P.S. Docket No. 28/190
October 20, 1989
In the Matter of the Complaint Against:
PAUL, MARBIN & COMPANY, INC.,
P.O. Box 62000,
Philadelphia, PA 19162-0599
and
140 Cedar Street, Suite 2320,
New York, NY 10006-1201
and
2050 E. Byberry Road,
Philadelphia, PA 19116-9996
and
PAUL McMANUS,
89 Fifth Avenue,
New York, NY 10003-3075
and
RICHARD A. HADAR & AMERICAN DIRECT INDUSTRIES, INC.,
89 Fifth Avenue,
New York, NY 10003-3075
and
G. C. WORTH,
P.O. Box 62000,
Philadelphia, PA 19162-0599
and
MICHAEL R. BURR,
140 Cedar Street, Suite 2320,
New York, NY 10006-1201
P.S. Docket No. 28/190
Cohen, James A., Judicial Officer
APPEARANCES FOR COMPLAINANT: Nan K. McKenzie, Esq.,
Elizabeth P. Martin, Esq., Consumer Protection Division, Law
Department, United States Postal Service, Washington, DC
20260-1112
APPEARANCES FOR RESPONDENTS: Michael M. Rosenbaum, Esq., Jeffrey
A. Bronster, Esq., Budd Larner Gross Picillo, Rosenbaum Greenberg &
Sade, 150 John F. Kennedy Parkway, CN1000, Short Hills, NJ
07078-0999
POSTAL SERVICE DECISION
ON BREACH OF AGREEMENT CONTAINING CONSENT ORDER TO CEASE AND DESIST
On May 2, 1989, Complainant filed a Petition For Orders Based Upon Breach Of Consent Agreement (Petition) in which it alleges that American Direct Industries, Inc. (Respondent) has breached the terms of an Agreement Containing Consent Order To Cease And Desist (Agreement) executed on February 1, 1988. Complainant contends that Respondent has breached the terms of the Agreement by resuming the conduct of lottery enterprises, which it agreed to discontinue. The names and addresses currently being used by Respondent to obtain remittances through the mail and against which Complainant sought the issuance of an interim detention order and a permanent order under 39 U.S.C. § 3005 are:
Applebey, Noble & Company, Inc.
27 West 20th Street
P.O. Box 3702
Church Street Station
New York, New York 10008-3702
Poole's Beauty Boutique
89 Fifth Avenue
P.O. Box 3703
Church St. Station
New York, New York 10008-3703
Poole's Fifth Avenue
89 Fifth Avenue
P.O. Box 3701
Church Street Station
New York, New York 10008-3701
Willson & Whyte
27 West 20th Street
P.O. Box 3700
Church St. Station
New York, New York 10008-3700
Poole's Fifth Avenue
P.O. Box 3706
Church Street Station
New York, New York 10008-3706
In accordance with the provisions of the Agreement, Complainant gave Respondent's attorney 24 hours notice of the filing of the Petition. Thereafter, Respondent filed its opposition to the issuance of an interim detention order. Following oral and written argument, it was concluded that Complainant had made a prima facie showing that the Agreement had been breached and an interim detention order as authorized by paragraph 9 of the Agreement was issued.
Respondent has filed a Reply to the Petition in which it admits mailing the solicitations attached to the Petition, but denies that these solicitations constitute lottery enterprises in violation of the terms of the Agreement. Respondent's Reply was accompanied by a motion for a hearing and applications for discovery. Complainant filed a response to Respondent's motion and applications. By Order dated June 5, 1989, Respondent's motion and applications were denied.
Findings of Fact
1. On November 19, 1987, Complainant filed a Complaint, subsequently amended, alleging that Respondent, along with the other captioned Respondents, was engaged in a lottery or scheme for the distribution of money by chance through the mail and a scheme or device to obtain money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. The solicitation attached to the Complaint which was alleged to be typical of those used by Respondents contained a cover letter notifying the recipient that he had won an unidentified prize in the "Car and Cash" Sweepstakes. The solicitation directed the recipient to complete the winner's prize claim form and return the form in order to receive the prize. The letter also stated that there was no charge for the prize. The winner's prize claim form stated that no purchase was required but fees for non-requisite services or products were included on the form. The fees listed were $1.00 for processing, $2.00 for extra rush service, $3.00 to enter the recipient in "2-Million Dollars' Worth of Sweepstakes," and $8.00 for a mystery bonus package.
