In the Matter of the Complaint Against

SCOTT WILCOX d/b/a TELCO DIRECTORIES, INC.
1601 East Main Street
at Plainfield, IN 46168-1811

P.S. Docket No. 18/147;

Bernstein, Edwin S.

APPEARANCES FOR COMPLAINANT:
Thomas A. Ziebarth, Esq.
Law Department
U.S. Postal Service
Washington, DC 20260-1112
Steven B. Caver, Esq.
Timothy Kruthaupt, Esq.
Regional Inspector/Attorney
U. S. Postal Service-Room
715 Main Post Office Building
Chicago, IL 60607-5401

APPEARANCES FOR RESPONDENTS:
Frank J. Shannon, III, Esq.
Randy Scott Slater, Esq.
Gort, Shannon & Slater
Suite 701
100 Peachtree Street, N.W.
Atlanta, GA 30303-1901

BEFORE: Judge Edwin S. Bernstein

INITIAL DECISION

Complainant alleged and Respondent denied that Respondent is mailing solicitations in the guise of bills or invoices in violation of 39 U. S. Code § 3001(d) and that Respondent is engaged in a scheme to obtain money through the mails by false representations in violation of 39 U. S. Code § 3005. A hearing was held in Washington, DC. The parties filed proposed findings of fact, proposed conclusions of law and memoranda. Additionally, United Commercial Services, a Respondent in another Postal Service case that has some similar issues, filed a memoranda in support of Respondent. All of these have been considered. To the extent indicated, they have been adopted. Otherwise, they have been rejected as irrelevant or not supported by the evidence.

DECISION ON ADMISSIBILITY
OF EXHIBITS

At the hearing, Respondent vigorously objected to the admission into evidence of a survey offered by Complainant as CX-33, 33A and 34 and entitled, Solicitations in Guise of Invoices: The Experiences, Attitudes and Perceptions of U. S. Business Persons. I reserved decision on the admissibility of these exhibits until after the parties filed post-hearing memoranda (Tr. 191-193). The parties and United Commercial Insurance Services ("United Commercial") have filed a total of seven memoranda dealing with these issues.

The Manual for Complex Litigation contains an excellent statement of the law concerning the admissibility of surveys. This manual was prepared by the Federal Judicial Center with contributions from a large number of Federal Judges, leading trial lawyers' associations, and distinguished members of the bar. The Manual, at Moores Federal Practice 2.71 at 134-35 (1982), states:

"Under the Federal Rules of Evidence, polls and samples may be admitted under applicable exceptions to the hearsay rules. The results of polls and samples otherwise admissible are admitted as facts that provide the basis of opinion, without regard to whether they are hearsay, depending only upon the 'validity of the techniques employed' in arriving at the results . . . Inquiry should center on circumstantial guarantees of trustworthiness. Was the poll or survey conducted in accordance with generally accepted survey principles and were the results used in a statistically correct way?"

The Manual explains that the offeror has the burden of proof "to show the sample was selected in accordance with accepted principles of sampling so that it properly represents the universe" (p. 136). The offeror also has the burden of establishing that "the persons conducting the survey were recognized experts, the data gathered were accurately reported; and the sample design, the questionnaire, and the interviewing were in accordance with generally accepted standards of objective procedure and statistics in the field of such surveys" (p. 138).

These principles have been adopted by the Courts. See: Pittsburgh Press Club v. United States, 579 F.2d 751, 757-60 (3d Cir. 1978); Baumholser v. Amax Coal Company, 630 F.2d 550, 552 (7th Cir. 1980); Zippo Manufacturing Company v. Rogers Imports, Inc., 216 F. Supp. 670 (S.D.N.Y. 1963). These tenets are not disputed by the parties. It is in their application to the facts that the parties disagree.

Although Respondent stipulated that Dr. Paul Scipione, who developed and conducted the survey, was competent to conduct surveys (Initial Brief of Respondent, p. 12), it argued that Complainant failed to prove that the survey was conducted in accordance with generally accepted survey principles.

