In the Matter of the Petition by:

AARON R. FODIMAN, Publisher,
2531 Landmark Drive, Suite 101,
Clearwater, FL 34621-3928,

Denial of Application for
Second-Class Mail Privileges for
"TAMPA BAY/THE SUNCOAST'S MAGAZINE

P.S. Docket No. 36/84

2/25/91

Grant, Quentin E. Chief Administrative Law Judge

APPEARANCE FOR PETITIONER: Aaron R. Fodiman, Publisher,
2531 Landmark Drive, Clearwater, FL 3621-3928

APPEARANCE FOR RESPONDENT: Jeffrey H. Zelkowitz, Esq.,
Law Department, Rate Application Division,
United States Postal Service, Washington, DC 20260-1143

INITIAL DECISION

Petitioner has appealed from the denial of an application for second-class mail privileges by the Office of Classification and Rates Administration. In lieu of an oral hearing, the parties have submitted the matter for decision on the basis of a stipulated record which includes 23 joint stipulations of fact and 10 joint exhibits (cited throughout this decision as JE-) as amended on joint motion dated October 25, 1990. Only the Postal Service has filed written argument, in the form of a Memorandum of Points and authorities. The following findings of fact are those stipulated by the parties to the extent they are relevant and material to the issues. Their numbering has been retained.

FINDINGS OF FACT

1. The Petitioner in this proceeding is Aaron R. Fodiman. Petitioner is the publisher of Tampa Bay/The Suncoast's Magazine (referred to hereafter as Magazine). Magazine's business office is located at 2531 Landmark Drive, Suite 101, Clearwater, Florida 34621-3928.

2. Magazine applied for second-class privileges in Clearwater as a general publication on April 20, 1989 (JE-1).

3. Magazine is published six times per year. Its annual subscription price is $12.00.

4. Magazine's circulation records were reviewed by postal employees on October 19 and 20, 1989. These findings were summarized in section II and column (c) in section III on Joint Exhibit 1.

5. These findings, along with Magazine's application and supporting materials, were forwarded to the Rates and Classification Center, Memphis, Tennessee (RCC). On December 7, 1989, the RCC issued a decision [JE-2] denying Magazine's second-class application. The basis for the decision was that the paid circulation of Magazine violated the circulation requirements established in Domestic Mail Manual § 423.125 because its paid circulation constituted only 35.1 percent of its total circulation.

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11. The RCC reviewed additional information furnished by Magazine. On the basis of this review, it again concluded that Magazine did not meet the requirements for a second-class authorization. Accordingly, it forwarded the administrative record to the Office of Classification and Rates Administration for consideration of Magazine's appeal.

12. On May 8, 1990, the Office of Classification and Rates Administration issued a decision denying Magazine's appeal [JE-8]. This decision concluded that Magazine did not meet the circulation requirements set forth in Domestic Mail Manual § 423.125.

13. Petitioner initiated this proceeding by filing a timely appeal of the Office of Classification and Rates Administration decision. This appeal was docketed on May 31, 1990.

14. For the purposes of this proceeding, the parties stipulate that Magazine complies with all relevant second-class eligibility requirements, with the exception of Domestic Mail Manual § 423.125. Petitioner submits that Magazine also complies with the requirements set forth in Domestic Mail Manual § 423.125, while Respondent submits that Magazine does not meet this requirement.

15. The parties agree to the following facts concerning the circulation of Magazine. This agreement is based upon the findings reached during the Postal Service review of Magazine's circulation records, as summarized in Joint Exhibit 1, section III, column C.

a. The number of copies of Magazine that are printed is 20,544.

b. The number of copies that are printed but not circulated is 5,467. This includes the 1,325 copies archived or destroyed by the publisher, and the 4,142 copies that were provided to newsstands but not sold.

c. The circulation of Magazine is 15,077, which is the difference between the number printed and the number of printed copies that are not circulated. Under the circulation requirements in Domestic Mail Manual § 423.125, at least 7,539 of these copies would have to be considered paid circulation in order for Magazine to qualify for a second-class authorization.

d. A total of 5,298 copies are indisputably paid circulation. This includes 3,117 copies circulated to persons who paid the full subscription price; 185 copies to persons who paid a reduced subscription price, but more than a nominal rate; 85 advertiser proof copies; 95 copies purchased by persons other than the recipients, but counted as paid as gift subscriptions; 7 copies sold over the publisher's counter; 1,758 sold by newsstands; and 51 copies sold by other retail outlets.

e. A total of 3,426 copies are indisputably free circulation. This includes 960 copies sent to persons whose subscriptions have expired; and 2,466 copies sent as samples.

f. The dispute in this proceeding concerns 6,353 copies. Of these, 352 copies were furnished to the Kapok Tree Restaurant, for resale at gift shops operated by that firm. The remainder, 6,001 copies, were purchased by one individual and five businesses, and circulated to persons in the Tampa area.

