In the Matter of the Complaint Against:

CHARLES SMITH,
10478 NW 31st Terrace,
Miami, FL 33172;

CS ENTERPRISES, INC.,
10478 NW 31st Terrace,
Miami, FL 33172 and AMCAN ENTERPRISES, INC.,
10478 NW 31st Terrace, Miami, FL 33172

d/b/a/ NORTH AMERICAN DIRECTORIES
and THE WASHINGTON YELLOW PAGES,
1001 Fourth Ave. Suite 3200,
Seattle, WA 98154-1101
and
NORTH AMERICAN DIRECTORIES
and THE ARIZONA YELLOW PAGES,
4350 East Camelback Road,
No. 200-F, Phoenix, AZ 85018-2763

P.S. Docket No. 36/129

03/07/91

Mason, Randolph D., Administrative Law Judge

APEARANCES FOR COMPLAINANT: Jerry Belenker, Esq., Edward Lawee, Esq.,
Consumer Protection Division, Law Department, United States Postal
Service, Washington, DC 20260-1144

APPEARANCES FOR RESPONDENTS: Frank J. Shannon, Esq., Mark J. Lewyn, Esq.,
422 Candler Building, 127 Peachtree Street, N.E., Atlanta, GA 30303

INITIAL DECISION

This proceeding was initiated on July 10, 1990, when the Postal Service filed a Complaint alleging that Respondents North American Directories and John Payne are 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 by means of solicitations in the guise of invoices which are nonmailable under 39 U.S.C § 3001(d). Specifically, the Complaint alleges in paragraph 7 that Respondents falsely represent, 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 Respondents' telephone directory;

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

(c) Respondents are the publishers of the phone directory or "yellow pages" customarily supplied to business telephone subscribers in the recipient's area;

(d) The area of distribution of Respondents directory will encompass all telephone subscribers in the region;

(e) Publication and distribution of Respondents' directory will take place in accordance with time frames customary to authorized "yellow pages" industry publication and distribution standards; and

(f) Respondents also provide a free white-page listing.

The Complaint also alleges that the mailings are solicitations in the guise of invoices and are nonmailable because they fail to contain the notice required by 39 U.S.C. § 3001(d) and Domestic Mail Manual § 123.4. Under the circumstances, Complainant alleges that this constitutes prima facie evidence that the Respondents are engaged in a scheme or device for obtaining money through the mail by means of false representations.

In timely filed Answers, Respondents deny that they make the false representations alleged in the Complaint or that they have otherwise violated the statute.

A hearing was held by the Administrative Law Judge on October 2, 1990, in Washington, DC. All 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 Inspectors Joseph L. Byers and Douglas O. Pulling and consumer witnesses Cathleen Nute and Jenine Flory. Respondents presented the testimony of Respondent Charles Smith. Both parties presented documentary evidence.

On November 5, 1990, the parties filed a Stipulated Amendment of the Complaint which is hereby accepted by the Administrative Law Judge. In part, it was agreed that AMCAN Enterprises, Inc., and CS Enterprises, Inc., and Charles Smith d/b/a The Washington Yellow Pages and Charles Smith d/b/a The Arizona Yellow Pages would be added as parties, and that John Payne would be dismissed as a party. It was also stipulated that Smith, AMCAN Enterprises, Inc., and CS Enterprises, Inc. entered their appearances and were represented at the hearing on October 2, 1990. Charles Smith adopted the Answer and all other pleadings filed by North American Directories and waived his right to further hearing. The caption herein has been changed to reflect the stipulated agreement of the parties.

By November 30, 1990, the parties had filed all proposed findings of fact and conclusions of law and reply briefs. All briefs have been duly considered. Subsequently, Complainant filed a Motion to Amend Complaint with new exhibits to add eight additional addresses to which Respondents allegedly seek remittances. Respondents objected to the motion and the new exhibits. The Motion was denied as untimely.

To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. The findings of fact and conclusions of law set forth below are based on the entire record herein, including observation by the Administrative Law Judge of the witnesses and their demeanor, the briefs, stipulations, exhibits, and other relevant evidence adduced at the hearing:

FINDINGS OF FACT

1. Respondent Charles Smith owns and controls Respondents AMCAN Enterprises, Inc., and CS Enterprises, Inc. The corporations use trade names which include "North American Directories," "The Washington Yellow Pages," and "The Arizona Yellow Pages" (Stip. Amendment of Complaint; Tr. 80-81, 99-100, 103). They have also offered yellow page ads and directories for sale in about 31 other states (Tr. 100).

2. Respondents solicit remittances of $98 through the mail for advertising listings in "The Washington Yellow Pages" at 1001 Fourth Ave., Suite 3200, Seattle, WA 98154-1101 and in "The Arizona Yellow Pages" at 4350 East Camelback Road, No. 200-F, Phoenix, AZ 85018-2763. Each of these addresses is a mail receiving agency which forwards the mail to Respondents (Tr. 12, 21).

