In the Matter of the Complaint Against:

ERWIN KOLTAY d/b/a
E. KOLTAY, HERBERT BUTLER,
LEE D. KING, E-Z RENT, and MARK WALKER
at 5085 49th Avenue, North,
St. Petersburg, FL 33709-7094

and

4910 49th Avenue, North,
St. Petersburg, FL 33709-7094

and

323 South Franklin Bldg., Suite E-138,
Chicago, IL 60606-7094

and

369 East 900 South,
Salt Lake City, UT 84111-4331

and

P.O. Box 990,
Calexico, CA 92231-0990

P.S. Docket No. 30/82

Mason, Randolph D.; Administrative Law Judge

APPEARANCES FOR COMPLAINANT:
Thomas A. Ziebarth, Esq.;
Alan B. Ostroff, Esq.,
Consumer Protection Division,
Law Department,
United States Postal Service,
475 L'Enfant Plaza West, S.W.,
Washington, DC 20260-1112

APPEARANCE FOR RESPONDENT:
Erwin Koltay, pro se,
5085 49th Avenue, North,
St. Petersburg, FL 33709-7094

INITIAL DECISION

This proceeding was initiated on April 27, 1988, when the Postal Service filed a Complaint alleging that Respondent Erwin Koltay, d/b/a Herbert Butler, Lee D. King, E-Z Rent, and Mark Walker is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations in violation of 39 U.S.C. § 3005. On June 1, 1988, Complainant filed a Motion to Amend Complaint adding the 4910 49th Avenue North address and "E. Koltay" as another name under which Respondent does business. No objection was filed, and the motion was granted at the hearing (Tr. 9). Specifically, the Complaint alleges in paragraph 5 that Respondent falsely represents, directly or indirectly, in substance and effect, whether by affirmative statement, implication or omission, that:

(a) Respondent will furnish a telephone solicitation machine to his customers within a reasonable amount of time.

(b) Respondent will hold all customer security deposits and not cash or deposit them into a bank account.

In his Answer, Respondent denies that he made the above false representations or that he otherwise violated the statute.

A hearing was held by the undersigned Administrative Law Judge on June 15, 1988, in Washington, DC. Complainant was represented by counsel, but Respondent did not appear. Complainant presented the testimony of Postal Inspector Cheryl J. Kinnebrew and consumer Patricia Overton. The Administrative Law Judge received Respondent's exhibits and left the record open for any additional evidence that Respondent may wish to introduce. After the hearing, the undersigned received and marked as RX-6 a packet of Respondent's exhibits which had been mailed immediately prior to the hearing. No other evidence was received from Respondent after the hearing. Although both parties were given an opportunity to do so, only Complainant 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 witnesses and their demeanor, the exhibits, and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions of law:

FINDINGS OF FACT

1. Respondent Erwin Koltay, doing business as E. Koltay, Herbert Butler, Lee D. King, E-Z Rent, and Mark Walker, solicits money from customers through the mail for the rental or sale of telephone solicitation machines at the following addresses:

a. 323 South Franklin Bldg., Suite E-138

Chicago, IL 60606-7094 (CX-7, CX-9, Tr.33-35)

and

b. 369 East 900 South

Salt Lake City, UT 84111-4331

(CX-6, CX-10, Tr. 35-36)

and

c. P. O. Box 990

Calexico, CA 92231-0990 (CX-1; CX-8; Tr. 32-33)

The above addresses are mail receiving agencies. Respondent instructs them to forward his mail to Erwin Koltay, E. Koltay, Anna Gordon, Mark Walker, Herbert Butler, or one of his other assumed names at the following addresses:

d. 5085 49th Avenue, North

St. Petersburg, FL 33709-7094 (CX-8-10)

and

e. 4910 49th Avenue, North

St. Petersburg, FL 33709-7094 (Tr. 37-39; CX-11)

2. Respondent conducts the following schemes:

a. He mails solicitations offering to sell automatic telephone soliciting equipment ("product"). When a customer remits his check, Respondent cashes it and never sends the product to the customer.

b. Respondent offers to lease the product for $15 (or $30) a month if the customer will send a personal or business check to Respondent as a security deposit. Respondent promises, however, that the check will remain in the customer's file and will not be cashed. When the customer mails Respondent the check as security, Respondent cashes it and never sends the product to the customer. Later, when the customer complains, Respondent claims that he sent the customer a timely notice amending the offer to require that a certified or cashier's check be sent as security. The customer, however, was not aware of this new "policy" until after the check was cashed.

c. In a variation of the rental scheme, Respondent tells the complaining customer that the product is no longer for rent and that he has instructed his accountant to send the security check back to the customer. Respondent then offers the product for sale at a reduced price and asks the customer to send another check to purchase the product (CX-6, p.3).

