In the Matter of the Complaint Against:

A.C.L.,
1470 Clara Avenue,
Columbus, OH 43211-2624,
and
626 South High Street,
Columbus, OH 43215-5622
and
DYNAQUEST CORP.,
T. KLASS,
1524 Candlewood Drive,
Worthington, OH 43235-1624
and
MITCH KLASS,
8161 Running Fox,
Worthington, OH 43235-4439

P.S. Docket No. 36/90

Finn, James D. Jr., Associate Judicial Officer

APPEARANCES FOR RESPONDENT: Robert Ullman, Esq., Bass and Ullman,
747 Third Avenue, New York, NY 10017-2803; Max Kravitz, Esq.,
665 South High Street, Columbus, OH 43215-5683

APPEARANCES FOR COMPLAINANT: Jerry Belenker, Esq.,
Thomas V. Sottile, Esq., United States Postal Service,
Law Department, Washington, DC 20260-1144

POSTAL SERVICE DECISION

Pursuant to the terms of an Agreed Order executed and filed in the United States District Court for the Southern District of Ohio in Case No. C2-90-0450, United States Postal Service v. M. T. Klass, et al., the parties to this proceeding have agreed that the administrative complaint would be heard in the first instance by the Judicial Officer or the Associate Judicial Officer. The parties request for an expedited hearing was granted and an evidenciary hearing was held in Washington, DC.

BACKGROUND

The Consumer Protection Division, Law Department, United States Postal Service (Complainant), initiated this proceeding by filing a Complaint, alleging that by means of direct mail solicitations Respondent, Dynaquest Corp., using the name A.C.L., made materially false representations with respect to an asset liquidation work-at-home program. M. T. Klass is named as a Respondent as the registered agent for Dynaquest Corp. and active in its operation. Mitch Klass is named as a Respondent as the president of A.C.L. and active in its operation. The specific alleged representations made by Respondents in their solicitations as set forth in paragraph 10 of the Complaint are as follows:

a. Sums of money in the thousands of dollars will be earned by addressees who purchase Respondents' program.

b. Sums of money in the thousands of dollars will be earned within weeks by addressees who purchase Respondents' program.

c. Respondents will assist purchasers of Respondents' program in earning sums of money in the thousands of dollars.

d. Respondents will assist purchasers of Respondents' program to earn sums of money in the thousands of dollars without the need for purchasers to make any additional payments to Respondents.

e. Respondents will share profits in liquidating merchandise with any addressee who purchases Respondents' program.

f. Purchasers of Respondents' program will be paid by Respondents immediately after locating merchandise which may be liquidated.

g. Respondents will pay a hundred dollars ($100.00) in cash to any addressee who purchases Respondents' program.

h. Respondents will accept only a limited number of purchasers from the number of addressees solicited.

i. Respondents will provide purchasers of the program with comprehensive training in the merchandise liquidation field.

j. Respondents are operating a trade or professional association.

k. Respondents will validate the professional competence of purchasers of Respondents' program.

Paragraph 11 of the Complaint alleged the representations to be materially false.

In their Answer, Respondents admit that A.C.L. is a name used by Dynaquest; admit that A.C.L. and Dynaquest solicit money or property through the mail; and admit that M. T. Klass and Mitch Klass are active as officers in the operation of Dynaquest d/b/a A.C.L. They deny that they are or have been obtaining remittances of money through the mail by means of false representations and specifically deny making the materially false representations alleged in paragraphs 10 and 11 of the Complaint.

At the hearing Complainant presented the testimony of two witnesses: Patricia Pairan and Helen Burnette, individuals who had purchased Respondents' offering. Respondents presented the testimony of seven witnesses: Daphne Swayze and Thomas George, employees of Respondents, who testified as to Respondents' operations; Scott Bravi, Dennis Mandella, John LePak, Rick Hedgins and Janet Hunt, individuals who had purchased Respondents' offering. Both parties presented documentary evidence.

