In the Matter of the Complaint Against

COSVETIC LABORATORIES et al.
at P. O.Box 53098
Atlanta, GA 30305 etc.

P.S. Docket No. 9/173;

Cohen, James A.

APPEARANCE FOR COMPLAINANT:
ThomasA. Ziebarth, Esq.
Consumer Protection Division
Law Department
United States Postal Service
475 L'Enfant Plaza West, S.W.
Washington, DC 20260

APPEARANCE FOR RESPONDENTS:
John M. Creger, Esq.
Katz, Paller and Land 470 E.
Paces Ferry Road
Suite 2000 Atlanta, GA 30363

POSTAL SERVICE DECISION

Respondents have appealed from an Initial Decision of an Administrative Law Judge finding that Respondents are engaged in conducting schemes or devices to obtain money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

BACKGROUND

On November 13, 1980, the Consumer Protection Division, Law Department, United States Postal Service, filed thirteen separate Complaints alleging that the Respondents named therein were violating 39 U.S.C. § 3005 by means of false direct mail solicitations or advertisements. The name of the product, the Respondent, and the Postal Service docket number of each case are set forth below:

P.S.

PRODUCT RESPONDENT DOCKET NO.

NEOCEL SYSTEM COSVETIC LABORATORIES 9/173

(tablets and creme)

" BRASWELL, INC. 9/174

SUPER OXIDE DISMUTASE, BRASWELL, INC. 9/175

sometimes called

SOD or DISMUTASE

" COSVETIC LABORATORIES 9/176

RNA TABLETS and CREME EARTHQUEST, LTD. 9/177

" COSVETIC LABORATORIES 9/178

GLUCOSE TOLERANCE FACTOR, EARTHQUEST, LTD. 9/179

sometimes called GTF

" COSVETIC LABORATORIES 9/180

" BRASWELL, INC. 9/181

YOUTH EXTENSION SYSTEM COSVETIC LABORATORIES 9/182

BRAINPOWER LA FLEUR NATURALE 9/183

" COSVETIC LABORATORIES 9/184

Also, by Complaint Docket No. 9/185, Braswell, Inc., Home Sales Division, Head Start, Inc., was charged with a sales scheme to induce the recipients of the advertising to become the Respondents' sales representative for the sale of the above-named products.

Following the filing of Answers by Respondents a hearing was held before an Administrative Law Judge to take evidence on the allegations of the Complaints. Complainant called as witnesses Sorrell L. Schwartz, Ph.D., a professor of pharmacology at Georgetown University Medical and Dental Schools; Jerry R. Williams, D.SC., a research professor of radiology and pharmacology at George Washington University; and Victor Herbert, M.D., J.D., who is board-certified in internal medicine and a nutritionist, chief of the Hematology and Nutrition Laboratory of the Bronx Veterans Administration Medical Center, professor of medicine at the State University of New York Downstate Medical Center, president of the American Society for Clinical Nutrition and a member of the Food and Nutrition Board of the National Academy of Sciences. Respondents called as witnesses Hans J. Kugler, Ph.D., an associate professor in chemistry and health sciences at El Camino College in California, and president of the International Academy of Holistic Health and Medicine; Richard Peter Huemer, M.D., a medical practitioner in nutrition and metabolic diseases; and John Paul Reeve, formulator of the Brainpower product, who has a B.S. degree is psychology, a naturopathic degree after an eight-month course and a thesis, and is in the process of obtaining a chiropractic degree.

Both parties introduced exhibits and participated in the examination and cross-examination of the witnesses. The witnesses testified concerning the products in question and offered their opinions on the efficacy of the products in relation to the representations made in the advertisements.

The Neocel and RNA Cremes are ordinary moisturizers to which some ribonucleic acid (RNA) has been added (CX 65-b; CX 68-b; CX 90 at 6, 8). The tablet form of Neocel is basically a multi-vitamin with added potassium chloride, choline, inositol, PABA and dried brewers yeast (CX 65-a; CX 90 at 6). Neocel 2 is a mineral supplement tablet (CX 65-c). Neocel 3, a tablet called an enzyme supplement, contains, as shown by its label, a vegetable concentrate powder, yeast, ribonucleic acid, bee pollen, spleen powder, thymus powder, desiccated liver, fish concentrate powder, and lecithin (CX 65-d).

The Superoxide Dismutase (SOD) label states each tablet contains superoxide dismutase "activity equivalent to that found in raw freeze dried liver (specially processed to retain enzymes)" (CX 69).

The label of the Glucose Tolerance Factor (GTF) product shows tablets containing "15 mcg. of Chromium as natural, biologically formed compound in yeast, including Glucose Tolerance Factor chromium." (CX 67).

The Youth Extension System (YES) is a program involving the combined use of the products in the Neocel system, the SOD, the RNA and GTF (CX 21-23; CX 90 at 9).