Respondents' Mailings

3. Respondents send two mailings to businesses which typically advertise in the local yellow page telephone directory for their area. The first mailing (CX-1; RX-1) is entitled "Business Listing Profile Solicitation" with "The Washington Yellow Pages" (or "The Arizona Yellow Pages") and the "walking fingers" logo prominently featured at the top of the page. The words "Yellow Pages" appear again under the logo. Also, a very large light gray version of the "walking fingers" logo appears in the center of the page. The form contains the recipient's "listing" with business name, address, telephone number and "account" number. The recipient is instructed to request printing in the "forthcoming edition" if the listing is correct, and to note any changes that may be required. The recipient is told to sign the form and return it to North American Directories in order to receive the directory listing.

4. Subsequently, the Respondents send the recipient a standard form invoice (CX-2, 3) from "The Washington [or Arizona] Yellow Pages" instructing him to pay $98 for the yellow pages listing, plus $9.50 if the recipient requests a Fax number to be listed. The invoice contains the "walking fingers" logo in two places. Attached to the invoice is a copy of the bottom portion of the previous mailing containing the recipient's signature.

The False Representations

5. Respondents' solicitations make Representations (a) and (c)-(f). The language making such representations, when read in the context of the entire solicitation, is set forth below under each of these quoted representations. With the exception of Representation (e), these representations are materially false. Representation (b) is not made.

(a) The addressee has previously authorized a business listing in Respondents' telephone directory;

6. As set forth below, many recipients have the impression that the solicitation is from the yellow page telephone directory published by the local telephone company in which they regularly advertise. Also, the solicitation has an "account" number in two locations, which suggests that the recipient has an existing account reflecting previous authorization for a listing in the directory. In addition, the use of the word "listing" in several places, including "listing is correct as shown above," reinforces this representation. In this context "listing" means an "entry on a list." Accordingly, the solicitation implies that the recipient's name, address, and telephone number have appeared on a previous list of advertisers in Respondents' previous yellow page directory. This finding is based upon the solicitation, but is also corroborated by credible consumer testimony (Tr. 52-53, 55).

7. This representation is materially false since Respondents have not published a previous directory and there has been no previous list of advertisers (Tr. 113).

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

8. Contrary to the position taken by Complainant, there is little indication on the solicitation giving the impression that any money is due and owed by the recipient to Respondents. In fact, the overall impression of the Respondents' first mailing (CX-1; RX-1) is that of a solicitation rather than a bill, and the ordinary recipient does not get the impression that he has been previously obligated to purchase an advertisement in the forthcoming directory.

9. In this regard, the mailing is entitled "Business Listing Profile Solicitation" and the word "solicitation" also appears again in the center of the page. The words "THIS IS NOT A BILL" also appear in large print in the center of the page. The $98 charge for an advertisement is printed rather than typed and is inconspicuously mentioned in the sentence "Your free white-page listing will be included with each yellow-page listing of $98."

10. Also, that the recipient has not previously been obligated to purchase or renew an advertisement is suggested by the request to sign his name and submit the form in order "to receive your directory listing." One box which he can check is "Please print as is in the Forthcoming Edition," which suggests that the ad will not be printed unless the recipient's approval is given. Although the "account" number might in some circumstances tend to indicate that an amount is due, in the context of this mailing, it merely indicates that a renewal of a previous advertisement is being solicited.

11. It is noted that the back side of the mailing contains many terms in small, inconspicuous print. There, the mailing states that the mailing is merely an "offer" and that "Payment for the advertising shall be due upon presentation of a statement reflecting charges currently or hereinafter incurred." However, since these words would not be noticed by many ordinary readers, they have not been considered in making the above finding.

12. Finally, although the second mailing is clearly in the form of an invoice, that mailing is not in issue since it is not the "solicitation" to which Complainant refers in #7(b) of the Complaint. However, even assuming arguendo that the second mailing falls within the ambit of #7(b) as argued by Complainant, it still would not constitute a false representation. Complainant contends that the second mailing is void since a recipient would have been defrauded by the offer in the first mailing. If the invoice could be considered void, then the representation that money is owed would be false. However, this argument is rejected since a contract induced by fraud is merely voidable by a court, and is not yet void. Until a court takes that action, the contract is valid. Therefore, the representation that money is due and owing to Respondents is true since the recipient became obligated to Respondents by accepting the offer.

(c) Respondents are the publishers of the phone directory or "yellow pages" customarily supplied to business telephone subscribers in the recipient's area;

13. Respondents' solicitation is printed on yellow paper and is headed "The Washington Yellow Pages." The walking fingers logo appears in the upper right-hand corner. The logo is typically associated with the standard local yellow page telephone directory in the minds of many ordinary readers. "Yellow Pages" appears again under the logo. The logo appears again in the center of the page in a large 2 1/2" by 2 1/2" graphic.