The False Representations

Representation (a)

"(a) Respondent will furnish a telephone solicitation machine to his customers within a reasonable amount of time."

3. This representation is clearly implied in Respondent's solicitations (CX-1; CX-6; CX-7). This impression is reinforced by the following:

"If there is any problem or defect a new system is rushed to you overnight by federal express.

I will rent you the [product] . . . No red tape, no credit check, nothing to sign, free delivery.

I will provide you with instant and first class service to make sure that you are 100% pleased with your computer. (Id.)

Or send $550, payment in full for immediate processing of your order." (CX-7, p.7)

Also, customers calling the telephone number in the solicitation, are told that plenty of machines are available and that one would be sent as soon as the personal check is received (Tr. 13-14).

4. Representation (a) is materially false since Respondent fails to send customers the product at all (Tr. 13, 18, 23, 27-28, 29-30, 31, 42; CX-7, p. 2).

Representation (b)

"(b) Respondent will hold all customer security deposits and not cash or deposit them into a bank account."

5. This representation is expressly made in Respondent's solicitations for the rental of the product:

"A refundable security deposit of $565 is payable in advance in the form of a business or personal check. I will 'hold' your check without depositing it. You can rent it for as long as, or as short as you wish. When you return it your uncashed escrow check will be mailed back to you.

. . . Your check will not be cashed or deposited. (CX-1; CX-6, p.10)

. . . The check can be any business or personal check. I will staple your check to your papers and 'hold' it without depositing it. . . . When you return [the product] the check will be mailed back to you." (CX-6, p.10; Tr. 12, 27-28)

6. a. Although Respondent may have sent some customers an amended offer notifying them of the necessity of sending a certified or cashier's check as a security deposit, such notices were not sent until after the customer had already mailed his personal check. In some cases, the customer did not see the amended notice until after he complained about his check being cashed (Tr. 18-19).

b. Moreover, even if a customer had received such notice before sending in his check, in view of Respondent's repeated promises not to cash security deposit checks, the ordinary customer reading the solicitations would not have expected Respondent to cash his personal check absent permission to do so.

7. Respondent claims to have also mailed out a re0vised version (RX-3) of the solicitation which states as follows:

"To order one you simply mail a certified or cashier's check for $650 with your name, shipping address and phone number. I will staple your check to your papers and 'hold' it without depositing it. . .

. . . Remember, you are not spending any money, except the small rental fee. Your check will not be cashed or deposited."

An ordinary reader of this revised version would not get the impression that Respondent would cash or deposit any check sent as a customer security deposit, whether personal, cashier's, or certified. Thus representation (b) is also made in this version.

8. Representation (b) is materially false. Respondent has cashed many personal checks sent to him as a security deposit even though he had promised not to do so (CX-3, 5, 6; Tr. 17, 27, 42).

CONCLUSIONS OF LAW

1. a. Each of Respondent's advertisements must be considered as a whole and the 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, 189 (1948); Peak Laboratories, Inc. v. U.S. Postal Serv., 556 F.2d 1387, 1389 (5th Cir. 1977). The statute is intended to protect the gullible, naive, and less critical reader, as well as the more sophisticated, wary reader. Fields v. Hannegan, 162 F.2d 17 (D.C. Cir. 1947), cert. denied, 332 U.S. 773 (1947); M.K.S. Enterprises, Inc. v. United States Postal Service, 459 F. Supp. 1180, 1184 (E.D.N.Y. 1978); Gottlieb v. Schaffer, 141 F. Supp. 7 (S.D.N.Y. 1956); Leo Daboub, P.S. Docket No. 19/185 (P.S.D. July 10, 1986). Express misrepresentations are not required. It is the net impression which the advertisement is likely to make upon individuals to whom it is directed which is important, and even if an advertisement is so worded as not to make an express representation, if it is artfully designed to mislead those responding to it, the false representation statute is applicable. G.J. Howard Co. v. Cassidy, 162 F. Supp. 568 (E.D.N.Y. 1958); See also, Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, 425 U.S. 748 (1976).