Brainpower is an herbal product with tablets containing Gotu Kola, Sweet Almond, Lily of the Valley, ginseng, Blessed Thistle, and Cayenne Powder (CX 66).

In general, the advertisements for the Neocel, RNA and SOD products represent that use of the products would improve certain conditions caused by aging; the GTF product would prevent certain degenerative diseases or conditions, and would control hunger and prevent weight gain; and the Brainpower product would improve a person's brain, nervous system and mental capacity. The Youth Extension System combining the Neocel, RNA, SOD and GTF products would have the benefits of the representations made for each individual product. In short, the advertisements for the products promise users to look and feel younger and/or to be able to control their weight or improve their mental capacity.

The Administrative Law Judge found that the advertising for the products made the specific representations alleged in the complaints. After evaluating the evidence, particularly the expert opinions of the various witnesses, he found that the representations made in the advertisements for the products are materially false. With respect to Docket No. 9/185, concerning the solicitation of sales representatives, he also found that as the same sales materials and advertising representations would be used, the Respondents were also seeking money through the mail indirectly, through their agents' orders, by means of the same false representations. He concluded that the Respondents are engaged in conducting a scheme for obtaining money through the mail by means of false representations in violation of 39 U.S.C. § 3005.

RESPONDENTS' EXCEPTIONS

Respondents contend the decision should be reversed. They make two allegations of error in the exceptions addressed below.

Exception 1

"THE ADMINISTRATIVE LAW JUDGE ERRED IN THE RELATIVE CREDIBILITY HE ATTACHED TO THE TESTIMONY OF THE WITNESSES OF COMPLAINANT AND APPELLANT."

Respondents contend that the Administrative Law Judge unjustifiably found Complainant's witnesses to be more credible than their witnesses. Specifically, they object to the following finding which they quote from the Initial Decision at p. 41:

"I found Complainant's witnesses to be individuals of the highest academic credentials. They are experts at the very top ranks of their fields, who appear to be recognized by their peers as authorities in their specialties. All three of Complainant's witnesses testified responsibly and consistently with themselves and with each other. They supported their conclusions with logical reasoning. I found them to be truthful and persuasive.

Dr. Kugler attempted to substitute quantity of testimony for quality. He talked at great length, in generalities and frequently wandered from the subject. He did not support many of his conclusions with logical information. Additionally, I had questions with regard to his credibility, especially when he was asked whether he relied upon various articles. I felt that in many instances he was not truthful. There were contradictions in his testimony. I found him to be an unreliable witness."

Respondents contend that the Administrative Law Judge did not set out the instances in which Dr. Kugler was untruthful nor in which he contradicted his testimony. Respondents cite three instances in which they contend Dr. Herbert's affidavit and testimony are inconsistent. Respondents contend in effect that their witnesses should be considered to be more credible because they have had personal knowledge and experience with many of the products in question, whereas Complainant's witnesses could testify only on the basis of literature searches and "highly theoretical hypothetical scientific 'knowledge'." (Respondents' Brief at p. 5).

The weighing of the testimony of the parties' expert witnesses is most relevant to the issue of the falsity of the representations. In large part the Administrative Law Judge's findings and conclusions rested upon his evaluation of the credentials, qualifications, experiences, demeanor, and responsiveness and consistency of the testimony of the witnesses.

Respondents' attempt to show inconsistencies in the testimony and affidavits of Dr. Herbert are not persuasive. The alleged inconsistencies and contradictions simply do not follow from the examples cited by Respondent or, otherwise, do not detract significantly from the import of Dr. Herbert's testimony.

Complainant's witnesses, who had impressive credentials, testified as to the consensus of informed scientific and medical opinion concerning ingredients in the products and their efficacy in accomplishing the advertised claims. Their reliance in part on medical and scientific literature in the field does not detract from their testimony; rather, it supports their opinions of the informed consensus of scientific and medical opinion. See, U. S. Health Club, Inc. v. Major, 292 F.2d 665 (3d Cir. 1961), cert. denied, 368 U.S. 896. Their testimony adequately established a prima facie case as to the falsity of the representations.

The testimony of Respondents' witnesses was not entitled to greater weight because they had some personal knowledge and experience with the products. Their experiences were not substantiated by verifiable scientific or medical methods. Their anecdotal accounts of personal use and that of some patients is not adequate evidence to substantiate the advertised claims sufficient to counter Complainant's prima facie case. Cf., Simeon v. F.T.C., 579 F.2d 1137 (9th Cir. 1978). Some of the literature relied on by them would not meet acceptable standards of the medical and scientific community. Other literature does not support the advertised claims for the products.

Furthermore, there is no error shown because the Administrative Law Judge did not indicate all of the instances in which he felt that Dr. Kugler was not truthful. The Administrative Law Judge's decision sufficiently stated his reasons for his credibility findings. Cf. Stauffer Laboratories, Inc. v. F.T.C., 343 F.2d 75, 82 (9th Cir. 1965).

