In the Matter of the Complaint Against:

EQUISYSTEMS CALIFORNIA, INC.,
c/o Donald E. Mason, Esq.,
2121 Ponce De Leon Boulevard,
Suite 350,
Coral Gables, FL 33134-5222;

AARON E. HASTINGS,
c/o Donald E. Mason, Esq.,
2121 Ponce De Leon Boulevard,
Suite 350, Coral Gables,
FL 33134-5222;

LORRAINE A. HASTINGS,
c/o Donald E. Mason, Esq.,
2121 Ponce De Leon Boulevard,
Suite 350,
Coral Gables, FL 33134-5222

P.S. Docket No. 33/115

07/10/91

Cohen, James A., Judicial Officer

APPEARANCES FOR COMPLAINANT: Elizabeth P. Martin, Esq.,
Geoffrey E. Drucker, Esq., Ben A. Kilgrow, Esq.,
Consumer Protection Division, Law Department,
United States Postal Service, Washington, DC 20260-1144

APPEARANCE FOR RESPONDENTS: Donald E. Mason, Esq.,
Suite 650, 2121 Ponce De Leon Boulevard,
Coral Gables, FL 33134-5222

POSTAL SERVICE DECISION

Complainant has filed an appeal from an Initial Decision in which an Administrative Law Judge dismissed a Complaint 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.

Background

The General Counsel of the United States Postal Service (Complainant) initiated this proceeding by filing a Complaint, subsequently amended, alleging that Respondents solicit money or property through the mail by means of solicitations for credit cards which make materially false representations in violation of 39 U.S.C. § 3005. Specifically, Complainant alleged that Respondent Equisystems California, Inc. (Equisystems) falsely represents that

a) It is affiliated with, acting in concert with or acting on behalf of, a financial institution that issues a nationally-recognized credit card (e.g. VISA or MasterCard);

b) It is authorized to represent the financial institution named in its correspondence with consumers; and

c) The financial institution named in its correspondence with consumers issues a nationally-recognized credit card (e.g. VISA or MasterCard). n1

n1 Additional allegations of misrepresentation were dismissed on Complainant's motion by Order dated February 13, 1990 (I.D., p. 2).

Respondents filed a timely Answer denying that the representations alleged in the Complaint are materially false.

Following a hearing and the submission of proposed findings of fact and conclusions of law, the Administrative Law Judge issued an Initial Decision in which he concluded that Complainant had failed to prove either the falsity of the representations made by Respondents or that Respondents were engaged in a scheme within the meaning of 39 U.S.C. § 3005. Complainant filed a timely appeal in which it takes issue with the Administrative Law Judge's findings and conclusions. Respondents have not filed a response to Complainant's appeal.

Discussion and Exceptions

The promotion which is the subject of this proceeding involves Respondents' advertisements for credit cards appearing in nationally circulated newspapers during the period August 18, 1988 to September 12, 1988 (I.D., Findings of Fact (FOF) PP1 & 6-11). The record establishes that effective May 23, 1987, Equisystems had a contract with Security Trust Company of Arlington, Texas (Security) to market and issue secured MasterCard credit cards (I.D., FOF PP3-4). On August 18, 1988, a temporary freeze was placed on the operations of Security pending an investigation by the Texas Department of Banking (Banking Dept.) (I.D., FOF P6). Equisystems' Officers, Respondents Aaron E. Hastings and Lorraine A. Hastings, were advised of the temporary freeze and while they were directed to discontinue issuing credit cards, they were not at that time directed to cease marketing the credit cards on behalf of Security (I.D., FOF PP2 & 7-8). As a result and with full knowledge of the Banking Dept., Equisystems continued to advertise the program and to receive remittances for Security credit cards (I.D., FOF P9).

On September 12, 1988, Respondents received instructions from the Banking Dept. to discontinue marketing Security credit cards (I.D., FOF P10). Immediately after receiving these instructions, Respondents took steps to cancel all advertisements soliciting applications for Security credit cards and to find a new credit card issuer for individuals who had applied for credit cards during the period of the temporary freeze (I.D., FOF PP10-11). While Complainant argues otherwise, the Administrative Law Judge found that Respondents entered into a contract with Service One Corporation/Bank of Hoven (Bank of Hoven) on September 12, 1988, for the purpose of temporarily substituting Bank of Hoven for Security as the credit card issuer for applications received during the August 18 through September 12, 1988 freeze (I.D., FOF P11). Although Respondents took action to begin implementing the agreement with Bank of Hoven, they were enjoined by the Superior Court of the State of California from making refunds or otherwise continuing the credit card program (I.D., FOF P12). As a consequence, no credit cards were issued by Respondents after August 18, 1988 (I.D., FOF P13).