2. On February 1, 1988, Respondents executed the Agreement in which they consented to the issuance of an attached Cease and Desist Order. Under the terms of the Agreement, Respondents agreed to comply with the Order to cease and desist and understood that a failure to do so might result in the issuance of an interim detention order and the orders authorized by 39 U.S.C. § 3005 (Ans. to Petition PP1, 2; Agreement P8).
3. Cease and Desist Order No. CD-1744, issued in accordance with the Agreement, directed Respondents to cease and desist from engaging in any lottery or from soliciting the remittance of money or property in exchange for a chance to receive a prize of money or other property through the United States mail in violation of 39 U.S.C. § 3005 (Order dated Feb. 18, 1988).
4. On January 19, 1989, the parties executed a consent decree in a related case filed in the United States District Court for the Southern District of New York before the Honorable Kimba M. Wood. Complainant was one of the plaintiffs and Respondent was one of the defendants in that case. The case involved a false representation issue, not a lottery issue. The parties agreed to a specific review procedure prior to distribution of solicitations by any of the defendants. In paragraphs 8, 12, 14, and 15 of the consent decree, Complainant retained all rights it has under the laws to bring any appropriate administrative or judicial action regarding any of Respondents' solicitations and did not waive any rights to challenge Respondents' promotions (United States v. Hadar, No. 88 Civ. 8156 (KMW) (S.D.N.Y. Jan. 20, 1989) (Consent Decree); Transcript of oral argument on Petition for Orders at 39; Respondent's Preliminary Statement at 9-10 (filed May 5, 1989); Declaration of James L. Cott, Exhibit A; Affidavit of Richard A. Hadar, Exhibit B).
5. Subsequent to the execution of both the consent decree and the Agreement, Respondent mailed promotional materials offering the recipient a chance to receive a prize. Respondent distributed five solicitations using the names Applebey, Noble & Company, Inc. (two different promotions), Poole's Beauty Boutique, Willson & Whyte, and Weber & Weber Associates. (Petition Exhs. 1-5; Ans. to Petition P3).
6. The first Applebey, Noble & Company, Inc.'s promotion, called the "Claimstakes" promotion, informs the recipient that he is the "Validated Winner" of an unidentified prize. The cover letter and accompanying rules state that "[n]o purchase or payment [is] necessary to claim the prize." Included in the solicitation is a Winner's Prize Claim Form which contains a checklist of fees and blank order spaces for the purchase of merchandise. The first listed fee is a non-requisite processing fee of $1.00 which is followed by a $2.00 fee for extra rush priority service, and an $8.00 fee for a mystery bonus package of merchandise. The non-requisite processing fee is specifically requested to be remitted with the claim form. If no purchase is made, the recipient must submit a separate 3" x 5" piece of paper containing the printed words "All-New Claimstakes" in order to claim the prize (Petition Exh. 1).
7. The Poole's Beauty Boutique "Sweepstakes Triple-Header" promotion contains a cover letter which notifies the recipient that he is a guaranteed winner of a cash prize of up to $1000. Under the terms of the promotion, if the recipient submits a claim/order form within 11 days he is eligible to win up to $1000 in the "Cash Give-Away Sweepstakes," up to $10,000 in the "All-Cash Sweepstakes" and $100,000 in the "Super Prize Sweepstakes." The closing paragraph of the cover letter offers "exciting FREE GIFTS and BONUS ITEMS with your qualifying order," and directs the recipient to "mail your Cash Prize Claim, and your order . . . right now]" The official rules for this promotion, as well as a paragraph in the upper left portion of the claim/order form, state that no purchase is necessary to enter or win a prize. The claim/order form consists principally of a list of fragrances and prices and a form with blank spaces to fill in orders. Advertisements for perfumes and fragrances are enclosed with the sweepstakes materials. The merchandise order form is also the prize claim form, however, if the recipient does not wish to place an order for merchandise he must submit a separate claim in his own envelope with a 3" x 5" piece of paper on which he prints the words "Cash Give-Away Sweepstakes." The return envelope included in the promotional package is not to be used to claim a prize unless merchandise is ordered.
A "Bonus Gift Bingo Game" ("Bingo") is also enclosed with the Poole's promotional materials. According to the promotional materials, the recipient electing to play the "Bingo" game may win up to 3 gifts of jewelry depending on the outcome of a selection of numbers. The recipient may only claim the "Bingo" prizes if a purchase of $17.00 or more is made (Petition Exh. 2).
