In the Matter of the Complaint Against

MARC ERICKSON
521 Viewridge Drive at
Angwin, CA 94508 and
P.O. Box 645 at
Angwin, CA 94508

LIBERTY PUBLISHING
P.O. Box 645 at
Angwin, CA 94508 and
521 Viewridge Drive at
Angwin, CA 94508

P.S. Docket No. 8/67;

Grant, Quentin E.

APPEARANCE FOR COMPLAINANT:
Norm an D. Menegat, Esq.
Assistant Regional Counsel Western Region
United States Postal Services
San Bruno, CA 94099

Sandra McFeeley, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260

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

INITIAL DECISION

This proceeding was initiated on May 1, 1980, with the filing of a Complaint alleging that Respondents are 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.

With agreement of Respondents' Counsel amendment of the Complaint was allowed on May 15, 1980. The hearing was on the amended Complaint which alleged that by means of advertisements calculated to induce readers thereof to remit money or property through the mails Respondents falsely and materially represent (Cplt. Par. 3):

(a) That persons responding to the advertisement with a $22 payment will be sent by Liberty Publishing a starting kit consisting of envelopes, names, brochures to fold and stuff, and $.15 postage stamps.

(b) That Liberty Publishing will send to the purchaser "complete easy-to-read instructions."

(c) That Liberty Publishing will supply the purchaser "with all necessary materials to be mailed, free of charge."

(d) That Liberty Publishing is overseeing the direct marketing program for another company, American Productions of Beverly Hills.

(e) That sufficient materials will be supplied to allow the homeworker to commence the mailing program promptly and at a reasonable level of mailings.

(f) That all the homeworker does "is hand address the envelopes; fold the brochures and stuff one in each envelope; affix the $.15 postage stamps and drop the envelopes in the mail."

(g) That the homeworker will be paid promptly after submission of his "Completed Work Statement."

(h) That homeworkers will be able to work at a rate to allow them to submit a "Completed Work Statement" each week.

(i) That " e ach homemailer has the opportunity of expanding their mailings to a maximum of 1,200 envelopes per week."

Respondent's motion for a hearing in San Francisco was granted. The hearing was held on May 21 and 22, 1980.

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

FINDINGS OF FACT

1. Liberty Publishing, owned and operated by Mark Erickson (a/k/a Marc Erickson) and Darrell Rise, is engaged in the business of securing homemailers to distribute advertising (Complainant's Exhibits (CX) 1, 2, 3, 4, 5, 6, 7, 8).

2. Complainant's evidence fails to prove that Mark Erickson engages in such business in his own name. Therefore, the following findings, except as otherwise indicated, relate only to Respondent Liberty Publishing.

3. In its activity, Respondent solicits and receives money through the mails from persons joining its mailing program (CX 1, 2, 3a, b, c, 4a-f, Tr. 13-17).

4. In its advertisements (CX-1, 2) Respondent offers to pay to homemailers $.18 per envelope addressed and stuffed according to instructions and states that envelopes, names for addressing, brochures for stuffing, and $.15 postage stamps will be supplied to the homeworker. To join the program, the potential homeworker must remit to Liberty Publishing a $20.00 "deposit" plus a $2.00 handling fee (CX 1, 2).

5. The instructions sent to the homemailer (CX 4a and 5a) describe the program as follows:

a. With the starting kit the homemailer receives a 24 gold No. 10 envelopes (CX 4b), a sample circular for Astral Sounds (CX 4c), a printed list of twenty-four (24) names and addresses (CX 4d) along with instructions (CX 4a). The instructions direct the homeworker to address the gold envelopes by hand to the names and addresses on the mailing list.

b. Upon completion of the addressing task, the homemailer is to mail all materials back to Liberty Publishing.

c. Upon receipt of the package, Liberty checks it for accuracy, and, if the work has been done satisfactorily, Liberty will send a return package to the homemailer consisting of 24 envelopes previously addressed, 24 "Astral Sounds" circulars, plus 24 pink return envelopes addressed to American Productions (CX 6, 6a, 6b).