14. This representation is also reinforced by the language: "Your free white-page listing will be included with each yellow-page listing of $98.00." The company publishing the standard local yellow page directory distributed to telephone subscribers also provides a free white pages listing.

15. The following disclaimer appears in the middle of the page in an inconspicuous location: "This is a state-wide business yellow page directory advertisement solicitation." Although the reference to a "state-wide" directory tends to distinguish this product from the local telephone directory, many ordinary readers would not notice this language or appreciate its significance. Also, the references to "state-wide" directory on the back of the solicitation appear in small print buried in the terms of the agreement and would not be noticed by the ordinary reader. Similarly, many would not notice the language at the bottom of the front page that "North American Directories is not affiliated with AT&T or any local telephone company."

16. This representation is also corroborated by witnesses (Tr. 21; Tr. 53, 55).

17. Representation (c) is materially false.

(d) The area of distribution of Respondents directory will encompass all telephone subscribers in the region;

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

18. Both of these representations are implicitly made and follow from the fact that Respondents represent their publication to be the standard yellow pages telephone directory customarily supplied to telephone subscribers in the recipient's area.

19. With regard to Representation (d), official notice is taken of the fact that such directories are typically supplied to all telephone subscribers in the region. Since Respondents' directory is supplied only to the advertisers and a few other select individuals and organizations, the representation is materially false.

20. With regard to Representation (e), Respondents implicitly represent that publication and distribution of their directory will take place in accordance with standard time frames for the "yellow pages" industry. Since both of the directories in issue were at the printer on October 2, 1990 (Tr. 89), these directories are being published about 9 or 10 months after the solicitations were sent. However, there is no evidence of how long it normally takes for a standard yellow page directory to be published and distributed. Accordingly, Complainant has failed to prove that Representation (e) is false.

(f) Respondents also provide a free white-page listing.

21. Respondents make this representation when they state: "Your free white-page listing will be included with each yellow-page listing of $98." Complainant contends that this representation is false since the Respondents' white pages are combined in a single book with the yellow pages, and the $98 necessarily covers the cost of both the yellow and white page listings. The ordinary reader would get the impression that the "white-page listing" is identical to a listing in the white pages telephone directory distributed to all telephone subscribers, which is free. Here, a customer must purchase the Respondents' yellow pages in order to be listed in the Respondents' white pages. Accordingly, the representation is false since the listing in the white pages is not "free" in the sense perceived by the ordinary reader of the solicitation.

Solicitation vs. Invoice

22. Complainant argues that Respondents' mailings are in the form of, or reasonably could be construed as, bills, invoices or statements of accounts due, but are, in fact, solicitations which require the disclaimer prescribed by 39 U.S.C § 3001(d). For the reasons set forth in connection with the discussion of Representation (b), the mailings would not reasonably be construed as a bill obligating the recipient to make payment unless the offer was accepted.

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 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 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).

(e) The issue in a proceeding under 39 U.S.C. § 3005 is whether materially false representations are being made by the entire solicitation, not whether Respondents have a right to use any particular logo. See, Scott David Wilcox, P.S. Docket No. 18/147 (P.S.D. April 20, 1988); Telco Directories, Inc., P.S. Docket No. 22/111 (P.S.D. February 25, 1987). Although the "Walking Fingers" logo is not copyrighted, it has been held to contribute to the overall impression that a mailing is from the yellow page directory published by the local telephone company. Mid-Am Marketing, Inc., P.S. Docket No. 24/12 (P.S.D. January 5, 1987).

(f) Similarly, the inclusion of a registered trademark such as "Arizona Yellow Pages" by a Respondent in a solicitation does not preclude a finding of false representation. See, Jacob Siegel Co. v. FTC, 327 U.S. 608 (1946); Scott David Wilcox, P.S. Docket No. 18/147 (P.S.D., August 31, 1989). Again, it is the overall impression of the entire mailing that is in issue, not the impression given by the trademark by itself. Accordingly, Respondent's argument that a trademark by definition precludes consumer confusion is rejected.

2. Applying the foregoing standards, I find that Respondents' advertisements make the representations alleged in #7(a) and 7(c)-(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. Representation 7(b) is not made.

3. As set forth in the findings of fact, the representations set forth in paragraph 7(a), (c), (d), and (f) of the Complaint are materially false. Complainant has failed to prove that Representation (e) is false.

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 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. n1 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).

n1 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.

6. 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' first mailing ("business listing profile solicitation") does not appear to the ordinary reader to be a bill arising out of a previous obligation to advertise in the Respondents' yellow pages telephone directory. Accordingly, the statute and regulations do not require the mailing to contain the statutory disclaimer. 39 U.S.C. § 3001(d).

7. With the exception of Representations (b) and (e), 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).

8. 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.

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