In the Matter of the Complaint Against

RALPH J. GALLIANO
4141 North Henderson Road, Apt. 417
Arlington, VA 22203-2416

and

AMERICANS FOR PHIL GRAMM IN '84
P. O. Box 597
Arlington, VA 22216-0597

and

CONGRESSIONAL MAJORITY COMMITTEE
2030 North 16th Street, Suite 305
Arlington, VA 22201-2911

P.S. Docket No. 19/15

05/02/85

Dicus, Carroll C. Jr.

APPEARANCES FOR COMPLAINANT:
Sandra C. McFeeley, Esq.,
Timothy J. Mahoney, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, DC 20260-1112

APPEARANCES FOR RESPONDENTS:
MacKenzie Canter, III, Esq.
Mark J. Diskin, Esq.,
Canter, Kent and Sullivan
2020 K Street, N.W., Suite 350
Washington, DC 20006-1806

POSTAL SERVICE DECISION

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

Background

On March 15, 1984, the Consumer Protection Division, Law Department, United States Postal Service (Complainant), filed a Complaint alleging that Respondents, by means of materially false direct mail circulars and advertisements, expressly or impliedly represent to the public, directly or indirectly, in substance and effect, whether by affirmative statements, omissions, or implications, that: "6. . . .

(a) Respondents are authorized by Congressman Phil Gramm to solicit and collect funds for his campaign to be elected to the United States Senate;

(b) Contributors to Respondents may reasonably expect that Congressman Phil Gramm or his authorized campaign committee will receive the money that is sent to Respondents; and

(c) In 1982 Congressional Majority Committee raised and contributed well over one-half million dollars to candidates nationwide."

In a timely filed Answer, Respondents denied the allegations set forth in subparagraphs (a)-(c) of paragraph 6 of the Complaint, and asserted certain affirmative defenses. A hearing was held before an Administrative Law Judge at which both parties presented documentary and testimonial evidence. Postal Inspector John Hubbard, Saunders Bridges, Jr., Marian Horn, Paul A. Scipione, Ph.D., and Nancy Van Cleef testified for Complainant. Ralph J. Galliano testified for the Respondents.

Following the hearing and the parties' submission of proposed findings of fact and conclusions of law, the Administrative Law Judge issued an Initial Decision in which he found that

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Respondents make the representations alleged in the Complaint and that they are materially false in violation of 39 U.S.C. § 3005. On the basis of these findings, the Administrative Law Judge recommended the issuance of a False Representation Order and a Cease and Desist Order against Respondents.

Respondents' Motion to Dismiss

Subsequent to filing their appeal, Respondents filed a letter dated August 7, 1984, requesting that the instant proceeding be dismissed. Respondents first point out that the Friends of Phil Gramm, which is Congressman Gramm's authorized campaign committee, has reached a settlement with Respondents and has no objection to the requested dismissal. However, that settlement is not dispositive of this proceeding. Although the investigation leading to the initiation of this proceeding may have been instigated by Friends of Phil Gramm, the only Complainant herein is the General Counsel of the United States Postal Service. The General Counsel objects to dismissal on the ground that other members of the public still need the protections afforded by the remedial orders under 39 U.S.C. § 3005. Respondents disagree and allege that Americans for Phil Gramm in '84 has gone out of business and no longer receives contributions by mail in response to the solicitation materials in issue.

Complainant has submitted evidence that the public continued to send remittances to Respondents after the alleged cessation of business. Moreover, Respondents have mailed out a large number of solicitations, and it is possible that some recipients still

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intend to make contributions in the future. Under these circumstances, Respondents' arguments do not persuade that the remedial orders under 39 U.S.C. § 3005, if otherwise appropriate, should not be issued at this time. Accordingly, Respondents' Motion to Dismiss is denied.

Respondents' Exceptions to the Initial Decision

In their appeal Respondents present 19 exceptions to the findings and conclusions of the Initial Decision. The exceptions are addressed below and have been combined where appropriate.

Exception 1

"1. Exception is made to the Conclusion of Law that Americans for Phil Gramm in '84 ('APG-84') is a proper party to this proceeding, such Conclusion made in response to Respondents' First Affirmative Defense. "

Respondents argue that APG-84 was improperly joined as a party respondent because it is merely the name of a

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Rules of Practice. Delta Enterprises, P.S. Docket Nos. 14/72-14/75 (P.S.D. July 3, 1984).

