In the Matter of the Complaint Against:

RON COOPER, d/b/a THE GOOD LIFE CLUB, "TGIF",
722 W. Bristol Suite B,
P.O. Box 177,
Elkhart, IN 46515-0177
and
722 W. Bristol, Suite B,
P.O. Box 1825,
Elkhart, IN 46515-1825

P.S. Docket No. 35/112

Grant, Quentin E., Chief Administrative Law Judge

APPEARANCE FOR RESPONDENT: Ron Cooper, Pro Se, 722 W.
Bristol, Suite B, P.O. Box 177, Elkhart, IN 46515-0177

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

INITIAL DECISION

In a complaint containing two counts filed on December 15, 1989, Complainant alleges that Respondent Ron Cooper is in violation of 39 U.S.C. § 3005 by engaging in a scheme or device to obtain money or property through the mail by means of false representations and engaging in a lottery or scheme for the distribution of money by chance. Specifically, Count I of the complaint alleges that by means of certain promotional materials concerning programs called Pre-TGIF and TGIF (The Good Life Club) Respondent secures remittances of money through the mails by falsely representing that each person who elects to participate in the program will earn substantial amounts of money (i.e. up to $59,049). Count II alleges that through these programs Respondent offers to participants, for a consideration, the chance to win a prize and that in so doing Respondent is conducting a lottery or scheme for the distribution of money by chance through the mails.

Respondent filed a lengthy answer to the complaint denying the making of the alleged false representation and denying that he is conducting a lottery. He does not deny, however, using the promotional materials attached to the complaint as Exhibit No. One.

In a conference call on February 9, 1990, the parties agreed to submit the matter for decision on the written record supplemented by briefs and, if desired, additional documentary evidence to be filed by March 16, 1990. Complainant filed a brief, proposed findings of fact and conclusions of law, and additional documents. Respondent's additional documentation consisted of a box full of promotional material relating to similar programs conducted by others. The letter accompanying this submittal raised the additional defense of discriminatory prosecution, alleging that Complainant has arbitrarily and unfairly proceeded against Respondent while allowing other similar programs to continue. On March 14, Complainant moved to amend the complaint to add the following address alleged to be an additional address used by Respondent for receiving remittances of money by mail in connection with his TGIF program: The Good Life Club, TGIF, 722 W. Bristol, Suite B, Box 1825, Elkhart, IN 46515. Attached to the motion is a copy of a solicitation signed by Respondent using this address for remittances of membership fees. Respondent's response to the motion did not deny the use of such address and did not offer any relevant argument for denial of the motion. Therefore the motion is granted.

The written record was closed on March 16 pursuant to my order dated February 13, 1990. The following findings of fact are based on the relevant documents contained in that record. In reaching my decision, I have considered all the arguments made by the parties relating to such facts.

FINDINGS OF FACT

1. Respondent Ron Cooper is an individual doing business as The Good Life Club (TGIF) using the mailing addresses 722 W. Bristol, Suite B, P.O. Box 177 and P.O. Box 1825, Elkhart, IN 46515 (Answer, pp. 17, 20; Exhibit 1 to Complainant's Motion to Amend Complaint). [Note: The pages of Respondent's answer and documents attached thereto were not numbered. The pages have been numbered by Complainant for the purpose of reference in his proposed findings and conclusions. Such numbering has been adopted in this decision.]

2. Respondent Cooper d/b/a The Good Life Club operates multi-level, or network marketing, programs called Pre-TGIF and TGIF (Answer, pp. 1, 7, 9, 10, 12, 14, 16, 17). Respondent solicits membership fees of $15 or $25 for participation in these programs at the addresses set forth in FOF No. 1, above.

