In the Matter of the Complaint Against

AMERICAN TESTING INSTITUTE
6660 Biscayne Boulevard
at Miami, FL 33138

P.S. Docket No. 14/114;

12/30/82

Mason, Randolph D.

APPEARANCE FOR COMPLAINANT:
Thom as A. Ziebarth, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260

APPEARANCE FOR RESPONDENT:
Edmond W. Frank, Esq.
Suite 700
14 Northeast First Avenue
Miami, FL 33132

INITIAL DECISION

This proceeding was initiated on October 27, 1982, when the Consumer Protection Division, Law Department, U. S. Postal Service ("Complainant"), filed a Complaint which alleges that Respondent is engaged in conducting a lottery, gift enterprise or scheme for distribution of money or property by lottery, chance or drawing of any kind in violation of 39 U.S.C. § 3005. Respondent's Answer denied all allegations of the Complaint.

A hearing was held by the undersigned on November 29, 1982, in Washington, D. C. Both parties were represented by counsel and afforded full opportunity to be heard, adduce relevant evidence, and examine and cross-examine witnesses. Both parties filed proposed findings of fact and conclusions of law which have been duly considered. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. Based on the entire record herein, including my observation of the witness and his demeanor, the exhibits, stipulations, and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions of law:

Findings of Fact

1. Respondent is American Testing Institute, 6660 Biscayne Boulevard, Miami, FL 33138. Respondent obtains remittances by mail at that address in the amount of $14.80 from persons interested in winning a prize (Exhs. C-1 & R-1; Tr. 5).

2. Respondent attracts persons to its scheme by sending them a letter stating that they "have automatically been awarded one of the twenty outstanding gifts listed below, worth between $260 to $2,000." The letter encloses a "Test Response Form" containing eight simple multiple-choice questions which the participant is expected to answer by checking the appropriate boxes. The "test" asks about the individual's television viewing habits. The letter also encloses a business reply envelope with postage paid for easy response (Tr. 6).

3. Respondent's letter lists 20 gifts that a participant could win by sending in a completed test response form. The list includes expensive items such as a microwave oven, a television set, and video recorder. Each of the gifts is assigned a value by the Respondent; the least expensive is $262.95 (Exh. C-1, R-1).

4. Since it has been in operation, Respondent has used two different solicitation letters (Exhs. C-1 & R-1). On both letters, gift No. 12 is listed as follows:

12. UNLIMITED KODAK FILM FOR THE REST OF YOUR LIFE ... Guaranteed Lifetime Free Membership in a National Film Club provides free color film, any size, any exposure, for each roll developed ...

THIS GIFT INCLUDES UP TO 40% DISCOUNT ON DEVELOPING.

Respondent's letter placed a $720 "value" on this gift (Exh. C-1, R-1).

5. After listing the gifts, the earlier letter set forth the following instructions:

FOLLOW THESE INSTRUCTIONS CAREFULLY:

A. Answer all questions on the TEST RESPONSE FORM.

B. Place the completed TEST RESPONSE FORM in the enclosed postage-paid envelope. Include your check or money order for $14.80. This amount covers the cost of shipping, handling, postage, printing and administration of this testing procedure.

C. You are required to mail the completed TEST RESPONSE FORM within ten days from the time you receive it. THERE IS ABSOLUTELY NO PURCHASE OF PRODUCT OR PAYMENT OF SERVICE REQUIRED OR ASKED OF YOU IN ORDER TO RECEIVE YOUR GIFT. Each gift itself is FREE OF CHARGE.

D. Within two-three weeks after we receive your completed TEST RESPONSE FORM, we will send your gift completely prepaid.

NOTE: Every participant who completes the TEST

RESPONSE FORM automatically receives ONE gift from the twenty listed above.

Highest valued gifts are distributed less frequently than lower valued gifts.

6. Respondent's latest letter (Exh. R-1) contained the above instructions with the exception of paragraph B, which was changed to read as follows:

B. Place the completed TEST RESPONSE FORM in the enclosed postage-paid envelope. To help defray the cost of shipping, handling, postage, printing, and administration of this testing procedure, include your check or money order for $14.80.

7. In addition to the above, the following instruction appears on the back of the "Test Response Form" of the earlier letter (Exhs. C-1):

Make check or money order payable to:

AMERICAN TESTING

/ / CHECK / / MONEY ORDER

ENCLOSED IS MY CHECK OR MONEY ORDER TO COVER SHIPPING, HANDLING, REGISTRATION, PROCESSING AND POSTAGE $14.80 .

MAIL TO: AMERICAN TESTING INSTITUTE

This language was revised in the latest letter to read as follows:

NOTE: All qualified participants automatically receive one of the 20 gifts shown in enclosed letter.

Make check or money order payable to:

AMERICAN TESTING

ENCLOSED IS MY

/ / CHECK / / MONEY ORDER

FOR $14.80 TO COVER SHIPPING, HANDLING

PROCESSING AND POSTAGE.

/ / NOT ENCLOSED BUT SEND A GIFT ANYWAY.

8. At least 60% of the people responding to Respondent's letter considered the offer to require the remittance of $14.80 before they would be eligible to receive one of the 20 "gifts." In accordance with this understanding, they followed the instructions and remitted the money to Respondent (Tr. 10-11; Exhs. C-1, R-1). About 40% completed the test response form but did not send any money to Respondent.

9. Every person who sent Respondent a completed test response form received one of the twenty "gifts" regardless of whether they remitted the $14.80 or not. Almost every person responding received gift No. 12, the photo club membership. Only one person in every 10,000 received one of the other, more valuable, prizes (Tr. 17-18).

10. A person who remitted $14.80 with the completed test response form received nothing more than a person who merely completed the form and paid nothing.