"2. Exception is made to the Conclusion of Law that the subject matter of the mailings, viz, political expressions, is not protected because they contain untruthful representations, such Conclusion made in response to Respondents' SecondAffirmative Defense.

3. Exception is made to the Conclusion of Law that 39 U.S.C. Section 3005 encompasses the mailings at issue, suchConclusion made in response to Respondents' Third Affirmative Defense.

4. Exception is made to Conclusion of Law No. 7 that Respondents are conducting a scheme within the scope of 39U.S.C. Section 3005."

Respondents argue that the solicitation materials are protected by the First Amendment because they constitute political speech and they are truthful. It is noted that the representations at issue do not touch upon political issues as such, but upon the identity and affiliation of the organization soliciting funds and the disposition of those funds. Thus, the subject matter of the representations are not significantly different from those encountered in dealing with commercial activities. As to the argument that the solicitations were truthful, and therefore should be afforded First Amendment protection, it has been concluded herein under other exceptions that Respondents have made the false representations alleged in the Complaint in the solicitation materials. In this regard, the Supreme Court has stated that " untruthful speech, commercial or otherwise, has never been protected for its own sake." Virginia

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State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 771, 96 S. Ct. 1817, 48 L.Ed. 2d 346 (1976). The Court relied, in part, on Gertz v. Robert Welch, Inc., 418 U.S. 323, 340 (1974) which held that "there is no constitutional value in false statements of fact." See also Fields v. Hannegan, 162 F.2d 17 (D.C. Cir. 1947) cert. denied 332 U.S. 773. Accordingly, this argument is rejected.

Respondents also argue that the United States Postal Service lacks jurisdiction over the instant case on the ground that § 3005 applies only to the sale of products and services by false representations. Respondents contend that § 3005 was not intended to apply to solicitations for political purposes. However, the language of the statute is broad enough to cover any "scheme or device for obtaining money or property through the mail by means of false representations," and there is nothing in the legislative history supporting Respondents' restrictive interpretation. In addition, § 3005 has been applied in a similar case where a Respondent holding itself out as a lobbying organization for the alleged purpose of seeking legislation to return prayer to public school sought donations by means of false representations. , P.S. Docket No. 8/68 (P.S.D. May 29, 1981). Accordingly, this argument is also rejected.

Respondents also contend that § 3005 is unconstitutional in view of the Supreme Court's holding in Blount v. Rizzi, 400 U.S. 410 (1971). The Judicial Officer lacks authority to rule on the constitutionality of statutes. 39 C.F.R. § 224.1(4)(iii).

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Moreover, it was subsequently held that the rationale of that case does not invalidate § 3005. Lynch v. Blount, 404 U.S. 1007, 92 S. Ct. 673, 30 L.Ed. 2d 656 (1972), aff'g 330 F. Supp. 689 (S.D.N.Y. 1971); United States Postal Service v. Athena Products, 654 F.2d 362 (5th Cir. 1981); see also Blount v. Rizzi at 414-15 n.2.Accordingly, these exceptions have no merit.

Exceptions 5 and 6

"5. Exception is made to Finding of Fact No. 16(a) that

Respondents' mailings represent by implication that Phil Gramm authorized respondents (sic) to solicit and collect funds for his campaign.

6. Exception is made to Finding of Fact No. 16(b) that the message contained in Respondents' mailings 'is that funds collected by APG-84 will be spent by Gramm's committee as Gramm may direct'."

Respondents do not dispute the conclusion that advertising matter is to be considered as a whole and the meaning is to be determined in light of the probable impact of the entire advertisement on a person of ordinary mind. Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948). However, Respondents contend that the solicitation materials do not make the representations set forth in subparagraphs (a) and (b) of paragraph 6 of the Complaint in view of certain language contained in the materials.

