HARVEY OLECK and RICHARD OLECK

In the Matter of the Complaint Against:

BUILDING TRADES ASSOCIATION,
25 Pennsylvania Ave.,
S.E., Washington, DC 20003-1100
&
BUILDING TRADES ASSOCIATION, INC.,
HARVEY OLECK
and
RICHARD OLECK
1181 S. Rogers Circle, Suite 6,
Boca Raton, FL 33487-2724

P.S. Docket No. 37/88

08/16/91

Grant, Quentin E., Cief Administrative Law Judge

APPEARANCE FOR COMPLAINANT: Jerry Belenker, Esq.,
Timothy J. Mahoney, Esq., Consumer Protection Division,
Law Department, United States Postal Service,
Washington, DC 20260-1114

APPEARANCE FOR RESPONDENT: David P. Hendel, Esq.,
Catherine G. Van Way, Esq., Verner, Liipfert, Bernhard,
McPherson and Hand, Chartered,
901 15th Street, N.W., Suite 700,
Washington, DC 20005-2301

INITIAL DECISION

A complaint filed on December 26, 1990, by Complainant, the General Counsel of the Postal Service, charged Respondents with violation of 39 U.S.C. § 3005, alleging that in a scheme involving certain solicitations sent to firms or individuals in the building trades they seek remittances of money or property through the mails by means of the following materially false representations found in the solicitations:

(a) Building Trades Association is a membership association consisting of members engaged in the construction trades, such as builders, developers, general contractors and architects;

(b) A person or entity which pays the "membership" fee to BTA will in return receive each of the goods and services described in BTA's solicitations at a cost lower than that at which such goods and services are generally offered;

(c) The Contractors Directory to which the solicitations refer has been published by BTA since 1967;

(d) The Contractors Directory to which the solicitations refer is generally distributed to all or most persons or business enterprises engaged in the construction trades, such as developers, architects ad property management companies, which are located in the geographic vicinity of the addressee of a solicitation;

(e) BTA has on office at which it conducts business which is located at a specific street address in Washington, DC; and

(f) BTA and its officers and employees act as agents solely of BTA's members in obtaining the benefits of membership in BTA related to the purchase of goods and services which are identified in the solicitations.

Respondents' answer to the complaint denied the alleged violations of the statute.

A hearing before the undersigned was held in Washington, DC on March 18 and 19, 1991, at which the parties filed 20 stipulations of fact and presented evidence by way of testimony and documents. Testifying for Complainant were Postal Inspector Pat Giroux and consumer witnesses Anita Glick (project coordinator for Edmar Construction Company, Washington, DC), James D. Chilson (comptroller of W. E. Bowers Associates, Laurel, MD), and Clifton A. Thomas (owner and operator of Cliff's Refrigeration, Inc., Falls Church, VA). Respondents' witnesses were Harvey and Richard Oleck. Both parties have filed proposed findings of fact and conclusions of law. To the extent indicated below they have been adopted, otherwise they have been rejected as irrelevant or contrary to the evidence. Based on the entire record herein and my observation of the witnesses and their demeanor, I make the following findings of fact and conclusions of law.

FINDINGS OF FACT

1. Respondent Building Trades Association, Inc. [BTA] is a Florida corporation which was incorporated on September 29, 1986 (Stip. 1). Its office and principal place of business is at 1181 S. Rogers Circle, Suite 6, Boca Raton, FL 33487 (Ans. P2).

2. BTA is organized and operated for profit (Stip. 2).

3. Respondent Richard Oleck is the sole stockholder, officer and director of BTA and directs and controls the activities thereof (Stips. 3, 4, 5). His father is Respondent Harvey Oleck (Stip. 6).

