In the Matter of the Complaint Against:

UNITED SAVERS OF AMERICA, INC.,
4175 East Bay Drive, Suite 240,
Clearwater, FL 34624-6961;

CHARLES ROBERT DARST,
643 U.S. 19 North,
Clearwater, FL 34625-2344;

and

GENE NEBRASKY,
4175 East Bay Drive, Suite 240,
Clearwater, FL 34624-6961

P.S. Docket No. 33/98

Grant, Quentin E., Chief Administrative Law Judge

APPEARANCE FOR COMPLAINANT: Geoffrey A. Drucker, Esq.,
Consumer Protection Division, Law Department, United States Postal
Service, Washington, DC 20260-1114

APPEARANCE FOR RESPONDENT: Thomas R. Cushman, Esq., Dickson,
Lefter & Cushman, 696 First Avenue North, Suite 201, St.
Petersburg, FL 33701-3649

INITIAL DECISION

In a complaint filed on February 13, 1989, Complainant alleged that Respondents were conducting a lottery in violation of 39 U.S.C. § 3005. In an amended complaint filed April 19, 1989, Complainant added a false representation charge under the same statute. The scheme alleged in the amended complaint involves unsolicited letters mailed by Respondents informing recipients that they "are absolutely guaranteed to receive" one of six different awards and the solicitation of a fee, to be sent through the mails, for membership in a buyer's club for the right to receive one of the awards. The scheme is alleged to include the three elements of a lottery i.e., prize in the form of any of six awards described in the letter, consideration in the form of a membership fee, and chance, as seen by the consumer, governing which of the six awards he will receive.

The false representation alleged in the amended complaint is that a consumer who purchased a membership in the buyers club might win any one of six different prizes.

Respondents deny that they were conducting a lottery and the making of the false representation, however, Respondents United Saver of America (United Savers) and Nebrasky admit that they may have unknowingly been in violation of 39 U.S.C. § 3005 during some part of the period November through December 15, 1988, but that all such activity was terminated of their own accord on or about December 15, 1988, without knowledge of any complaint by the Postal Service.

Respondent Darst's answer denied unequivocally any violation of the statute on the basis that his responsibility in connection with United Savers was limited strictly to financial matters, particularly the writing of checks covering corporate expenditures, and that he played no part in its day-to-day operations including solicitation letters, telephone pitches, and control of telemarketers.

At a hearing held in Washington, DC on June 7, 1989, both sides presented evidence. Postal Inspectors Tom D. Bazley and Walter R. Thomas testified for Complainant. Respondents Gene Nebrasky and Charles Robert Darst appeared as witnesses for Respondents.

The parties have filed proposed findings of fact and conclusions of law which have been fully considered. To the extent indicated below they have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. Based on the entire record and my observation of the witnesses and their demeanor, I make the following findings of fact and conclusions of law.

FINDINGS OF FACT

1. Respondent United Savers of America, Inc. (United Savers) is a Florida corporation (Ans. P2).

2. Respondent Charles Robert Darst is an individual who maintains an office at 643 U.S. 19 North, Clearwater, Florida and resides at 734 Weedon Drive, N.E., St. Petersburg, Florida (Ans. P3; Tr. 58).

3. Mr. Darst was a director of United Savers from October 5, 1988 to February 24, 1989. During this time, he approved and wrote checks for all of the company's expenditures (Ans. P3; CX-4; Tr.-51, 113).

4. Respondent Gene Nebrasky is an individual who maintains an office at 4175 East Bay Drive, Suite 240, Clearwater, Florida and resides at 4215 East Bay Drive, Clearwater, Florida (Ans. P4; Tr. 27).

5. Mr. Nebrasky was president and a director of United Savers at all times material to the Complaint. He oversaw the company's day-to-day operations and designed its sales pitch (Ans. P4).

6. From November 1, 1988 through December 15, 1988, United Savers mailed unsolicited letters that guaranteed the recipient a valuable award. One version of the letter listed six awards; another listed four. Among the awards listed on both versions were an automobile (either a 1989 Ford Thunderbird or a 1988 Ford Escort) and a "genuine diamond/ruby pendant/14K gold chain" (CX-1, 2).

7. The letters instructed consumers that, to reserve their award, they had to call a specified phone number within 48 hours (Ans. P5, CX-1). When a consumer called the phone number, a telemarketer for United Savers asked for his name, state, and control number (a number printed on the letter). The telemarketer then explained that United Savers promoted memberships in a buyers club that offered substantial discounts on goods and services. A membership cost $389.50 for 18 months, with a renewal fee of $49.50 per year (Ans. P6).

8. The telemarketer made clear that in order to receive one of the awards the consumer had to purchase a membership in the buyers club. The telemarketer, however, would not reveal which award the consumer would receive, even when asked specifically for this information (Ans. P7).

9. The telemarketer concluded the call by asking the consumer for a VISA or Mastercard number to bill for the membership fee. If the consumer indicated he would prefer to pay by check or money order, the telemarketer instructed him to send the payment to 4175 East Bay Drive, Suite 240, Clearwater, FL 34624 (Ans. P8)

10. The only award ever provided by United Savers to a consumer was jewelry (Ans. P9; Tr. 14, 15).

11. A Postal Service investigation of United Savers was prompted by a written inquiry from Harvey T. Jones, a member of the public. As part of the investigation, Postal Inspector Thomas Bazley phoned United Savers on January 26, 1989, pretending to be a recipient of an award notification letter. The United Savers employee who answered the phone explained that in order to receive an award Mr. Bazley would have to purchase a membership in a discount buyers club. The employee indicated that Mr. Bazley could pay for the membership either by providing his credit card number or by mailing a check or money order (CX-1; Tr. 9-11).