d. The homeworker, upon receipt of the return package, is to fold the circulars and pink envelopes and stuff one of each into each previously-addressed, gold envelope.

e. This package will be sent back to Liberty where the work will again be checked, and, if the work is satisfactory, Liberty will send to the homemailer the previously-addressed and stuffed envelopes plus 24-$.15 stamps.

f. The homemailer is then to affix the postage stamps to the gold envelopes, seal the envelopes and drop them in the mail.

g. Upon completion of this task, the homeworker fills out the "Completed Work Statement" (which is part of CX 4a) and sends it to Liberty. Liberty will then pay the homemailer at the rate of $.18 per envelope for a total of $4.32 plus shipping costs.

h. After a waiting period of unspecified length for Respondent to verify the mailing through a "tested percentage or orders" for "Astral Sounds Cassette Tape," the homemailer will receive 48 gold envelopes, 48 circulars, 48 pink envelopes and 48 names and addresses. In this "two-phase" fashion, the homemailer will fold the circulars, address and stuff the envelopes and return the package to Liberty Publishing.

i. Liberty will check the package and return all of the above materials back to the homemailer along with 48-8.4 cents third class stamps.

j. The homemailer will affix the stamps, seal the envelopes and return the entire package to Liberty which will then mail the items pursuant to its third class permit.

k. After completion of this work the homemailer is paid $8.64 plus shipping costs.

l. The program continues in this manner until the homemailer has processed 240 envelopes at which time the $20.00 deposit will be refunded. Each step allows the homemailer to receive an additional 24 envelopes over the last mailing.

6. Prior to the entry on May 6, 1980 of an order by District Court Judge Schnacke detaining the mail addressed to it, Liberty Publishing had received approximately 4200 orders for the starting kit.

7. As of the date of this hearing, starting kits had been sent to 1600 of those ordering.

8.a. Respondent, in its advertisements, directly states and, therefore, makes the representations alleged in paragraphs 3(a), (b), (d), (f), (g) and (i) of the amended Complaint (CX-1 2).

b. By omitting any reference to delays in obtaining significant quantities of materials and by stating that persons "can address and stuff 50 envelopes an hour in their spare time" and can expand to "1,200 envelopes per week." Respondent represents, as alleged in paragraph 3(e) of the amended Complaint, that the homemailer will receive sufficient materials to allow him to commence the mailing program promptly and at a level to earn reasonable payments. This representation is further supported by the inclusion in the order form of spaces where the customer is to indicate whether he "would like to earn the following:" ( ) $54, ( ) $108, ( ) $216," presumably per week (CX 1, 2).

c. Respondent represents, as alleged in paragraph 3(h) of the amended Complaint, that a homemailer will be able to work at a rate sufficient to allow them to submit a "Completed Work Statement" for payment each week by stating in the advertisements, "We will mail your check each Monday for the 'Statement' you sent us the previous week." (CX 1, 2).

9. The representation tha Liberty Publishing is overseeing the direct marketing program for another company, American Productions of Beverly Hills (Cplt. Par. 3(d)), may be literally true. But in that it would tend to make the ordinary mind believe that American Productions is an entity distinct from Liberty it creates a false aura of integrity, responsibility, and reputability. American Productions of Beverly Hills is not an entity distinct from Liberty Publishing and the latter's promoters (Tr. 29-32).

10. The representations made by Respondent as alleged in paragraphs 3 (e), (f), and (h) are false. As described in the instructions the program involves a system whereby the supplies are dribbled out to the homemailer over what would necessarily be a period of several weeks. Despite the appearance in the text of the advertisement of the term "three phased", one reading the ad would not understand that only a small quantity of materials would be made available initially, and small increments thereafter, and that an involved exchange of materials between Liberty and the homemailer would be required which would result in the passage of several weeks before the homeworker would earn more than nominal amounts or obtain the refund of the $20.00 deposit.

