In the Matter of the Complaint Against:

AMERICAN PUBLISHING SERVICES,
YELLOW PAGE DIVISION,
2745 Winnetka Ave., N., Suite 148
at New Hope, MN 55427-2830
and
DAVID ALLEN ZOVATH, ELLEN ZOVATH,
102 N. Lakeside Dr.
at Kennesaw, GA 30144-3091

P.S. Docket No. 34/191

Mason, Randolph D., Administrative Law Judge

APPEARANCES FOR COMPLAINANT: H. Richard Hefner, Esq., Thomas
P. Kuczwara, Esq., Consumer Protection Division, Law Department,
United States Postal Service, Washington, DC 20260-1144

APPEARANCE FOR RESPONDENTS: Hugh J. Plummer, Esq., Bradshaw &
Plummer, 3000 Smith Street, Houston, TX 77006-3486

INITIAL DECISION

This proceeding was initiated on August 21, 1989, when the Postal Service filed a Complaint alleging that Respondent American Publishing Services, Yellow Page Division, 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 and § 3001(d). 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) The addressee has previously authorized a business listing in Respondent's telephone directory;

(b) The amount set forth on the face of the solicitation is due and owed to Respondent;

(c) Respondent is part of or affiliated with the telephone company servicing the recipient's area;

(d) Respondent is the publisher of the business to business phone directory or "yellow pages" customarily supplied to business telephone subscribers in the recipient's area;

(e) The area of distribution of Respondent's directory will encompass all business telephone subscribers in the "region";

(f) Publication and distribution of Respondent's directory will take place in accordance with time frames customary to the authorized "yellow pages" industry publication and distribution standards.

The Complaint also alleges that Respondent's mailings are solicitations that are in the form of, and reasonably could be interpreted or construed as bills, invoices or statements of account due; that they fail to contain the requisite disclaimer and are nonmailable under 39 U.S.C § 3001(d); and as such are prima facie evidence that Respondents are engaged in conducting a scheme for obtaining money through the mail by false representations under 39 U.S.C. § 3005.

In its Answer, Respondent denies that it made the above false representations or that it has otherwise violated the statute.

A hearing was held by the undersigned Administrative Law Judge on October 3, 1989, in Minneapolis, Minnesota. Both parties were represented by counsel and afforded full opportunity to be heard, adduce relevant evidence, and examine and cross-examine witnesses. Complainant presented the testimony of Postal Inspector Michael Desrosiers, David Leonhardt, consumer Cheryl Johanning, and Ronald M. Lindman; Respondent presented the testimony of David Allen Zovath and Ellen Zovath. Both parties presented documentary evidence.

On October 30, 1989, the parties 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.

Post-hearing Motion to Amend Complaint

On November 1, 1989, 29 days after the hearing and two days after the briefs were filed, Complainant filed a Motion to Amend the Pleadings to add David Allen Zovath and Ellen Zovath as Respondents and include them in the Cease and Desist Order. Complainant seeks to make this amendment in view of testimony at the hearing equating these individuals with Respondent American Publishing Services. Respondent opposes the amendment as (1) untimely, arguing that the issue was not tried with the implied consent of the parties, (2) prejudicial, and (3) unsupported by the evidence of record.

Pleadings may be amended after the hearing to conform the pleadings to the evidence. 39 CFR § 952.12(c) provides:

When issues not raised by the pleadings but reasonably within the scope of the proceedings initiated by the complaint are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Such amendments as may be necessary to make the pleadings conform to the evidence and to raise such issues shall be allowed at any time upon the motion of any party.

It is clear that David and Ellen Zovath played a significant role in, and can be equated with, Respondent American Publishing Services. By affidavit attached to the Answer, David Zovath states that he is the owner of American Publishing Services. Also, while testifying in defense of their business operations, both individuals revealed their own active involvement. American Publishing Services is essentially a name under which the Zovaths do business. They received a copy of the Complaint, filed an affidavit attesting to David Zovath's ownership with the Answer, attended the entire hearing, appeared as Respondent's only witnesses, and attempted to defend their business operations.

Respondent argues that the Zovaths would be prejudiced by the amendment adding their names to the Complaint and to the Cease and Desist Order, but does not show how they would be prejudiced. This contention is not persuasive since the Zovaths were already covered by the Cease and Desist Order attached to the Complaint, which includes "Respondent's agents, employees, and representatives." Thus the Zovaths were already defending themselves and attempting to justify their business operations in this proceeding, and they have not shown that they would have defended their case differently if they had been specifically named as respondents. In view of the above, and the fact that the Zovaths may be equated with American Publishing Services, it is concluded that the issue of their individual liability was tried by the implied consent of the parties. Accordingly, the motion to amend the Complaint is granted.

Based on the entire record herein, including my observation of the witnesses and their demeanor, the exhibits, stipulations, and other relevant evidence adduced at the hearing, I make the following findings of fact and conclusions of law:

FINDINGS OF FACT

1. Respondent American Publishing Services, Yellow Page Division, seeks money through the mail to 2745 Winnetka Ave., N., Suite 148, New Hope, MN 55427-2830 in connection with its yellow page directory (Response to Req. for Admissions, P1). The latter address is a commercial mail receiving agency (Id., P3; Tr. 16-17). Respondents' mailings are printed by Charles Green in Atlanta, GA, and mailed from Kennesaw, GA (Id., P6).