4. Although Harvey Oleck is not an officer or employee of BTA, it has been stipulated that he is a proper party to this proceeding (Stip. 7). Between 1946 and 1985 he organized and operated businesses similar to BTA which published one-state or five-state contractor directories, offered certain services to firms in the construction trades, and employed solicitations similar to CX-1 and RX-2 (Tr. 177-181, 221-222). He occupies a desk in the BTA office and furnishes help and advice to Richard Oleck in the operation of the business (Tr. 186, 226, 227).

5. Exhibit 1 to the complaint (hearing ex. CX-1, annexed to this I.D. as Ex. 1) is a copy of a solicitation created by Richard and Harvey Oleck and formerly used by BTA (Stip. 8, 10). Respondent's hearing exhibit 1 (RX-1, annexed to this I.D. as Ex. 2) is a copy of a solicitation used by Respondent since about mid-1990 (Tr. 235).

6. In response to its solicitation, BTA receives payments for membership by mail at 325 Pennsylvania Avenue, S.E., Washington, DC 20003 (Stip. 9). This address is that of a commercial mail receiving agent who redirects mail addressed to BTA to its corporate address in Boca Raton (Stip. 16).

7. BTA, to the date of the hearing, has had no office or place of business in Washington, DC (Stip. 16).

8. The solicitations list a number of services which BTA provides only to its members. BTA has made arrangements with various vendors to provide to its members the listed services and from some of them, but not all, BTA receives commissions or other returns for services sold to members (Stip. 19; Tr. 266, 289).

9. Upon remitting to BTA the solicited fee, a member receives a membership kit (RX-51) which includes a membership certificate, complete descriptions and contact information for the various services offered, and a questionnaire census form for use in applying for health insurance. The member also has its business listed in the BTA Contractor's Directory (Stip. 12; RX-50; Tr. 236-238).

10. For most of the services offered by BTA and as a result of membership therein, members pay less than the standard, or regular, rates charged by the vendor (Tr. 254-280).

11. Originally, BTA had an agreement with Mutual of Omaha to provide health insurance for BTA members at a group (reduced) rate. BTA terminated this agreement in June 1990, because of its dissatisfaction with the scope of coverage provided. Richard Oleck then set up a corporation called Associated Financial Group, Inc. (AFG) to provide members with health insurance. The insurance is procured by AFG under ERISA trust agreements with various insurers at preferred rates to BTA members. AFG receives a commission on policies sold to its members (Tr. 242-255).

12. The 1990 BTA Contractors Directory contained listings of about 7000 members all of whom made payment to BTA in response to a solicitation similar to CX-1 (Stip. 14).

13. The 1990 BTA Contractors Directory was distributed to approximately 5000 businesses consisting of general contractors, builders, developers, architects, property management companies, and consulting engineers (Stip. 15). The bulk of these directories were sent to the 100 companies most active in the building trades in the approximately 45 cities across the country to which BTA sent most of its solicitations. The names of these companies were secured by BTA from Dunn & Bradstreet (Tr. 292, 293).

14. Members of BTA do not receive the Contractor's Directory unless they request it (Stip. 15).

15. Postal Inspector Patricia Giroux initiated an investigation of BTA as the result of an inquiry concerning BTA from Powlen Associates received by the Eastern Region of the Postal Service. The record does not disclose the reason for or the exact nature of this inquiry. Inspector Giroux was not aware of any other inquiry or any complaint about BTA received by the Postal Service (Tr. 55-57)

16. Inspector Giroux's investigation confirmed that BTA members enjoyed reduced rates for the services of certain vendors (Tr. 58-64).

17. Edmar Construction Company, Inc. (Edmar) of Washington, DC is a general contractor for commercial construction (Tr. 71). It joined BTA in 1989 in response to a solicitation similar to CX-1 (Tr. 72-73, 90, 96).

18. Anita Glick, project coordinator for Edmar, testified for Complainant at the hearing. According to Ms. Glick, Edmar's president made the decision to join BTA. She did not know his exact reasons but believed it was that membership would help in obtaining business (Tr. 95).

