In the Matter of the Complaint Against

ADTEL and ADTEL & COMPANY
6125 East Indian School Road Suite 2005
at Scottsdale, AZ 85251

P.S. Docket No. 13/131;

08/03/82

Bernstein, Edwin S.

APPEARANCE FOR COMPLAINANT:
Sand ra C. McFeeley, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260

APPEARANCE FOR RESPONDENT:
Mr. Gabriel M. Marques Adtel and Adtel & Company
6125 East Indian School Road Suite 2005
Scottsdale, AZ 85251

BEFORE: Judge Edwin S. Bernstein

INITIAL DECISION

Complainant alleged and Respondent denied that Respondent is engaged in a scheme or device to obtain money or property through the mails by false representations and by means of a lottery or gift enterprise in violation of 39 United States Code § 3005 in connection with Respondent's representations to persons that they had won prizes and Respondent's sales of specialty products. Respondent disputed Complainant's allegations but did not appear at the June 7, 1982 hearing in Washington, D.C. At the hearing, Complainant presented two witnesses, Postal Inspector Thomas Taylor and Mr. James Snyder, and various exhibits, while Respondent presented no evidence. Complainant also filed proposed findings of fact and conclusions of law and Respondent filed a post-hearing argument, which have been considered. To the extent indicated, they have been adopted. Otherwise, they have been rejected as irrelevant or not supported by the evidence.

FINDINGS OF FACT

Respondent sells advertising specialty products by telephone to small businesses across the country. I find that Respondent used the mails in connection with delivery of and obtaining payment for its products; that Respondent made all but one representation alleged in the Complaint; that Respondent is engaged in a lottery or gift enterprise; and that Respondent's representations are materially false. The reasons for my findings follow.

I. The Use of The Mails

For the Postal Service to have jurisdiction pursuant to 39 U. S. Code § 3005, Respondent must have used the mails for its business practices at issue. In this case, Postal Inspector Taylor's testimony (Tr. 19, 25) and several of the exhibits (CX-1, 24, 25 and 32) show that Respondent used the postal C.O.D. system to deliver its specialty products to customers and receive payment for these products.

II. Respondent's Representations

I find, as alleged in Paragraph 4, subparagraphs (a) through (e) and (g) through (j) of the Complaint and based upon evidence as follows, that Respondent made the following representations in its telephone solicitations.

(a) Respondent's advertising specialty products are sold at prices discounted from the regular retail price of such products.

Mr. James Snyder, a businessman who purchased some of Respondent's products, testified that Respondent's salesmen repre sented the pens to be "Papermate pens, executive type...valued in the store at approximately $10" (Tr. 65). The salesmen first said the cost of 100 pens was a little over $400; Mr. Snyder negotiated the price down to $324 for 100 pens --a cost of $3.24 per pen (Tr. 66). Other customers had similar experiences. An Adtel salesman told Mr. Morris that the pens were wroth over $3 each but the cost to Mr. Morris for 200 pens would be $1.58 (CX-28). A salesman offered Mr. Gamradt pens supposedly worth $2.79 each for $1.59 each. When Mr. Gamradt would not accept the pens at that price, the salesman finally agreed to 70 cents per pen (CX-34).

Additionally, one of Respondent's "pitch sheets" or scripts used for telephone solicitations, states: "THE baseball CAPS USUALLY WHOLESALE OUT OF OUR CATALOGUE AT $12.55 EACH BUT DURING THIS PROMOTION ONLY THEY ARE GOING OUT AT OUR COST WHICH BREAKS DOWN TO ONLY $7.20 A PIECE. . ." (CX-6)

(b) Each recipient of one of Respondent's telephone sales solicitations is one of a small number of businesses randomly selected by computer or otherwise as a contest winner.

Respondent's pitch sheet at CX-6, states:

"YOU ______ARE ONE OF THE MAJOR PRIZE WINNERS IN THE COUNTRY ON THAT MILLION AND A HALF DOLLAR, NATION WIDE STRIKE-IT-RICH SWEEPSTAKES... ONLY 2,500 BUSINESSES WERE SELECTED NATIONWIDE OUT OF THE DUN & BRADSTREET COMPUTERS..."

Also, Mr. Snyder testified that an Adtel salesman said that he was one of 50 people selected in the nation as a winner (Tr. 65).

