In the Matter of the Complaint Against

U. S. BUSINESS SYSTEMS, INC.
310 W. Colfax Avenue
at Palatine, IL 60067

P.S. Docket No. 8/139;

Duvall, William A.

APPEARANCE FOR COMPLAINANT:
Thom as A. Ziebarth, Esq.
Law Department
U.S. Postal Service
Washington, DC 20260

APPEARANCE FOR RESPONDENT:
Jack P. Cerone, Esq.
Erbacci, Syracuse, Cerone, Ltd.
1 East Wacker Drive
Chicago, IL 60601

INITIAL DECISION

This proceeding was initiated on June 23, 1980, when the General Counsel for the United States Postal Service filed a Complaint alleging that Respondent, U. S. Business Systems, Inc., is engaged in conducting a scheme or device to obtain money or property through the mails by means of false representations in violation of 39 U. S. Code § 3005. The Complaint alleged that Respondent misrepresented that:

(a) It is a representative of a major photocopy machine supplier or manufacturer;

(b) It has a large overstock of photocopy machine supplies available for sale at drastically reduced prices; and

(c) Purchasers of such supplies will be given the benefit of these reduced prices.

In its Answer, Respondent denied these allegations.

At the hearing, Michael Rogers, Walter A. Tennyson, James Maloney, James Daly, Kenneth Riley and Constance Seidl, testified for Complainant and Phillip Leataud and Donald Franzese testified for Respondent.

Mr. Rogers is a fraud specialist with the Postal Service in Chicago. He stated that he investigated Respondent after the Postal Service received 22 complaints. Based on Mr. Rogers' investigation and upon motion by the parties at the hearing paragraph 3(a) of the Complaint was dismissed. (Tr. 13-18)

Mr. Tennyson, a marketing manager with the 3-M Company with 25 years of experience in copying products, testified with regard to prices for photocopy materials. He stated that in his opinion, $98 is a high price for a carton of photocopy toner. (Tr. 30)

Mr. Tennyson stated that he examined about 35 of Respondent's invoices for photocopy toner. These invoices were selected at random. With respect to invoices in which Respondent charged $98 for a carton of toner, Mr. Tennyson testified that the market price to a non-governmental purchaser would normally be $55 - $60 and the price to a large purchaser such as GSA would be approximately $30. With respect to another invoice (2737) he testified that $74 is a high price for toner for the Xerox 660 and that the market price for small quantities of that toner would normally be approximately $50. As another example he testified that in invoice number 2912, toner for Xerox 2600 was listed at $93 per carton. The normal price for that carton would be closer to $60. In invoice 3320, toner for IBM 2 was set forth as $108. The normal price would be closer to $75. He defined normal price as the price charged by the 3-M Company, Xerox, Nashua, and other competitive companies. (Tr. 31)

On cross-examination he stated that 3-M charges $50.40 for a carton of toner for the Xerox 660. However, if a customer purchases more than 100 cartons per year he could get a price of $18 per carton. He agreed that the Xerox Company sells toner for the 660 Xerox machine at $74 per carton. (Tr. 32-33)

Mr. Maloney testified that he is the Postmaster at the Aurora, Illinois, Post Office. He testified that in September, 1979, he was contacted by Respondent and purchased three boxes of photocopy paper and one box of toner from Respondent. He stated that the net price on the invoice was $58.21. He complained that this was excessive and that normally he could have purchased the same merchandise for approximately $51.50. However, on cross-examination he testified that the price of $51.50. However, on cross-examination he testified that the price of $51.50 was obtained by purchasing through a GSA buying pool. (Tr. 45-50)

Mr. Daly testified that he is the Postmaster at the Palatine, Illinois, Post Office. (Tr. 53) He stated that he was contacted by a representative of Respondent, who told him that Respondent had an excess amount of toner for a Savin 755 copier and that he could give Daly a bargain price of $110 per case for the toner. Daly refused to purchase the toner because he knew that he could purchase the same toner directly from Savin Products for $42.50 per case. he told this to Respondent's representative who then offered to reduce the price to two cases for $110. He again refused since this was still more than Savin's price. Mr. Daly did not purchase any products from Respondent. (Tr. 55-57)

Mr. Riley stated that he is a mail clerk at WCFL Radio in Chicago. (Tr. 60) They use an IBM Series 3, Model 10 photocopy machine which utilizes toner. He testified that he received a telephone call from a representative of Respondent who told him that Respondent usually supplied toner and other supplies to the Chicago Police Department. However, since the Police Department changed to a Xerox machine, Respondent could offer Riley six packages of toner. Riley stated that it was not within his authority to accept orders like that. Later another representative of Respondent telephoned and asked Riley's permission to record the second phone call. Riley testified that he reiterated that he is not authorized to make any purchases of this kind. Riley stated that the other individual said that he understood but that the toner would be there. The toner was delivered. At that point, Riley explained the situation to his supervisor, Ms. Seidl. The packing slip indicated a purchase price of $700. At Ms. Seidl's direction, Riley telephoned Respondent and was told that there would be a restocking fee upon return of the merchandise. (Tr. 61-63) Most subsequent dealings with Respondent were handled by Ms. Seidl and the station's General Manager, Mr. McDaniels.

