In the Matter of the Complaint Against:

THE PROCESSING CENTER, INC.,
5211 Linbar Drive, Suite 508,
Nashville, TN 37211-1021
and
501 Metroplex Drive, Suite 310,
Nashville, TN 37211-3148;

VAUGHN MANAGEMENT, INC.,
5178 Linbar Drive,
Nashville, TN 37211-5029;

JOEL B. VAUGHN,
5211 Linbar Drive, Suite 508,
Nashville, TN 37211-1021,

JOHN LEWIS,
5211 Linbar Drive, Suite 508,
Nashville, TN 37211-1021

P.S. Docket No. 34/63

01/27/92

Cohen, James A., Judicial Officer

APPEARANCES FOR COMPLAINANT: Geoffrey A. Drucker, Esq., Elizabeth P.
Martin, Esq., Law Department, United States Postal Service,
Washington, D.C. 20260-1144

APPEARANCES FOR RESPONDENT: Joel B. Vaughn, John Lewis, Suite 508,
5211 Linbar Drive, Nashville, TN 37211-1021

POSTAL SERVICE DECISION

Respondents have appealed from the Initial Decision of an Administrative Law Judge which holds that Respondents are engaged in conducting a lottery and a false representation scheme 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 (hereafter Complaint), alleging Respondents are engaged in conducting a lottery and a scheme for obtaining money or property through the mail by means of materially false representations in violation of 39 U.S.C. $S3005. Specifically, Complainant alleges that in connection with their lottery promotion Respondents solicit money or property through the mail using the following materially false representations:

"16. . . .

a- the scheme described above [in the Complaint] is not a lottery;

b- a consumer who is awarded two round-trip airfares must pay no more than $26.50 to receive this award;

c- the Puradyne company will determine which award the consumer will receive after the consumer calls to claim an award;

d- Processing Center will send the consumer his award by some means other than First-Class mail;

e- Processing Center and Puradyne Company are controlled and directed by different persons."

Respondents filed an Answer in which they denied they are engaged in a lottery promotion, admitted making the representation alleged in paragraph 16a of the Complaint, denied making any of the other representations alleged in paragraph 16 of the Complaint, and denied that any of the representations made in connection with their promotion are materially false. Thereafter, the parties agreed to have the merits of the Complaint decided on the record consisting of the transcript and exhibits (whether admitted or not) presented in a court proceeding filed under 39 U.S.C. § 3007, United States Postal Service v. Processing Center, Inc., No. 3-89-3075 (M.D. Tenn. 1989). Following the submission of proposed findings of fact and conclusions of law, the Administrative Law Judge issued an Initial Decision in which he found Respondents were engaged in conducting a lottery and a false representation scheme in violation of 39 U.S.C. § 3005.

Respondents have filed an appeal from the Initial Decision which Complainant opposes. Respondents' exceptions on appeal have been considered and are addressed hereafter.

Respondents' Exceptions

I. Lottery Promotion

Respondents take exception to the Administrative Law Judge's conclusion they are engaged in a lottery promotion in violation of 39 U.S.C. § 3005. According to Respondents, the Administrative Law Judge erred in concluding that the lottery elements of prize, chance and consideration are present in their promotion. Although Respondents concede that prize, chance and consideration are the elements of a lottery, they contend they distribute gifts rather than prizes, there is no chance because every recipient is guaranteed one of five gifts and no consideration is present because recipients are only required to place one phone call to receive their gift.

The Administrative Law Judge found the awards listed on Respondents "Official Claim Notice Form" are prizes, not gifts, (prize) distributed by random selection (chance) for which the recipient is required to pay a processing charge of $12.50 or $26.50 (consideration). The record supports the Administrative Law Judge's findings.