Respondent and United Commercial argued that the survey was flawed because:

1. The sample of only 100 organizations was too small; represented only four regions; and was of bookkeepers and accountants rather than of persons who signed the checks to pay the bills.

2. The survey was developed for trial use and was not conducted independently of the Postal Service attorneys.

3. Mr. Scipione's use of the word "problem" in the introduction of the study and in survey Question 13 proved that the survey was biased.

The survey questioned 100 bookkeepers and accountants of businesses. They were asked to characterize two invoices and nine solicitations as to (1) Definitely a bill; (2) Probably a bill; (3) Not sure if it's a bill; or (4) Definitely not a bill. A solicitation resembling Respondent's solicitation (CX-5) was included in the survey as Item G. Those surveyed were asked other questions and were asked to state why they classified the item in one of these four categories.

I find that the exhibits connected with this survey - CX 33, 33A and 34 - are admissible.

Neither the size nor type of the sample that Dr. Scipione selected renders this survey inadmissible. Dr. Scipione testified that his firm ordered the sample from a database of firms maintained by Dunn & Bradstreet's subsidiary (CX-33, p. 3; Tr. 137). While the sample number of 100 is not large, this does not render the survey inadmissible. Thus, in United States v. United Shoe Machinery, 110 F. Supp. 295 (D.C. Mass. 1953), a sample of 45 businesses or three percent of the total universe was found of sufficient number. Although, as United Commercial argues, in Pittsburgh Press Club v. United States, supra a universe of 281 was found insufficiently representative, that was for other reasons. In that case, all 281 were club members who were interested in the litigation and were informed of the precise nature of the litigation and the litigation-related survey.

The survey selected businesses in four geographic areas - Atlanta, Chicago, San Francisco and Metropolitan New Jersey (an area near Edison, New Jersey) (CX-33, p. 5; Tr. 137). Dr. Scipione testified and I find that these areas are representative for businesses throughout the country (Tr. 152) and that in surveying businesses, regional differences are less significant than in surveying consumers (Tr. 297). See: Standard Oil Company v. Standard Oil Company, 252 F.2d 65 (10th Cir. 1958), in which a survey covering three of 15 states involved in the litigation was found sufficiently representative and admissible. Dr. Scipione explained that for industrial and service surveys it is typical to select only three to six market areas (Tr. 153-154).

The selection of bookkeepers and accountants was based upon the survey's attempt to interview "the person most responsible for accounts payable in each sample form" (CX-33, p. 3). This was a reasonable group to select since these individuals appeared to exercise a good deal of responsibility in connection with approving the bills for payment within their firms.

I further find that this survey was not biased. Respondent argued that the survey should be rejected because it was developed for trial use with the aid of the Postal Service attorneys, citing Zenith Radio Corp. v. Matsushita Electrical Industrial Co., Ltd., 505 F. Supp. 1313, 1333 (E.D. PA 1980). To the same effect, United Commercial argued that the Courts have required that surveys "be conducted independently of the attorneys involved in the litigation", citing Pittsburgh Press Club v. United States, supra, at 758.

Although the Postal Service paid Dr. Scipione to do this survey and the survey acknowledged the active participation of four Postal Service attorneys, including two who appeared in this case (CX-33, p. 7), Dr. Scipione testified that none of the Postal Service people wrote or developed any items for the survey (Tr. 156). Dr. Scipione described the involvement of Postal Service personnel as follows:

"All they did was give us a general idea of the areas of information, the informational objectives of the survey. We then translated those into a survey questionnaire." (Tr. 156)

Dr. Scipione stated that he was not instructed to conduct the survey for this litigation or any other specific court action (Tr. 145), although there was a possibility the survey might be used in future court actions (Tr. 150).