At that point in the hearing, Respondent played a cassette recording of a conversation identified by Respondent's counsel as being between Bob Williams and Ken Riley. In the recording, in response to Mr. Williams' questions, the other individual stated that he was authorized to purchase supplies for the firm's IBM copier model 3. Mr. Williams stated that he was Bob Williams, U. S. Business Systems Credit Manager and that he wanted to make sure that Respondent had the correct selling information for the invoice. He proceeded to verify an agreement to purchase six cartons of Winston toner at $108 each to which the other voice respondent "Uh-huh". Williams then verified the address and that the purchaser would be Connie Seidl. During the conversation, the individual identified as Mr. Riley seemed to be saying OK and agreeing to all of Williams' requests. (Tr. 70-74)

After the recording was played, Riley resumed the witness stand. He denied that the recording was accurate. To support this conclusion, he stated that his boss' secretary was present when he spoke to Williams and she was talking louder than he, yet her voice did not appear in the recording. When Riley was asked, "Does the substance of the recording seem to refresh your memory at all, or do you have any other problems with it?", he did not answer. He further stated, "I had some other memories of the conversation from which the gentleman was also referring to, but I have lost it." (Tr. 74-75)

Ms. Seidl testified that she is the Manager of Business Affairs for WCFL Radio. (Tr. 77) When Mr. Riley told her that the order had been delivered, she spoke to Mr. John Knowland, representing Respondent on the telephone. Mr. Knowland told Ms. Seidl that the merchandise could not be returned, that the order was non-cancellable, and the only way that it could be returned was by paying a restocking charge. She refused to accept the order and mailed the goods back. The goods were returned a few days later. She again returned the goods and is still disputing liability for the items. When asked about the price, she stated that she had never purchased toner and therefore did no know what it cost. (Tr. 77-79)

Mr. Phillip Leataud testified for Respondent. He indicated that he has been Respondent's Credit Manager for the past two years. (Tr. 83) He stated that Complainant's Exhibit No. 23 is Respondent's sales pitch, which all of the sales personnel are required to use. To verify sales, he telephones purchasers and tells them that he is in the Credit Department of U. S. Business Systems. He uses the name of Bob Williams when he is verifying and the name of Larry Brown when he is selling. This enables him to differentiate business phone calls from personal phone calls. He testified that he was the verifier on a sale of toner that was made to WCFL Radio and that he spoke to Ken Riley in connection with that sale. (Tr. 84-86) He stated that he asked Mr. Riley if he was authorized to purchase copy toner and that he answered "yes." (Tr. 90)

Leataud made a tape of a conversation between himself as Bob Williams and Mr. Perezella. Like the Riley tape, Leataud confirmed details about the transaction, asked many questions to which Perezella supplied short confirming answers. Leataud testified that these two tapes are typical of the verifying conversations that he and other verifiers conducted for Respondent following solicitations and placing of orders. (Tr. 92-98)

On cross-examination, Leataud stated that the title of Credit Manager that he uses in telephone conversations is a misnomer. he does not work in connection with determining credit of customers. His position, like that of Respondent's other "Credit Managers", is to verify orders and it would be more accurate to call them verifiers. (Tr. 109)

Mr. Leataud stated that the sales pitch states that another purchaser is going out of business, leaving, or for some reason is unable to purchase products, and therefore Respondent has a surplus of the particular item. When asked, "Are you certain that there is always somebody in that neighborhood who has just, or is about to, go out of business with this particular item on hand?", Mr. Leataud answered, "Honestly, I couldn't say for sure whether this was always the case, no." (Tr. 114-115) When Complainant's counsel followed-up on these questions, the witness stated that, except for a couple of cases, he knew of no specific instance in all of Respondent's sales in which another customer was, as stated, actually going out of business or was unable to use the products. (Tr. 117)

