In the Matter of the Complaint Against:

THE STARS AND STRIPES-THE NATIONAL TRIBUNE,
P.O. Box 2746,
Chicago, IL 60690-2746;

THE NATIONAL TRIBUNE CORPORATION,
P.O. Box 1803, Washington, DC 20013-1803
and
278 Carroll Street, N.W.,
Washington, DC 20012-2006;

ASSOCIATED ADVERTISERS OF AMERICA,
55 E. Jackson #1820,
Chicago, IL 60604-4106

P.S. Docket No. 37/128

12/19/91

Grant, Quentin E., Chief Administrative Law Judge

PPEARANCE FOR COMPLAINANT: Geoffrey A. Drucker, Esq., David Leonhardt, Esq.,
Consumer Protection Division, United States Postal Service,
Washington, DC 20260-1144

APPEARANCES FOR RESPONDENT ASSOCIATED ADVERTISERS OF AMERICA:
John T. Cusack, Esq., Patrick S. Coffey, Esq, Gardner, Carton & Douglas,
Quaker Tower, 321 North Clark Street, Chicago, IL 60610-4795

INITIAL DECISION

In a complaint filed February 22, 1991, as amended pursuant to order dated March 7, 1991, Complainant, the General Counsel of the Postal Service, alleged that Respondents, in violation of 39 U.S.C. $S3005, are conducting a scheme for obtaining money or property through the mail from advertisers by means of a scheme involving false representations as to the (a) circulation of the weekly newspaper The Stars and Stripes - The National Tribune, published by Respondent National Tribune Corporation, and (b) as to the size of the distributions of such newspaper to U. S. armed forces stationed in the Persian Gulf. The specific false representations alleged in the complaint are that (a) the newspaper's circulation is significantly greater than it actually is and (b) that the newspaper is distributed to a substantial portion of the U. S. armed forces stationed in the Persian Gulf. Respondents filed answers denying violation of the statute.

A hearing was held by the undersigned on June 26 and 27, 1991, in Washington, D.C. The Complainant called as witnesses Cynthia Petrucci, Susan Finkelstein, Theodore Hauri, Paul Bourjaily, Peter Bourjaily, and Postal Inspector James Husarik. Respondent The National Tribune Corporation (NTC) produced testimony from Richard Keagy, Carolyn Rast, and John Lewis Smith, III. Associated Advertisers of America (AAA) called Louis, Paul and Peter Bourjaily.

Following the hearing, NTC entered into a settlement agreement with Complainant and, on Complainant's motion, the Judicial Officer suspended the matter indefinitely as to NTC.

Complainant and AAA have filed proposed findings of fact, conclusions of law and written argument all of which have been considered. To the extent indicated below they 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 the briefs, stipulations, testimony, exhibits, and other relevant evidence adduced at the hearing and observation of the witnesses and their demeanor.

FINDINGS OF FACT

1. The National Tribune Corporation ("NTC") is a Delaware Corporation with a principal place of business at 278 Carroll Street, N.W., Washington, DC 20012. NTC publishes The Stars and Stripes - The National Tribune ("The Stars and Stripes") a weekly newspaper which has been in existence for 114 years, focusing on veterans affairs and legislation (Tr. 260).

2. John Lewis Smith, III has been president of NTC since 1964. Richard Keagy is general manager and has been an employee of NTC for 38 years. Carolyn Rast, the business manager, has been employed by NTC since 1983 (Tr. 257-58, 311-12, 357-59).

3. Respondent Associated Advertisers of America ("AAA") is an unincorporated partnership with a place of business at 55 E. Jackson #1820, Chicago, IL 60604. AAA is a publishers representative, selling advertising for publications which do not have their own advertising departments (Tr. 498-500, 516).

4. AAA has been in business since 1942. It is the largest publishers representative operating in Chicago. It currently represents about 40 newspapers including the Chicago Sun Times and Pulitzer Lerner Publications. It employs approximately 30 sales representatives in its two offices. They work on a commission basis (Tr. 563-64, 560, 567). AAA placed about 7200 ads in 1990 (Tr. 530).

5. The partnership AAA is composed of three brothers, Louis, Paul, and Richard Bourjaily. Paul's son, Peter Bourjaily, manages AAA's suburban sales office in Hinsdale, IL (Tr. 502, 562-63, 630-31, 643).