(c) Respondent is affiliated with or is an authorized representative of the PaperMate or Gillette Pen Companies.

An Adtel salesman told Lyle Gamradt that Gillette and Papermate were sponsoring the contest he had won as a promotion and that he was a guaranteed winner (CX-34).

(d) Each customer purchasing merchandise from Respondent will receive a prize such as a color TV, a trip to Disneyland or Disney World, a mini-vacation, a microwave oven, or a love boat cruise, each of which is valued between $500 and $1,800.

One of Respondent's pitch sheets reads:

"BECAUSE ON THIS PROMOTION YOU ARE GUARANTEED TO WIN ONE OF FIVE GIVTS, RANGING IN VALUE FROM $300.00 CLEAR ON UP TO $5,000.00 --WHICH IS THE VALUE OF THE GRAND PRIZE. BUT REMEMBER ______THE SMALLEST GIFT YOU CAN WIN IS A $300.00 GIFT CERTIFICATE REDEEMABLE OUT OF THE BON-VIVANT INTERNATIONAL CATALOGUE" (CX-6).

Mr. Snyder testified that Paul Conti, a salesman for Adtel, stated that Mr. Snyder had won one of several prizes; an all- expenses paid trip to any country in the world, $1,500, a micro- wave oven or a Zenith color T.V. (Tr. 64). An Adtel salesman assured Bert Dawes that he had won either his or her jewelry, a week's paid vacation to a favorite city, a set of gourmet cookware cutlery and serving pieces, a color T.V., a microwave oven or a $1,500 shopping spree. The prizes ranged in value from $300 to $5,000 (CX-18). A telephone solicitor told Lyle Gamradt that he was eligible to win one of five prizes: a mini-vacation, a Love Boat cruise, a microwave oven, a color T.V. or a trip to Disneyland or Disney World (CX-34).

This evidence proves all portions of the allegation with the exception of the $500. minimum value contention. The only evidence as to that is CX-34, the memorandum of Lyle Gamradt's statement, which reads, "The salesperson told Mr. Gamradt that the contest was called 'Match-a-Buck' and the prizes were worth from $500 to $1,800." This evidence is undisputed and I accept it as proof that, at least in that case, Respondent's salesperson represented that the prizes had a minimum value of $500.

(e) The retail or usual sales price of each of Respondent's products is as stated by Respondent's telephone sales solicitor.

Respondent's salesman represented to Mr. Snyder that the retractable pens Adtel sells have a retail value of $10 (Tr. 65). Adtel salesmen told Mrs. Barnes and Mr. Morris that the pens each purchased were worth $3 per pen (CX-22, 28). An Adtel salesman quoted Mr. Lucas a retail price of $1.19 per pen (CX-30) and Mr. Gamradt was told that the Husky pens he purchased were worth $2.79 each (CX-34).

(f) Respondent is selling advertising specialty products by order of the bankruptcy court or as part of a bankruptcy sale.

In its proposed findings, Complainant voluntarily withdrew this allegation.

(g) Respondent will furnish the number of pens ordered and paid for by the customer.

A person who ordered and paid for a specific number of pens, after talking with Respondent's representatives as did the cus- tomers who gave evidence in this matter, would expect to receive that quantity.

(h) Respondent is an authorized agent of an Indian School for the purpose of soliciting funds for the benefit of Indian Children through the sale of advertising products.

Respondent's sales solicitor told Mr. Morris that Adtel was associated with the Indian school and sold pens in order to assist the handicapped children at that School. The salesman promised Mr. Morris a diamond necklace worth $300 in exchange for the purchase of pens (CX-28).

(i) The Gillette and PaperMate Companies authorize or conduct the "contest" the prospective customer has "won" or Respondent's sale of pen products.

An Adtel salesman told Lyle Gamradt that large ink pen companies such as Gillette and PaperMate were running the contest as a promotion, and that Mr. Gamradt would have to purchase pens in order to receive his prize (CX-34).

(j) Respondent will furnish high quality pens made by, or comparable to top of the line models of, well known pen companies such as Gillette and PaperMate.

Mr. Snyder testified that the Adtel telephone solicitor represented Respondent's pens as executive type PaperMate pens valued in the store at approximately $10 per pen (CX-65). The use of the PaperMate name, the descriptive words such as "new," "com- mercial," and "executive type" and a value represented at $10 per pen would create in the ordinary mind an image of a high quality product.