The Administrative Law Judge properly held that the above representations are implicitly made by the overall impression created by the Respondents' solicitations. The outside envelope shows the sender to be "Americans for Phil Gramm in '84" and states that an "official" membership card is enclosed. The entire purpose of the materials is the election of Phil Gramm; and, the

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organization name is similar to Phil Gramm's official committee, "Friends of Phil Gramm." Thus the ordinary reader would infer that Phil Gramm authorized APG-84 to solicit and collect funds for his campaign. It is also represented that Phil Gramm or his authorized campaign committee will receive the money that is sent to Respondents since the solicitation gives the impression that APG-84 is connected to the official Phil Gramm campaign.

Respondents advert to a statement in the margin on the first page of the solicitation which describes APG-84 as "an independent

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Finally, at best the qualifying statements relied on by Respondents do not more than render the solicitations capable of two interpretations. As one interpretation is misleading, Respondent is still in violation of 39 U.S.C. § 3005. Rhodes Pharmacal Co., Inc. v. Federal Trade Commission, 208 F.2d 382, 387 (7th Cir. 1953).

Accordingly, Respondents' Exceptions 5 and 6 have no merit.

Exceptions 7 and 16

"7. Exception is made to Finding of Fact No. 16(b) that the survey conducted by Response Analysis Corporation of Princeton, N.J. is of 'sound and scientific design intended to produce unbiased answers'.

16. Exception is made to Conclusion of Law No. 6 that 'the accurately reported findings of a properly designed, carefully and fairly conducted survey are admissible in evidence for the reason' that the present state of mind exception to the hearsay rule is applicable. "

Respondents first argue that the public opinion survey conducted by the Response Analysis Corporation should not have been admitted into evidence because it is irrelevant and unnecessary. In this regard, Respondents argue that the impression of advertising on the ordinary mind is a question of law for the presiding officer to determine and testimony on interpretation is not required to make that determination. Respondents' argument is only partially correct. The impression of advertising on the ordinary mind is a question of fact to be determined by the presiding officer and may be made solely on the basis of the advertising itself. Vibra Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2d Cir. 1958); Delta Enterprises, P.S. Docket Nos. 14/72, et al. (P.S.D. July 3, 1984). Although a properly

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conducted survey indicating the interpretation of advertising by ordinary readers may not be necessary for the presiding officer to make his determination, it does constitute evidence that may be helpful to him in reaching his decision. Accordingly, this argument is rejected.

Respondents also contend that the Administrative Law Judge erred by admitting the survey into evidence because it is hearsay which lacks probative value. In this regard Respondents argue that the survey was not properly designed and conducted. It is generally recognized that survey evidence falls within one or more of the exceptions to the hearsay rule set forth in § 803 of the Federal Rules of Evidence. It has been held to constitute an exception under § 803(1) as a present sense impression or § 803(3) as a statement of the declarant's then existing state of mine. E.g., Piper Aircraft Corp. v. Wag-Aero, Inc., 741 F.2d 925 (7th Cir. 1984); see Wuv's International, Inc. v. Love's Enterprises, Inc., 208 U.S.P.Q. 736 (D.C. Colo. 1980). Surveys have also been admitted under § 803(17) as compilations relied on by persons in particular occupations. See e.g., Ellis v. International Playtex, Inc., 745 F.2d 292 (4th Cir. 1984). The record demonstrates that Complainant's survey recorded present sense impressions to Respondents' solicitation materials and consequently falls within the § 803(1) exception to the hearsay rule.

It appears to be the majority view that relevant surveys are admissible under one or more of the above hearsay exceptions and that evidence with respect to technical unreliability merely goes to the weight accorded to the survey. The Prudential Insurance Co. v.

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Gibralter Financial Corp., 694 F.2d 1150 (9th Cir. 1982), cert. denied, 103 S. Ct. 3538, 77 L.Ed. 2d 1389 (1983); Ellis v. International Playtex, Inc., supra. However, some courts have taken a more restrictive view and have required evidence of trustworthiness, accuracy, and reliability as a prerequisite to admissibility of survey evidence. E.g., Baumholser v. Amax CoalCo., 630 F.2d 550 (7th Cir. 1980).