Complainant's principal contention on appeal is that the Administrative Law Judge erred in finding that Respondents had entered into a temporary agreement with the Bank of Hoven for issuance of credit cards (I.D., FOF PP11-12). Complainant in addition argues that the Administrative Law Judge improperly omitted discussion of Respondents' continued acceptance of credit card application fees during the period of the temporary freeze, incorrectly stated the date of initiation of the California state court suit against Respondents, wholly failed to mention the issuance of a temporary restraining order against Respondents, improperly relied on the testimony of Aaron E. Hastings, and incorrectly defined a "scheme" as a "crafty or unethical project." Although Complainant has shown that the Administrative Law Judge erred in defining a scheme, it has not established that the Administrative Law Judge committed reversible error or that any other basis exists for altering the ultimate conclusion that the Complaint should be dismissed.

The Administrative Law Judge's finding that a contract existed with the Bank of Hoven is supported by the evidence cited in the Initial Decision which constitutes a preponderance of the evidence presented (I.D., FOF #11). The exhibit relied on by Complainant on appeal, CX-5,2n does not establish that the agreement between the Bank of Hoven and Equisystems was not enforceable. Moreover, even if Complainant is correct that no contract existed between Respondents and the Bank of Hoven, the Administrative Law Judge properly concluded that Equisystems' original contract with Security remained in force during the temporary freeze. Therefore, Respondents were not falsely representing the availability of credit cards during the period August 18 through September 12, 1988 (I.D., pp. 7-8). Further, whether consumers received a MasterCard from Security or the Bank of Hoven is not material since the availability of a national credit card, not the identity of the card issuer, served as the inducement to respond to Respondents' solicitation.

n2 CX-5 consists of an unsigned letter dated September 21, 1988, to Respondent Aaron E. Hastings from an attorney for the Bank of Hoven stating that "it appears that the Bank is willing to go forward with the agreement . . . [but] the agreement will be subject to approval of the Board of Directors. . . ."

While it is true that the Administrative Law Judge relied primarily on the testimony of Respondent Aaron E. Hastings, there is nothing in the evidentiary record, or Complainant's brief on appeal, which establishes that Mr. Hastings' testimony is inherently improbable or that the Administrative Law Judge's reliance on his testimony is otherwise improper. See Cosvetic Laboratories, P.S. Nos. 9/173-185 at 9 (P.S.D. Dec. 11, 1981), and cases cited therein; see also Hanratty v. Department of Transportation, 819 F.2d 286, 288 (Fed. Cir. 1987); Carosella v. United States Postal Service, 816 F.2d 638, 641 (Fed. Cir. 1987). Accordingly, the Administrative Law Judge did not err in relying on the testimony of Mr. Hastings.

Complainant correctly contends that the Administrative Law Judge erred in his definition of "scheme" as a "crafty or unethical project." As Complainant points out, prior Postal Service precedent which is binding on the Administrative Law Judge establishes that a scheme, for purposes of 39 U.S.C. $S3005, means a plan or program involving a misrepresentation. National Mktg. Co., P.S. 7/46 at 4 (P.S.D. May 23, 1980). However, since it has been found that Respondents' solicitations do not make the materially false representations alleged in the Complaint, their program under either definition could not be considered a "scheme" within the meaning of 39 U.S.C. § 3005. Consequently, no reversible error occurred. Likewise, the Administrative Law Judge's one day error in the date the California court action was commenced against Respondents, September 21, 1988, rather than September 22, 1988, and his failure to discuss the temporary restraining order issued by the court, similarly do not affect the ultimate conclusion reached in the Initial Decision. Finally, contrary to Complainant's assertion, the Administrative Law Judge did point out that Respondents continued to receive remittances during the period of the temporary freeze (I.D., FOF #9), but properly did not mention the use of such funds, since it would not be unreasonable to expect that they would be used to pay company expenses.

Conclusion

Based on a review of the entire record and Complainant's exceptions, it is concluded that the Administrative Law Judge properly determined that Complainant failed to prove the falsity of the representations made by Respondents. Accordingly, Complainant's appeal is denied, the Initial Decision is affirmed and the Complaint is dismissed.