In the Matter of the Complaint Against:

RON COOPER
d/b/a THE GOOD LIFE CLUB "TGIF",
722 W. Bristol, Suite B, P.O. Box 177,
Elkhart, IN 46515-0177
and
722 W. Bristol, Suite B, P.O. Box 1825,
Elkhart, IN 46515-1825

P.S. Docket No. 35/112

02/07/92

Cohen, James A., Judicial Officer

APPEARANCE FOR COMPLAINANT: H. Richard Hefner, Esq., Consumer Protection
Division, Law Department, United States Postal Service,
Washington, DC 20260-1144

APPEARANCE FOR RESPONDENT: Ron Cooper, 722 W. Bristol, Suite B, P.O. Box
177, Elkhart, IN 46515-0177

POSTAL SERVICE DECISION

Respondent has filed an appeal from an Initial Decision in which an Administrative Law Judge concluded that Respondent is engaged in conducting a lottery or scheme for the distribution of money by chance in violation of 39 U.S.C. § 3005. Complainant opposes Respondent's appeal and has itself filed an appeal from the Administrative Law Judge's conclusion that Complainant has failed to prove Respondent makes the false representation alleged in the Complaint.

Background

The General Counsel of the United States Postal Service (Complainant) initiated this proceeding by filing a Complaint, subsequently amended, alleging that Respondent is engaged in conducting a scheme or device for obtaining money or property through the mail by means of a solicitation for a multi-level marketing program which falsely represents:

"that each person who elects to participate in Respondent's program will earn substantial sums of money (i.e. up to $59,049)."

The Complaint also alleges that Respondent's program is a lottery or scheme for the distribution of money by chance in violation of 39 U.S.C. § 3005(a).

Respondent filed a timely Answer denying the allegations of the Complaint. Thereafter, the parties agreed to submit the matter for decision on the record as supplemented by briefs and additional documents. Following submittals by the parties, the Administrative Law Judge issued an Initial Decision in which he concluded that Respondent's multi-level marketing program constitutes a lottery or scheme for the distribution of money by chance in violation of 39 U.S.C. § 3005(a). However, the Administrative Law Judge also concluded that Complainant had failed to prove Respondent makes the false representation alleged in the Complaint (I.D., Conclusion of Law (COL) ##2-8).

Respondent has filed a timely appeal in which he takes issue with the Administrative Law Judge's findings and conclusions that he is engaged in the conduct of a lottery in violation of 39 U.S.C. § 3005(a). Complainant opposes Respondent's appeal and in addition argues that the Administrative Law Judge erred in concluding that Respondent does not make the false representation alleged in the Complaint.

Discussion & Exceptions

I. Respondent's Appeal

Respondent's primary contention on appeal is that the Administrative Law Judge erred in concluding his multi-level marketing program is a lottery as that term is generally understood. Respondent, in addition, claims the Postal Service is in effect censoring his mail, is guilty of discrimination and selective prosecution (or persecution), and by initiating this proceeding, is unconstitutionally infringing on his rights and the rights of others who desire to participate in his program. Respondent further contends the Postal Service lacks authority to bring this action in the absence of consumer complaints or specific rules governing multi-level marketing programs. Finally, Respondent argues there can be no statutory violation because he offers a money back guarantee for those who are dissatisfied with his program.

Respondent has not established that the Administrative Law Judge's decision on the lottery issue is in error or that any other basis exists for reversing the Initial Decision with respect to this issue. The Administrative Law Judge's findings and conclusions regarding the lottery issue are supported by the record (I.D., Findings of Fact (FOF) ##2-7), and are consistent with case law involving multi-level marketing programs similar to Respondent's. See e.g. Public Clearing House v. Coyne, 194 U.S. 497 (1904); Zebelman v. United States, 339 F.2d 484 (10th Cir., 1964); New v. Tribond Sales Corp., 19 F.2d 671 (D.C. Cir.), cert. denied, 275 U.S. 550 (1927); Unimax, Inc., P.S. Docket No. 28/77 (P.S.D. Mar. 3, 1989); Opportunity Research Corp., P.S. Docket No. 24/131 (P.S.D. Oct. 30, 1987); Claud Koch, P.S. Docket No. 22/140 (P.S.D. Nov. 6, 1987); N.E.S.T., Inc., P.S. Docket No. 14/89 (P.S.D. Aug. 7, 1984); Middle Class American, Inc., P.S. Docket No. 16/65 (P.S.D. Mar. 26, 1984).