11. The representations made by Respondent as alleged in paragraph 3(i) of the amended Complaint are false. Considering the scope of Respondent's solicitation for homemailers, each homemailer could not, mathematically, have "the opportunity to expand (his) mailings to a maximum of 1,200 envelopes per week." The 4,200 orders received by Respondent to day would result in eventual requirements for Liberty to supply in excess of 5 million envelopes, circulars, names and addresses per week if each homemailer reached that level (4,200 x 1,200 envelopes per homeworker = 5,040,000 envelopes per week). Even if only half of the homemailers reached that level, 2,500,000 of each item per week would be necessary. It is incredible that Respondent could supply materials and names and addresses at that rate or even much lower levels.

12. The evidence adduced by Complainant does not support findings of falsity as to the representations alleged in paragraphs 3(a), (b), (c), and (g). Respondent was not diligent in filling early orders but had made a sufficient start by the time of the hearing to vitiate substantially the "failure to render" allegations.

CONCLUSIONS OF LAW

1. Based on Finding of Fact No. 2, the amended Complaint is dismissed as to Marc Erickson.

2. The meaning of advertising representations is to be considered in light of the probably 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).

3. Persons of ordinary mind reading Respondent's advertisements would interpret them substantially as characterized in paragraphs 3(a) through 3(i) of the amended Complaint.

4. The representations alleged in paragraphs 3(d), 3(e), 3(f), 3(h), and 3(i) are false in fact, and materially so since their natural tendency is to induce readers to pay Respondent the $22.00 required to participate in the homemailing program.

5. Respondent cites Ger-Ro-Mar, Inc. v. F.T.C., 518 F2d 33 (2d Cir. 1975), in support of its argument that a theory of mathematical or geometrical progression may not be used to find falsity in the representation that "each homemailer has the opportunity of expanding their mailings to a maximum of 1,200 envelopes per week" (Cplt. par. 3(g)). The Court in Ger-Ro-Mar held that an F.T.C. finding of inherent unfairness and deceptiveness of Ger-Ro-Mar's marketing plan (violative of § 5 of the F.T.C. Act) could not be based solely on a mathematical formula showing impossibility. Such a finding and a finding of deceptive advertising which the Court held to have been properly made by the F.T.C. based in part on evidence of the mathematical formula showing impossibility. That distinction is applicable in this case, the F.T.C. finding of deceptive advertising equating with the finding here of false representation.

6. Complainant has not established the falsity of the representations alleged in paragraphs 3(a), 3(b), 3(c) and 3(g) of the amended Complaint. They are, therefore, dismissed.

7. Actual participation by Complainant's inspectors in Respondent's homemailing program was not required to establish the falsity of the representations. Falsity is abundantly apparent in simple comparison of the representations with the instructions provided by Respondent. Expert testimony is not required to establish Complainant's case under these circumstances. Vibra Brush Corporation v. Schaffer, 152 F. Supp. 461, 468 (S.D. N.Y. 1957), vacated on other grounds, 256 F.2d 681 (2d Cir. 1958).

8. Respondent Liberty Publishing is engaged in a scheme or device to obtain money or property through the mails by means of materially false representations in violation of 39 U.S.C. § 3005.

9. The nature of the program makes it probable that many persons are already involved in earning money through participation therein the would be prevented from recovering their $20 deposit were their mail addressed to Liberty to be returned by USPS. Therefore, it is recommended that the order pursuant to 39 U.S.C. § 3005 exempt such mail from return to sender. It is intended that the proposed order cover all applications for registration in Respondent's program including those made on the so-called "friend" coupon which is included in the starter kit. Such applications are an integral part of Respondent's scheme, inseparable therefrom for all practical purposes.

10. An order pursuant to 39 U.S.C. § 3005 in the form attached should be issued against Respondent Liberty Publishing.