In the Matter of the Complaint Against

RICHARD W. VERRET,
2480 Overbrook Street
Beaumont, TX 77703-2828

MILTON VERRET,
925 Shakespeare Street
Beaumont, TX 77706-5340

VERRET ENTERPRISES, INC.,
450 Bowie Street
Beaumont, TX 77701-3004

U. S. COIN RESERVE,
Post Office Box 13587
Denver, CO 80201-3587

U. S. COIN RESERVE,
Post Office Box 7736
Beaumont, TX 77706-7736

U. S. COIN RESERVE,
Post Office Box 1677
Philadelphia, PA 19105-1677

and
U. S. COIN RESERVE,
Post Office Box 2832
Beaumont, TX 77704-2832

P.S. Docket No. 20/18

Finn, James D. Jr. Acting Judicial Officer

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

APPEARANCES FOR RESPONDENTS:
Theo W. Pinson, III, Esq.
Diana Resnick, Esq.
Greenwood, Koby, Old,
Pinson & Bussey
1900 American General Tower
2727 Allen Parkway
Houston, TX 77019-2115

POSTAL SERVICE DECISION

Respondents have appealed from the Initial Decision of an Administrative Law Judge which finds Respondents are engaged in conducting a scheme for obtaining money through the mail by means of materially false representations in violation of 39 U.S.C. 3005. Complainant has appealed from one of the findings of fact the Administrative Law Judge made in his decision.

Background

The Consumer Protection Division, Law Department, United States Postal Service (Complainant), initiated this proceeding by filing a Complaint, alleging in paragraph 4 thereof, that Respondents make the following representations relating to their sale of coins:

(a) U. S. Coin Reserve is chartered by the United States Government to distribute its currency;

(b) The sale of Silver Dollars by U. S. Coin Reserve is authorized by or conducted on behalf of the United States Government or an agency thereof;

(c) The Silver Dollars sold by U. S. Coin Reserve are in uncirculated condition;

(d) The Silver Dollars sold by U. S. Coin Reserve are rare;

(e) The price at which U. S. Coin Reserve is selling Silver Dollars is unusually low for the particular coins sold in their actual condition;

(f) U. S. Coin Reserve has each coin listed in its advertisements in uncirculated condition available for sale at the price advertised;

(g) U. S. Coin Reserve is a depository for coins located in a Federal Building in Philadelphia, Pennsylvania; and

(h) U. S. Coin Reserve is a depository for coins located in a Federal Building in Denver, Colorado.

Paragraph 5 of the Complaint alleges that these representations are materially false.

In its Answer Respondents admitted making the representations of paragraphs 4(c) and (d) of the Complaint, but denied making the representations alleged in paragraphs 4(a), (b), (e), (f), (g), and (h). They additionally denied that the representations alleged by paragraph 4 were false. At a hearing before an Administrative Law Judge, the parties presented testimonial and documentary evidence. Thereafter the Administrative Law Judge issued an Initial Decision in which he found that Respondents made the representations alleged in paragraphs 4(a) through 4(h) of the Complaint. He further found the representations of paragraphs 4(a) through 4(e), 4(g) and 4(h) to be material and false in violation of 39 U.S.C. 3005. In regard to paragraph 4(f), he determined that there was insufficient proof of the falsity of the charge. Based upon these findings and conclusions the Administrative Law Judge recommended the issuance of a False Representation Order and a Cease and Desist Order against Respondents.

Respondents' Exceptions

Respondents have filed four exceptions to the Initial Decision. Three of the exceptions pertain to findings of fact made by the Administrative Law Judge, while the remaining exception addresses certain conclusions of law.

Exception One

"The Administrative Law Judge erred in finding the allegations contained in paragraphs 4(a), (b), (g) and (h) were made."

Paragraphs 4(a) and 4(b) of the Complaint allege that Respondents represented that the U. S. Coin Reserve is chartered by the United States Government to distribute its currency and its sale of silver dollars is authorized by or conducted on behalf of the Government or its agent. The Administrative Law Judge correctly found that these representations were made.

Respondents' advertisements state in part that "U. S. Coin Reserve, a division of Verret Enterprises Inc., the chartered distributor of Government currency, has found over 15,000 Original Silver Dollars dating back as far as 1878," and that " o ur find of over 15,000 original Silver Dollars will be released from guarded vaults to the American public only through this notice." The phrase "chartered distributor of Government currency", reasonably construed, conveys an impression of an authorization granted to Respondents by the United States Government. Likewise, the reference to a "release from guarded vaults" could well be interpreted by the person of ordinary mind as referring to a closely guarded governmental repository.^1/ While, as Respondents suggest, "chartered" could well mean an act of incorporation accomplished in any state, the more logical interpretation, considering the advertisement as a whole, is that found by the Administrative Law Judge, namely that the United States Government has granted Respondents the right to act as its agent in disposing of the "find of over 15,000 original Silver Dollars."