The parties thereafter filed Proposed Findings of Fact and Conclusions of Law and Reply Briefs to the other party's filing, all of which have been thoroughly considered. The following Findings of Fact and Conclusions of Law are based on the entire record herein, including observation of the witnesses and their demeanor, the exhibits and other relevant evidence adduced at the hearing.

FINDINGS OF FACT

1. Respondent Dynaquest Corp. is an Ohio corporation doing business as A.C.L. with a principal place of business located at 1470 Clara Avenue, Columbus, Ohio 43211. Respondent also utilizes an address of 626 S. High Street, Columbus, Ohio 43215. (Complaint and Answer; Complainant's Exhibit (CX) 2). Respondents M. T. Klass and Mitch Klass are active as officers in the operation of Dynaquest d/b/a A.C.L. (Complaint and Answer).

2. Respondents distribute unsolicited mailings to the public, advising recipients of an opportunity to make money by locating excess or distressed merchandise. The solicitation states that Respondents are a nationwide company that purchases such merchandise and resells it at "incredible profits," and needs individuals to help Respondents locate merchandise. The solicitation advises recipients that ". . . we need you to locate items with your telephone, and we can do everything else. And, WE WILL SPLIT THE PROFITS WITH YOU]" The solicitation further states "[a]fter you locate an item . . . you can contact our headquarters and we'll take it from there." Recipients are advised that "A.C.L.'S EXCLUSIVE COPYRIGHTED SYSTEM IS NOW AVAILABLE" and can be purchased for $149 plus $15 shipping. In bold type the solicitation represents that the system will show the purchaser:

How to telephone anywhere in the U. S. for free.

How you'll receive beautiful gifts for free.

Why this system works so well over and over.

Exactly who to call (or write).

Exactly what to say when you call (or write).

How your income can triple or quadruple every year.

What to do once you've found some items.

The 3 magic words that can instantly put cash in your pocket.

The solicitation further represents that "this money making program comes complete with a 3 ring binder crammed full of all the secrets you need, plus 2 cassette tapes so that you can get going the same day" and that the recipient will be sent a "$100 Bonus along with your kit (that's like getting the whole package for only $49)." (CX l, 2).

3. The solicitation also contains several representations pertaining to the amount of money to be made through the use of Respondents' program and representations as to specific amounts made by those utilizing Respondents' program. There thus appear headlines such as "How To Make $60,000 In The Next 60 Days," "There's No Easier Way To Get Rich," "Unlimited Potential & Money," and "It's Like Christmas Everyday Of The Year." Under the headline "How Much Have Others Made?" it is represented that an individual in Texas netted $60,000 in one week; that a man in California located one item of merchandise and received $80,000; and that a man in Ohio made $50,000 in his spare time (CX l, 2). The solicitation contains testimonial headlines stating "73 Year Old Man Makes $25,000;" "2,400 On Very First Try;" "I Made $13,000 In 3 Weeks;" "$6,000 In First Week;" "$17,000 An Hour;" "$21,000 In Half A Day." (CX 1).

4. Respondents utilized a follow-up solicitation designated as a "Postal-Telegram" which was sent to those who did not respond to the initial solicitation (Transcript Volume I, page 13 (Tr.) VI 13). The follow-up addressed the recipient by first name and asked why no response had been received from him or her. The same sort of information and representations were included in the follow-up as in the original solicitation. Thus, the follow-up stated in part:

"I am still looking for a locator in the [specific city] area who wants to make $60,000 or more in a short time. Once I have enough people from the [specific city] area, I won't write again. . . . So, you know I will help you make your fortune] Remember, we split all profits 50/50, right down the middle] You don't need any money once you have my program. And, with my $300.00 CASH GUARANTEE, you can hardly go wrong] Plus, you still get all of the Bonuses that are listed in my letter. So, take a minute and read through the enclosed information again. It's all true] There's $100 BILLION DOLLARS out there waiting for us."

It contained two testimonials headlined "23 Yr Old Will Make $100,000" and "First Phone Call Brings $7.3 Million." (CX 3).