III. The Truth or Falsity of the Representations

I further find that the representations alleged in Paragraph 4, subparagraphs (a) through (e) and (g) through (j) of the Complaint are materially false, based upon the following evidence.

(a) Respondent's advertising specialty products are sold at prices discounted from the regular retail price of such products.

(b) The retail or usual sales price of each of Respondent's products is as stated by Respondent's telephone sales solicitor.

(c) Respondent will furnish high quality pens made by or comparable to top of the line models of, well known pen companies such as Gillette and PaperMate.

The actual price of the pens is significantly less than the price Respondent represents. An invoice from Ad-Venture Printing indicates that Adtel purchased 3,550 printed husky pens for 15.5 cents per pen (CX-36). The catalogue of Pencoa, the manufacturer of the Husky pens, indicates that the maximum price of Pencoa's printed Husky pen is 21 cents or 22.5 cents each, depending on style, for 500 pens, the smallest quantity available (CX-10).

Inspector Taylor testified that PaperMate distributed the porous point pen that Respondent furnishes only in bulk for 14 cents to 17 cents per pen (Tr. 62). Respondent's customers estimated that the pens they received were worth 30 cents (CX-18), 35 cents (CX-22), and 49 cents (CX-30).

Respondent represented the retail price of its retractable pens to be between $2.79 and $10 (CX-34, 22, Tr. 65). Respondent's customers paid an allegedly discounted price of from $1.59 (CX-34) to $3.24 (Tr. 65) for each retractable pen. Thus, Respondent sold each pen for 10 to 20 times its cost and represented the pens to retail for at least 15 to 60 times Adtel's cost.

Respondent represented the retail price of is porous point pens as $3 per pen (CX-22) and charged an allegedly discounted price of $1.26 (CX-22). Thus, Respondent sold the porous point pen for nine times its cost.

Respondent's customers received pens of quality substantially inferior to that represented. James Snyder testified that he did not receive the $10 PaperMate pens he expected but rather a low quality pen with a plastic refill that performed poorly (Tr. 69). The other customers also perceived the pens to be cheap and far below the quality represented (CX-18, 22, 28, 30, 35).

Inspector Taylor's investigation of the Husky ballpoint pens that Respondent sells (CX-27 and 33) revealed the pens are manu- factured and distributed by Pencoa Company in New York State (Tr. 49). Adtel purchased the pens from a printer of advertising specialty products, Ad-Venture (Tr. 50, CX-36).

As a result of his interview with Mr. Clowd and Mr. Smiley, representatives of PaperMate Pen Company, Inspector Taylor deter- mined that a PaperMate writing instrument can be identified by either the two-heart logo on either the clip or the barrel, by the name PaperMate, or both (Tr. 60-61). Refills are made of steel and carry the PaperMate name (Tr. 61). The Husky pens that customers received from Respondent (CX-2, 21, 27, 33) have plastic refills and lack the PaperMate trademarks.

(d) Respondent is affiliated with or is an authorized representative of the Paper-Mate or Gillette Pen Companies.

(e) The Gillette and PaperMate Companies authorize or conduct the "contest" the prospective customer has "won" or Respondent's sale of pen products.

Inspector Taylor testified:

"I interviewed Mr. Kenneth Clowd. He is the Director of Corporate Security for the Gilletter PaperMate Corporation. Mr. Clowd told me that his company has never heard of Adtel nor any of its representatives; that they have no business dealings with Adtel; that they are running no promotions either at all or through Adtel; and that, I think I already mentioned, he's never heard of any of the principal people who I have already described as being employed and running Adtel" (Tr. 47-48).

Inspector Taylor also stated that he received the same information when he questioned Mr. Hal Smiley, the West Coast distributor for Papermate Pens. Inspector Taylor further explained that Paper- mate is a subsidiary of Gillette Corporation (Tr. 48).

(f) Each recipient of one of Respondent's telephone sales solicitations is one of a small number of businesses randomly selected by computer or otherwise as a contest winner.

