In the Matter of the Complaint Against

UNITED STATES/GREAT LAKES FEDERAL SURPLUS DEPOSITORY
Post Office Box 807 at
Marshfield, WI 54449

P.S. Docket No. 7/136;

Cohen, James A.

APPEARANCE FOR COMPLAINANT:
ThomasA. Ziebarth, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, D.C. 20260

APPEARANCE FOR RESPONDENT:
James J. Natwick, Esq.
P. O. Box 1701
302 Grand Avenue Wausau,
Wisconsin 54401

POSTAL SERVICE DECISION

Respondent has appealed from an Initial Decision of an Administrative Law Judge which recommends the issuance of an order under 39 U.S.C. § 3005 based on the conclusion that Respondent, in the process of advertising for sale of a pamphlet entitled Official United States Government Surplus Directory, is engaged in a scheme for obtaining money through the mail by means of false representations in violation of 39 U.S.C. § 3005.

BACKGROUND

On January 16, 1980, the Consumer Protection Division, Law Department, United States Postal Service, filed a complaint alleging that Respondent is engaged in a scheme for obtaining money through the mail in violation of 39 U.S.C. § 3005. Specifically, the complaint alleges in paragraphs 3 and 4:

"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) The UNITED STATES/GREAT LAKES FEDERAL SURPLUS DEPOSITORY is affiliated with or is an agency of the government of the United States; and

(b) Persons remitting money in response to Respondent's advertisements will receive an "Official United States Surplus Directory" containing "400,000 listings" including such items as jeeps for $37.22 and cars for $22.50 which are available in the purchaser's immediate area.

The aforesaid representations are materially false as a matter of fact."

A hearing was held before an Administrative Law Judge to take evidence on the allegations of the complaint. Based on the testimony presented at the hearing and the exhibits admitted in the record, the Administrative Law Judge concluded that Respondent makes the representations alleged and that such representations are materially false in violation of 39 U.S.C. § 3005.

Respondent's Exceptions To The Initial Decision

Respondent has taken exception to Findings of Fact Nos. 7, 8, 9 and 10 and Conclusions of Law Nos. 3, 4, 5, 6 and 7 of the Initial Decision. Respondent enumerates two issues which, to a great extent, form the basis of its arguments in connection with its exceptions to the findings and conclusions. The two issues are:

(1) The Administrative Law Judge abused his discretion in failing to dismiss the complaint upon submission of Complainant's evidence; and

(2) There is no substantial evidence to support the Initial Decision.

These issues are addressed first, followed by a discussion of each exception.

Failure To Dismiss The Complaint

At the hearing, following completion of the direct examination of Complainant's sole witness and the admission into evidence of Complainant's Exhibits 1-5, 8 and 9, Respondent moved to dismiss the complaint on the grounds that no evidence had been presented to show (1) the existence of a misrepresentation, (2) the effect of Respondent's advertisements on the ordinary mind, and (3) that the misrepresentation, if any, was material and induced the purchase of its product. The presiding Administrative Law Judge denied Respondent's motion.

Respondent argues that the presiding Administrative Law Judge erred in denying its motion. According to Respondent the presiding Administrative Law Judge failed to determine that the "misrepresentation, if any, was material and that it influenced a person to enter into a contract." Respondent goes on to argue that in fact there was no evidence presented on which a finding of materiality or inducement could have been based.

The basis for the presiding Administrative Law Judge's denial of the motion was addressed at the hearing as follows:

...traditionally the Administrative Law Judges in Postal Service cases have made determinations as to whether or not ads misrepresent without the aid of testimony. We have tried to apply our ordinary minds to interpretation of ads, and the Courts that have heard these cases on appeal have not reversed on the ground that we have not received testimony as to the effect on lay minds of advertisements in question. Also, we're able to determine the materiality of misrepresentations by what is stated in the advertisements, and if we find that the alleged misrepresentations would induce purchasers of the product, we can make that determination of materiality, and do....

. . .

During the recess I studied the ads in evidence and the rest of the exhibits, and I do determine that the Postal Service has made a prima facie case under its complaint, and on that basis I deny the motion for dismissal of the complaint. (Tr. pp. 16-17).

It is evident from this quoted language that the presiding Administrative Law Judge had in fact, determined that a prima facie case had been established that Respondent's advertisements contained misrepresentations which were material in that they would induce the purchase of Respondent's product. The finding that Complainant had made a prima facie case was all that was required at that point in the case. Peak Laboratories v. United States Postal Service, 550 F2d. 1387 (5th Cir. 1977).

