In the Matter of the Complaint Against                   )
                                                                               )
CARD REDEMPTION CENTER                                 )
805 Third Avenue, Suite 190                                 )
New York, NY 10022-7513                                   )
            and                                                             )
                                                                               )
INTERSTATE DISTRIBUTION CENTER                     )
Dept. 190                                                                )
805 Third Avenue Building                                     )
New York, NY 10022-7513                                   )
            and                                                             )
PORT OF ENTRY GOODS                                      )
805 Third Avenue Building                                     )
Suite 190                                                                )
New York, NY 10022-7513                                   )
            and                                                             )
SELECT DIRECT, INC.                                             )
126 Fifth Avenue, Suite 8C                                    )
New York, NY 10011-5606                                   )
            and                                                             )
DAVID SCHWARTZ                                                )
126 Fifth Avenue, Suite 8C                                    )
New York, NY 10011-5606                                   )  P.S. Docket No. 30/35

Cohen, James A., Judicial Officer

APPEARANCES FOR COMPLAINANT:
Jerry Belenker, Esq.,
Jeffrey S. Kahn, Esq.,
Consumer Protection Division,
Law Department,
United States Postal Service,
Washington, DC 20260-1144

APPEARANCE FOR RESPONDENTS:
Robert Ullman, Esq.,
Bass & Ullman,
747 Third Avenue,
New York, NY 10017-2873

POSTAL SERVICE DECISION

Complainant has filed an appeal from the Initial Decision of an Administrative Law Judge which holds that Respondents are not engaged in conducting a scheme or device for obtaining money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Based on this holding, the Administrative Law Judge dismissed the Complaint against Respondents.

Background

The General Counsel of the United States Postal Service (Complainant) initiated this proceeding by filing a Complaint ^1/ alleging that Respondents are engaged in conducting a scheme or device for obtaining money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Specifically, Complainant alleges that Respondents solicit money or property through the mail by means of postcards which falsely represent:

"7. . . .

(a) the recipient is entitled to receive the product based on the results of a contest, sweepstakes or drawing;

(b) the product is worth substantially more than the payment required to receive it;

(c) the remittance required to receive the product is for incidental costs of transporting the product to the recipient;

(d) the payment required to receive the product is something other than its purchase price, with or without postage;

(e) the product has been set aside specifically for the recipient of the postcard;

(f) the product has been ordered and received through customs in the recipient's name;

(g) the advertisement is other than an offer to sell the product; and

(h) the product is available to the recipient for only a limited time . . . ."

Respondents filed an Answer in which they denied that they make the representations alleged in the Complaint or that the representations included in their postcards are materially false. Respondents admitted that the exhibits attached to the Complaint are reproductions of advertisements used by Select Direct, Inc.

At a hearing ^2/ before an Administrative Law Judge, both parties called one witness and introduced documentary evidence. ^3/

Following the filing of proposed findings of fact and conclusions of law, the Administrative Law Judge issued an Initial Decision in which he found that Respondents' solicitations do not contain the representations alleged in paragraphs 7(a) through (g) of the Complaint and that the representation alleged in paragraph 7(h) of the Complaint, though made, is not materially false. Complainant filed Exceptions to the Initial Decision and Respondents filed a timely reply. Complainant's Exceptions have been considered and are addressed hereafter.

Exception 1

Complainant takes exception to the Administrative Law Judge's finding that Respondents do not represent that the recipient is entitled to receive the product based on the results of a contest, sweepstakes or drawing (FOF 5 pertaining to Complaint P7(a)). Complainant argues that the Administrative Law Judge was too literal in his interpretation of Respondents' postcards and failed to consider the overall impression created in the mind of the ordinary recipient. In particular, Complainant refers to the phrases "Important Notice . . . You've Done It," "Your Lucky Name Appears Among A List Of People Eligible To Receive This Notice," the reference to a "computerized list," and the general format of the postcards as creating the impression in the mind of the less sophisticated recipient that s/he is entitled to receive the product based on the results of a contest, sweepstakes or drawing.

Respondents contend that the Administrative Law Judge examined each postcard as a whole and that Complainant's attempts to base a representation on selected words and phrases is improper. Respondents further argue that the postcards are clearly solicitations.

The Administrative Law Judge found that the ordinary recipient would view the language in Respondents' postcards as "nothing more than attention-grabbing hype. . . ." (I.D. at 8). According to the Administrative Law Judge, ordinary recipients would not believe a contest was involved because there is no direct or indirect reference to a drawing or contest and reference is made to the use of a computerized list, which is a common source for potential mail-order customers.