8. The second Applebey, Noble & Company, Inc.'s promotion is called the "Sweepstakes Triple-Header" and is essentially the same as the Poole's Beauty Boutique promotion described in Finding of Fact (FOF) 7. The cover letters for both promotions are nearly identical. Like the Poole's promotion, cash prizes are offered to eligible recipients and advertisements and order forms for various items of merchandise are included in the promotional package. Again, the claim/order form is predominantly an order form with blanks to fill in the quantity, description and price of the merchandise to be purchased. Also, like the Poole's Beauty Boutique promotion, this promotion notifies the recipient that no purchase is necessary to claim the prize. The merchandise offered for sale is primarily jewelry.
Instead of the "Bingo" game included in the Poole's Beauty Boutique promotional materials, this solicitation contains a Triple Play "21" game wherein the recipient rubs off spots from playing cards and may win up to three gifts of jewelry. Prizes for the Triple Play "21" game may only be claimed with a purchase of $17.00 or more (Petition Exh. 3).
9. The Willson & Whyte promotion also contains the same "Sweepstakes Triple-Header" distributed under the name Poole's Beauty Boutique and described in FOF 7. The cover letters of the promotions are again similar. The Willson & Whyte promotional package includes an advertisement for a wristwatch. Like the Poole's Beauty Boutique promotional package, the official rules for the sweepstakes, as well as a paragraph in the upper left portion of the claim/order form, state that no purchase is necessary. The rules also state that the return envelope may not be used to claim the prize if no purchase is made. The claim/order form is largely an order form on which the recipient may fill in the quantity of wristwatches ordered (Petition Exh. 4).
10. The Weber & Weber Associates promotion contains the same "Sweepstakes Triple-Header" distributed with the Poole's Beauty Boutique, the second Applebey, Noble & Company, Inc., and the Willson & Whyte promotional materials. The cover letter notifying the recipient of his prize is also the same. The official rules for the sweepstakes and a paragraph in the upper left portion of the claim form provide that no purchase is necessary. However, for the recipient to claim his prize he must send in a 3" x 5" piece of paper with the printed words "Cash Give-Away Sweepstakes" in his own envelope. The claim/order form is entirely an order form for various items of jewelry and hand painted wooden "collector's" eggs described in advertisements included in the promotional materials. Also included is a game in which the recipient is to rub off four of six spots to obtain up to four gifts of jewelry, collectible porcelain figurines, health and beauty aids and general merchandise, which could only be claimed with an order for products worth $17.00 or more (Petition Exh. 5).
Discussion
Complainant argues that the five promotions violate the terms of the Agreement because they contain the elements of prize, chance and consideration and therefore are lotteries proscribed by the cease and desist order and 39 U.S.C. § 3005. For the Applebey, Noble & Company, Inc.'s "Claimstakes" promotion, Complainant cites the reference to a prize, the inability to control what will be won as the chance and the $1.00 non-requisite processing fee as the consideration. Although Complainant concedes that the fee is characterized as non-requisite, it argues that the recipient is led to believe that the fee must be paid in order to receive the prize.
For the "Sweepstakes Triple-Header" in the Poole's Beauty Boutique, the second Applebey, Noble & Company, Inc., the Willson & Whyte, and the Weber & Weber Associates promotions, Complainant argues that the prize is the cash award of up to $1000, $10,000 or $100,000 and chance exists because the amount the recipient will receive depends on a random process beyond his or her control. For the element of consideration, Complainant argues that the overall impression conveyed to the ordinary recipient of the solicitation is that an order to purchase merchandise is required to claim the prize. Specifically, Complainant cites various parts of the solicitations which emphasize the necessity for the recipient to send in the Prize Claim/Order Form and the lack of a clear and conspicuous statement that no payment is necessary to enter the sweepstakes. Complainant considers the statement that "no purchase is necessary" to be insufficient to overcome the impression that an order must be placed.
As to the "Bingo," "21" and "4 spot" games, Complainant argues that the gifts constitute the element of prize and chance is shown by the recipient's lack of control over the number, quality and value of the gifts. Finally, Complainant argues that the $17.00 minimum purchase requirement to receive the prize serves as consideration.
Respondent argues that it is not in violation of the terms of the Agreement because none of its promotions are lotteries. It contends that the solicitations lack the requisite elements of prize, chance, and/or consideration. As to the first Applebey, Noble & Company, Inc.'s promotion, Respondent argues that the non-requisite processing fee is not consideration, that the recipient is clearly notified that no purchase is necessary to receive a prize and that the recipient may check a box at the bottom of the solicitation to indicate his acceptance of the no purchase option. Further, Respondent argues that this promotion was approved by the Postal Service, the United States Attorney, and Judge Wood under the consent decree executed in the District Court proceeding.