16. For purposes of this proceeding, the parties stipulate that the 352 copies furnished to the Kapok Tree Restaurant may be counted as paid circulation. Respondent's agreement to this stipulation is based upon Petitioner's assurances that each of the copies is sold to gift shop customers for the full single copy price of Magazine, $2.50, and that records are maintained to demonstrate the receipt of these payments.

17. The remaining circulation, consisting of 6,001 copies, was purchased in six separate transactions. The six purchasers (sometimes referred to jointly as "bulk purchasers" below) consisted of one individual, Janet Pappas of Arlington, Virginia, and five businesses. The businesses were HBR Items, Inc., of Bedford, New York; Rodar Textile of New York, New York; Nesbit Investments of Melbourne, Florida; the Hayloft Dinner Theater of Manassas, Virginia; and Giraffe Jewelry Sales of Fairlawn, New Jersey. Each purchased at least 1,000 one-year subscriptions at a rate of $6.00 each.

18. According to the statements in Joint Exhibit 5, none of the bulk purchasers own a business in the Tampa area.

19. Each of the bulk purchasers submitted a list of individuals or businesses who were to receive some of the subscriptions they had purchased. These lists are attached to Joint Exhibit 7. The total number of recipients on all five lists is 778. The remaining 5,223 subscriptions purchased by the bulk purchasers were sent to individuals and firms selected by the publisher pursuant to the direction of the bulk purchasers. That is, as stated in Joint Exhibit 5, the bulk purchasers instructed the publisher to send the publications to the offices of doctors, accountants, attorneys, or similar places "where the magazine would be widely read." Petitioner supplied each of the bulk purchasers with a list of the individuals and businesses chosen by Petitioner to receive the subscriptions it had purchased. There were no objections to any of the recipients chosen by Petitioner.

20. There is no evidence, nor is Petitioner aware, of any relationship between the bulk subscribers and any of the recipients of the subscriptions each purchased. Moreover, there is no specific evidence, nor is Petitioner specifically aware, of the reasons which motivated each of the bulk purchasers to order the subscriptions. In Joint Exhibit 5, Petitioner stated its belief that each of the bulk purchasers wanted "the magazine [to] have a wide distribution, due to [its] quality ... and ... editorials [and that] each believed that by purchasing gift subscriptions they would enhance the magazine's economic viability and they wanted to do what they could to help the magazine survive because they believed that the magazine tended to enhance the lives of the people who read it." Petitioner further explained, in its Petition, that this was not intended to indicate "that the sole reason the subscriptions were purchased [was] to benefit the magazine." Petitioner stated that it "assumed that whenever someone purchases an item at fair market value, it is to help the organization from which the purchases are made" and also stated that it believes the purchases were also made "to benefit" the recipients.

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23. A copy of Magazine dated May/June, 1989, is attached as Joint Exhibit 10.

JOINT EXHIBITS

The parties have stipulated the following joint exhibits into the record:

JE-1 PS Form 3501, Application for Second-Class Mail Privileges, submitted by Tampa Bay/The Suncoast's Magazine on April 20, 1989, and with circulation data added by postal officials on November 1, 1989.

JE-2 Letter dated December 7, 1989, from Gordon Proud, General Manager, Rates and Classification Center, Memphis, Tennessee, to W. H. Brown, Jr., Comptroller, Tampa Bay/The Suncoast's Magazine.

JE-3 Letter of December 19, 1989, from W. H. Brown, Jr., to Director, Office of Classification and Rates Administration.

JE-4 Letter of January 16, 1990, from Gordon Proud to W. H. Brown, Jr.

JE-5 Letter of March 28, 1990, from Aaron Fodiman to Gordon Proud.

JE-6 Letter of April 4, 1990, from Gordon Proud to Aaron Fodiman.

JE-7 Letter of April 17, 1990, from Aaron Fodiman to Gordon Proud, with enclosures.

JE-8 Letter of May 8, 1990, from Donald Dillman, Director, Office of Classification and Rates Administration, to Aaron Fodiman.

JE-9 Circular VI, letter dated October 13, 1902, from Edwin C. Madden, Third Assistant Postmaster General, Post Office Department, with enclosure.

JE-10 Tampa Bay/The Suncoast's Magazine, May/June, 1989.

DISCUSSION

The parties agree that the sole issue for decision is whether any of the copies of Magazine purchased by bulk purchasers should be counted as paid circulation and that in order for the publication to qualify for second-class privileges at least 1,889 of these copies must be counted as paid (derived by subtracting the 5,650 copies stipulated as paid (findings 15(d) and 16, supra) from the 7,539 target calculated in 15(c). Petitioner argues that all 6,001 copies bought by bulk purchasers should count as paid. Respondent contends that they should be considered free circulation copies.

Petitioner has the burden of proof on an appeal from a denial of an application for second-class mail privileges. See Holmes Management Company, P.S. Docket No. 4/71, I.D. Feb. 12, 1976 at p. 9; aff'd P.S.D. Oct. 22, 1976.