6. From 1974 to March 8, 1991, AAA acted as an advertising representative for The Stars and Stripes on a non-exclusive basis. AAA received payments from advertisers in the name of The Stars and Stripes at P. O. Box 2746, Chicago, IL 60690. AAA paid NTC 25% of the net rate it charged advertisers (Tr. 31, 503, 559-60; AAA-46).

7. In 1990, AAA produced about 62 percent of NTC's total advertising revenue (Tr. 366). NTC determined the rates AAA charged for advertising in The Stars and Stripes based largely on the recommendations of AAA (Tr. 322-23).

8. Annual ownership statements furnished by NTC to the Postal Service from 1985 to 1990 show that total circulation of The Stars and Stripes during those years has not exceeded 10,000 copies of each issue (CX-8 through 13). These statements were published annually in difficult to read, very small face type, in an issue of the newspaper a copy of which was sent by NTC to AAA (AAA-44; Tr. 290-91) as was a copy of each weekly issue of the newspaper (Tr. 263-64). NTC did not send AAA a separate copy of the annual ownership statement furnished to the Postal Service (Tr. 292).

9. The policy of NTC was not to divulge to the public the actual circulation figures of The Stars and Stripes, other than through the required ownership statement published annually, inconspicuously, in the newspaper (Tr. 301). According to John Lewis Smith III, its president, NTC adhered to this non-disclosure policy because it was not directly in the advertising business so "we had no reason to be involved in dialogue with people about circulation" (Tr. 314). Carolyn Rast, NTC's business manager, testified that non-disclosure was the policy because actual circulation "presents an inaccurate reflection of our paper and its distribution and its readership" (Tr. 367).

10. According to Ms. Rast, if anyone inquired of her about the circulation figure for The Stars and Stripes she would give them a readership figure of 200,000, but would not explain the difference between readership and circulation (Tr. 429-32).

11. NTC was nearly as careful not to divulge its actual circulation numbers to its advertising representative, AAA, as to the public (Keagy, Tr. 276-77; Smith, Tr. 326, 490; Rast, Tr. 404) even though it claims to have been concerned that AAA make no misrepresentations about circulation to advertisers (Tr. 318, 490).

12. Periodically the publisher of The Standard Periodical Directory would send a questionnaire to NTC asking, among other things, for the circulation of The Stars and Stripes. Carolyn Rast testified that, in responding to the questionnaire, she twice crossed out the word "circulation" and wrote in "readership" beside the figure 200,000 (Tr. 395-96). I do not find this testimony credible because this directory has never reported anything but circulation figures for the publication.

13. From 1974 to 1991, the circulation, not the readership, of the The Stars and Stripes has been listed in ten separate editions of either The Standard Periodical Directory or the Ayer Directory of Publications, six times, from 1974 through 1987, as having a circulation of 250,000 and from 1988 through 1991 as having a circulation of 200,000 (AAA-36, 37, 38, 39, 41, 45; CX-42, 43). There was undisputed testimony that The Standard Periodical Directory is an authoritative reference book (Tr. 538-39). There appears to be no dispute that the Ayer Directory is also authoritative.

14. There is no credible evidence that NTC ever furnished AAA with its actual circulation figures except in the annual ownership statement in the copy of The Stars and Stripes (FOF 8, supra). The testimony of Carolyn Rast that she called Paul Bourjaily's attention to such statement for the past 3 or 4 years (Tr. 405-06) I find incredible because it is inconsistent with the strict non-disclosure policy of NTC, and conflicts with the testimony of Paul Bourjaily whom I considered to be the more truthful witness on this point (Tr. 609).

15. At the time AAA started to represent NTC in 1974, it looked to the Ayer Directory for the circulation of The Stars and Stripes (as it did for other publications it represented (Tr. 557-58)) and found it to be 250,000 as reported to Ayer by the publisher, NTC (Tr. 504, 513; CX-43).

16. When the question of the circulation of The Stars and Stripes was raised with AAA in 1987 by an advertiser and by AAA, in turn, with NTC, NTC furnished a page from The Standard Periodical Directory showing the circulation to be 250,000 (Tr. 576-77).

17. Based on circulation figures obtained from the Ayer Directory, or The Standard Periodical Directory, AAA instructed its sales representatives to tell prospective advertisers, who inquired, that the circulation of The Stars and Stripes was 250,000 or 200,000 (see FOF 13, supra; Tr. 551-52, 558), to distinguish between circulation and readership, and to distinguish between The Stars and Stripes - The National Tribune and The Stars and Stripes published by the military (Tr. 172).