3. Respondent's promotional materials represent that successful participation in Pre-TGIF, for a fee of $15, will give a participant $211.50 (Answer, p. 10) plus paid-up entry into other TGIF programs successful participation in which will earn a participant, in one year, from $3,495 up to $118,098 in cash plus coupons valued at $1 each, redeemable for purchases of merchandise from catalogs which participants may purchase from TGIF. This brochure also represents that entry into the TGIF program alone, for a fee of $25, and successful participation in that program will earn a participant up to $118,098 (Answer pp. 9-14 ("Life is More Fun * * * " brochure)). The following portions of Respondent's "Life Is More Fun With Money In Your Pocket" promotional brochure make these representations:

Pre-TGIF (The Good Life Club). A Program For Everybody]

Q. What is Pre-TGIF?

A. Quick and inexpensive program to allow "everybody" to prosper] $15.00 one time (actually $5.00 of this is for registration into the computer, and for material to hand or mail out).

Q. What can $15.00 do?

A. It can earn you $211.00, rapidly]]

Q. How?

A. By you helping 3 friends to join, and then you, again try to help the new members to enroll 3 of their friends.

Many people prefer to "gift" their first 3 members.

What does "gift mean? Simply that                        You will earn income by
you, the sponsor, would pay the                          building a downline. (A
$15.00 entry fee for each of your                        downline is considered those
first 3 new members, but . . . do not                     who enter after you, but due
do this for anyone unless you know,                   to your influence, or those
and they promise, to do the same for                   who joined due to your
their three or they agree to work,                         friends, who joined because
and get their three . . .] Nothing                             of your efforts).
will defeat you faster than enrolling                      You, and these people will
"anyone" who will not, or cannot                          all work together, through
enroll others. Three members who will                 several phases, and you will
not work, are worse than three empty                 all earn because of it.
positions.

(Pre-TGIF (PT) makes it easy and inexpensive to join, so that now you can include "all of your friends and relatives." The "risk" is low and the rewards are "great"]]

How Pre-TGIF (PT) Works

Please read the following carefully.

When you recruit and enroll your first three members you have earned "O", nothing.

However when your new members begin to recruit their 3 each, you begin to receive $1.00 on each, for a total of $9.00 when all nine are in place. You now have a total of 12 people in your downline, your 3 and their 9. When these 9 begin to get their 3 each (27 total) you will receive $3.00 on each, or $81.00 when all are in place. This plus the $9.00 from the other level gives you a total of $90.00. You now have 39 members in your downline.

Now the 27 begin to enroll 3 each, and when they begin to appear on this 4th and last level, you will eventually have 81 members. This 81

group pays you at a rate of $4.00                        TGIF, on the 81 new members.
each, but TGIF now enters the                             As each person is placed in
picture. TGIF will enter you into                            your 4th level, you
The Good Life Club (TGIF) for                              you will receive $1.50 each
$25.00, also into Fast Start-TGIF                          for a total of $121.50, to
(worth $5500.00 to you) for $50.00,                    you, the balance goes to
and into Super-TGIF (worth $3495.00                  TGIF to pay for your
to you) for $100.00. These                                   entries entries. This gives you a
are for your benefit and they are                         grand total of $211.50
mandatory, no exceptions. The                            income, plus the paid up
entries are paid for by splitting                             entries, plus 15 value
the income in level 4, with you and                      coupons (worth $15.00 in
merchandise).

Your grand total in Super-TGIF is 5 paid entries into TGIF, 5 entries into Fast Start, 30 merchandise coupons, and checks in the amount of $3495.00]]

Not bad for a $15.00 investment, is it?