Respondents advocate the more restrictive view and argue that the survey was not admissible because the record lacks sufficient evidence of reliability. Respondents' argument is rejected. It is not necessary in the present case to determine whether evidence of reliability goes merely to the weight of the survey or whether it constitutes a prerequisite to admissibility. The survey in question would have been admissible under either evidentiary rule because Complainant has provided ample evidence of reliability and trustworthiness. In Pittsburgh Press Club v. United States, 579 F.2d 751, 758 (3rd Cir. 1978), the Court held that a poll is considered reliable evidence if it is conducted in accordance with generally accepted survey principles. The following factors were considered (id.):

"A proper universe must be examined and a representative sample must be chosen; the persons conducting the survey must be experts; the data must be properly gathered and accurately reported. It is essential that the sample meet the standards of objective surveying and statistical techniques. Just as important, the survey must be conducted independently of the attorneys involved in the litigation. The interviewers or sample designers should, of course, be trained, and ideally should be unaware of the purposes of the survey or the litigation. A fortiori, the [survey] respondents should be similarly unaware."

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After considering the instant survey in light of the above factors, it is concluded that it is reliable and has probative value. First, the sample of 150 adults from three cities in Texas was representative of the universe of individuals who received the Respondents' solicitation materials (Tr. 55, 56, 67, 79, 87, 119). The survey was designed and conducted by Dr. Paul Scipione, a highly qualified expert in the field of survey research (Tr. 47-52; CX-32). The questions were clearly worded and were not misleading (Tr. 59). The data was gathered by reputable, professional interviewing services (Tr. 67) and the interviewers were specifically trained for this study by Dr. Scipione's company (Tr. 68). The interviewers were given questionnaires with scripts prepared by Dr. Scipione which they were required to follow (Tr. 142-43, 149). The interviewees were first screened to see if they were appropriate for the sample (Tr. 68). The interviews were conducted in an undisturbed atmosphere and ample time was afforded to read the materials and answer the questions (Tr. 59, 139, 151). The data was entered on a computer and handled in accordance with standard accepted procedures for surveys of this type (Tr. 71, 73). Finally, Complainant's attorneys played no part in the design or conduct of the survey; and the survey professionals and interviewees were not aware that the survey would be used as evidence in litigation (Tr. 53, 55, 59, 104, 140, 153).

Respondents also argue that the survey should be given little weight because only one interviewer testified at the hearing, and

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that there is no proof that the other interviewers properly conducted the survey. This contention is also rejected. First, this objection is untimely in view of Respondents' repeated offers at the hearing to stipulate that the interviewers followed their instructions (Tr. 136-37, 140). If a serious objection had been raised, Complainant might have presented the testimony of additional witnesses. Second, the evidence of record is sufficient to prove that the survey was properly conducted. The survey was designed and supervised by highly trained experts, and the interviews were conducted in accordance with specific instructions by trained professionals from reputable interviewing services. The testimony of the survey director, a supervisor, and an interviewer was sufficient to establish the reliability of this survey.

Finally, the determination that the representations alleged in Complaint paragraphs 6(a) and 6(b) are found in Respondents' solicitation materials are made without reference to the survey.

Cf. Exceptions 5 and 6, supra, Exceptions 10, 11 and 4, infra. Thus, even if these exceptions were granted, the outcome would not be affected.

Accordingly, these exceptions have no merit.

Exceptions 10, 11 and 4

"10. Exception is made to Finding of Fact No. 18 that it is clearly a misrepresentation to state that 'over one- half million dollars' was 'raised and contributed' to candidates.

11. Exception is made to Finding of Fact No. 18 that 'if the $510,000 in funds raised need not be reported to the FEC (Federal Election Commission) then it is false to so advertise.'

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4. Exception is made to Finding of Fact No. 6, regarding John Gizzi, such Finding of Fact being irrelevant."

In subparagraph 6(c) of the Complaint it is alleged that Respondents make the representation that " i n 1982 Congressional Majority Committee raised and contributed well over one-half million dollars to candidates nationwide." Although these words are quoted verbatim from Respondent's solicitation materials (CX-2, p. 12; CX-3, p. 7; CX-4, p. 7), the parties place different interpretations on the wording. Respondents argue that an ordinary reader would not have understood this language to mean that CMC, itself, directly collected this money and transferred it to the candidates, but would have understood that much of this money was collected at fundraisers for which CMC was only a co-sponsor. This contention is rejected. The plain meaning of these words is that CMC, itself, directly raised the money and contributed it to the candidates. Moreover, statements that are susceptible to two interpretations are still misleading if one of the interpretations is false. Rhodes Pharmacal Co., supra.