Donald Franzese testified that he has been President of U. S. Business Systems since its inception about a year and half ago. (Tr. 118) He stated that the list price for a case of photocopy toner is $128.40. However, the bulk of toner is sold at $98. (Tr. 120-121) He identified a Xerox price list effective April 1, 1980, as charging between $104 and $41 per carton for similar toner, depending on the quantity purchased. (Tr. 127) He stated that although most sales of toner are at $98 per carton, salesmen are allowed to go down to $40 per carton without any approval. If a salesman sells toner at $60 or more, he receives full commission; below $60, he receives a partial commission. (Tr. 132) With regard to the sales pitch that another customer is going out of business, he stated "...basically, it's telling a customer some type of story, you know, that if they can believe, you know, we weill sell a product." (Tr. 134) He continued, "You know, it is a matter of the proverbial 'it was only driven on Sunday afternoons by a little old lady,' which is extremely obvious, but it's just another type of sales pitch." (Tr. 134) ^1/

Complainant's Exhibits 1-22 consisted of responses to interrogatories that had been sent to people who purchased from, or who were solicited for business by, Respondent. These exhibits indicated that for the most part the customers were dissatisfied in that they felt that the prices quoted were too high, they were subjected to high pressure sales techniques and, in some cases, they found it difficult to cancel orders or return goods that were delivered. Specific references to some of the interrogatories are made later in this decision.

FINDINGS OF FACT

1. Respondent is engaged in the business of selling toner and paper supplies for photocopy machines.

2. Respondent solicits business by using a telephone sales pitch. Its salesmen have a written sales presentation from which they read. The pitch tells the prospective customer that another customer in the area changed machines or no longer needs the machine, or cancelled an order and that there is a quantity of supplies available at a price reduced from their normal list price. For example, various prospective purchasers thought they were being offered merchandise "below the wholesale price plus a discount" (CX-1); a bargain price (CX-5(; save shipping charges (CX-8); a cheaper rate than normal (CX-9); sell at cost . . . "a very reduced price" (CX-10, Tr. 49-51); "a real super deal pricewise" (CX-11); a special price (CX-12); a real good deal on toner (CX-21).

3. The sales pitch is untrue. The story that for various reasons Respondent has a large overstock of photocopy machine supplies available for sale at drastically reduced prices is false.

4. Purchasers of such supplies are not given the benefit of such reduced prices. Examples are: More than four times the price usually paid (CX-1, 2); Quoted price too high (CX-4); Substantially higher than Xerox brand toner (CX-5); Higher than we pay on local market (CX-8); Double the cost of the GSA store (CX-9); Price higher than new toner priced by previous supplier (CX-10, Tr. 46); Attempt to bill for an additional $20.00 per box (Tr. 47); Highly inflated prices (CX-14); Higher than Xerox' price (CX-19); Extremely overpriced (CX-22); Two and a third times my price (Tr. 55). Based on his examination of a random group of invoices, Mr. Walter A. Tennyson stated that his overall opinion of Respondent's prices is that they are generally high (Tr. 31-A), and that Respondent's prices do not constitute discounts for merchandise of like quality and quantity in the market place. (Tr. 38)

5. Merchandise is shipped and an invoice for the amount represented as being due is sent to the customer. The invoice on its face solicits the remittance of money and contemplates the use of the mails in making the remittance.

6. In no instance has it been shown in this record that a customer received a bargain price, viz. a price substantially lower than the price he or she usually pays for like goods in the market place.

CONCLUSIONS OF LAW

1. The meaning of representations made in a sale presentation is to be judged from a consideration of the presentation in its totality and the impression it would most probably create in ordinary minds. Donaldson v. Read Magazine, 333 U.S. 178 (1948); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y., 1957); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y., 1959).

2. The average person hearing Respondent's sales presentation would interpret it substantially as characterized in paragraph 3 of the Complaint.

3. The falsity of the representations is established by the statements made in response to the interrogatories introduced by Complainant (CX-1-22 (except 6 and 17)).

4. The falsity of the Respondent's representations is further established by the prices stated in the invoices which are used to obtain or to attempt to obtain the mailing of the remittances and, thus, successfully complete the deception.

5. Complainant has established its case by the preponderance of the reliable, probative evidence of record.

6. Respondent is engaged in the conduct of a scheme for obtaining remittances of money through the mail by means of false representations within the meaning of 39 U. S. Code § 3005.

7. An order of the type authorized by 39 U. S. Code § 3005, substantially in the form attached, should be issued against this Respondent.

1/ Respondent's sales pitch as contained in Complainant's Exhibit No. 23 is entitled "Sales Presentation." Soon after he speaks to the authorized purchaser, the salesman is to say, "Well, what happened (name of customer) someone close to you there was using the same model machine...just like you, and they switched to a (different model, a much larger machine.) Well, like I said they switched machines and we didn't find out here soon enough, so I just went ahead and sent down what would have been their normal order of the...toner to them, you know the ink you pour into the machine. So that's why I was asked to give you folks a call...your close by and you have the same model machine as they once had, so they wanted me to see if you folks would mind helping out with a little bit of your shelf space there, and if you could, we could re-route this small order to you, and instead of our list price, they said they would mark it down to our warehouse price this time."