THE GOOD LIFE CLUB "TGIF"

Many of you know what The Good Life Club plan itself is: cost one time $25.00, and you are to enroll at least three new members. The Good Life Club (TGIF) is probably the best value around. If you wish to simply join TGIF for $25.00, we welcome you. Payouts, one time, on each member:

1st level                       3         Members          0
2nd level                      9         Members          $1.00 ea
3rd level                     27         Members          $2.00 ea
4th level                     81         Members          $1.00 ea
5th level                   243         Members          $1.00 ea
6th level                   729         Members          $2.00 ea
7th level                 2187         Members          $2.00 ea
8th level                  6561        Members          $2.00 ea
9th level               19,683        Members          $1.00 ea
10th level             59,049        Members          $2.00 ea

Duration is one year, with an option to re-enroll for 1 extra year, on the same number for an additional $25.00. The 5th level of TGIF will hold 243 members. You will not receive any payments in level 5, until 121 of these members are in place. At that time you will receive a check for the $121.00 and free placement into 9 other, outside programs, plus 9 more consecutive TGIF programs. The downlines will be furnished by other TGIF members, who follow your achievement of 121 members in level 5. Pay in TGIF is 100% of the level that you are in, and 50% of all the other levels, except for 5, see above.

You can use your own math and see the dollars available]

4. Respondent's answer states that members are not paid one cent on their personal recruiting efforts; that members are supposed to teach their new recruits how "to recruit three new members each and so on down the line;" that only when their personal recruits and their recruits' recruits downline get new members is there any eligibility for income (Answer, p. 5).

5. The answer (pp. 5, 6) also states as follows:

"We tell you [members] flat out that if you will recruit three new members and each of them will recruit their three and right on, continuing down the line you will earn a lot of income. If you don't, you won't. * * * There is only one way that this program cannot work . . . and that is 'if [each] member does not work.'"

6. The record fails to disclose any effective way for a member to control his downline to assure that each downline member recruits three new members so that substantial "earnings" will be realized.

7. Respondent submitted as part of the record sixty-six IRS forms 1099 showing payments made to all participants in TGIF programs who earned over $660 in 1989. These forms showed payments ranging from $660 to $10,551, averaging $1935. Respondent's submittal states that many others have earned money but less than the $660 required to be reported to IRS (Respondent's submittal dated Jan. 16, 1990).

8. Respondent's promotional material (Answer, p. 12) offers a refund of the membership fee to dissatisfied members.

DISCUSSION

The Alleged Misrepresentation

The thrust of Respondent's promotional materials is the assurance not that each person who elects to participate will earn substantial amounts of money but rather that participants will experience that result if they recruit at least three new members who, in turn, will recruit three members, and so on until a large downline is created. There is no promise that substantial amounts of money will be "earned" by members who simply pay the membership fee and do not do the necessary recruiting or who do such recruiting but fail to realize downline growth sufficient to produce such earnings.

Complainant has failed, therefore, to prove that Respondent makes the false representation alleged in Count I of the complaint.

The Alleged Lottery

Respondent's answer and submittals are replete with arguments that the Postal Service has no right to bring this proceeding against him, that the complaint is based on statute, regulations and precedent outdated and misinterpreted as applied to multi-level marketing enterprises and that the Postal Service is attempting to violate the First Amendment rights of TGIF and to interfere with freedom of choice of potential participants in spending their money.

Respondent's programs are essentially identical to numerous other multi-level marketing programs which have been held to violate the lottery provision of 39 U.S.C. § 3005. See for example Tenpen Sales Corp., P.O.D. Docket No. 2/35 (May 10, 1961); Collegedale Diversified Enterprises, Inc., P.S. Docket No. 14/29 (P.S.D. Oct. 25, 1983); Middle-Class American, Inc., P.S. Docket No. 16/65 (P.S.D. March 26, 1984); N.E.S.T., Inc., P.S. Docket No. 14/89 (P.S.D. August 7, 1984); Opportunity Research Corporation, P.S. Docket No. 24/131 (P.S.D. October 30, 1987); Unimax, Inc., P.S. Docket No. 28/77 (P.S.D. March 3, 1989).