Likewise, Respondent argues that the Poole's Beauty Boutique, the second Applebey, Noble & Company, Inc., the Willson & Whyte, and the Weber & Weber Associates "Sweepstakes Triple-Header" promotions state that no purchase is necessary and, therefore, no element of consideration exists. In support of this position, Respondent cites the rules of the game which establish a procedure for claiming a prize without the necessity of a purchase and argues that such a procedure is consistent with industry practice.
Finally, Respondent argues that the "Bingo" game does not contain any of the elements of a lottery. 1/ According to Respondent there is no element of chance because the recipient can immediately find out how many gifts he has won. Respondent contends that the element of consideration does not exist because the requirement for a $17.00 purchase covers the cost of the merchandise and is not a contribution in kind to a fund. Finally, Respondent argues that the requirement for a prize is absent from the promotion because the gifts are not prizes and, in any event, a 10 charge for the gifts 2/ is a form of a reduced price.
The determinative issue in this proceeding is whether Respondent has resumed the lottery activities which it agreed to discontinue. Claud Koch, P.S. Docket No. 22/140 at 4 (P.S.D. Nov. 6, 1987) (on breach of consent agreement); see also Mark Eden v. Lee, 433 F.2d 1077, 1083 (9th Cir. 1970). The elements of a lottery are prize, chance and consideration. FCC v. ABC, 347 U.S. 284, 290, reh'g denied, 347 U.S. 965 (1954); J.C. Martin Corp. v. FTC, 242 F.2d 530, 532 (7th Cir. 1957); Brooklyn Daily Eagle v. Voorhies, 181 F. 579, 581 (C.C.E.D.N.Y. 1910); Unimax, Inc., P.S. Docket No. 28/77 at 10 (P.S.D. March 3, 1989).
The approval of the first Applebey, Noble & Company, Inc.'s promotional materials (Petition Exh. 1) under the terms of the court consent decree does not preclude review of those materials in this proceeding. Under Paragraphs 8, 12, 14, and 15 of the consent decree, Complainant retained the right to bring an administrative or judicial action against Respondent pertaining to the solicitations regardless of any approval under the provisions of the consent decree (FOF 4). Thus, the parties expressly agreed that the consent decree would not preclude Complainant from pursuing its rights under the Agreement executed by Respondent. Accordingly, the first Applebey, Noble & Company, Inc.'s promotional materials (Petition Exh. 1) may properly be the subject of review in this proceeding.
The Applebey, Noble & Company, Inc.'s "Claimstakes" promotion (FOF 6) constitutes a lottery within the meaning of 39 U.S.C. § 3005. Respondent does not deny that the elements of prize and chance are present in this promotion. However, Respondent strongly contests the existence of the remaining lottery element, that of consideration. As Respondent argues, the promotional materials state both in the official rules and on the face of the claim/order form that no purchase is necessary to receive the prize (FOF 6). Nonetheless, the ordinary reader would most likely perceive the solicitation as requiring remittance of the non-requisite processing fee in order to receive the prize. The solicitation requests remittance of the non-requisite processing fee which heads the checklist of fees and blank order spaces for merchandise (FOF 6). While every word used in the promotional materials may be true, the overall impression conveyed to the ordinary recipient is that the processing fee is required in order to receive the prize. See Vibra Brush Corp. v. Shaffer, 152 F. Supp. 461, 465 (S.D.N.Y. 1957). Additionally, although the astute reader may understand that no processing fee is required, the solicitation is to be judged by the impression it would create in the mind of ordinary recipients, many of whom would believe that the "non- requisite" processing fee is required. See Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Borg-Johnson Elec. v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959). Thus, consideration exists as the ordinary recipient would most likely conclude that the fee is required in order to receive the prize. See American Testing Inst., P.S. Docket No. 14/114 (P.S.D. July 6, 1983), review dismissed, American Testing Inst. v. United States Postal Service, 579 F. Supp. 1345 (D.D.C. 1984) (consideration found due to impression created that shipping and handling fee was required).
At best, the language of the solicitation is ambiguous because it is reasonably susceptible to being interpreted as both requiring and not requiring the payment of a fee. Under such circumstances, the solicitation will be considered to be in violation of the terms of the Agreement and statute. See Rhodes Pharmacal Co. v. FTC, 208 F.2d 382, 387 (7th Cir. 1953), rev'd in part, 348 U.S. 940 (1955); Great Lakes Yellow Pages, Inc., P.S. Docket No. 25/79 at 8 (P.S.D. July 15, 1988). "It is not difficult to choose statements, designs and devices which will not deceive." United States v. 95 Barrels of Vinegar, 265 U.S. 438, 443 (1924).