2. Respondents' mailing consists of a cover mailing envelope (CX-1), an 8 1/2 by 11 inch document resembling an invoice (CX-2), and a business reply envelope (CX-3). Using the name David Allen, David Zovath obtained a bulk mail permit for American Publishing, and in August 1989 mailed 13,800 pieces (CX-4; Tr. 19).

The False Representations

3. Respondents' mailings make Representations (a) through (f) of P5 of the Complaint. Representations (a) through (e) are materially false. The language of the mailings contributing to each representation, when read in context, is discussed below after each quoted representation:

"(a) The addressee has previously authorized a business listing in Respondent's telephone directory."

4. Respondents' mailing contains a clipping of the recipient's current U.S. WEST Direct yellow pages advertisement, which is pasted on the mailing next to the words "YOUR AD" (Tr. 89-90).

The following disclaimer appears above the clipping:

"This ad is solely an example.
Your ad will be larger and more legible.
Renewal is not necessarily implied."

This ambiguous language would not be noticed by many ordinary readers. Many of those who read it would still believe that the mailing concerned a renewal of the old ad (Tr. 37).

"(b) The amount set forth on the face of the solicitation is due and owed to Respondent."

5. The mailing is perfunctory and stark like a bill. It lacks sales information such as would be found in a solicitation, and emphasizes the remittance of money to Respondent. The following language is used:

"MAKE ALL CHECKS PAYABLE TO
AMERICAN PUBLISHING SERVICES
YOUR COST $498 PER YEAR

. . .

THIS WILL BE YOUR ONLY NOTICE
FOR THE GREATER MINNEAPOLIS AREA

DUE TO THE CRITICAL TIME FACTOR, THIS WILL BE
YOUR ONLY CONTACT

TO AVOID BEING OMITTED PLEASE SUBMIT YOUR CHECK
PRIOR TO THE 8-14-89 CLOSING DATE.

. . .

ONLY PAID ADS WILL BE PUBLISHED"

The $498 (or $198) dollar amount is typed in, which furthers the impression that the mailing is an invoice. The mailing came in a window envelope.

In the lower right hand corner of the mailing, superimposed over a blank signature line labeled "Approval" and another blank line for "Title" and "Date," is the following disclaimer:

This is Not An Invoice
This is A Solicitation And You
Are Under No Obligation
Unless You Accept This Offer

This disclaimer is designed to have the appearance of a rubber stamp impression (Tr. 41). Some of the words are too faint to read: the only legible word in the first line is "Invoice"; "Solicitation" is not legible; in the third line, only "obligation" is legible. The last line, which many ordinary readers would not notice, is barely legible. Accordingly, this four line disclaimer would not be read or noticed by many ordinary readers.

Finally, the following words appear above a map of the Minneapolis/St. Paul area:

"Your ad, with your approval will appear among others in your profession to be distributed to businesses and offices in the map area below."

Although these words, by themselves, indicate approval is necessary before the ad will be placed, they do not dispel the overall impression that the mailing is an invoice. Also, as previously stated, the "approval" line in the lower right corner has been marked over by a rubber stamp, indicating that no approval is necessary other than to confirm that the name, address, and telephone number are correct (check the box for "My entry is correct please print as is," or make corrections). Thus the ordinary reader would not think he was being asked to approve or accept an offer to include him in the directory, or that he was being solicited for a yellow page ad. On the contrary, he would assume that the mailing was a bill for the renewal of the previous ad (Tr. 31, 32, 37). Respondent Zovath's testimony to the contrary is rejected (Tr. 97).

"(c) Respondent is part of or affiliated with the telephone company servicing the recipient's area."

6. The use of the term "YELLOW PAGES" in large bold print on the mailing and on its cover and return envelopes, together with the "walking fingers" logo, both convey the impression to the ordinary reader that Respondents are publishing a directory which is affiliated with the telephone company (Tr. 49, 56, 60-61).

Use of the words "Greater Minneapolis" indicate it services the recipient's area. This is further reinforced by the use of the recipient's previous advertisement placed in the U.S. WEST Direct yellow page telephone book (Tr. 89).

"(d) Respondent is the publisher of the business to business phone directory or 'yellow pages' customarily supplied to business telephone subscribers in the recipient's area."

"(e) The area of distribution of Respondent's directory will encompass all business telephone subscribers in the 'region'."

7. Respondents refer to its publication as "Greater Minneapolis Business to Business Yellow Pages." As set forth under Representation (c), readers would associate this with the publication affiliated with the telephone company. The latter is distributed to all business telephone subscribers. This is reinforced by language that the publication will "be distributed to businesses and offices in the [Minneapolis/St. Paul] map area below".

The statement "[n]ot associated with any other directory company", which appears at the bottom of the page, is ambiguous and does not dispel the overall impression that Representations (d) and (e) are made.