Respondent further alleges that there was no evidence at the time of the denial of its motion to dismiss from which it could be concluded that anyone ordered its product based upon inducements in its advertisements. The presiding Administrative Law Judge correctly concluded that such evidence is unnecessary because as is recited in his decision, "Whether anyone actually complains or has been deceived is irrelevant on the issue of false representation." (ID, p. 5) This conclusion is correct and supported by the cases cited, i.e., Farley v. Heininger, 105 F.2d 79 (D.C. Cir. 1939); Fairfield Floral Co. v. Bradbury, 89 Fed. 393 (1898); Charles of the Ritz Corp. v. F.T.C., 143 F.2d 676 (2d. Cir. 1944).

Respondent also argues that the Administrative Law Judge erred in not dismissing the complaint because, at the time of the motion, there was no evidence Respondent was not associated with the United States Government. To the contrary, Inspector White had testified that the post office box identified in Respondent's advertisements was issued to Mailmart, Incorporated (Tr. 9). This was sufficient to constitute establishment of a prima facie case that responses to Respondent's advertising were being directed to a commercial operation and not the United States Government.

Respondent also argues that when its motion to dismiss was denied there was no evidence to show either inducement arising from the claim of 400,000 listings or the low prices of jeeps. As has previously been stated, evidence of inducement to purchase is unnecessary. Respondent further contends that the falsity of these statements had not been established at the time of denial of its motion. The falsity of these representations had been established by the exhibits made part of the record (See FOF 9). Moreover, it is unnecessary to show the falsity of individual statements so long as the overall effect is misleading. Donaldson v. Read Magazine, 333 U.S. 178 (1948).

Lack of Substantial Evidence

Respondent first argues that the Initial Decision made no finding that there was substantial evidence to support a violation of 39 U.S.C. § 3005. While the presiding Administrative Law Judge did not make a specific finding that there was substantial evidence to support his conclusion that Respondent was in violation of 39 U.S.C. § 3005, neither did he err in failing to do so. The standard for review of an administrative decision on appeal to a court is whether it is supported by substantial evidence. See, for example, M.K.S. Enterprises, Inc. v. United States Postal Service, 459 F.Supp. 1180 (E.D. N.Y. 1978). The standard of proof applied in an administrative proceeding under 39 U.S.C. § 3005 is the preponderance of the evidence test. See e.g., Standard Research Laboratories, P.S. Docket No. 7/48 (PSD 1980); Michigan Bulb Co., P.S. Docket No. 7/43 (PSD 1979); U.S. Zip Code Service, P.S. Docket No. 2/171 (PSD 1974); See also Steadman v. S.E.C., 49 LW 4174 (1981).

Respondent relies upon Sheffield Silver Co. v. F.T.C., 98 F.2d. 676 (2d. Cir. 1938) for the proposition that there must be substantial evidence or testimony to show that someone was deceived. The reliance is misplaced because, in addition to other significant factual distinctions, the Court in Sheffield did not, as Respondent alleges, require testimony on deception and inducement to purchase. The Court states, quite explicitly, at page 687:

While actual deception need not be shown if the necessary effect of a person's acts is to make deception likely, there is nothing in the present record to support an inference that deception is likely. In the instant case, the controlling law is as quoted from page 5 of the Initial Decision, supra, and cases cited therein. The complaint, therefore, was not defeated by a lack of testimony on deception and inducement to purchase.

Complainant concedes that the Administrative Law Judge had discretion to determine how an advertisement would affect an ordinary mind. However, Respondent alleges there was no substantial evidence to support the finding made, while there was substantial evidence to the contrary. The contrary evidence consists of two letters alleged to be typical whose content would indicate no reliance upon the representations which the complaint alleges are false (RX-12 and 13). There are letters from purchasers in the record which were introduced by Respondent (RX-3, 5, 8 and 9) that demonstrate clearly that they were, in fact, misled by the advertisement. These constitute substantial evidence to support the complaint. However, the Administrative Law Judge chose not to rely upon them because it is within his discretion to determine "without the assistance of lay or expert testimony whether representations are made, their effect on the ordinary mind and their materiality." Standard Research Labs, P.S. Docket No. 7/68 (PSD 1980) and cases cited therein. Thus, the fact that certain purchasers were not misled is not dispositive.

Respondent further argues that the low statistical incidence of complaints, while irrelevant to determine falsity, is particularly relevant to the issue of materiality. While the number of complaints may have been low statistically, there were complaints (RX-3, RX-5). In any event, it is not necessary that there were customers who were actually misled or dissatisfied to sustain a violation of 39 U.S.C. § 3005. Mark Hunter, P.S. Docket No. 5/83 (1976) and cases cited therein; Fairfield Floral Co. v. Bradbury, 89 F.393 (Me. Cir. 1898); Charles of the Ritz Corp.v. F.T.C., 143 F.2d 676 (2d. Cir. 1944).