19. In 1990 Ms. Glick looked into the health care benefits offered by BTA (Tr. 93, 94, 96), the only service offered by BTA that was of interest to Edmar. Upon receipt of BTA's (Association Financial Group) rates, she turned them over to Edmar's accounting department which advised her that BTA's rates were either "exceedingly" or "significantly" higher and that its benefits were less comprehensive than under the plan Edmar already had (Tr. 78, 79).

20. On the questionnaire furnished by Edmar (Ms. Glick) for a quote from AFG for health benefit coverage, Edmar stated its then monthly premium to be "$6,375.91, paid to Blue Cross/Blue Shield of Maryland and Cigna HMO." AFG's quote to Edmar was $4,967.00 (RX-52). The evidence is inconclusive as to whether AFG's quote was for the same coverage Edmar then had. Ms. Glick was unable to recall the higher figure Edmar's accounting department furnished her (Tr. 109, 110).

21. Edmar renewed its membership after receiving the AFG quote for health benefits coverage (Tr. 115) and after it knew that BTA's office was in Boca Raton, FL, not in Washington. Edmar has never complained to BTA about anything relative to membership therein (Tr. 99).

22. Ms. Glick testified that a publication entitled The Blue Book, containing a geographical listing of firms in the building trades, is, "figuratively", the "bible" in such trades (Tr. 82-86). Although BTA's solicitation calls its Contractor Directory the "bible" of the construction trade, Ms. Glick knew that it was not The Blue Book (Tr. 97).

23. James D. Chilson, comptroller of W. E. Bowers Associates (Bowers), a mechanical contractor in Laurel, MD, testified for Complainant. Bowers received a solicitation similar to CX-1 and remitted the fee for membership. Wayne Bowers, president of Bowers, made the decision to join BTA. Mr. Chilson saw and reviewed the solicitation but was unable to remember his own thoughts, at the time, relating thereto (Tr. 133, 134). He believed that Wayne Bowers thought that BTA membership was another route to exposure, creating associations which would advance the firm and its work in the Washington metropolitan area (Tr. 126, 127).

24. Mr. Chilson testified that he understood that a publication called The Blue Book is referred to, colloquially, in the building trades as the "bible." Chilson did not learn of this until after the Postal Service began its investigation of BTA when another Bowers employee told him (Tr. 136).

25. The Bowers company has never made any complaints about BTA (Tr. 137).

26. Complainant's third consumer witness was Clifton A. Thomas of Falls Church, VA who owns and operates a small company called Cliff's Refrigeration, Air Conditioning & Heating, Inc. He remitted the membership fee to BTA in response to a solicitation similar to CX-1 (Tr. 154, 155). When he joined he thought BTA was a local association, primarily for small businesses, which he could drive over and talk to, if necessary, rather than having to resort to correspondence (Tr. 159). The fact that BTA appeared to be local was important to him (Tr. 172, 173).

27. Mr. Thomas was attracted to BTA by the various services it offered, principally delinquent account collection (Tr. 169, 170). Mr. Thomas interpreted the language in the solicitation relating to collection - "Less than $10.00 per account" - to mean that BTA would handle collections of accounts as small as $10.00 and was interested because he had many small accounts amounting to $40.00 to $60.00 which his corporate attorney would not handle (Tr. 157, 158). Thomas' company signed up for the collection service.

28. Mr. Thomas didn't care whether BTA was a for-profit or not-for-profit association. His main concern was saving a dollar. He did not renew his membership because he wasn't saving any money using the collection service (Tr. 170, 171) but he still uses that service (Tr. 173).

29. Mr. Thomas has never complained to BTA or the Postal Service about BTA (Tr. 174).

The Alleged False Representations

(The false representations alleged in paragraph 13 of the complaint are single spaced below and lettered in accordance with the lettering in that paragraph).

"(a) Building Trades Association is a membership association consisting of members engaged in the construction trades, such as builders, developers, general contractors and architects."