18. On one occasion, AAA sales representative Tom Mastro represented to a prospective advertiser, who thereafter placed an order, that the circulation of The Stars and Stripes was several hundred thousand which she took to mean 400,000 to 500,000 (Tr. 59, 78). On another occasion, Peter Bourjaily represented to Theodore Hauri, president of Boston Design Corporation, that the circulation of the publication was 430,000 (CX-20) although Bourjaily had been told when he started working for AAA that the circulation was 250,000. There were a few occasions when other sales representatives also misrepresented the circulation of the publication (Tr. 526-27, 588-91).

19. During the period in question, Paul Bourjaily, senior partner and general manager, oversaw the operation of the sales room in which Richard Bourjaily, the sales manager, sat at a rostrum in the front of the room facing and observing the numerous sales representatives working there (Tr. 563-67). Paul Bourjaily had a monitor board at the rostrum and Lou Bourjaily had one in his office which they used to spot check the telephone calls being made by the sales representatives to assure that they were telling the truth to advertisers (Tr. 528, 566).

20. It is the policy of AAA not to permit any of its sales representatives to make misrepresentations, to discipline anyone caught doing so, and to fire an employee if he is found to have made misstatements three times (Tr. 527, 569, 594).

21. AAA sent advertisers who had placed orders for advertising in The Stars and Stripes confirming orders using The Stars and Stripes letterhead. On the right hand side of the letterhead appeared the following information about the publication:

CIRCULATION CATEGORIES

FEDERAL GOVERNMENT: White House; Cabinet; OMP; Civil Service employees in all Departments - Labor, Defense, Commerce, HEW, State, VA.

VETERANS ADMINISTRATION: 58 Regional offices; 171 Hospitals; 18 Domiciliaries; 213 Out-Patient Clinics; 85 Nursing Home Units; 365 Libraries; 213,144 employees of which 173,339 are Dept. of Medicine & Surgery; 8,407 Physicians, 865 Dentists, 24,957 Nurses, 106,000 Volunteer census. VA Hospitals are affiliated with 98 medical schools.

CONGRESS: 10 copies to each Senator, Representative, Congressional Committees and their staff.

STATE GOVERNMENT: 50 State Governors; Directors of Veterans Affairs and their State and County Service Officers; 334 National Alliance of Bussinessmen.

COLLEGE CAMPUSES: 3047 College Campuses; 1208 VCIP Coordinators; 560 College Campus Veterans Clubs.

MILITARY: Active Duty personnel on 692 Military bases [includes Separation Centers, Education/ Employment Counselors, Officers/Enlistedmen Clubs, 114 Air Force Bases, 68 Air Force Stations, 360 Navy Bases, Air Stations and Ships, and 150 Army Bases]. Reserve, ROTC, National Guard and Retired. USO: 74 Stateside Centers.

VETERANS' ORGANIZATIONS: All Posts and Ladies Auxiliaries across the U.S. of the AL, AFSA, AMVETS, BVA, CWV, DAV, DOA, FRA, JWV, MCL, MOPH, NACV, NAUS, NCOA, PVA, ROA, TROA, USWV, VFW, VWWI. WAC Vets Assn. and WWWI.

READERSHIP

Paid & Controlled to above Circulation Categories plus an unknown amount because of repeated use by Military Discharge Centers, on Bulletin boards in military bases, college campuses, VA and military hospitals and Libraries both Public and Government.

(CX-46; AAA-46; Tr. 45, 65-6, 85-6, 580).

22. A prospective advertiser, unaware of the true circulation of The Stars and Stripes, could interpret the above "CIRCULATION CATEGORIES" information to mean that the circulation of the publication is 200,000 or more.

23. The "CIRCULATION CATEGORIES" information on the letterhead was furnished to AAA by NTC (Tr. 577, 581; AAA Ex. 48).

24. Until December 1990, when it was informed by Postal Inspector Husarik of the much lower actual circulation figure of The Stars and Stripes, AAA believed that its circulation was 200,000 or 250,000 (Tr. 513). Immediately on being informed of the actual circulation, AAA advised its entire staff, including sales representatives, telling them to use the figure 10,000 (Tr. 514, 583; AAA Ex. 1). At that time, AAA revised The Stars and Stripes letterhead (FOF 21, supra) by eliminating all the numbers under "CIRCULATION CATEGORIES" which had been furnished by NTC (Tr. 582-83; AAA Ex. 47).