5. Those individuals who responded to Respondents' solicitation by sending the required fee ($149 + $15 for shipping and handling) received a 165 page (almost half of which are blank pages for note taking) manual and two short tape recordings (Tr. V1 17; CX 4, 5, 6). The manual is divided into four sections. The first section contains an introduction and an overview of the liquidation business. The second section is devoted to techniques to be used in locating merchandise and in selling the merchandise once it is located. The third section contains miscellaneous information and a summary. Section four is an Appendix which contains sample letters and a description of other services which may be purchased from A.C.L. (see Finding of Fact (FOF) 7). The information contained in the manual is very rudimentary and is not sufficient for the ordinary purchaser to be able to participate successfully in Respondents' program. A substantial portion of the manual is devoted to instructing the participant on locating purchasers for the merchandise and on negotiating agreements to sell the merchandise to the prospective purchasers (CX 4).

6. The manual contains an introductory letter entitled "A Note From The President" signed by Mitch Klass. It states in pertinent part:

Dear Locator:

As a benefit with this package, you are able to locate merchandise and possibly sell it through our Association. You will be acting as an Agent to our organization and there is no additional charge for this benefit. However, you will not be certified or be a member of the A.C.L. We will only be working with you by mail. No telephone calls or consultation.

* * * *

Please note: By becoming certified, joining the Association, and using telephone consultation, you will be able to call your own personal "Hot Line" telephone number for immediate response to all items that you locate. You will be speaking directly with Mr. Klass or one of the other experts to guide you every step of the way. You may be able to locate more merchandise much more quickly this way. And, as a member you stand to receive more money since there will be no delay caused by mailing. And you may not have to send samples in all cases in order to close a deal. We will also share additional secrets to make money in this business, at no additional charge. We feel it is to the benefit of any locator who is serious about making some BIG money in this business to become Certified and a member of the Association of Certified Liquidators. Remember, you can take advantage of your $100 bonus by joining us. I look forward to having each of you as a full-fledged member in our Association and pledge that I will work with you daily, if you like, to help ensure your success.(CX 4)

7. The manual listed and described additional services and a book available for participants in Respondents' program. The first service was certification of the participant to enable the participant to become a Certified Liquidator. The manual listed certain benefits of certification which included added credibility as a liquidator, thus permitting a liquidator to maximize his marketing program. In order to become certified a participant had to take an examination (at home). The examination fee was $70.00. The examination is not a difficult one. For the most part the answers to the questions are contained in Respondents' manual. However, some individuals who take the test do not pass it. In such instance it may be retaken twice without charge (CX 4; Tr. VI 115; Joint Exhibit l). The participant was advised that "Certification is not required to participate as a liquidator but it serves as an indicator of competency of the liquidator and you need to be certified in order to join the Association of Certified Liquidators [A.C.L.] and sell merchandise to us." (CX 4).

8. The manual suggested that participants join the Association of Certified Liquidators at an annual fee of $90. The participant was advised that "By joining the Association, you will have the opportunity to sell through us and to our buyers." The manual also stated that "As a member, we can also finance deals for you . . . . We can arrange letters of credit for you, and your buyers and sellers . . . ." Networking opportunities through membership, such as attending a convention to exchange ideas with other liquidators and to learn new strategies, were also discussed (CX 4).

9. Another service offered by A.C.L. in the manual was telephone consultation for $160 a year. It stated "Our telephone consultation can be very helpful and is highly recommended for the beginning liquidator. We can help you over any rough areas you may encounter." A.C.L.'s assistance in pricing merchandise was also mentioned as a benefit of the telephone consultation service (CX 4).

10. In its manual A.C.L. offered to sell a participant a book entitled "Where To Buy And Sell Your Merchandise." The manual stated that the book lists "Secret Sources" for buying and selling. It was represented that "This book is a must for anyone wanting to make a fortune in liquidating and turn deals very quickly." The price of the book was $80 (CX 4).

11. The total price for the additional services and book was $400 if bought separately. If the four items were purchased together the total price was $299 plus a $4 postage and handling fee. The reduced price for purchasing the four at one time was described as "Your $100 Bonus" (CX 4).