While Respondents' postcards do not explicitly refer to a contest or drawing, they nonetheless convey the impression that the recipient is entitled to receive the product based on the results of a contest, sweepstakes or drawing. Complainant's Exhibit 1 contains the bold print heading "Important Notice" as well as the language "Congratulations] You've Done It]" These exclamations of good fortune would most likely be associated by the ordinary recipient with winning a contest, sweepstakes or drawing. Furthermore, CX-1 contains simulated handwriting by which the quantity, product, and fee are inserted in the postcard giving the impression that the product is a specific award. The "product release/confirmation number" printed on the postcard furthers the impression that the product is actually an award from a contest.

Like CX-1, CX-2 and 3 contain language of good fortune by the statement "Your Lucky Name Appears [On A List]" which makes the recipient "Eligible" to receive the notice. The ordinary recipient of Respondents' postcards would likely construe the language of luck and eligibility as aspects of a contest. Moreover, CX-2 and 3 require an authorization signature to obtain the merchandise and contain a list of "Promotional Rules of Direct Distribution" which the ordinary recipient would likely associate with a contest of some kind.

Complainant's Exhibits 4 through 6 also contain the bold print announcement "Important Notice" as well as the exclamations "Good News]" (CX-5) or "Congratulations" (CX-4, 6). Like CX-1, CX-4 through 6 contain the simulated handwriting naming the product and fee to be remitted. These exhibits also contain a "Product/Identification" number. Taken together, these elements of the postcards convey the impression that the recipient is entitled to receive the product based on the results of a contest, sweepstakes or drawing.

As Respondents point out, the postcards do contain the words "solicitation" (CX-1 through 6) and/or "offer" (CX-4, 5, 6) and refer to computerized lists (CX-1, 3, 5, 6). However, these references do not dispel the overall impression created that the recipient is entitled to the product based on the results of a contest or drawing. Moreover, if these words were to create an ambiguity and one reasonable interpretation is found to be false, the representation is deemed false. Rhodes Pharmacal Co. v. F.T.C., 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).

The representation is false as recipients were not selected through a contest, drawing or sweepstakes (Tr. 6). The representation is also material in that the recipient, based on the belief that s/he was entitled to receive the product as the result of having been a winner in a drawing or contest, would be induced to remit the required fee. Therefore, Complainant's exception is sustained.

Exception 2

Complainant takes exception to the Administrative Law Judge's finding that Respondents do not represent that the product is worth substantially more than the payment required to receive it (FOF 6 pertaining to Complaint P7(b)). Complainant argues that the overall impression created by the language and format of the postcards is that the product is worth substantially more than the payment required. According to Complainant the postcards obscure the fact that they are solicitations rather than notices of award.

In support of its position, Complainant points to what it perceives as an attempt to hide the words "product" and "product cost" in the list of costs included in the $69.27 fee as well as the requirement in two postcards (CX-2, 3) that the recipient sign an authorization statement certifying that all directions have been followed. Respondents argue that, viewed as a whole, the postcards do not contain the representation and that even if such representation is made, Complainant produced no evidence of the product's value. Therefore, Respondents contend that the falsity of the representation has not been proven.

The Administrative Law Judge found that Respondents' postcards convey the impression that the recipients are being offered a bargain but do not represent that the product is worth more than the payment required. He also found that, if the representation had been made, there was no evidence to show that the product was worth substantially less than claimed.

While the overall impression created by Respondents' postcards is that the product is worth substantially more than the payment requested (CX-1 through 6), no evidence has been presented proving the falsity of the representation. Complainant contends that such evidence is unnecessary because recipients are led to believe that they are getting the product at less than its retail value because they have won it in a contest. Complainant's argument addresses the existence of the representation, not its falsity. Evidence of the value of the product is required to prove the falsity of the representation alleged in the Complaint. Cf. Mid-Am. Marketing, Inc., P.S. Docket No. 24/12 at 10 (P.S.D. Jan. 5, 1987) (Complainant's burden of proof); Sam McVicker, P.S. Docket No. 19/48 at 3 (P.S.D. Feb. 14, 1985). Accordingly, Complainant's exception is granted with respect to the existence of the representation, but denied insofar as it pertains to the falsity of the representation.

Exception 3

In its third exception, Complainant takes issue with the Administrative Law Judge's findings that Respondents' postcards do not represent that the remittance required to receive the product is for incidental costs of transporting the product to the recipient or that the payment required to receive the product is something other than its purchase price, with or without postage (FOF 7-8 pertaining to Complaint PP7(c), (d)). Complainant argues that the words "product" and "product cost" in the section of the postcards which explains the $69.27 cost are obscured by the other listed costs: shipping, taxes, administrative expenses, and self-insurance. According to Complainant, the words "product" and "product cost" "are virtually hidden by the verbal clutter that characterizes Respondents' solicitations" (Compl. Exceptions at 6).