"(f) Publication and distribution of Respondent's directory will take place in accordance with time frames customary to the authorized 'yellow pages' industry publication and distribution standards."

8. This representation is implicit and follows from Representations (c), (d), and (e). Moreover, the mailing refers to the "critical time factor" and provides a "closing date" indicating a fixed schedule for publication.

U.S. West Direct needs about 6 to 8 weeks after receiving all orders for advertisements to produce its regular yellow page directory (Tr. 53), but about 8 1/2 months is needed between the beginning of the sales effort and production (Tr. 54). Complainant's witness did not know the industry standard of production time for a business-to-business yellow page directory (e.g. wholesaler to retailer) (Tr. 54). According to the Zovaths, Respondents' directory will be published in about 9 months, which is consistent with the only industry standard in evidence (Tr. 80, 96). Thus Complainant has failed to prove the falsity of Representation (f).

Solicitation in the Guise of an Invoice

9. As previously found under Representation (b), the mailing gives the impression to the ordinary reader that it is a bill, invoice, or statement of account due for the renewal of an advertisement previously placed in Respondents' publication. However, it is actually a solicitation to place an advertisement in Respondents' directory.

10. Although the "rubber stamp" disclaimer in the lower right corner, upon close scrutiny, contains language similar to that set forth in the regulations, the language is not legible, conspicuous, or in a prominently contrasting color. Nor is it located immediately below the amounts set forth to be due and payable by the recipient. Accordingly, the mailing does not contain either the statutory or regulatory disclaimer.

CONCLUSIONS OF LAW

1. (a) Each of Respondents' 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 advertise- ment 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). It is not difficult to select words that will not deceive. See, United States v. 95 Barrels of Vinegar, 265 U.S. 438 (1924).

(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 Respondents' advertisements make the representations alleged in P5(a)-(f) 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. As set forth in the findings of fact, the representations set forth in paragraph 5(a) through (e) of the Complaint are materially false. Complainant has failed to prove the falsity of Representation (f).

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

5. A promise to refund if a customer is dissatisfied will not dispel the effect of false advertisements. Farley v. Heininger, 105 F.2d 79 (D.C. Cir. 1939). The fact that Respondents may have given refunds when requested is also irrelevant.

6. Respondent alleges that the mailing in issue was previously "approved" by a Houston Postal Inspector. First, this was not adequately proved. Second, the Judicial Officer and Administrative Law Judges are not bound by a postal inspector's conclusion that a particular solicitation does not violate the statute. The doctrine of equitable estoppel will not ordinarily be applied against the United States when the interests of the public are at stake. The protection of the public is the principal purpose of § 3005, so the doctrine will not be applied here. Consumer Research, Inc., P.S. Docket No. 18/33 (P.S.D. Nov. 9, 1984, at p. 9). Moreover, there is no evidence of detrimental reliance sufficient to overcome the public interest protection afforded by § 3005. The Robertson- Taylor Company, P.S. Docket Nos. 16/98, et al. (P.S.D. March 31, 1986, at p. 39).

7. A solicitation is "nonmailable" if it "is in the form of, and reasonably could be interpreted or construed as, a bill, invoice, or statement of account due" unless it contains the disclaimer prescribed by the statute or the Domestic Mail Manual. ^1/ The determination of mailability is to be based on the totality of the solicitation and the impression created in the minds of those to whom it is directed. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2d Cir. 1958). This does not mean that the trier of fact is limited to the interpretation which a majority of recipients would place on a solicitation. Rather, the trusting are to be protected as well as the wary. Donaldson v. Read Magazine, Inc., supra, at 189; 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); IHS Department of Unclaimed Funds and Benefits, P.S. Docket No. 22/155 (P.S.D. Sept. 22, 1986); Leo Daboub, P.S. Docket No. 19/185 (P.S.D. July 10, 1986).

8. The best evidence that a mailing appears to be an invoice is the mailing itself. Telex & twx Directory, P.S. Docket No. 13/6 (P.S.D. April 1, 1983). As set forth in the findings of fact under Representation (b), Respondents' mailing would appear to many ordinary readers to be a bill for renewal of the addressee's listing in the yellow pages telephone directory. Accordingly, since the mailing fails to contain the disclaimer required by either the statute or regulations, it is nonmailable and constitutes prima facie evidence that Respondents are engaged in a scheme or device to obtain money through the mail by means of false representations. 39 U.S.C. § 3001(d) and 3005(a).

9. 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).

10. Respondents are 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.

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

1/ The statute requires the following prominent and conspicuous notice: "This is a solicitation for the order of goods or services, or both, and not a bill, invoice, or statement of account due. You are under no obligation to make any payments on account of this offer unless you accept this offer." 39 U.S.C. § 3001(d)(2)(A). The regulations provide the following alternative: "THIS IS NOT A BILL. THIS IS A SOLICITATION, YOU ARE UNDER NO OBLIGATION TO PAY UNLESS YOU ACCEPT THIS OFFER." DMM § 123.41(a). Respondents' mailing does not contain either notice.