12. The first of the two short tape recordings which accompanied the manual contained little specific information on the operation of Respondents' program. Rather it spoke in general terms of goals and opportunities in the liquidating field. The second tape consisted of an interview with Respondent Mitch Klass in which Mr. Klass answered specific questions pertaining to Respondents' program. Included in these questions and answers was a statement that the liquidation business was a multi-billion dollar industry and that there is no way in the future that it can become saturated (CX 5, 6). The tapes, like the manual, contain information of a rudimentary nature.

13. Participants in the program were not required to purchase the three supplemental services or book in order to act as a locator or liquidator for Respondents. However, they ordinarily could contact Respondents only by mail and not by telephone if they did not purchase the telephone consulting service (Tr. V1 28-29, 116, 123-25). Respondents did provide assistance to participants pertaining to the saleability of located merchandise and the location of purchasers of merchandise whether or not the participants purchased the supplemental services (Tr. V2 39, 52, 144). The perception created by the manual in regard to the supplemental services is that they are a necessary adjunct to the manual and should be purchased in order for a participant to successfully operate as a locator or liquidator (CX 4; Tr. V1 85-86; V2 50).

14. Some participants in Respondents' program had no success in locating saleable merchandise and thus made no money through Respondents' program (Tr. V1 25; V2 42). One participant upon purchasing the program subsequently determined that she did not wish to participate, and requested a refund of the purchase price ($149 plus postage and handling), which request was denied by Respondents (Tr. V1 91-93, 103). Other participants in Respondents' program have had either moderate or substantial financial success as a locator or liquidator (Tr. V2 51-56, 80-83, 110-15, 145-49; Respondents' Exhibit (RX) I, J). One participant negotiated a transaction "a couple of months" after purchasing the program and now expects to have a gross income from his business in excess of $2.5 million in 1990 (Tr. V2 79, 83).

15. When a participant locates merchandise and refers the matter to A.C.L., the participant is paid 50% of the profits subsequent to purchase and resale of the merchandise by A.C.L., as promised by Respondents' solicitations (RX I, J; Tr. V2 27-28, 53).

16. To date, no one has been deprived membership in the A.C.L. due to geographic limitations (Tr. V1 8).

DISCUSSION AND CONCLUSIONS

Complainant, as the proponent of an order under 39 U.S.C. § 3005, has the burden of establishing a prima facie case and the ultimate burden of persuasion. G.H.P. Laboratories, Inc., P.S. Docket No. 10/149 (P.S.D. Nov. 30, 1981). The Postal false representation statute, 39 U.S.C. § 3005, requires "evidence satisfactory to the Postal Service" to support a statutory violation. A preponderance of the evidence has been held to satisfy this requirement. See Contemporary Mission, Inc., P.S. Docket No. 8/159 (P.S.D. June 30, 1981); G.H.P. Laboratories, Inc., supra.

In interpreting advertising representations the probable impact of the advertisement upon ordinary minds is the test to be applied. Donaldson v. Read Magazine, Inc., 333 U.S. 178 (1948); Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387 (5th Cir. 1977). In this regard the trier-of-fact 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); American Testing Institute, P.S. Docket No. 14/114 (P.S.D. July 6, 1983); The Robertson-Taylor Co., P.S. Docket Nos. 16/98-102, 16/120-21 (P.S.D. March 31, 1986); Vibra-Brush v. Schaffer, 152 F. Supp. 46l (S.D.N.Y. 1957), rev'd on other grounds, 256 F.2d 681 (2nd Cir. 1958). Whether an advertisement makes an alleged representation may be determined from the advertisement alone. Id. For the most part Complainant relies upon Respondents' solicitation and program information to establish by a preponderance of the evidence the existence of materially false representations. Complainant's lay witnesses consisted of an individual who was unsuccessful as a participant in Respondents' program and an individual who, having purchased the program, opted not to pursue it further. With the exception of the representation alleged in paragraph 10d, supra, of the Complaint, their testimony was not particularly germane to the alleged false representations.