Despite Respondent's claim that his program is not a "lottery" as that term is generally understood, it has been repeatedly held that the lottery elements of prize, chance and consideration n1 may be present in a multi-level marketing program. Id. Indeed, the Administrative Law Judge properly concluded that all three elements are present in Respondent's program since he correctly found that the membership fee charged for participation in the program is consideration, earnings received from downline recruitment constitute a prize, and a participant's reliance on the efforts of others over whom he has no control constitutes chance (I.D., pp. 9-10). See e.g. United States Postal Service v. Paul Marbin & Co., Inc., Civ. A. No. 87-7394, slip op. at 4-7 (E.D. Pa. Dec. 10, 1987); Opportunity Research Corp., at 3 (P.S.D. Oct. 30, 1987); Claud Koch, at 7-8 (P.S.D. Nov. 6, 1987); N.E.S.T., Inc., at 7-14 (P.S.D. Aug. 7, 1984); Middle Class American, at 7 (P.S.D. Mar. 26, 1984). Thus, Respondent's multi-level marketing program is a lottery as that term is used in 39 U.S.C. § 3005.

n1 See Horner v. United States, 147 U.S. 449, 456-59 (1893); Brooklyn Daily Eagle v. Voorhies, 181 F. 579, 581 (C.C.E.D.N.Y. 1910).

Respondent's additional arguments are similarly lacking in merit. For the most part, Respondent on appeal raises the same arguments which the Administrative Law Judge previously considered and properly rejected (I.D., COL ##5-8). As stated in the Initial Decision, a money-back guarantee is not a defense to a lottery complaint under 39 U.S.C. § 3005, see Paul W. Schuette, P.S. Docket No. 29/117 at 6-7 (P.S.D. Mar. 16, 1989), and evidence of consumer complaints is not required to establish a statutory violation. See Farley v. Heininger, 105 F.2d 79, 84 (D.C. Cir.), cert. denied, 308 U.S. 587 (1939); The Washington Mint, Inc., P.S. Docket No. 30/42 at 17 (P.S.D. June 1, 1989); Gilles J. Bitbol, P.S. Docket No. 12/158 at 4 (P.S.D. Aug. 24, 1982). Further, the absence of Postal Service regulations relating to multi-level marketing promotions does not relieve Respondent from the consequences of his actions since the statute, as interpreted by court and administrative decisions, provides sufficient guidance to prospective promoters.

With respect to his selective prosecution argument, Respondent has not made even a colorable showing he was singled out for prosecution for discriminatory or retaliatory reasons. See Wayte v. United States, 470 U.S. 598, 608-09 (1985); United States v. Greenwood, 796 F.2d 49, 52 (4th Cir. 1986); Attorney General of the United States v. Irish People, Inc., 684 F.2d 928, 932-33 (D.C. Cir. 1982), cert. denied, 459 U.S. 1172 (1983); United States v. Berrios, 501 F.2d 1207, 1211 (2d Cir. 1974); The Canadian Express Club, P.S. Docket No. 28/52 at 19-20 (P.S.D. Dec. 23, 1991). Moreover, as stated in the Initial Decision, it is well established that agencies have broad discretion in deciding whether and against whom to initiate enforcement proceedings. See Heckler v. Chaney, 470 U.S. 821, 831 (1985); F.T.C. v. Universal-Rundle Corp., 387 U.S. 244, 250-252 (1967); Water Transp. Ass'n v. I.C.C., 715 F.2d 581, 594 (D.C. Cir. 1983), cert. denied 465 U.S. 1006 (1984);; Gottlieb v. Schaffer, 141 F. Supp. 7, 19 (S.D.N.Y. 1956); Daniel L. Soyke, P.S. Docket No. 34/158 at 6 (P.S.D. Oct. 21, 1991); The Washington Mint, Inc., at 18 (P.S.D. June 1, 1989). Agencies are not required, and in most instances it would not be possible, to proceed against every violator. Id. Therefore, the Administrative Law Judge did not err in concluding that Respondent's selective or discriminatory enforcement contention has no merit.

Finally Respondent's constitutional arguments are not persuasive since courts have repeatedly upheld the constitutionality of 39 U.S.C. § 3005 and the Postal Service's procedure for enforcing the statute. See e.g. Donaldson v. Read Magazine, Inc., 333 U.S. 178, 189-92 (1948); Public Clearing House v. Coyne, 194 U.S. 497, 510 (1904); United States Postal Service v. Athena Products, Ltd., 654 F.2d 362, 467 (5th Cir. 1981), cert. denied, 456 U.S. 915 (1982); Original Cosmetics Products, Inc. v. Strachan, 459 F. Supp. 496, 500-01 (S.D.N.Y. 1978), aff'd, 603 F.2d 214 (2d Cir.), cert. denied, 444 U.S. 915 (1979); Collegedale Diversified Enter., Inc., P.S. Docket No. 14/29 at 10 (P.S.D. Oct. 25, 1983). Moreover, Respondent has not established, nor does the record reflect, that the Postal Service is in any way censoring Respondent's mail.