It is difficult to conceive of a survey being used in a court proceeding without some attorney involvement. If all such surveys were rejected, surveys would almost never be used as evidence. What is objectionable is not attorney involvement but bias caused by attorney participation. In Pittsburgh Press Club, the survey was rejected because those surveyed were first informed that the survey would be used in a litigation effecting their interests (p. 759). The Court also found that the survey was biased in Zenith.

In that case, the Court found that the affidavit of the person responsible for the survey read like a lawyer's brief and as such demeaned itself and called into question his objectivity (p. 1334, Note 24). That was a jury case and the Court's opinion emphasized its concern about presenting the author's unsupported, one-sided opinions to the jury (pp. 1338-42). Similarly, in Berman v. New Hampshire Jockey Club, 324 F. Supp. 1156 (D.N.H. 1971), a survey was rejected because it gave those surveyed details of the lawsuit and phrased the issue to benefit the plaintiff's point of view. Thus, attorney participation will only lead to rejection of a survey where it results in bias. Since there is no evidence that the attorney participation here resulted in bias, the survey is not inadmissible on that ground.

Additionally, the use of the word "problem" in the description of the survey's background and objectives (CX-33, p. 2) did not render this survey biased. That solicitations in the guise of invoices presented a problem was acknowledged. 39 U.S.C. § 3001(d) and Domestic Mail Manual (DMM) 123.41 indicate Congress' and the Postal Service's knowledge of the problem and efforts to deal with it. The purpose of this survey was to determine the extent of the problem. Neither the fact that Dr. Scipione had testified for the Postal Service in other cases (Tr. 149), had received such solicitations himself (Tr. 149), had previously been fooled himself (Tr. 150), or personally thought that there was a problem (Tr. 176) render this survey inadmissible. I find that the questions in the survey were objective and do not contain any indication of bias. Dr. Scipione testified to this effect and neither the questions nor any other evidence contradicts his testimony. The word "problem" was not used in the survey until Question 13. That question was near the end of the survey and was only asked to respondents who answered "yes" to Question 12 which read, "In your capacity as an accounts payable bookkeeper or accountant, have you ever received by mail something that looked like an invoice but turned out to be an ad?" (Appendix to CX-33 at p. 10). The use of the word "problem" at that point resulted in no bias.

Therefore, the documents identified as Complainant's Exhibits 33, 33A and 34 are received into evidence as exhibits.

FINDINGS OF FACT

In Paragraph 2 of the Answer, Respondent admitted that he sends unsolicited mailings in the form of invoices. However, in that paragraph he contended that these solicitations are in full compliance with the regulations contained in the Domestic Mail Manual (DMM).

DMM 123.41 sets forth the following requirements for solicitations in the form of invoices:

Solicitations in the Guise of Bills, Invoices, or Statements of Account (39 U.S.C. 3001(d); 39 U.S.C. 3005). Any otherwise mailable matter which reasonably could be considered a bill, invoice, or statement of account due, but is in fact a solicitation for an order, is nonmailable unless it conforms to .41a through .41h below. A nonconforming solicitation constitutes prima facie evidence of violation of 39 U.S.C. 3005.

a. The solicitation must bear on its face the disclaimer prescribed by 39 U.S.C. 3001(d)(2)(A) or, alternatively, the notice: THIS IS NOT A BILL. THIS IS A SOLICITATION, YOU ARE UNDER NO OBLIGATION TO PAY UNLESS YOU ACCEPT THIS OFFER. The statutory disclaimer or the alternative notice must be displayed in conspicuous boldface capital letters of a color prominently contrasting (see .41g below) with the background against which it appears, including all other print on the face of the solicitation and at least as large, bold and conspicuous as any other print on the face of the solicitation but not smaller than 30-point type.

b. The notice or disclaimer required by this section must be displayed either:

(1) On the center of the diagonal described by a straight line drawn from the vertex of the lower left corner to the vertex of the upper right corner; or

