them substantially as characterized in paragraphs 3(a) through 3(g) of the Complaint.

3. As found above, these representations, except that alleged in paragraph 3(c), are materially false in fact. Complainant's evidence falls short of establishing the falsity of 3(c).

4. Actual participation by Complainant's inspectors in the programs set forth in Respondents' instructional material was not required to establish the falsity of the representations. Falsity is abundantly apparent in simple comparison of the representations with the instructions. It permeates all the promotions involved.

5. It may be that a person who elects to participate in any of the promotions will derive some earnings therefrom, perhaps even approaching those promised in the advertisements and circulars. But the work involved in achieving such earnings is not primarily the kind represented.

6. Complainant did not complete or did not make test purchases from the following addresses:

Phillips Envelope Company
P. O. Box 3620
Salinas, California 93912

Mutual
Box 11617
Reno, NV 89501

Mutual Publishers
18 Stewart
Reno, NV 89501

Beneficial Publishing
495 Ellis Street
San Francisco, CA 94102

Marcel Publishing
P. O. Box 66129
Seattle, WA 98166

Marcel Publishing
2346 Alum Rock Avenue
San Jose, CA 95116

Associated Publishing
8753 Windom Avenue
St. Louis, Missouri 63114

However, the classified advertisements and/or circulars received in evidence as to those addresses are identical, or substantially identical, with those used by other captioned addresses as to which test purchases were made. Also Lawrence Phillips in interviews and testimony acknowledged that he runs the promotions made from many of the captioned addresses. He also testified that all of the companies who names go into the "We'll Pay You 50c /" kits are owned by him (Tr. 254). Prior to his testimony, amendment of the complaint was allowed to add the above addresses. Although he had the opportunity as a witness to deny ownership and operation of any of the promotions conducted from any of the original or added addresses he did not do so except as to Associated Publishing. He testified that he does not intend to furnish in the future any of the circulars introduced in evidence in response to inquiry mail addressed to any of the addresses involved in this proceeding (Tr. 213).

Complainant made a prima facie case for addition of the above addresses to this proceeding on the basis of identity or substantial similarity of fictitious names, addresses, and classified ads used, and circulars received in response to inquiries to those used by Respondents from whom test purchases were made, together with Lawrence Phillips' admissions to Inspector McKim and evidence concerning Phillips' involvement in changes of address and mail forwarding instructions to his agents. The propriety of inclusion of all addresses was thereafter confirmed by Phillips' failure in testimony to deny, except as to Associated Publishing, his ownership and operation of promotions conducted from all addresses involved and his testimony that he does not intend to furnish circulars in evidence from any of the addresses involved. From his failure to deny, when he had the opportunity, and from his statement of intention with respect to not using the circulars in evidence, certain inferences may properly be drawn. They are that both as to the original addresses in the caption and the added addresses, except for Associated Publishing, Lawrence Phillips owns and operates the promotions at all addresses, that circulars sent in response to inquiries based on classified ads connected with each address and starting kits (booklets and/or instruction letter, etc.) furnished on orders related to such circulars would be identical, or substantially similar to those in evidence and would involve the same misrepresentations found above.

7. Based on Finding of Fact No. 2, Associated Publishing, is properly a party to this proceeding.

8. Respondents are involved in various schemes or devices for obtaining remittances of money or property through the mails by means of materially false representations in violation of 39 U.S.C. § 3005. In the "we'll Pay You 50c /" promotion, Respondents conduct a scheme involving receipt of money through the mails generated by means of misrepresentations to third parties made with Respondents' knowledge based on materials sent by Respondents through the mails. This is also a violation of 39 U.S.C. § 3005. United States v. International Term Papers, Inc., 477 F.2d 1277 (lst. Cir. 1973).

9. An order pursuant to 39 U.S.C. § 3005 in the form attached should be issued against Respondents.