Accordingly, Respondent's exceptions to the Administrative Law Judge's findings and conclusions relating to the lottery allegation are denied.

II. Complainant's Appeal n2

Complainant contends the Administrative Law Judge erred in concluding that it failed to prove Respondent makes the false representation alleged in the Complaint (I.D., pp. 8, 10-11, COL #2). According to Complainant, the Administrative Law Judge misinterpreted the allegation of the Complaint and incorrectly failed to find that Respondent's solicitation misrepresents the amount likely to be earned by participants in Respondent's program.

n2 Although Complainant did not file a cross-appeal, exceptions filed in its reply to Respondent's appeal will be addressed since the entire official record is to be considered before a final agency decision is rendered. 39 C.F.R. § 952.26. Cf. Langnes v. Green, 282 U.S. 531, 535-39 (1931); Great Lakes Yellow Pages, Inc., P.S. Docket No. 25/79 at 5, n. 3 (P.S.D. July 15, 1988), and cases cited therein.

As Complainant points out, Respondent's solicitation represents that participants can earn substantial sums of money, i.e. up to $3,495 to $118,098 in one year or $157,000 in one to two years (I.D., FOF § 3; Answer Exhibit (Exh.) pp. 10-11, 16, 18-19 & 21). The solicitation also refers to "BIG MONEY]]]" and states, e.g., "YOU COULD SOON BE EARNING MORE THAN YOUR DOCTOR OR ATTORNEY]," "Your return will be thousands of percent," and "WOULD $80,000 to $150,000 DOLLARS OF ADDITIONAL INCOME BE WORTH 15 MINUTES OF YOUR TIME?" (Exh. pp. 14-15, 19, 21-22). The overall impression created by these statements, as well as the remainder of the language used in Respondent's solicitation, would lead the ordinary reader to believe that substantial sums of money will be earned. Although the solicitation includes statements that downline participation is needed to earn the amounts represented, such disclaimers are not sufficient to dispel the overall impression of substantial earnings created by Respondent's solicitation. See Gottlieb v. Schaffer, 141 F. Supp. 7, 17 (S.D.N.Y. 1956); N.E.S.T., Inc., P.S. Docket No. 14/89 at 7 (P.S.D. Aug. 7, 1984), and cases cited therein.

Participants in Respondent's program have not earned the substantial amounts represented in Respondent's solicitation. In 1988 the largest check issued to a participant was $1,842, and in 1989 only six individuals earned more than the represented amount of $3,495 (Exh. p. 18, Appellant's Jan. 17, 1990, Submission (Forms 1099-Misc)). While one participant earned over $10,000 in 1989, the average 1989 earnings for the other 64 participants who earned over $660 was $1,669 n3 (Forms 1099-Misc).

n3 It is reasonable to assume additional participants in Respondent's program earned less than $660 since Respondent was only required to report earnings in excess of that amount to the Internal Revenue Service. See Forms 1099-MISC.

The courts have consistently held that representations of substantial earnings in connection with a multi-level marketing scheme are deceptive if a majority of participants have never earned the amounts represented. See e.g. Ger-ro-mar, Inc. v. F.T.C., 518 F.2d 33 (2d Cir. 1975); Kugler v. Koscot Interplanetary, Inc., 293 A.2d 682 (N.J. 1972); Weswar, Inc. v. State, 488 S.W.2d 844 (Tx. 1972).

Respondent's solicitation represents earnings which the record establishes have not been achieved by even a small proportion of participants. Respondent's representation of substantial earnings would induce the ordinary reader to participate in Respondent's program and therefore is a material misrepresentation of fact. See Reilly v. Pinkus, 338 U.S. 269, 274 (1949). Scott David Wilcox, P.S. Docket No. 23/70 at 4 (P.S.D. June 29, 1987), and cases cited therein, aff'd, (Mot. for Recon. Aug. 24, 1988); Oriental Nurseries, Inc., P.S. Docket No. 9/116 at 12 (P.S.D. May 19, 1981). Accordingly, Respondent is engaged in a scheme to obtain money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.

Conclusion

After consideration of the entire record and both parties' exceptions to the Initial Decision, it is concluded that Respondent is engaged in a lottery and scheme to obtain money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Accordingly, Respondent's appeal is denied, Complainant's appeal is sustained, and the Initial Decision is reversed to the extent indicated and otherwise affirmed. The Orders authorized by 39 U.S.C. § 3005 are issued with this decision.