As Respondents concede, the three elements of a lottery are prize, chance and consideration. See FCC v. American Broadcasting Co., Inc., , 347 U.S. 284, 290, reh'g denied, 347 U.S. 965 (1954); J.C. Martin Corp. v. FTC, 242 F.2d 530, 532 (7th Cir. 1957); Brooklyn Daily Eagle v. Voorhies, 181 F. 579, 581 (C.C.E.D.N.Y. 1910); Unimax, Inc., P.S. Docket No. 28/77 at 10 (P.S.D. March 3, 1989). All of these elements are present in Respondents' promotion. The awards which Respondents characterize as gifts can only be obtained after payment of a processing fee. Thus, contrary to Respondents' assertion, the awards are not free of charge and therefore cannot be considered a gift. Cf. United States Postal Service v. Paul Marbin & Co. Inc., Civ. A. No. 87-7394, slip op. (E.D. Pa. Dec. 10, 1987). The element of chance is present in Respondents' promotion because recipients are not told which of the preselected prizes they have won until after they have paid the processing fee. See Conte & Co., Inc., P.S. Docket No. 29/131 at 5 (P.S.D. Sept. 29, 1988). Finally, the element of consideration is present in the form of the processing fee which is required to be paid in order for the prize to be awarded. See Paul Marbin & Co., Inc., P.S. Docket No. 28/190 at 13 (P.S.D. Oct. 20, 1989); Conte & Co., Inc. at 5 - 6; American Testing Inst., P.S. Docket No. 14/114 at 3 - 4 (P.S.D. July 6, 1983), aff'd, American Testing Inst. v. United States Postal Service, 579 F. Supp. 1345 (D.D.C. 1984). Since all of the elements of a lottery are present in Respondents' promotion, Respondents are engaged in the conduct of a lottery in violation of 39 U.S.C. § 3005. Accordingly, Respondents' exception to the Administrative Law Judge's findings and conclusions regarding the allegation of a lottery promotion is denied.

II. False Representation Scheme

Respondents contend that the Administrative Law Judge erred in concluding that their promotional materials are misleading. Specifically, Respondents argue that their promotional materials do not represent that consumers awarded the prize of two round-trip airfares "must pay no more than $26.50 [the processing fee] to receive this award" (Complaint para. 16b). According to Respondents, the text of their "Official Claim Notice Form" clearly advises recipients they will have to purchase motel or hotel accommodations in order to receive the prize. Respondents further argue that a consumer survey performed on their behalf supports this conclusion and should have been relied on by the Administrative Law Judge in arriving at his decision.

The Administrative Law Judge correctly concluded that Respondents make the representations alleged in the Complaint and that those representations are materially false. As the Administrative Law Judge pointed out in connection with paragraph 16b of the Complaint, neither the language of Respondents' original or revised n1 "Official Claim Notice Form" would lead ordinary readers to believe they were required to purchase specified lodging from a designated travel agency in order to receive the two round-trip airfares. Respondents' survey evidence could not be relied on to lead to a contrary conclusion since the survey questions did not address the requirement for specific hotel accommodations. Accordingly, the Administrative Law Judge properly refused to consider the survey evidence and correctly concluded Respondents make the representation alleged in paragraph 16b of the Complaint.

n1 Respondents argue that a temporary restraining order issued by a United States District Court prevented them from continuing to include in their "Official Claim Notice Form" language which would alert the ordinary reader to the requirement they would have to purchase hotel or motel accommodations. The language referred to by Respondents was included in their revised "Official Claim Notice Form" but, contrary to their contention, does not place the ordinary reader on notice of the requirement to purchase specific hotel or motel accommodations through a designated travel agency.

Respondents next contend the Administrative Law Judge erroneously concluded Respondents represent the Processing Center, Inc. and Puradyne Company, Inc., are separate legal entities (Complaint para. 16e). In arriving at this conclusion, the Administrative Law Judge relied on the language of the "Official Claim Notice Form" as well as the follow-up telephone script. The language of the claim notice form and the script referred to by the Administrative Law Judge, as well as the overall impression created by both, would lead the ordinary reader to believe the Processing Center, Inc. and Puradyne, Inc. are separate entities. As the Administrative Law Judge properly concluded, this representation is materially false.

Although Respondents do not take specific exception to the Administrative Law Judge's findings and conclusions regarding the representations alleged in paragraphs 16a, c and d of the Complaint, each has been considered on appeal. For the reasons stated by the Administrative Law Judge, these representations are made in Respondents' promotional materials and are materially false.

Conclusion

After consideration of the entire record it is concluded that Respondents are engaged in a lottery and a scheme for obtaining money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Accordingly, the orders sought in the Complaint and authorized by 39 U.S.C. $S3005 are issued herewith.