12. Subsequent to Inspector Bazley's telephone call of January 26, 1989, he and postal inspector Walter R. Thomas were invited by the incorporator of United Savers, Respondents' counsel Thomas R. Cushman, Esquire, and by Mr. Darst to meet with them to discuss United Savers and Mr. Darst's role therein. At this meeting the postal inspectors were told that Mr. Darst had invested $10,000 in the corporation, and that in order to protect the interest of investors he controlled the corporation's finances by approving expenditures and drawing checks therefor. Mr. Darst said he visited the offices of United Savers once or twice a week to observe. Mr. Darst told the postal inspectors that he had reviewed the mailing pieces used by United Savers and the telephone script used by telemarketers employed by the company (Tr. 13-15). At this meeting the postal inspectors were also told that the only award provided to consumers was a jewelry pendant (Tr. 15).

13. Mr. Darst's investment in United Savers had increased to about $40,000 before he resigned as a director in February 1989, and sold his interest in the company to Mr. Nebrasky and another individual (Tr. 76, 88).

14. In testimony, Mr. Darst said that the reason for asking for the conference with postal inspectors Bazley and Thomas was that he didn't want to be associated with any type of problem United Savers was having and didn't want his name on a cease and desist order, feeling that he had no part in the scheme being investigated (Tr. 67, 76). Mr. Darst also testified that the reason, more or less, for the hearing in this matter was that he didn't want his name on such an order (Tr. 67).

15. When United Savers was running short of money to pay a mailing house to mail solicitations promoting the scheme described in FOF 6-10, supra, Mr. Darst made available to the corporation a $14,000 credit he had at a mail house (Tr. 65). Beyond that he contributed an additional $15,000 in cash (Tr. 88).

DISCUSSION

In his opening statement, Respondents' counsel stated that neither Mr. Nebrasky nor United Savers contest the issuance of a cease and desist order naming them because it is probable that there was a lottery scheme present in their operation. The main thrust of the defense was to show that Respondent Darst's involvement with United Savers and the scheme alleged in the complaint was so limited that he should not be named in a cease and desist order.

Complainant's evidence established the three essential elements of a lottery: "(1) the distribution of prizes; (2) according to chance; (3) for a consideration." Federal Communications Commission v. American Broadcasting Co., 347 U.S. 284, 290 (1954); Tenpen Sales Corporation, POD No. 2/34 (PSD May 10, 1961). Respondents represented to consumers that upon payment of the fee for membership in a buyers club (consideration) they would have the chance of winning one of four or six different awards (prize). Although Respondents did not, in fact, award prizes randomly, in the unsolicited letters and the telephone pitches, they created the appearance of chance in seeking money through the mail.

Complainant's evidence also established that Respondents, in seeking remittances of money through the mail, falsely represented that persons who paid the membership fee would win anyone of six different prizes when, in fact, only the jewelry award was sent.

The evidence shows sufficient involvement of Respondent Darst in the scheme to justify including him in a cease and desist order. His initial investment in United Savers was $10,000 representing a one sixth interest. Later, to keep the operation going when the corporation was on the verge of being unable to pay its bills (Tr. 88, 89), he added $15,000 more in cash and a mailing credit of approximately $14,000 (FOF 13 and 15, supra) increasing his interest in the corporation to approximately 40 percent. Added to his sizeable financial investment were his intervention with a mail house to enable United Savers to continue to mail solicitations and his contact with his own bank to arrange processing of Visa and Mastercard charges for United Savers. With all of this involvement in addition to his control of the purse strings of the corporation, I find incredible his testimony and that of Mr. Nebrasky claiming that Darst had practically no knowledge of how the business was being operated on a day-to-day basis, including the details of the solicitation letters and the telephone pitch, particularly at the time he was forced to come to the financial rescue of the corporation. I also find incredible the testimony of Mr. Darst and Mr. Nebrasky that Darst, having insisted on approval authority for corporate expenditures, abdicated this control to Nebrasky, for all practical purposes, when he found Nebrasky impossible to control. If Darst did not know how the business was being run on a day-to-day basis, it was because he chose to remain ignorant. This lack of knowledge does not render him exempt from inclusion in a cease and desist order.

No part of this decision is based on the hearsay evidence concerning Steven Smith introduced by Complainant.

CONCLUSIONS OF LAW

1. Respondents do not propose conclusions of law that United Savers was not engaged in conducting a lottery or that the false representation alleged in the amended complaint was not made as part of the scheme. They are, in effect, conceding violation of 39 U.S.C. § 3005 on both these issues. On the basis of these concessions and the evidence adduced by Complainant, I conclude that Respondents are violating 39 U.S.C. § 3005 by conducting the scheme alleged in the amended complaint involving both a lottery and the making of a false representation.

2. Respondents agree that United Savers and Gene Nebrasky should be included in a cease and desist order.

3. For the reasons given in the discussion, supra, I find it appropriate that Respondent Charles Robert Darst also be included in such an order. He may not have been much involved in the actual operation of the scheme, but I find incredible his testimony and that of Mr. Nebrasky insulating him from all knowledge of the details of the scheme. Further, by injection of substantial additional capital to enable the corporation to survive serious financial problems, he placed in its hands the resources to continue the scheme. That, too, is justification for his inclusion in a cease and desist order. See The National Gold Mint, P.S. Docket No. 22/165 (P.S.D. May 1, 1987 and cases cited therein at p. 25).

4. The attached proposed cease and desist order should be issued. Complainant recommends that no mail stop order be issued because there is no evidence that Respondents are still receiving money through the mail as a result of the scheme. Accordingly, no proposed mail stop order is attached.