The evidence of record does not establish the falsity of the representations alleged in paragraphs 10a and b of the Complaint. Paragraphs 10a and b are almost indentical. Paragraph 10a alleges that Respondents represent that "Sums of money in the thousands of dollars will be earned by addresses who purchase respondents' program," while 10b alleges Respondents represent those same sums of money will be earned "within weeks" by purchasers. Paragraph 11 alleges the representations to be materially false. While Complainant presented the testimony of one purchaser who was unsuccessful in earning any money as a participant in Respondents' program, Respondents presented the testimony of participants who had made substantial sums of money, one of whom negotiated a transaction "a couple of months" after purchasing the program. Thus, in fact, sums of money in the thousands of dollars have been earned within weeks by purchasers of Respondents' program. The representations alleged by paragraphs 10a and b are found to be made, but Complainant has not carried its burden of establishing the representations to be false.

Paragraph 10c of the Complaint alleges that Respondents represent they "will assist purchasers of respondents' program in earning sums of money in the thousands." The representation is made; however, it is not false. As stated in FOF 13 "Respondents did provide assistance to participants pertaining to the saleability of located merchandise and the location of purchasers of merchandise whether or not the participants purchased the supplemental services."

In paragraph 10e and f of the Complaint it is alleged that Respondents' represent that Respondents "will share profits in liquidating merchandise" with program participants and that participants "will be paid . . . immediately after locating merchandise which may be liquidated." The representation alleged in paragraph 10e that Respondents will share profits is in fact made by Respondents' solicitations. However, the representation is true. Participants who locate merchandise and refer the matter to A.C.L. are paid 50% of the profits of the sale of the merchandise. See FOF 15. In regard to the paragraph 10f allegation, contrary to Complainant's contention, the ordinary reader most probably would not be apt to interpret Respondents' solicitations to mean that upon location of any merchandise payment would immediately be made regardless of whether A.C.L. located a buyer for the merchandise. The more probable and logical interpretation is that no payment would be forthcoming until a profitable transaction was consummated and that an advance payment would not be made by A.C.L. to one of its participants for the mere act of locating merchandise which may or may not be saleable. In this regard the solicitation stated "We WILL SPLIT THE PROFITS WITH YOU" [Emphasis added]. Accordingly, it is found that the representation of paragraph 10f is not made as alleged.

Complainant alleges in paragraphs 10j and k of the Complaint that Respondents' solicitation represents they "are operating a trade or professional association" and that they "will validate the professional competence of purchasers of respondents' program." The representations, although not contained in Respondents' initial or follow up solicitations, are contained in its manual, as a new solicitation for the additional services of Association membership and certification. See FOF 7 and 8. However, Complainant has not carried its burden of proving them to be false. Respondents' organization appears to be a loose-knit trade association of liquidators formed for a business purpose. Complainants' sole evidence pertaining to falsity of the representation is the testimony of one witness that he had received minimal benefits from Association membership. That testimony is not sufficient to establish that Respondents falsely represent they are operating a trade or professional association. In regard to the certification allegation, while the advantages of certification appear dubious, Respondents in fact do conduct certification tests and certify the professional competence of those passing the tests.

The remaining representations alleged to be made by the Complaint (paragraphs 10d, g-i) in fact are made, and as alleged by paragraph 11 are materially false. In paragraph 10d Complainant alleges that Respondents represent that they "will assist purchasers of respondents' program to earn sums of money in the thousands of dollars without the need for purchasers to make any additional payments to respondents." The representation is made as it is stated in the solicitation that "A.C.L.'S EXCLUSIVE COPYRIGHTED SYSTEM IS NOW AVAILABLE" and that it will provide the recipient with certain important and exclusive information which was listed in bold type. See FOF 2. The solicitation further states that "[t]his money making program comes complete with a 3 ring binder crammed full of all the secrets you need, plus 2 cassette tapes so that you can get going the same day." The clear import of the language contained in the solicitation is that purchasers of the program will receive for the initial $149 purchase price a manual and two cassettes which will contain sufficient information to enable purchasers to successfully participate in Respondents' program without the need to make any additional payments.