It is apparent from the quotation from the Administrative Law Judge's opinion, supra, that he considered Dr. Kugler's testimony suspect with regard to his reliance upon various articles. Also, on page 28 of the Initial Decision the Administrative Law Judge gave a specific example where, based on Dr. Kugler's demeanor and language, he found him to be untruthful with regard to an answer as to whether he had referred to a specific exhibit (an advertisement) in preparing for his testimony.

An administrative law judge's findings as to a witness's credibility are generally afforded great weight in evaluating evidence, especially when based upon observations of the demeanor of the witness. See, e.g., ABC Trans-National Transport, Inc. v. N.L.R.B., 642 F.2d 675, 684 (3d Cir. 1981); Kallman v. N.L.R.B., 640 F.2d 1094, 1098 (9th Cir. 1981); N.L.R.B. v. Big Bear Supermarkets, 640 F.2d 924, 928 (9th Cir. 1980), cert. denied, 101 S.Ct. 318; N.L.R.B. v. Gold Standard Enterprises, Inc., 607 F.2d 1208, 1211 (7th Cir. 1979); and Penasquitos Village, Inc. v. N.L.R.B., 565 F.2d 1074 (9th Cir. 1977). Furthermore, it is concluded, upon a review of the entire record, that the Administrative Law Judge correctly assessed the credibility of the witnesses and made proper findings and conclusions regarding the efficacy of the products in relation to the representations made. Accordingly, this exception has no merit.

Exception 2

"THE ADMINISTRATIVE LAW JUDGE ERRED IN FINDING THAT APPELLANTS' ADVERTISING CLAIMS WERE MATERIAL IN THE ABSENCE OF EVIDENCE OF MATERIALITY."

Respondents contend that Complainant is not entitled to prevail in these cases in the absence of evidence that Respondents' advertising claims have in fact misled consumers. They contend that certain cases under the Lanham Act, 15 U.S.C. § 1225a, are not distinguishable. They also contend that cases holding that materiality may be assumed and need not be proven fail to take into account their constitutionally protected rights and should not be considered as authority. Respondents do not argue that false representations are protected by the Constitution, but they contend that in a proceeding "designed to determine" whether they should be denied a "valuable right because they are alleged to have made constitutionally unprotected representations, Complainant has no obligation to prove, and the Court has an obligation to demand proof that their representations are in fact materially false." (Resp. Brief at pp. 5-6).

Similar arguments concerning court cases under the Lanham Act have been considered and rejected in prior decisions holding that court cases under the Lanham Act are distinguishable from proceedings under 39 U.S.C. § 3005 with regard to the requirement of proof that consumers have been misled. Cosvetic Labs, P.S. Docket Nos. 9/118, etc. (P.S.D. September 30, 1981); Standard Research Labs, P.S. Docket Nos. 9/63 and 9/64 (P.S.D. August 31, 1981); Standard Research Labs, P.S. Docket Nos. 7/78 and 7/86 (P.S.D. October 27, 1980). Evidence of consumer reaction or complaints is unnecessary in an administrative proceeding under § 3005. See id.; Contemporary Mission, Inc., P.S. Docket No. 8/159 (P.S.D. June 30, 1981), and cases cited therein.

The significant evidence in these cases on materiality is the advertisements themselves. Inferences as to materiality may be drawn by the fact finder from the import of the advertisements and their likely impact upon the ordinary reader. It is well established that the Federal Trade Commission, once it has found an advertisement to be deceptive, may, within the bounds of reason, infer that the deceptive information would be a material factor in consumers' decisions to buy. E.g., Simeon v. F.T.C., supra.

Similarly, it is appropriate for the Postal Service to infer materiality from the alleged claims in advertisements. See, Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387, 1389 (5th Cir. 1977); Cosvetic Labs, supra; both Standard Research Lab cases, supra. The Supreme Court in Reilly v. Pinkus, 338 U.S. 269, 274 (1949), in reviewing a mail stop order, has made such an inference. It considered the language in advertisements, concluded that the misrepresentations went beyond permissible puffing, and stated they were "material representations on which credulous persons, eager to reduce, were entitled to rely." Therefore, drawing an inference of materiality from the advertisements does not violate Respondents' constitutional rights. See also, Lynch v. Blount, 330 F.Supp. 689, 695 (S.D. N.Y. 1971), aff'd, 404 U.S. 1007 (1972). Accordingly, there is no merit to this exception.

CONCLUSION

After consideration of the entire record and Respondents' exceptions, it is concluded that Respondents are engaged in a scheme to obtain money through the mail by means of materially false representations. Accordingly, Respondents' appeal is denied and remedial orders under 39 U.S.C. § 3005 are being issued contemporaneously with this decision.