(2) Overprinting each portion of the solicitation which reasonably could be considered to specify a monetary amount due and payable by the recipient.

c. The notice or disclaimer must not be preceded or followed by words of symbols which introduce, modify, qualify or explain the prescribed test, such as "Legal notice required by law."

d. The notice or disclaimer must not, by folding or any other device, be rendered unintelligible or less prominent than any other information on the face of the solicitation.

e. If a solicitation consists of more than one page, the notice or disclaimer required by this section must be displayed on the face of each page at a location permitted by .41b.

f. Regardless of the number of pages comprising the solicitation, if any page is designed to be separated into portions (e.g., by tearing along a perforated line), the notice or disclaimer required by this section must be displayed in its entirety on the face of each portion that might reasonably be considered a bill, invoice, or statement of account due.

g. For purposes of this section, the phrase "color prominently contrasting" excludes any color, or any intensity of an otherwise included color, which does permit legible manual, mechanical, electronic, and photographic reproduction, and which is not at least as vivid as any other color on the face of the solicitation. For the purposes of this section the term "color" includes black.

h. Any solicitation which states that it has been approved by the Postal Service or by the Postmaster General or that it conforms to any postal law or regulation is nonmailable.

Although Respondent's solicitation utilizes the notice prescribed by section a, it fails to comply with DMM 123.41 in three respects:

1. In accordance with section a, the disclaimer is not at least as bold and conspicuous as other print on the face of the solicitation.

The disclaimer's type is large enough but is in pale green ink in contrast with other more conspicuous type. In one version, CX-57, the red ink and also the black ink used for the line of printing that includes the price is more bold and conspiculus. In a second version, CX-54, while the green type is darker and more conspicuous so also is the red tupe and box used for "Annual Cost per Listing" and much of the black type including "Business Listing to Appear in the Category as Detailed Above", "Each Business Listing Cost Per Year $87.00", "Amount $87.00" and the "$87.00 by itself."

2. The words, "This Is Not A Bill" in the disclaimer are rendered less prominent by the words "Each Business Listing Cost Per Year $87.00" in both the CX-54 and the CX-57 versions in violation of section d.

While section b(2) specifies overprinting of each portion of the solicitation which reasonably could be considered to specify a monetary amount due and payable by the recipient, rather than overprinting the amount due with the disclaimer, Respondent's solicitations have the amount due overprinting the first sentence of the disclaimer so that the words "Each Business Listing Cost

Per Year $87.00" render less intelligible an important part of the disclaimer - the words, "This Is Not A Bill."

3. The disclaimer does not comply with section a's requirement that it be of a color prominently contrasting. Section g defines this phrase in terms of permitting legible reproduction.

As indicated by Inspector Sturdevant's testimony (Tr. 94-98), CX-5, page 4 is a photocopy of Respondent's invoice that Inspector Sturdevant made in which all of the language except for the disclaimer could be photocopied but the disclaimer could not be reproduced on the photocopy machine.

Additionally Spencer Davis, a law office manager, was unable to copy the disclaimer at CX-52. He noted that his photocopy machine doesn't always "bring out" blue copies (Tr. 50).

These findings are substantiated by impressions of people surveyed and Complainant's witnesses.

The survey (CX-33A, Table III-1) shows the following opinions of Respondent's solicitation (Item G) by the 100 people surveyed:

Definitely a Bill 18%

Probably a Bill 8%

Not Sure if it's a Bill 10%

Definitely Not a Bill 64%

Thus 26% thought that the solicitation was either definitely or probably a bill. Although the survey has an 11% margin of error (Tr. 153), given the aims of this statute to protect the public by imposing strict requirements on solicitations resembling invoices, the survey showed that in mailings of many thousands, a substantial number of recipients could be harmed.

Although I excluded written statements from individuals allegedly misled as hearsay not subject to an exception set forth in Federal Rules of Evidence 803 (Tr. 105-115), several recipients of Respondent's solicitation confirmed that they had been confused and, at first, misled by Respondent's solicitation.