However, once participants pay for and receive Respondents' manual they are advised of other optional services available such as certification, membership in Respondents' Association, and a telephone consultation service. See FOFs 7, 8 and 9. In describing each service Respondents convey to the participant the impression that purchase of the service is necessary for a participant to be a successful liquidator or locator. Thus, in regard to certification a participant is advised that "it [certification] serves as an indicator of competency of the liquidator and you need to be certified in order to join the Association . . . and sell merchandise to us." In regard to the supplemental service of Association membership the participant is apprised of the benefits of membership, such as "the opportunity to sell through us and to our buyers," financing benefits and networking opportunities, benefits and opportunities necessary for the successful operation of the program. The telephone consultation service is also described as a necessary ingredient for success. Additionally, a book entitled "Where To Buy And Sell Your Merchandise," is offered and is described as a "must for anyone wanting to make a fortune in liquidating. . . ." The perception created by the manual in regard to these supplemental services and book is that they are a necessary adjunct to the manual and should be purchased in order to insure success. Respondents, thus make the representation alleged in paragraph 10d of the Complaint that no additional purchases are necessary in order for a participant to succeed in Respondents' program. The representation is false. The false representation is material as it provides an incentive for the purchase of the added services or book. Chaachou v. American Central Inc. Co., 241 F.2d 889 (5th Cir. 1957).

A related allegation of false representation is contained in paragraph 10i of the Complaint wherein Complainant alleges Respondents' solicitation represents that "Respondents will provide purchasers of the program with comprehensive training in the merchandise liquidation field." However, the language contained in the solicitation and discussed and quoted in the previous paragraph clearly implies that purchasers of the program will receive for the initial $149 purchase price a manual and two cassettes which will provide comprehensive training, i.e., is sufficient to successfully participate in Respondents' program. The representation alleged by paragraph 10i of the Complaint is thus made. However, the representation is false. The manual does not provide sufficient information for the ordinary purchaser to be able to successfully participate. The tapes are of the same nature. Moreover, Respondents, by offering for sale the supplemental services and book in a manner which clearly indicates their purchase is necessary if one is to have success in the liquidation business, implicitly acknowledge the deficiencies of their initial $149 program. The false representation is material as it induces one to purchase the program.

In paragraphs 10g and ll of the Complaint it is alleged that Respondents falsely represent that they "will pay a hundred dollars ($100.00) in cash to any addressee who purchases respondents' program." Respondents' solicitation states that "I will send you a $100 Bonus along with your kit (that's like getting the whole package for only $49)." In fact the "Bonus" offered is a credit of $100 if upon receipt of the manual the recipient or purchaser of the program makes an additional purchase of the three supplemental services and book. The "Bonus" offered could well be interpreted by the ordinary reader to be a payment or refund of $100 from the purchase price. Moreover, it can only be obtained if additional purchases are made. The representation is thus made. It is false as a credit, not a bonus is given. It is material as it would induce the ordinary reader to purchase the program.

Paragraphs 10h and 11 of the Complaint allege that Respondents falsely represent that they "will accept only a limited number of purchasers from the number of addressees solicited." The representation is made, as Respondents' follow-up solicitation (see FOF 4) addresses the recipient by first name and advises that once enough people from the recipient's area have purchased Respondents' program that particular recipient will no longer have an opportunity to participate in the program. The representation is false as Respondents' tape states that "there's no way in the forseeable future [that the liquidation industry] can become saturated." Further, no one has been denied participation in Respondents' program because of geographic limitations. Again, the representation is material as it would induce participation in the program.

SUMMARY

It is concluded that Respondents' solicitations make the representations alleged in paragraphs 10a - e and g - k of the Complaint. The representations of paragraphs 10d, g, h, and i are materially false. The representation alleged in paragraph 10f, is not made. Accordingly, the Orders authorized by 39 U.S.C. § 3005 are issued with this decision.