30. Respondent admits that its solicitations make this representation and claims that it is true.

31. Based on findings 8 and 9 above, I find that the representation is true.

"(b) A person or entity which pays the 'membership' fee to BTA will in return receive each of the goods and services described in BTA's solicitations at a cost lower than that at which such goods and services are generally offered."

32. I do not find this representation in either of the solicitations. The solicitations expressly represent that some, not all, of the listed services are available to members at favorable prices. The exceptions in Exhibit 1 (CX-1) are performance and construction bonds, group health and life insurance, construction loans and mortgage packages, and general liability insurance and, in Exhibit 2 (RX-1), performance and construction bonds. The exceptions negate the blanket representation as alleged and would alert the average business person interested in them to call BTA's 800 telephone number to inquire about the costs thereof. Complainant's evidence does not support a finding that the alleged representation should be found by implication. As to the services not expressly represented to be favorably priced through membership, an interested recipient of a solicitation could reasonably believe that Respondent is simply saying it will facilitate obtaining such services as, for instance, performance and construction bonds and construction loans which are frequently difficult to obtain (Tr. 242, 260).

"(c) The Contractors Directory to which the solicitations refer has been published by BTA since 1967."

33. This representation is explicitly, or by the strongest implication, made in both of Respondent's solicitations. It is found in the following portion thereof:

"THE BUILDING TRADES ASSOCIATION publishes the CONTRACTORS DIRECTORY as our official publication. The directory has been published since 1967."

Omission of the words "by the Building Trades Association" from the second sentence does nothing to alter my finding that the average businessman reading the quoted sentences would think that BTA's publication of the directory extends back to 1967.

34. Representation (c) is false. Contractors directories were published by Harvey Oleck in similar businesses run by him from 1966 through 1985 but they were not the same as BTA's directory in that they had different titles and covered only one state or, in one case, five states. BTA did not commence publication of its CONTRACTORS DIRECTORY until 1985 (Tr. 179-186). BTA is engaged in a business similar to that of those run by Harvey Oleck but is not the same business as any of Harvey Oleck's.

"(d) The Contractors Directory to which the solicitations refer is generally distributed to all or most persons or business enterprises engaged in the construction trades, such as developers, architects and property management companies, which are located in the geographic vicinity of the addressee of a solicitation."

35. This representation is found in the following portions of BTA's first solicitation (Exh. 1):

The BUILDING TRADES ASSOCIATION publishes the CONTRACTORS DIRECTORY as our official publication. The directory has been published since 1967. The Buyers Guides will be distributed to General Contractors, Builders, Developers, Architects, Property Management Companies, etc., in your area.

We asked our members to send us a list of the firms they do business with. We received thousands of these lists and your company name has appeared on some. We therefore know your customers are now involved with the ASSOCIATION.

I would like to include your company name in the next issue of our publication. This will make it easier for your present customers to find you and can also make new customers for you. The CONTRACTORS DIRECTORY is the OFFICIAL publication for the ASSOCIATION and is known as the Bible for the Construction Trade.

The average business person would find this representation in the asserted 24 years of publication of BTA's directory, its claimed reputation as the "Bible for the Construction Trade," and the statement that it will be distributed to "General Contractors, Builders, Developers, Architects, Property Management Companies, etc. in your area." The words "all or most" do not appear in the solicitation but the elements just mentioned introduce them by way of implication.

36. The representation is false. The directory is distributed principally to the 100 companies most active in the building trades in 45 cities to which the BTA sends solicitations (see finding 13, supra). BTA has ceased sending solicitations for new memberships to the Washington, DC area because response in the past from this area has been so poor. It sends only a few directories to the area but does send renewal solicitations containing representation (d) to the area (Tr. 307).

"(e) BTA has an office at which it conducts business which is located at a specific street address in Washington, DC."