Respondents argue that Complainant is relying on certain portions of the postcards out of context rather than viewing each postcard as a whole. Respondents also argue that the representation is not made in CX-1 and CX-3 through 6 because the word "product" is included in the list of costs and is the first cost listed in CX-3 through 6.

The Administrative Law Judge found these representations are not made for the same reasons he concluded that Respondents' postcards do not make the representations alleged in paragraphs 7(a) and (b) of the Complaint.

The representations are explicit in CX-2. Nowhere in CX-2 is it stated that the $69.27 is for anything but incidental costs. The $69.27 fee is stated to include "shipping, applicable taxes, processing product, administrative expenses and self-insurance. . . ." The ordinary recipient would not be likely to interpret the words "processing product" to mean cost of the product itself.

The representations are not so clear in CX-1 and CX-3 through 6, but exist nonetheless. The fee of $69.27 is stated to include "product costs" along with the series of other expenses in CX-3 through 6 and is one of the cost items within the list of charges in CX-1. With the inclusion of the words "product" and "product cost" in the explanation of the fee, the statement is literally true. However, the listing of the components of the $69.27 charge in such a manner tends to obscure the fact that the price of the product is included in the required fee. See Borg-Johnson Elec., Inc. v. Christenberry, 169 F. Supp. 746, 751 (S.D.N.Y. 1959) (a literally true statement could be misleading when the advertisement is artfully designed). Thus, the ordinary recipient would be unlikely to conclude that the fee s/he was paying would include the cost of the product.

It is undisputed that the $69.27 charge includes the cost of the product. Therefore, the representations are false. Furthermore, the false representations are material in that the recipient would be induced to remit the fee in order to obtain the product. Lynch v. Blount, 330 F. Supp. 689, 693 (S.D.N.Y. 1971), aff'd, 404 U.S. 1007 (1972); Richard W. Verret, P.S. Docket No. 20/18 at 5-6 (P.S.D. Dec. 31, 1986). Complainant's third exception is sustained.

Exception 4

In its fourth exception, Complainant contests the Administrative Law Judge's findings that Respondents do not represent that the product has been set aside specifically for the recipient of the postcard (FOF 9 pertaining to Complaint P7(e)) or that the product had been ordered and received through customs in the recipient's name (FOF 10 pertaining to Complaint P7(f)). To support its position regarding its exception to Finding of Fact No. 9, Complainant relies on the simulated handwritten name of the product, the expiration date, the use of the word "notice," the phrase "you can now definitely obtain," ^4/ the box captioned "carrier," and the references in CX-2 and 3 to eligibility. With respect to its exception to Finding of Fact No. 10, Complainant argues that, although the products have actually passed through customs, the phrase "available for direct delivery" implies that the product was ordered in recipient's name. Respondents argue that the recipient would not believe that s/he is the only person receiving the postcard since the postcards refer to a list of people eligible to receive the product.

The Administrative Law Judge again found the language of Respondents' postcards on which Complainant relies to be nothing more than "promotional hype" (I.D. at 9). In addition, he concluded that even if made, the representations were not material, absent the representations alleged in paragraphs 7(a), (b), and (c) of the Complaint.

Each of Respondents' postcards contains certain elements of personalization, such as the simulated handwriting and reference to the recipient by the words "you" and "your." While the postcards represent that a product is available for shipment to the recipient, they neither state nor imply that the product has been set aside specifically for that person. Thus, it is unlikely that the ordinary recipient would interpret Respondents' postcards in the manner alleged in paragraph 7(e) of the Complaint. Therefore, Complainant's exception regarding Finding of Fact No. 9 is denied.

It is equally unlikely that the recipients of Respondents' postcards would interpret them as making the representation alleged in paragraph 7(f) of the Complaint. Neither CX-1 nor CX-4 through 6 make any reference to receipt through customs. Thus, these postcards clearly do not make the representation alleged in paragraph 7(f) of the Complaint. Although CX-2 and CX-3 state that "all items have passed through customs in New York and are available for direct delivery to the recipient," they do not state nor imply that the product has been ordered and received through customs in the recipient's name. Therefore, the ordinary recipient would not be likely to understand the postcards to make this representation. Accordingly, there is no merit to Complainant's exception regarding Finding of Fact No. 10.