Thus Sandra Katz, the bookkeeper and office manager for a law firm consisting of ten lawyers, testified that she paid Respondent thinking that the solicitation was an invoice for the New York City Yellow Pages (Tr. 12). Ms. Katz stated that because she was convinced this was an invoice, she issued a check to Respondent which was signed by one of the lawyers and mailed to Respondent (Tr. 21-23).

Spencer Davis, an office manager for a law firm consisting of about 100 lawyers, also thought the solicitation was an invoice for a New York City Classified directory. As a result he paid the "invoice" (Tr. 36).

Ruth Pouch and Scott and Cindy Perkins were more fortunate. Ms. Pouch, the head bookkeeper for a building material company located in New Jersey, remembering warnings by the Better Business Bureau about solicitations in the form of invoices, carefully scrutinized the solicitation (Tr. 64). However, she mailed the solicitation to the Better Business Bureau because she felt that the disclaimer in green ink was too light in color (Tr. 60, 69).

Cindy L. Perkins, an associate with Perkins and Perkins, a Saratoga Springs, New York law firm that includes her husband, Scott Perkins, and his father, George Perkins, testified that she first saw the solicitation in November 1983. George Perkins had attached a note to it which indicated his belief that he had previously paid this bill for the Yellow Pages (Tr. 87). Scott Perkins confirmed her testimony and both Perkins testified that on closer scrutiny Scott discovered that it was a solicitation (Tr. 74-75) and wrote a letter of complaint to the Attorney General of New York State (Tr. 76-77). He objected to the fact that the disclaimer "had the faintest ink used on the solicitation" (Tr. 82).

Respondent's solicitations also make the following representations alleged in Paragraph 4, subparagraphs (a) and (b) of the Complaint:

(a) The addressee has previously authorized a business listing in Respondent's classified directory.

(b) The amount set forth on the fact of the solicitation is due and owed to Respondent.

These findings are based upon an analysis of the solicitations, the testimony of several witnesses who received the solicitations, and data in Complainant's survey (CX-33A).

The invoice format, the phrases, "Business Listing Form", "To Appear in the 1984 Telco Classified Directory" (CX-54), "Business Listing to Appear in the Classified Directory for 1983", and the use of a window envelope all convey the impression that the addressee has previously authorized a business listing in Respondent's classified directory and the amount set forth on the face of the solicitation is due and owing.

As previously indicated, Table III-1 of CX-33a shows that 18% of these surveyed considered Respondent's solicitation (Item G) to be "Definitely a Bill" and another 8% responded that it was "Probably a Bill." Even if the entire 11% margin of error was used to reduce these figures, many respondents would conclude that this is definitely or probably a bill. In a mailing of thousands, this false impression would be conveyed to a substantial number of recipients.

That members of the public were likely to be misled was reinforced by the testimony of the witnesses who received the solicitation which has been previously discussed.

Subparagraphs 4(c) and 4(d) of the Complaint read:

(c) Telco Directories, Inc., is a part of or affiliated with the telephone company serving the recipient's area.

(d) Telco Directories, Inc., is the publisher of the classified directory or "yellow pages" normally supplies (sic) to all telephone subscribers in the recipient's area.

Although Dr. Scipione testified as a consumer psychologist and as one competent to conduct surveys (Tr. 118) he also stated that his firm was a leading provider of market research to AT&T and until AT&T's divestiture in February 1982 the phrase "TELCO", which Respondent uses, was widely used within AT&T's Bell System and was synonymous with AT&T (Tr. 128). Respondent failed to challenge this assertion upon cross-examination or contradict it with any other evidence. Therefore, I find it to be a fact.