25. In late 1990, AAA suggested to NTC that it publish special promotional editions of The Stars and Stripes to be sent to the U. S. troops in the Persian Gulf (Tr. 599-600) as other newspapers were doing. NTC accepted the idea (Tr. 319-20) and advised AAA, at the latter's request, by letters dated 1 November, 31 November and 31 December 1990 and 30 January 1991, signed by Richard Keagy, general manager, that special editions were being prepared to be distributed, or sent to, the U. S. troops in the Persian Gulf. AAA was not furnished by NTC the exact number of copies being sent but Mr. Keagy informed Paul Bourjaily that it would be a substantial number (Tr. 601).

26. AAA sent letters to prospective advertisers on The Stars and Stripes letterhead soliciting placement of advertisements in the special Persian Gulf editions stating that they would be sent to "our desert forces" (CX-40, 41). Exact numbers of copies to be sent were not set forth in these letters since AAA did not have such numbers. AAA's telephone sales representatives were told to tell prospective advertisers that they had no numbers but that the special editions were being sent to the U. S. troops in the Persian Gulf (as stated in Mr. Keagy's letters, FOF 25, supra). One sales representative informed a prospective advertiser that about 325,000 copies of the March 25th edition were sent to the Persian Gulf (Tr. 33).

27. In fact, the greatest number of any one of the five special editions sent to the Persian Gulf was 2000, the others having been 1000 (3) and 1500 (1) (CX-1). There is no evidence that AAA knew these numbers at the time. During the final weeks of Operation Desert Storm there were approximately 500,000 U. S. troops stationed in the Persian Gulf area (Stip. at Tr. 10).

28. AAA, on March 8, 1991, advised NTC that effective that date it would no longer act as an advertising representative for The Stars and Stripes (AAA Ex. 21). This was done for a number of reasons, among them that it would be difficult to sell advertising in a publication with a circulation of only 10,000 and also because information from the Postal Service created suspicion that no copies of the Persian Gulf special editions had gone there (Tr. 522).

29. At the hearing, AAA placed in the record an irrevocable undertaking of all its partners never to act as an agent and/or newspaper representative for NTC and/or The Stars and Stripes - The National Tribune.

30. Postal Inspector Husarik checked the computer listings of the Postal Service and found no prior investigations of AAA for violation of 39 U.S.C. § 3005 (Tr. 233-34, 245).

DISCUSSION

The record shows conclusively that AAA has falsely represented the circulation of The Stars and Stripes in connection with sales of advertising, probably since 1974 when it commenced representation of the publication. With the exception of a few substantially higher figures given by AAA sales representatives on the telephone, the circulation figures ordinarily used by AAA, when asked by prospective advertisers, were either 200,000 or 250,000. These figures were obtained from authoritative reference books and had been obtained by the publishers thereof from NTC. The preponderance of the credible evidence persuades me that AAA did not know the true circulation of the publication until it was revealed by Postal Inspector Husarik during his investigation in December 1990 at which time AAA sales representatives were given the correct figure and instructed by management to use it.

The incorrect circulation figures obtained by AAA from reference books were confirmed, perhaps even exceeded, by information supplied directly by NTC and used by AAA in its confirmation of orders on The Stars and Stripes letterhead under the heading "CIRCULATION CATEGORIES" (FOF 21).

On the basis of information furnished by NTC, AAA also falsely represented to some potential advertisers the circulation of the special editions sent to U.S. forces in the Persian Gulf (FOF 25-27).

I find that the making of false representations about the circulation of The Stars and Stripes was contrary to company policy as to all publications represented by AAA and that AAA employs a reasonable monitoring system to detect and prevent the making of such representations.

I do not find that AAA's lack of knowledge of the true circulation of the publication was willful or negligent. Instead of searching each year for the obscure annual circulation statement in a single weekly edition of the paper, AAA justifiably relied on the circulation figures reported in the Ayer Directory or The Standard Periodical Directory, as it did with respect to many other publications it represents.

AAA management acted promptly on learning the true circulation figure to instruct its sale representatives to use only that figure and it also promptly removed the numbers furnished by NTC from "CIRCULATION CATEGORIES" on The Stars and Stripes letterhead. I find that AAA, in keeping with its policy, also disciplined or fired with reasonable promptness employees found to have misrepresented circulation numbers (Tr. 527, 594).