Respondent relies heavily upon its use of the term "directory," and argues that even when used in conjunction with a reference to "400,000 listings," it does not mislead. A distinction is drawn between "directory" and "catalog" by Respondent. Such fine distinctions are not expected to be made by the ordinary reader. "Laws are made to protect the trusting as well as the suspicious." F.T.C. v. Standard Education, 302 U.S. 112, 116 (1937); Gottleib v. Schaffer, 141 F.Supp. 7 (E.D. N.Y. 1956). The overall effect of the advertisement was held by the Administrative Law Judge to convey the impression in the ordinary mind that the directory will contain 400,000 listings. There is nothing intrinsic in the meaning of "directory" to preclude listings of that magnitude, and such an impression is the most probable effect on the ordinary mind. As such, the Administrative Law Judge's finding is proper. Donaldson v. Read Magazine, supra.

As to the lack of substantial evidence to support the representation that Respondent is affiliated with the United States Government, the advertisement identifies the directory as "Official United States Directory." It identifies Respondent as "United States/Great Lakes Federal Surplus Depository." The double usage of "United States" in combination with "official," and the arrangement of the combination of "United States" with "/Great Lakes Federal Surplus Depository" so as to create the impression of a regional surplus storage facility all openly and explicitly suggest, on the face of the advertisement, an affiliation with the United States Government. Appellant contends that insertion of the word "copyright" in the advertisement dispels such a notion. Such fine distinctions do not dispel the general impression. F.T.C. v. Standard Education, supra. The record establishes that such an affiliation does not exist (Tr. 60-71). The representation is unequivocally and indisputedly false. The Administrative Law Judge, looking at the advertisement as would the ordinary mind, chose not to look beyond the obvious. There is no basis apparent from this record to disturb his finding that the representations are false, material and misleading to the ordinary mind. The advertisement itself is fully sufficient evidence to so conclude. Vibra-Brush Corp. v. Schaffer, 152 F.Supp. 461, 465 (S.D. N.Y. 1957), rev on other grounds 256 F.2d 681 2d Cir. 1958).

Specific Exceptions

Exception To Paragraph 7 of The Findings of Fact

Respondent argues that paragraph 7 of the Findings of Fact is not supported by the evidence. We have addressed above the evidence to support paragraph 7, which finds that the advertisement would convey the impression of an affiliation with the United States Government. Respondent raises no new arguments under this exception. Accordingly, the exception is without merit.

Exception to Paragraph 8 of The Findings of Fact

Respondent argues that paragraph 8 of the Findings of Fact is in error because the product is a directory, not a catalog. As addressed above, the average consumer with an "ordinary mind" would not make the distinction drawn by Respondent. 400,000 listings are specifically advertised. Respondent would require a look beyond the obvious, which the Administrative Law Judge properly did not do. The exception is therefore without merit.

Exception to Paragraph 10 of The Findings of Fact

Respondent argues that paragraph 10 of the Findings of Fact is not supported by evidence. Respondent contends that "nearly all cases of record deal not with the ad but with the goods ... sold". Respondent fails to identify any of the cases to which it refers. The substance of paragraph 10 of the findings has already been found to be supported by substantial evidence. Accordingly, Respondent's exception is without merit.

Respondent Disagrees In Principle
With Conclusions Of Law 6 and 7.

Conclusions 6 and 7 provide:

"Respondent is engaged in the conduct of a scheme for obtaining remittances of money through the mail by means of false representations in violation of 39 U.S.C. § 3005.

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

No basis is provided for Respondent's disagreement. These conclusions are properly based on the facts introduced and the applicable law. Accordingly, it is concluded that this exception is without merit.

Respondent Excepts To Conclusions
3, 4, and 5 On The Basis Of Materiality

Respondent takes exception to these conclusions because there was a low incidence of complaints which it alleges is relevant to show that the false representations are not material. This is the renewal of an earlier argument which was previously found to be without merit. Respondent in addition argues that it has " made every effort ... to set forth as clearly as possible what the directory contains ..." Regardless of the efforts made by Respondent, its advertising continues to misrepresent the product being sold.

Finally, Respondent contends that "mere puffing" is at issue, and that it is permissible, citing Lynch v. Blount, 330 F.Supp. 689 (S.D. N.Y. 1970), aff'd 404 U.S. 1007 (1972). Where, however, it appears that an advertisement induces purchase of a product through misrepresentation of fact it exceeds mere puffing and constitutes a violation of 39 U.S.C. § 3005. Borg-Johnson Electronics, Inc. v. Christenberry, 169 F.Supp. 746, 751 (1959); Brad Mitchell, and Amazing Diet, Inc., P.S. Docket No. 5/147 (PSD 1977); G. R. Paro, P.S. Docket No. 6/111, (PSD 1979). Thus, Respondent's advertisements cannot be considered mere puffing.

CONCLUSION

After consideration of the entire record, the issues raised 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 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.