Respondents' advertisements clearly contain the representations alleged in paragraphs 4(g) and (h). The bottom of some of Respondents' advertisements contains a banner giving Respondents' address as "U. S. Coin Reserve, Federal Building, P. O. Box No. Denver, Colorado or Philadelphia, PA ." The unnecessary inclusion of the words "Federal Building" in the address portion of the advertisements, coupled with the use of the trade name "U. S. Coin Reserve", conveys a clear impression that the address is a coin depository located in a federal building, the representation alleged. The existence of the representation is further shown by Respondents' Post Office Box location choice of Federal Buildings situated in Denver and Philadelphia, the same cites where United States Mints are located. The Administrative Law Judge was correct in his findings.

Exception Two

"The Administrative Law Judge erred when he found that the representations contained in paragraphs 4(a), (b), (g) and (h), if made, were material misrepresentations."

The Administrative Law Judge, relying on Chaachou v. American Central Ins. Co., 241 F.2d 889, 893 (5th Cir. 1957), found the representations to be material since they cause readers to purchase Respondents' products. Respondents' exception contends that the record in this matter contains no objective reason why the location of the U. S. Coin Reserve, or an affiliation by it with the United States Government, would be material to a prospective buyer in reaching a decision as to whether to purchase Respondents' coins. Respondents' position is not well taken. The imprimatur of the United States Government on a coin offering provides great legitimacy to such offering and acts as a clear inducement to a prospective customer to contract with Respondents for the purchase of its coins. As expressed in Chaachou v. American Central Ins. Co., supra, at 893, a representation is material if it would ". . . cause the other party to do other than that which would have been done had the truth been told." Applying the Chaachou criteria, Respondents' representations are material because they have the effect of inducing individuals to remit money through the mail to purchase the coins.

Exception Three

"The Administrative Law Judge erred in finding that representations which Complainants sic complain were made in paragraphs 4(c), (d), and (e) of the Complaint were false."

Paragraph 4(c) of the Complaint, supra, alleged, and Respondents admitted, that Respondents' advertisements represent the silver dollars sold by Respondent, U. S. Coin Reserve, are in uncirculated condition.^2/ After an exhaustive analysis of the evidence on this issue the Administrative Law Judge found the representation to be false. Respondents attack this finding primarily on the basis that certain evidentiary rulings tainted the finding. Respondents take issue with the Administrative Law Judge's ruling which received certain declarations and affidavits of witnesses in evidence, when in fact the witnesses were not available for cross-examination.

Under the rules of procedure applicable to these proceedings the Federal Rules of Evidence may be relaxed to assure a fair hearing. While the Administrative Law Judge may have erred in his application of the Federal Rules or in his relaxation of them in this proceeding, the error was not so material as to alter the finding that Respondents falsely represented the coins it sold were in uncirculated condition. Copies of Respondents' advertisements clearly state that the coins to be sold were guaranteed to be in uncirculated condition (CX-41-44, 46-48, and 50-70). Copies of invoices sent by coin suppliers to Respondents show that many of the coins which Respondents were ordering for resale to the public were described as AU or less, or AU choice or other grades less than uncirculated.^3/ (CX-110, 116, 117, 120, 123, 124, 139, 142, 143, 152, 153, 155-57, 159, 160, 162, 165.) Thus, the evidence is persuasive without resort to the contested evidence that during the period when Respondents were offering such coins to the public, (August 1984 - November 1984) the coins they were purchasing from dealers for the resale were not the guaranteed uncirculated coins advertised]

Additionally, the Administrative Law Judge placed great reliance in his decision on two aspects of the record on which no evidentiary dispute exists - expert testimony and the testimony of Respondent Richard Verret. Those experts who testified in person were shown certain of the coins in evidence which were purchased from Respondents and were asked their opinions as to the grade of the coins. Both of Complainant's experts testified that they were all less than MS-60, that is they were not in uncirculated condition.^4/ Respondents' witness was able to identify and grade only one coin as unqualifiedly an MS-60 (CX-5A). All others were less than MS-60, considering both sides of the coins.

Mr. Verret, by his own admission, focused his efforts on identifying borderline coins, those that were slightly better than AU, but that dealers could not sell as uncirculated. According to Mr. Verret, such coins, although technically grade AU, were in mint condition and could be advertised as uncirculated. Respondents' advertisement did not advise the public the coins offered were borderline. Further, the American Numismatic Association publication "Official A.N.A. Grading Standards for United States Coins" (CX-192, p. 19) states " i f a coin is very, very close to MS-60 but is not quite MS-60, then it must be described as AU-55, for a coin which is very, very close to Uncirculated is not uncirculated." Based upon all of the above it is found that there exists a preponderance of evidence to establish the falsity of the representation made. S.E.C. v. Savoy Industries, 587 F.2d 1149 (D.C. Cir. 1978).

Paragraph 4(d) of the Complaint alleged that Respondents falsely represent the silver dollars which it offered for sale were rare. The Administrative Law Judge found the representation to be false. His finding is sustained. The evidence of record unqualifiedly supports this finding. One of Complainant's expert witnesses testified that "rare" coins are quite valuable, perhaps worth $10,000 or more (Tr. I, 106). Respondents' coins did not sell in that price range. The other witness unqualifiedly stated that those coins that he examined which were purchased from Respondents were not rare (CX-32).