The necessary elements of a lottery are the furnishing of consideration, the offering of a prize, and the distribution of the prize by chance. Horner v. United States, 147 U.S. 449 (1893); Brooklyn Daily Eagle v. Voorhies, 181 F. 579, 581 (1910); Tenpen Sales Corporation, supra. In the above Postal Service cases, the element of consideration has been found in the membership or subscription fees charged for participation in the multi-level programs; the element of prize has been found in commissions or bonuses or earnings offered for participation in such programs; and the element of chance has been found in the fact that success in receiving commissions or earnings is dependent, principally, on the efforts or exertions of others over whom the upline participant has little or no control. Applying these controlling precedents to Respondent's programs, I find the element of consideration in the membership fees charged for participation in Pre-TGIF and TGIF. I find the element of prize in the earnings from downline recruitment offered to successful participants. The element of chance is present because earnings from participation are determined principally by the efforts of others over whom the participant exercises no control and has no significant connection. Public Clearing House v. Coyne, 194 U.S. 497, 515 (1904). See also Zebelman v. United States, 339 F.2d 484 at 486; Middle-Class American, Inc., supra, P.S.D. at 7.

CONCLUSIONS OF LAW

1. The meaning of advertising representations is to be judged from a consideration of an advertisement in its totality and the impression it would most probably create in ordinary minds. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y 1959). Express representations are not required. It is the net impression that the advertisement is likely to make upon purchasers to whom it is directed that is important. 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 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). Vibra-Brush Corp. v. Schaffer, supra; Aronberg v. Federal Trade Commission, 132 F.2d 165, 167 (7th Cir. 1942).

2. Applying the foregoing standards of interpretation to Respondent's promotional materials and for the reasons stated in the Discussion, above, I find that Complainant has failed to prove that Respondent makes the false representation alleged in Count I of the complaint.

3. On the basis of the precedents cited, and for the reasons stated in the the Discussion, above, I conclude that Respondent's programs involved in this proceeding constitute a lottery or scheme for the distribution of money by chance prohibited by 39 U.S.C. § 3005(a).

4. Complainant has established its case on the lottery count of the complaint by a preponderance of the reliable and probative evidence of record.

5. A money-back or refund guarantee is not a defense to a lottery complaint under 39 U.S.C. § 3005. Paul W. Schutte, et al., P.S. Docket No. 29/117 (P.S.D. 3/16/89).

6. There is no merit in Respondent's constitutional arguments. The authority of the Postal Service and the statutory scheme for issuance of mail stop orders where either false representations or a lottery has been found under 39 U.S.C. § 3005 have been held to be constitutional. Collegedale Diversified Enterprises, Inc., P.S. Docket No. 14/29, P.S.D. 10/25/83, and cases cited therein.

7. The solicitation of remittances for participation in a lottery is proscribed by § 3005, and it is no defense to a § 3005 proceeding that others may be conducting similar activities. See Gottlieb v. Schaffer, 141 F. Supp. 7, 19 (S.D.N.Y. 1956); Universal Life Church, Inc., P.S. Docket No. 7/62 at 8 (P.S.D. Feb. 14, 1980); see also FTC v. Universal-Rundle Corp., 387 U.S. 244, 251-52 (1967). As shown in the Discussion, above, the Postal Service has brought lottery complaints against numerous operators of multi-level marketing schemes similar to Respondent's. It is well established that agencies have reasonably broad discretion in deciding whether and against whom to initiate proceedings and that the agency is not required to proceed against every violator. Heckler v. Chaney, 470 U.S. 821, 831 (1985); Water Transp. Ass'n v. ICC, 715 F.2d 581, 594 (D.C. Cir. 1983), cert. denied, 465 U.S. 1006 (1984). There is no evidence that Complainant based his decision to initiate this proceeding on any unjustifiable standard. Therefore, Respondent's contentions concerning selective or discriminatory enforcement have no merit.

8. No evidence of consumer complaints is required to establish a violation of the false representation statute. Farley v. Heininger, 105 F.2d 79, 84 (D.C. Cir. 1939).

9. The attached lottery and cease and desist orders should be issued.