The "Sweepstakes Triple-Header" in the Poole's Beauty Boutique, the second Applebey, Noble and Company, Inc., the Willson & Whyte, and the Weber & Weber Associates promotions (FOF 7-10) also contains the elements of prize, chance and consideration. Respondent does not contest the existence of the elements of prize or chance in these solicitations. The element of consideration is present since the overall effect of Respondent's solicitations would most likely lead the ordinary recipient to believe that a purchase is necessary in order to be eligible to win the prize. Donaldson v. Read Magazine, Inc., 333 U.S. 178, 185-89 (1948); United States Testing Auth. Television Div., P.S. Docket No. 14/77 & 14/114 (P.S.D. Oct. 2, 1985); American Testing Inst., P.S. Docket No. 14/114 (P.S.D. July 6, 1983), review dismissed, American Testing Inst. v. United States Postal Service, 579 F. Supp. 1345 (D.D.C. 1984). Although the recipient is notified that no purchase is necessary, the order portion of the form, which contains the fees, is more prominent and creates the impression that an order must be placed to receive the prize. While the more sophisticated recipient may understand that no purchase is necessary to claim the prize, it is the impression on the mind of the ordinary recipient which is determinative. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Borg-Johnson Elec. v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959). The overall impression is such that the ordinary recipient is likely to believe that a purchase must be made in order to claim the prize. Therefore, Respondent's "Sweepstakes Triple-Header" constitutes a lottery.
The "Bingo," "21" and "4 spot" (FOF 7, 8, 10) games in the Poole's Beauty Boutique, the second Applebey and Noble Company, Inc., and the Weber & Weber Associates promotions also constitute lotteries. The games are essentially the same. The element of prize is evident in all of the games. In both the "Bingo" and "21" games the recipient may win jewelry and in the "4 spot" game the recipient may win gifts from a selection of jewelry, collectible porcelain figurines, health and beauty aids and general merchandise (FOF 7, 8, 10). In order to participate in the games, a recipient must make a purchase of $17.00 or more. The $17.00 purchase thus serves as consideration. Respondent argues that this is consideration only for the items purchased and cites Garden City Chamber of Commerce v. Wagner, 100 F. Supp 769, 772 (E.D.N.Y. 1951), for the proposition that consideration must be a contribution in kind to the property to be distributed. 3/ However, interpretations of the postal lottery law have found consideration to exist even when the recipient receives a product in addition to the chance to win a prize. Collegedale Diversified Enter., Inc., P.S. Docket No. 14/29 at 4-5 (P.S.D. Oct. 25, 1983); Liberty Amendment Comm. of Mo., P.S. Docket No. 13/39 at 4-5 (I.D. April 14, 1982). Furthermore, Garden City may be distinguished from the present case. In Garden City the purported consideration was the action of looking in a window. The court found such activity too nebulous to constitute consideration. Garden City, 100 F. Supp. at 772. The games here under review contain a definite nexus between the requirement for a $17.00 purchase and the chance to win a prize. Therefore, consideration is present.
The final element of these three games is that of chance. Respondent argues that the element of chance does not exist since the recipient will know how many prizes, if any, will be won prior to sending in the $17.00. Respondent's argument is without merit. The element of chance still exists regarding the value and, in the case of the "4 spot" game, type of gift. As the Supreme Court has stated "[t]he element of certainty goes hand in hand with the element of lot or chance, and the former does not destroy the existence or effect of the latter." Horner v. United States, 147 U.S. 449, 459 (1893); see also J.C. Martin Corp. v. FTC, 242 F.2d 530, 533 (7th Cir. 1957). Therefore, a recipient's prior knowledge of how many gifts will be won does not eliminate the element of chance. These three games constitute lotteries within the meaning of section 3005.
Conclusion
Respondent has breached the terms of the Agreement by engaging in the conduct of lotteries. Accordingly, pursuant to the terms of the Agreement, an Order authorized by 39 U.S.C. § 3005(a) is being issued with this Decision.
1/ Respondent has not discussed the "21" and "4 spot" games, however, its arguments concerning the "Bingo" game are assumed to apply to the "21" and "4 spot" games as well.
2/ Neither the "Bingo" game nor the "21" or "4 Spot" games makes reference to a 10 payment (Petition Exh. 2, 3, 5).