There is no evidence that in the 49 years of its existence there has been any other complaint concerning misrepresentation lodged against AAA with the Postal Service, any other government agency, or a Better Business Bureau, or that, in fact, AAA has ever engaged in any other scheme of misrepresentation, knowingly or, as in this case, unwittingly. I find no evidence in the record, nor any indication based on the demeanor of the managing Bourjaily brothers during their testimony, on which to make a finding of likelihood that they will again engage in similar activity.

The unlikelihood of recurrent violation of the statute by AAA is reinforced by the discontinuance of its representation of The Stars and Stripes and the irrevocable undertaking of the partners never to act as agent and/or newspaper representative for NTC and/or The Stars and Stripes - The National Tribune.

CONCLUSIONS OF LAW

1. AAA concedes Complainant has proved instances, albeit infrequent, of false representation regarding the circulation and distribution of The Stars and Stripes but says such proof falls short of establishing a "scheme or device" within the meaning of 39 U.S.C. $S3005 because they were not shown to have been made in pursuance of a pattern or policy of false representation as to such circulation or distribution.

As used in the statute, the terminology "scheme or device" applies to innocent as well as intentional misrepresentations. Kurzon v. United States Postal Service, 539 F.2d 788, 795 (1st Cir. 1976); United States v. International Term Papers, Inc., 477 F.2d 1277, 1280 (1st Cir. 1973). A scheme or device exists if a business seeks remittances of money through the mail by means of a plan or program involving a misrepresentation. Standard Research Laboratories, P.S. 7/48, P.S.D. 4/4/80. The sale of advertising for The Stars and Stripes was a plan or program engaged in by AAA and false representations as to the circulation of the publication were part of that activity to the extent AAA's telemarketers were told (a) to use the figures 200,000 or 250,000 when inquiries as to circulation were made by advertisers and (b) to say that special editions would go to the U.S. troops in the Persian Gulf, thereby falsely implying distribution to between 250 and 500 thousand service men and women. The higher circulation figures occasionally quoted by telemarketers, contrary to the instructions of management, were not part of this scheme of unwitting false representation engaged in by AAA. Complainant concedes that a large telemarketing company, such as AAA, cannot be said to have a plan or program of false representation solely because a few sales people occasionally make unauthorized and incorrect statements (Cplt. Reply Brief, p. 2, #3).

2. The false information furnished to AAA by NTC under the heading "CIRCULATION CATEGORIES" on letters sent by AAA, confirming orders placed, constituted part of the scheme to the extent they appeared to corroborate numbers given orally by telemarketers as authorized by management.

3. Based on the foregoing it is concluded that AAA was engaged in a scheme or device to obtain remittances of money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

4. The abandonment of a practice and a promise that it will not be resumed have been held insufficient, standing alone, to show that there is no cognizable danger of recurrent violations. To avoid a cease and desist order, a respondent must also show a change in circumstances making a resumption of the practice impractical or impossible. See County of Los Angeles v. Davis, 440 U.S. 625, 631-32 (1979); United States v. Concentrated Phosphate Export Assn. Inc., 393 U.S. 199, 203 (1968); United States v. Oregon State Medical Society, 343 U.S. 326, 333-34 (1951); Libbey-Owens-Ford Glass Co. v. FTC, 352 F.2d 415, 418 (6th Cir. 1965); Professional Opportunity Magazine, Inc., P.S. Docket No. 33/55, P.S.D. 9/14/90.

Although Complainant has proved a scheme or device engaged in by Respondent sufficient to constitute a violation of the statute, it has not shown that this was part of a deliberate, general practice of misrepresentation pursued by AAA. To the contrary, Respondent's unrebutted evidence shows that it was not only not a practice but, also, was contrary to its policy of avoiding misrepresentation as to all publications it represents.

Because of AAA's history of nearly half a century of operation without any evidence of involvement in, investigation for, or charge of, violation of 39 U.S.C. § 3005 except as to the circulation of The Stars and Stripes, only one of the 40 papers it represents, and because this misrepresentation was inadvertent and contrary to its policy, I find that AAA's immediate cessation of the use of false circulation figures and its prompt severance of its relationship with NTC on learning the true circulation and distribution of The Stars and Stripes, coupled with its written irrevocable agreement not to represent NTC again, constitute such a change of circumstances as to make a resumption of the scheme impractical and a recurrent violation not a cognizable danger.

Under 39 U.S.C. § 3005, the issuance of a cease and desist order is discretionary. For the above reasons, I conclude that Complainant's request for a cease and desist order against AAA should be denied. A mail stop order in the form attached should be issued.