37. Representation (e) is found in that part of the solicitation which directs the sending of checks for membership fees to BTA at 325 Pennsylvania Ave., S.E., Washington, DC 20003. Respondents have shown that some other associations which do not have offices there use an address in Washington for receipt of mail. Some recipients of Respondents' solicitations, aware of that fact, may not be deceived by the Washington address. Others, however, such as Complainant's witness, Clifton A. Thomas, can reasonably believe that the mailing address is BTA's office. The 800 telephone number below the mailing address may indicate to some recipients that BTA's office is not in Washington. I find, however, that such number is not sufficient to alert all interested recipients to that fact.

"(f) BTA and its officers and employees act as agents solely of BTA's members in obtaining the benefits of membership in BTA related to the purchase of goods and services which are identified in the solicitations."

38. Representation (f) as alleged is found in Respondents' solicitations. The primary inducement toward membership offered to firms or persons solicited is the services BTA represents it will provide to those who elect to become members. The sole agency expressed or implied by BTA is for members in obtaining such services.

39. The representation, as alleged, is true. BTA provides, or arranges to provide, only to its members the various services listed in the solicitations.

40. Representations (c), (d), and (e) are material because they would tend to cause readers to remit the membership fee to Respondent.

DISCUSSION

Falsity of Representations (a) and (f)

Complainant's claim of falsity in representations (a) and (f) is based on Respondent's failure to disclose that BTA operates for profit and that it receives commissions on sales of certain services to members. Complainant has produced no support for this argument by way of legal or dictionary definition of the term membership association as excluding for-profit corporations or associations or by way of evidence as to common understanding that a membership association does not make profit or receive commissions on sales to members. None of Complainant's consumer witnesses stated that they believed BTA was a nonprofit association and would not have become members of BTA had they known it was profit-making and received commissions on sales of services.

CONCLUSIONS OF LAW

1. The meaning of advertising representations is to be judged from a consideration of an advertisement in its totality and the impression it would most probably create in ordinary minds. Donaldson v. Read Magazine, Inc., 333 U. S. 178 (1948); Vibra-Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957); Borg-Johnson Electronics v. Christenberry, 169 F. Supp. 746 (S.D.N.Y. 1959). Express representations are not required. It is the net impression that the advertisement is likely to make upon purchasers to whom it is directed that is important. 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 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). Vibra-Brush Corp. v. Schaffer, supra; Aronberg v. Federal Trade Commission, 132 F.2d 165, 167 (7th Cir. 1942). The ordinary reader is generally the person to whom the advertisement is directed. Scott David Wilcox, P.S. Docket No. 23/70 at 5 (P.S.D. June 29, 1987); Anderson Pharmacals, P.S. Docket No. 28/90 (P.S.D. March 3, 1989). In this proceeding the ordinary reader would be the persons and businesses in the building trades to whom BTA's solicitations are sent. Therefore, even though the Administrative Law Judge may determine whether representations are made in advertising and their materiality without the assistance of lay or expert testimony (The Robertson-Taylor Company, P.S. Docket Nos. 16/98-103, 16/120-121, P.S.D. March 31, 1986 at 29). I have given weight to the testimony of Complainant's consumer witnesses in applying the foregoing standards of interpretation.

2. The burden rests with Complainant to prove 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).

3. As found in the findings of fact above, Respondent's solicitations make representations (a), (c), (d), (e), and (f). They do not make representation (b). Representations (c), (d), and (e) are materially false. Complainant has failed to establish the falsity of representations (a) and (f) in the form alleged in the complaint and as clarified or modified in Complainant's post-hearing brief.

4. Respondents are engaged in the conduct of a scheme to obtain remittances of money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

5. Both Richard Oleck and Harvey Oleck should be named in the cease and desist order, the former because he is responsible for the conduct of BTA and his father because he is engaged in the conduct of the scheme as one of the designers of the BTA solicitations and is an active, although unpaid, adviser to his son in the conduct of the scheme. Also, it has been stipulated that Harvey Oleck is a proper party to this proceeding. The cease and desist order proposed by Complainant has been modified to conform with this decision.

6. The attached proposed orders should be issued.