Inspector Taylor's investigation demonstrated that Respondent, in fact, selected the names of prospective customers from telephone books and from invoices of past customers (Tr. 15-16). He stated that when he searched Respondent's offices pursuant to a search warrant he found five stacks of telephone books four feet high. He also confirmed these conclusions through interviews with Respondent's salesman. Furthermore, several of Respondent's customers told Inspector Taylor that they had previously been solicited by other firms with which Respondent's principals had been associated (Tr. 18-19).

(g) Each customer purchasing merchandise from Respondent will receive a prize such as a color TV, a trip to Disneyland or Disney World, a mini-vacation, a microwave oven, or a love boat cruise, each of which is valued between $500 and $1,800.

Mr. Snyder, Mrs. Barnes, and Mr. Lucas stated that they received 12" Zenith black and white television sets instead of color sets (Tr. 68). Mr. Dawes received a Strike-It-Rich Bonanza package which indicated that he had won gold crystal and diamond jewelry (Tr. 29, CX-18, 13-16). The jewelry that he received contained industrial grade diamonds and was of low quality (CX-17). Mr. Gamradt received a very inexpensive set of earrings (CX-34).

Inspector Taylor's investigation revealed that Adtel purchased the jewelry Mr. Dawes received from Irving Wender Sales (Tr. 59, CX-17). Mr. Wender said that the jewelry had gold plated chains with diamond chips surrounded by silver to make the stone appear larger. Mr. Wender sells the jewelry from $4 to $6 (Tr. 59). An invoice indicated that Adtel paid Wender $4 for a pair of diamond earrings such as that received by Mr. Gamradt (CX-37).

(h) Respondent will furnish the number of pens ordered and paid for by the customer.

Mr. Gamradt and Mr. Morris paid for 200 pens, yet they each received only 100 (CX-28, 34). Mr. Lucas ordered and paid for 500 pens; he received only 201 (CX-30).

(i) Respondent is an authorized agent of an Indian School for the purpose of soliciting funds for the benefit of Indian children through the sale of advertising products.

Inspector Taylor testified that on May 4, 1982, when he searched Respondent's premises, he found a Mr. Ray Cohen and other of Respondent's representatives. He stated that Mr. Cohen asked what was wrong with "his business" and Mr. Cohen stated that neither he nor his company had any connection with the Indian school on Indian School Road (Tr. 12-14).

IV. Lottery or Gift Enterprise

I further find, as alleged in Paragraph 7, Count II of the Complaint, that Respondent knowingly seeks remittances of money through the mail by means of a scheme to distribute money or property by means of a lottery or gift enterprise. Respondent's pitch sheets (CX-6), Mr. Snyder's testimony (Tr. 64), and the memoranda of interviews of various customers (Tr. 18, 22, 28, 30 and 34) show that Respondent's salespeople tell prospective customers that they have won a prize, must purchase merchandise to receive the prize, and that the customers do not know the identity of the product until they have tendered payment. The prizes supposedly vary in value from a $300. gift certificate to $5,000. in cash.

CONCLUSIONS OF LAW

The meaning of an advertising representation is to be judged from a consideration of the representation 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).

The average person hearing Respondent's representations would interpret them substantially as characterized in the Complaint. The representations specified in Paragraph 4, subparagraphs (a) through (e) and (g) through (j) are materially false.

Complainant has established its case by means of reliable, probative and substantial evidence of record. Leach v. Carlisle, 258 U. S. 138 (1922); Donaldson v. Read Magazine, supra. Respondent failed to produce any timely and admissible evidence to contradict that offered by Complainant.

Under 39 U.S.C. § 3005, a lottery, gift enterprise or similar scheme, has three necessary elements: (1) the offering of a prize; (2) the furnishing of consideration made to received the prize; and (3) the distribution of the prize by chance rather than entirely upon a basis of merit. Brooklyn Daily Eagle v. Voohies, 181 F. 579, 581 (E.D.N.Y. 1910); Federal Communications Commission v. American Broadcasting Company, Inc., 347 U.S. 284, 290 (1954). The scheme conducted by Respondent falls within Section 3005. Respondent's telephone solicitors represent to persons they call that they have won an unspecified prize. In order to obtain the prize, the prospective customer must purchase advertising specialty items from Respondent.

Therefore, I conclude that Respondent is engaged in conducting a scheme to obtain money or property through the mail by false representations and is conducting a lottery through the mail, both in violation of 39 U.S.C. § 3005; and that a False Representation Order, substantially in the form attached, should be issued against Respondent.