Exception 5

Complainant takes exception to the Administrative Law Judge's finding that Respondents do not represent that the advertisement is other than an offer to sell the product (FOF 11 pertaining to Complaint P7(g)). Complainant contends that the Administrative Law Judge interpreted the postcards too literally and did not consider their overall effect on the ordinary recipient. Respondents contend that the allegation in paragraph 7(g) of the Complaint is vague and repetitive, and should be dismissed. The Administrative Law Judge simply stated that the postcards identify themselves as solicitations to purchase the product (I.D. at 9).

Based on the finding in Exception 1 that Respondents' postcards make the materially false representation that the recipient is entitled to receive the product based on the results of a contest, sweepstakes, or drawing, it follows that the postcards make the materially false representation that they are something other than an offer to sell the product. Therefore, Complainant's exception is sustained.

Exception 6

Complainant next excepts to the Administrative Law Judge's finding that the representation that the offer is available for a limited time is not false (FOF 12 pertaining to Complaint P7(h)). Complainant argues that even if the representation is literally true it is false because it is misleading when viewed in light of Respondents' representation that the product is being held or has been received for the recipient. Respondents argue that the unrebutted testimony of their sole witness proves the truth of this representation.

As argued by Respondents and found by the Administrative Law Judge, the unrebutted testimony establishes that the product is available to the recipient for only a limited time. Complainant's attempt to couple the limitation of availability with the representation that the product is being held or has been received for the recipient has no merit since it has been concluded previously that Respondents do not make these representations. Accordingly, Complainant's exception is denied.

Exception 7

Complainant takes exception to the Administrative Law Judge's finding that the consumer complaints introduced into evidence as RX-1 and 2 support his decision. Complainant claims that consumer complaints are unnecessary and that the Administrative Law Judge erred in giving any weight to the complaints. Respondents point out that the Administrative Law Judge did not rely on the complaints in making his determination but that they were placed in evidence without objection and could properly be relied upon as support for his decision.

The Administrative Law Judge committed no error in referring to the complaints in evidence. Although, as Complainant argues, consumer complaints are not necessary to establish a violation of 39 U.S.C. § 3005, they are admissible and may be relied upon to prove the existence of a false representation. Accordingly, there is no merit to this exception.

Exception 8

Finally, Complainant takes exception to the Administrative Law Judge's statement that Respondents' revised postcards, CX-4, 5, and 6, remove any doubt about the making of the representations. Complainant contends that this conclusion is erroneous.

The Administrative Law Judge found that Respondents' postcards do not make the representations alleged in the Complaint except for the representation alleged in paragraph 7(g). On appeal it has been concluded that Respondents' postcards, including the revised postcards (CX-4 through 6), make some of the representations alleged in the Complaint. Therefore, contrary to the Administrative Law Judge's finding, CX-4 through 6 do not "remove any doubt about the making of the representations" (I.D. at 9). Complainant's exception is sustained.

Summary and Conclusion

After consideration of the entire record, it is concluded that all of Respondents' postcards (CX-1 through 6) falsely represent that (1) the recipient is entitled to receive the product based on the results of a contest, sweepstakes or drawing; (2) the remittance required to receive the product is for incidental costs of transporting the product to the recipient; (3) the payment required to receive the product is something other than its purchase price, with or without postage; and (4) the advertisement is other than an offer to sell the product. Although Respondents' postcards (CX-1 through 6) represent that the product is worth substantially more than the payment required, the falsity of this representation has not been established. None of Respondents' postcards represent that the product has been set aside specifically for the recipient or that the product has been ordered and received through customs in the recipient's name. Finally, although Respondents represent that the product is available to the recipient for only a limited time, this representation is not false.

To the extent indicated, Complainant's exceptions are granted and the Initial Decision is reversed. The Orders authorized by 39 U.S.C. § 3005 are issued with this decision.

1/ Complainant's motions to amend its Complaint by deleting the allegations in paragraphs 7(i), (j) and (k) and by including Card Redemption Center, 805 Third Avenue, Suite 190, New York, New York 10022-7513 as a Respondent were granted at the hearing (Transcript (Tr.) 3-4, 8).

2/ The hearings in P.S. Docket Nos. 30/35, 30/36, and 30/37 were consolidated in one proceeding.

3/ Respondents also offered five exhibits under P.S. Docket No. 30/36 which are applicable to this case (Tr. 44; RX-7 through 11).

4/ Such phrase does not appear on CX-1, 2, or 3. Complainant's Exhibits 2 and 3 state: "Just follow directions to definitely receive item listed." Neither statement appears on CX-4, 5, or 6.