Dr. Scipione also stated his opinion that the phrase "yellow pages" that appears in Respondent's invoice, the use of a picture of yellow pages or a fingers walking logo in yellow color all create the misleading impression that one is ordering the AT&T Rueben Donnelly Yellow Page Directory (Tr. 127-130).

Although Complainant's survey did not touch upon this issue, several of Complainant's witnesses did indicate that they were initially misled. Thus, Sandra Katz testified that she thought Respondent's solicitation was for the New York City Yellow Pages. She explained that New York City has two yellow pages - one regular and one for business. She thought she was paying for the business yellow pages since "the regular yellow pages I pay through my telephone bill" (Tr. 12, 30).

Similarly, Spencer Davis stated that when he received Respondent's solicitation, he assumed it was for one of the classified directories in New York City (Tr. 36). He stated that there are yellow pages for each of the boroughs of New York City (Tr. 44) and his firm's telephone operator will sometimes order directories from The Telephone Company (Tr. 48).

Cindy Perkins also testified that she was fooled. She stated, "...I thought, well, this is for the yellow pages..." (Tr. 87). She stated that when she discussed the matter with the senior partner of the law firm, George Perkins, their reaction was, "...what is this? Another bill for the yellow pages" (Tr. 88).

As indicated by these witnesses' testimony and my examination of the exhibits, the name Telco which has AT&T associations, the walking fingers logo or yellow pages symbol in yellow, and the use of the words "yellow pages", viewed together, make the representations alleged in subparagraphs 4(c) and (d) of the Complaint.

It is undisputed and I find that the representations alleged in Paragraph 4 of the Complaint are false.

CONCLUSIONS OF LAW

1. The meaning of an advertising representation is to be judged from a consideration of the advertisement 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. An advertisement as a whole may be completely misleading although every sentence separately considered is literally true. This may be because things are omitted that should be said, or because the advertisement is composed or purposefully printed in such a way as to mislead. Donaldson v. Read Magazine, supra.

3. A mild, ineffective disclaimer will not outweigh false representations. Vibra-Brush Corp. v. Schaffer, supra; Black Magic Shop Astral Co., P.O.D. 2/119 (1965); Mailform/Mailform Associates, P.S. 16/42 (1978); Virtu Imports, Inc., P.O.D. 3/2 (1968); Manuel Garcia Products, P.S. 5/127 (1977).

4. Respondent's solicitations make the representations alleged in Paragraph 4 of the Complaint and the representations are materially false.

5. Respondent's solicitations are in the form of and reasonably could be interpreted as bills, invoices or statements of account due.

6. Respondent's solicitations contain a disclaimer notice that is rendered unintelligible and less prominent and does not comply with the disclaimer requirements of Domestic Mail Manual § 123.41.

7. The use of a light green ink to print the disclaimer violates Domestic Mail Manual § 123.41 in that: it is not "of a color prominently contrasting with the background against which it appears" (123.41a); it is partly obscured by overprinting and therefore made less prominent (123.41d); and it does not permit legible reproduction and is not as vivid as any other color on the face of the solicitation (123.41g).

8. Although an astute person would recognize that Respondent's mailing pieces are solicitations and not invoices, this does not detract from their tendency to "deceive the ignorant, gullible and less experienced." Gottlieb v. Schaffer, 141 F. Supp. 7, 16 (S.D.N.Y. 1956). The false representation statute was intended to protect such persons as well. Donaldson v. Read Magazine, Inc., supra.

9. The tendency and capacity of a solicitation to mislead may be shown by testimony from victims that it did, in fact, mislead. Linden v. U. S., 254 F.2d 560, 566 (4th Cir. 1958).

10. Respondent's argument that in order to sustain a "fraud order Complainant must show by substantial evidence that there was an intent to deceive" is incorrect. Lynch v. Blount, 330 F. Supp. 689 (S.D.N.Y. 1971).

Therefore, Respondent has violated both 39 U.S.C. ??3001(d) and 3005 and a False Representation Order, in the form attached, should be issued.