Paragraph 4(e) of the Complaint alleged that Respondents falsely represent the prices at which they sell their coins are unusually low, considering the actual condition of the coins. The Administrative Law Judge found that such representation was falsely made. In regard to price, Respondents' advertisements represent that the guaranteed price for each silver dollar offered, $29.90, $34.90 or $38.90 each, depending on the advertisement,^5/ was "an incredible $50.10 less than a major national advertiser." Complainant presented no evidence on this representation at the hearing in this matter. Respondent Verret was not even asked to identify the "major national advertiser." The actual price Respondents charged for many of the offered silver dollars was not that disparate from the "bid" or "ask" prices shown for coins in Complainant's exhibit 190, The Coin Dealer Newsletter, even if the MS-60 uncirculated prices are considered. The prices in The Coin Dealer Newsletter were generally higher, but not always, and not to such an extent that it could be said that the mere listing of the low price in the advertisement, per se, constituted a false representation that the prices were unusually low, considering the condition of the coins. Additionally, one of Complainant's witnesses testified that he felt the advertised price was a fair price (Tr. I, 73). The burden of proving the falsity of the representation is on Complainant. Cf. Magic Mold Inc., P.S. Docket No. 2/115 (P.S.D. Feb. 6, 1974). Complainant has not carried its burden in this instance. The finding of the Administrative Law Judge is reversed.

Exception Four

"The Administrative Law Judge erred in Conclusion of Law Numbers 3, 4, 6, 7 and 10."

Conclusion number 3 found that Respondents made the representations alleged in paragraph 4 of the Complaint. Conclusion 4 found that a person of ordinary mind would interpret Respondents' advertisements as expressed in paragraph 4 of the Complaint. Conclusion 6 found the representations were material. Conclusion 7 found them to be false. Conclusion 10 found Respondents engaged in a scheme for obtaining money through the mail by means of materially false representations within the meaning of 39 U.S.C. 3005. In support of these exceptions, Respondents, in effect, merely incorporate the discussions and argument which they presented under Exceptions One, Two and Three. Since these Conclusions of Law are based on findings which have been found to be supported by the evidence of record they are affirmed.

Complainant's Exception

Complainant takes exception to the finding of the Administrative Law Judge which concerns the falsity of the representation alleged in paragraph 4(f) of the Complaint, supra. In paragraph 4(f) it is alleged that Respondent, U. S. Coin Reserve, falsely represents it "has each coin listed in its advertisements in uncirculated condition available for sale at the advertised price." In his Initial Decision, the Administrative Law Judge found that the representation alleged in paragraph 4(f) of the Complaint was made in Respondents' advertisements, but that there was insufficient proof that it was false. In so holding, the Administrative Law Judge focused on that portion of the representation dealing with the availability of the coins. He did not consider that aspect of the representation relating to the condition of the coins. In support of its position that the representation was false Complainant relies on a declaration by a Postal Inspector, which states that on one occasion Respondent Milton Verret was unable to locate a particular coin in stock which had been requested by a customer. The Administrative Law Judge correctly determined that the content of the declaration "does not constitute the required degree of proof of falsity of the representation." As the Administrative Law Judge reasoned, inventory can fluctuate. It is not reasonable to expect that on every day of every week a coin dealer would have a 100% inventory. An isolated instance of inventory depletion, such as described by the Inspector, does not prove a false representation. However, the record is clear that Respondents were not selling uncirculated condition silver dollars. Thus, since Respondents represented they sold such coins the representation is false and the Administrative Law Judge erred on this issue by not considering that portion of the representation pertaining to the condition of the coins. The Administrative Law Judge's finding in regard to paragraph 4(f) is reversed.

Conclusion

After consideration of the entire record it is concluded that Respondents are engaged in a scheme to obtain money through the mail by means of materially false representations. Accordingly, with the exception of that portion of this Decision pertaining to the falsity of paragraph 4(e) of the Complaint, Respondents' appeal is denied. Complainant's limited appeal is sustained. Remedial orders authorized by 39 U.S.C. 3005 are issued with this decision.

___________________

1/ It is established that Respondents' advertisements must be considered as a whole and their meaning is to be determined in light of the probable impact of this material on a person of ordinary mind. Donaldson v. Read Magazine, 333 U. S. 178 (1948); Peak Laboratories Inc. v. United States Postal Service, 556 F.2d 1387 (5th Cir. 1977).

2/ Uncirculated coins are those which have never been circulated. They have no wear of any kind. They are more valuable to the coin collector than circulated coins (Tr. 2, 15-19; CX-192, p. 17).

3/ AU is the grading for coins which are "about uncirculated." These coins in fact are circulated coins which show some traces of wear (Tr. I, 119; Tr. II, 16-19; CX-192, p. 18).

4/ The grade "MS-60" is the demarcation line between circulated and uncirculated coins (Tr. II, 17-18; CX-192, p. 18).

5/ One advertisement offered coins for $84.90 each. However, that advertisement is the subject of a separate decision concerning these same Respondents, P.S. Docket No. 20/63.