The publisher has applied for second-class mail privileges for Magazine as a general publication.

Section 423.121 of the Domestic Mail Manual (DMM) provides that general publications must have a legitimate list of subscribers who have paid or promised to pay, at a rate above a nominal rate, for copies to be received during a stated period of time.

Section 423.125 provides as follows:

423.125 Free or Nominal-Rate Circulation.
Publications primarily designed for free circulation and/or circulation at nominal rates may not qualify for the general publications category. Publications are considered primarily designed for free circulation and/or circulation at nominal rates when one-half or more of all copies circulated are (a) provided free of charge to the ultimate recipients, (b) paid for at nominal rates by the ultimate recipients, or (c) are addressed using a simplified or exceptional form of address; or when other evidence indicates that the intent of the publisher is to circulate the publica- tion free and/or at nominal rates. The distribution of all copies of a publication is considered, whether circulated in the mail or otherwise. (underscoring supplied)

The disputed copies are provided free of charge to the ultimate recipients. Under § 423.125 supra, they must be treated as disqualifying free circulation copies unless they are found to be, as Petitioner argues, gift subscriptions which under DMM § 428.44 are considered subscriber copies. n1

n1 428.44 Copies Paid for as Gifts. A portion of the subscription list may consist of the names of persons whose subscriptions were paid by other individuals as gifts. Such gift subscriptions are considered subscriber copies. Subscriptions paid by advertisers or other interested persons to promote their own interests, and subscriptions given free by the publisher are not gift subscriptions, but are considered nonsubscriber or nonrequester copies. Such nonsubscriber or nonrequester copies are subject to the applicable rates as provided in 411.322 and 411.4.

The wording of § 428.44 as well as its history and that of predecessor postal regulations relating to the exception of gift subscriptions make it clear that such subscriptions, in order to qualify as subscriber copies, must be bona fide gifts from one individual, or entity, to another for the latter's benefit. For example, in Circular VI (C.D. No. 67102) issued by the Classification Division of the Post Office Department on October 13, 1902, it was explained that subscriptions paid for by others than the recipients because of any personal or business interest, or because of an interest in the circulation of the publication itself, are not genuine gift subscriptions entitled to the exception to the rule that the person who receives the publication as a subscriber must pay for it with his own money. In 1905 the Office of the Postmaster General in directions to postmasters relating to abuses of second-class mailing privileges instructed them that gift subscriptions were to be included in a legitimate list of subscribers only when they were bona fide gifts paid for by the donor for the benefit of the recipient (Daily Bulletin of Orders Affecting the Postal Service, No. 7864, December 16, 1905 at page 7864a). The instruction also stated that subscriptions qualifying for such inclusion would be limited strictly to those coming within the bona fide gift definition and that the gift exception was not to be permitted to be used as a cover for advertising or other purpose of the publisher or the donor.

In 1979, the regulation which had permitted a minor portion of a legitimate list of subscribers to consist of gift subscriptions was amended to omit the "minor portion" limitation. The amendment was based on the stated belief of the Postal Service that it is not necessary to restrict the number of bona fide gift subscriptions. (44 F.R. 24432, 24437, April 25, 1979 (item 37)).

Petitioner has produced no evidence showing that the disputed copies of Magazine represent bona fide gift subscriptions as historically defined by the Postal Service and as contemplated by DMM 428.44. To the contrary, the facts stipulated by Petitioner, particularly in findings 17 through 20, supra, show no personal relationships between the bulk purchasers and the recipients of the subscriptions they purchased nor any intent to benefit those recipients such as would characterize a genuine, bona fide gift. In fact, the recipients of 5,223 of the disputed copies were selected by the publisher, not the bulk purchasers, and Petitioner has produced no persuasive evidence of the intent of the bulk purchasers, instead offering Petitioner's assumptions or presumptions as to such intent which include, principally, reasons which negate any bona fide gift intention, i.e., to give Magazine wide distribution due to its quality and editorials, to enhance Magazine's economic viability and to help the publication survive. As expressed by Petitioner in communications with Respondent prior to filing its Petition, intent to benefit the recipients was peripheral at most.

CONCLUSIONS OF LAW

1. The 6,001 copies of Tampa Bay/The Suncoast's Magazine purchased by bulk purchasers are not gift subscriptions under DMM $S428.44 and, therefore, must be counted as free circulation for purposes of DMM § 423.135.

2. The paid circulation of Magazine is 5,650 which is approximately 37.5 percent of the total circulation of 15,077.

3. Magazine is "primarily designed for free circulation" under DMM § 423.125.

4. Magazine does not meet the eligibility requirements for second-class entry as a general publication.

5. The decision of the Director, Office of Classification and Rates, denying the second-class application of Tampa Bay/The Suncoast's Magazine, was correct and that decision is affirmed.