Since Respondents admit that they did not directly raise and contribute most of the money in question (Resp. Brief on Appeal at 19), the representation as interpreted herein is necessarily false. Under the circumstances, it is not necessary to decide whether Respondents also overstated the amounts indirectly raised at the fundraisers co-sponsored by CMC.

Respondents also argue that Finding of Fact No. 6, which finds that Mr. Gizzi is listed as an officer of CMC in 1983 but not in

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1982, is irrelevant. The amount of money raised by Respondent in 1982 is placed in issue in Complaint paragraph 6(c). Mr. Gizzi's relationship with CMC in that year thus bears upon whether any funds he raised can be included in CMC's total for that year. The finding is, therefore, relevant.

Accordingly, these exceptions have no merit.

Exceptions 9 and 14

"9. Exception is made to Finding of Fact No. 18 that the representations set forth in paragraphs 6(a) and 6(b) of the Complaint are false and that Congressman Gramm's affidavitcontains statements which are dispositive of the truth and falsity of such representations.

14. Exception is made to Conclusion of Law No. 4 that the material representations made by the Respondent are false. "

Respondents admit that Congressman Gramm did not authorize them to solicit contributions for his campaign and that the funds would not be paid to Gramm or his campaign committee (Resp. Brief on Appeal at 18). This admission is also independently supported by the evidence of record (Tr. 179-80; CX-1). Accordingly, the representations set forth in subparagraphs (a) and (b) of paragraph 6 of the Complaint are false. The representation in paragraph 6(c) is false for the reasons set forth under Exceptions 10, 11, and 4.

Accordingly, these exceptions have no merit.

Exceptions 8 and 13

"8. Exception is made to Finding of Fact No. 17 that the representations alleged in the Complaint are material.

13. Exception is made to Conclusion of Law No. 3 that the representations found to have been made by Respondents are material."

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As previously found under Exceptions 5 and 6, Respondents make the representations set forth in subparagraphs 6(a) and (b) of the Complaint. In Exceptions 8 and 13, Respondents merely reiterate their contention that these representations were not made, and do not seriously dispute their materiality. It is concluded that these representations are material because they tend to induce the reader to contribute money to the Respondents for Gramm's campaign.

Respondents contend that the representation in paragraph 6(c) of the Complaint is not material. As previously found, Respondents falsely represent that CMC raised and contributed over one-half million dollars in 1982 to candidates nationwide. Respondents argue that an ordinary person would not make contributions based on amounts raised in the past. This argument is also rejected. The representation adds credibility and stature to Respondents' fundraising activity, and when viewed in connection with the representations in paragraphs 6(a) and (b), tends to induce the reader to send money to Respondents. It is concluded that this representation is also material.

Accordingly, these exceptions have no merit.

Exception 12

"12. Exception is made to Conclusion of Law No. 2 that 'persons of ordinary minds' would interpret Respondents' solicitation materials to make the representations contained in paragraph 6 of the Complaint'."

Respondents' arguments were previously addressed and rejected under Exceptions 5, 6, 10 and 11. Accordingly, this exception has no merit.

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Exception 15

"15. Exception is made to Conclusion of Law No. 5 that 'Complainant has established its case by a preponderance ofthe competent and probative evidence'."

As previously indicated, the evidence of record fully supports the allegations of the Complaint. Since Complainant has established its case by a preponderance of the evidence, this exception has no merit.

Exceptions 18 and 19

"18. Exception is made to the mail-stop order, as authorized by 39 U.S.C. Section 3005, to be issued against the Respondents.

19. Exception is made to the cease and desist order, authorized by 39 U.S.C. Section 3005 to be issued against the Respondent (sic)."

As addressed throughout this decision, the record amply supports the Administrative Law Judge's conclusion that a False Representation Order and a Cease and Desist Order should be issued against Respondents.

Conclusion

After consideration of the entire record and Respondents' exceptions to the Initial Decision, it is concluded that Respondents are engaged in a scheme to obtain money through the mail by means of false representations. Accordingly, Respondents' appeal is denied and a False Representation Order and a Cease and Desist Order under 39 U.S.C. § 3005 are issued herewith.