b. Where an advertisement is ambiguous or capable of more than one meaning, if one of those meanings is false, the advertisement will be held to be misleading. Rhodes Pharmacal Co. v. F.T.C., 208 F.2d 382, 387 (7th Cir. 1953); Ralph J. Galliano, P.S. Docket No. 19/15 (P.S.D. May 2, 1985 at p. 9).

c. An inconspicuous disclaimer is not sufficient to dispel the effect of false representations. Leo Daboub, supra; Gottlieb v. Schaffer, supra.

d. The Administrative Law Judge can determine whether the representations are made, their effect on the ordinary mind, and materiality without the assistance of lay or expert testimony.

Standard Research Labs, P.S. Docket No. 7/78 (P.S.D. Oct. 27, 1980); The Robertson-Taylor Company, P.S. Docket Nos. 16/98-102, 16/120-121, (P.S.D. March 31, 1986 at page 29); Vibra-Brush v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2nd Cir. 1958).

2. Applying the foregoing standards, I find that Respondent's advertisements make the representations alleged in P5(a)-(b) of the Complaint. The language contained in the advertisements, when read in context, which directly or impliedly makes these representations is set forth in the findings of fact.

3. a. As set forth in the findings of fact, the representations set forth in paragraph 5 of the Complaint are materially false.

b. Respondent's evidence that customers received his product in 1986 or before is irrelevant to the instant proceeding, which establishes a pattern of false representations and failure to furnish the product in 1987-1988.

c. Also, his claim that customers received an amended offer or notice explaining the requirement of a cashier's or certified check as a security deposit is rejected. The evidence adduced establishes that customers did not receive any amended notice prior to sending Respondent a personal check. Moreover, even if a customer had received such notice before sending in his check, in view of Respondent's repeated promises not to cash security deposit checks, the ordinary customer reading the solicitations would not have expected Respondent to cash his personal check absent permission to do so.

d. Respondent's argument that he was unable to fill the order of Mr. Lewis Sarkovich ("Sanders") due to a detention order at the Chicago address, is also unpersuasive. Although the solicitation sent to Sanders was attached to the Complaint as a "typical circular," at the hearing Complainant did not rely on any evidence concerning that particular customer.

e. Likewise, Complainant did not rely upon any evidence with respect to customer Bradley Butler, who Respondent claims received the revised brochure requiring a certified or cashier's check. In any event, it appears from the Postal Inspector's affidavit (which was introduced by Respondent) that this customer sent his personal check prior to receiving the amended offer (RX-1, Attachment 2, P8-11). However, even if he had received a timely amended notice (RX-4) or the revised brochure (RX-3), an ordinary customer reading either of these materials would not have expected Respondent to cash any security deposit check absent permission to do so (COL P3c, supra; FOF P7, supra).

f. Respondent's contention that he has abandoned these practices is irrelevant. Voluntary cessation of allegedly illegal conduct does not deprive the tribunal of power to hear and determine the case, i.e., does not make the case moot. To apply Respondent's theory would frustrate the purpose and intent of 39 U.S.C. § 3005, particularly as it was amended in 1983 by P.L. 98-186, 97 Stat. 1315 to include cease and desist authority. Kingsbridge Media & Marketing, Inc., P.S. Docket No. 20/17 (P.S.D. June 13, 1986); United States v. W. T. Grant Co., 345 U.S. 629, 632 (1953).

4. Complainant has established its case by a preponderance of the reliable and probative evidence of record. S.E.C. v. Savoy Industries, Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978).

5. The representations made by Respondent are material because they have a tendency to persuade readers to order and pay for Respondent's product.

6. Respondent is engaged in the conduct of a scheme for obtaining remittances of money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

7. The attached False Representation Order and Cease and Desist Order should be issued.