11. Both of Respondent's letters are artfully worded to lead a person of ordinary intelligence to believe that the remittance of $14.80 is a prerequisite to becoming eligible to win one of the 20 prizes.

12. Respondent's scheme contains the elements of prize, chance, and consideration, and constitute a lottery or scheme for the distribution of money by chance.

Conclusions of Law

1. The only issue for consideration is whether Respondent violated 39 U.S.C. § 3005, which provides for a mail stop order when it is found that

... any person is engaged in conducting... a lottery, gift enterprise, or scheme for the distribution of money or of real or personal property, by lottery, chance, or drawing of any kind....

The necessary elements of a lottery are the furnishing of a consideration, the offering of a prize, and the distribution of the prize by chance. Brooklyn Daily Eagle v. Voorhies, 181 F. 579, 581 (E.D.N.Y. 1910); Horner v. United States, 147 U.S. 449 (1893). Respondent concedes that its scheme contains the requisite elements of prize and chance. The evidence of record fully supports this concession. Therefore, the only issue remaining is whether the participants were required to pay consideration in order to become eligible to receive a prize.

2. Respondent's letter constitutes an offer which prescribes the conditions of acceptance. ^1/ See, e.g., Seattle Times Co. v. Tielsch, 80 Wash. 2d 502, 495 P.2d 1366, 1369 (1972). Therefore, it is necessary to determine whether Respondent's offer required the payment of $14.80 as consideration to become eligible to win one of the 20 prizes. Restatement (Second) of Contracts, § 20 (2) (Revised ed. 1981) provides the following rule:

(2) The manifestations of the parties are operative in accordance with the meaning attached to them by one of the parties if

...

(b) that party has no reason to know of any different meaning attached by the other, and the other has reason to know the meaning attached by the first party.

A person has "reason to know" a fact if he has information from which a person of ordinary intelligence would infer that the fact in question does or will exist. Id., § 20, Comment a & § 19, Comment b. Similarly, a contractor is bound in accordance with the meaning that he induces another to understand and act upon, if he has reason to know that the other will so understand and act. 3 A. Corbin, Contracts, § 538 (1960).

3. Respondent argues that no consideration was required to be eligible to win a prize, and points to the language in both letters alleging that the gifts are "free" and that the $14.80 is for other costs such as shipping and handling. However, the offer contained in each of the letters must be viewed as a whole. In this regard, the earlier letter clearly instructs the prospective participant to remit $14.80 to the Respondent. Whether the Respondent states that the money is to cover costs such as shipping and handling is of no consequence to the participant. It is reasonable for the latter to infer that he will not receive a prize unless he follows the instructions and remits the money. Furthermore, it is not reasonable for a person to be expected to remit money to a business enterprise without receiving something in return. Respondent only offers to send one of the 20 prizes. Therefore, it is reasonable for an ordinary participant to infer that the $14.80 is considera- tion for the chance to receive a valuable prize, notwithstanding

Respondent's ambiguous statement that the prize is "free." Accordingly, applying the principles set forth above, I must conclude and hold that Respondent's offer contained in the earlier letter requires the payment of consideration by persons of ordinary intelligence for a chance to win a prize.

4. The revised version of the letter does not as clearly demand the remittance of $14.80, but when the offer is read as a whole, an ordinary participant would conclude that this remittance was required to be eligible for one of the 20 "valuable" prizes. Paragraph B of the "instructions" tells the participant to include his $14.80 with the completed test response form; these instructions do not mention the possibility of nonpaying participants. It is only the reverse side of the test response form that arguably gives rise to Respondent's strained interpretation. There the participant is again told " m ake check or money order payable to: American Testing." Thereafter the participant is asked to check a box showing that $14.80 is enclosed, or another box to indicate "not enclosed but send a gift anyway."

Immediately above these remarks is a statement that all "qualified" participants receive one of the 20 listed gifts.

5. The revised version leads the ordinary person to understand that he will receive only "a gift" --undoubtedly a small, inexpensive gift-if he does not include $14.80. He would not consider himself "qualified" unless he remitted this money to cover the shipping and handling of the larger gifts. Moreover, the reasoning applied to the previous letter applies with equal force to the revised offer, i.e., an ordinary person would not believe that the company would ask for his money without promising anything in return. He would not consider it a rational choice to be told that he will receive the same benefit--the chance to win a prize--whether he remits the money or not. He would, therefore, reasonably conclude that the $14.80 was required as consideration for the chance to win one of the 20 prizes.

6. Respondent also points to the fact that prizes were given to persons who returned their test response forms without remitting $14.80. However, the fact that a group of more intelligent individuals may have correctly guessed that Respondent would send the prize even if the $14.80 was not remitted does not alter the status of those ordinary persons for whom consideration of $14.80 was required. People v. Shira, 62 Cal. App. 3d 442, 133 Cal. Reptr. 94 (2d Dist, 1976) (available on LEXIS States Library). The scheme is still a lottery with respect to the latter participants.

7. Accordingly, I hold that Respondent's scheme contains the requisite elements of prize, chance, and consideration. As such, it constitutes a lottery or scheme for the distribution of money by chance within the meaning of 39 U.S.C. § 3005.

8. The attached order should be issued against Respondent.

1/ An advertisement is not generally considered to be an offer if the ad fails to limit the number of articles per customer since it would be onerous to hold that the advertiser has committed himself to an unlimited supply of the article. J. Calamari & J. Perillo, Contracts, § 2-8 (2d ed. 1977). The instant letter offers only one prize each to a fixed number of participants.

With regard to false representation issues arising under § 3005, the meaning of representations is determined from the standpoint of a person of "ordinary mind." Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948). I need not decide whether this test should be applied to lottery issues arising under the same section. However, if it were applicable, I would reach the same result in this case with respect to both of Respondent's letters.