P.S. Docket No. 37/128
October 21, 1993
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
APPEARANCE FOR COMPLAINANT: Geoffrey A. Drucker, Esq.
Consumer Protection Division
United States Postal Service
Washington, DC 20260-1144
APPEARANCE FOR RESPONDENT John T. Cusack, Esq.
ASSOCIATED ADVERTISERS OF Patrick S. Coffey, Esq.
AMERICA: Gardner, Carton & Douglas
Quaker Tower, Suite 3400
321 North Clark Street
Chicago, IL 60610-4795
POSTAL SERVICE DECISION
Complainant, United States Postal Service, and Respondent, Associated Advertisers of America (AAA), have both filed appeals from an Initial Decision of an Administrative Law Judge which holds that Respondent was engaged in a scheme or device to obtain money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Although the Administrative Law Judge recommended the issuance of a false representation order against the address to which Respondent AAA solicits remittances through the mail, he concluded that a cease and desist order should not be issued because a change of circumstances had occurred which would make resumption of the scheme impractical.1/
BACKGROUND
The Consumer Protection Division, Law Department, United States Postal Service (Complainant), initiated this proceeding by filing a Complaint, subsequently amended, alleging that Respondents, The National Tribune Corporation (NTC) and AAA, were conducting a telemarketing scheme in which they obtained money through the mail by means of materially false representations in violation of 39
U.S.C. § 3005.2/ In Paragraph 10 of the Amended Complaint, the Postal Service alleged that Respondents made the following materially false representations:
"The National Tribune's circulation is significantly greater than it actually is;
The National Tribune is distributed to a substantial portion of the U. S. Armed Forces stationed in the Persian Gulf."
In its Answer to the Complaint, Respondent, AAA3/, admitted that (1) it is an unincorporated partnership doing business from an address in Chicago, Illinois; (2) Respondent NTC represented to the public and to AAA that the circulation of The National Tribune was 200,000; and (3) AAA solicited businesses to place advertisements in The National Tribune for distribution to United States troops in the Persian Gulf. Respondent denied the remaining factual allegations of the Complaint and denied making the materially false representations alleged.
At a hearing before an Administrative Law Judge both parties presented witnesses and introduced documentary evidence. Following the hearing and the filing of Proposed Findings of Fact and Conclusions of Law, the Administrative Law Judge issued the Initial Decision in which he found that Respondent, AAA, made the representations alleged in Paragraph 10 of the Complaint; that those representations were materially false; and that Respondent, AAA, was engaged in a scheme to obtain money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. As a result of these findings the Administrative Law Judge recommended the issuance of a false representation order, but not the cease and desist order sought in the Complaint.
EXCEPTIONS TO THE INITIAL DECISION
Both Respondent and Complainant have filed exceptions to the Findings and Conclusions of the Initial Decision. Complainant contends the Administrative Law Judge erred in concluding that a cease and desist order should not be issued against AAA. AAA on the other hand argues that the Administrative Law Judge erred in concluding that it is engaged in a scheme in violation of 39 U.S.C. § 3005 and that a false representation order should be issued. Each of the parties' contentions are hereafter addressed.
RESPONDENT'S EXCEPTIONS
EXCEPTION ONE
The Record Evidence Is Insufficient to Support A Conclusion
That AAA Engaged In A Scheme In Violation of 39 U.S.C. § 3005.
Respondent first contends that the evidence is insufficient to support a conclusion that it is engaged in a plan or program which could be considered a scheme in violation of 39 U.S.C. § 3005. In connection with this contention AAA excepts to those portions of Conclusions of Law 1 through 4 in which the Administrative Law Judge held that AAA was engaged in a plan or program involving the misrepresentation of the circulation and distribution of The Stars and Stripes-The National Tribune (S&S) and that this plan or program constituted a scheme or device to obtain remittances of money or property through the mail. According to AAA the false representation statute is inapplicable to the promotion which is the subject of this proceeding because AAA telephonically solicited potential advertisers for S&S and therefore there is no scheme conducted through the use of written solicitations. AAA further contends that Complainant failed to show the existence of a false representation scheme because it presented insufficient evidence of requests for circulation figures of S&S, and AAA's responses thereto. AAA also contends that any false representations which were in fact made by AAA were de minimis and do not support the conclusion that a violation of 39 U.S.C. § 3005 has occurred. AAA further submits that Complainant purposefully failed to produce a significant number of S&S advertisers as witnesses at the hearing in an attempt to avoid the possibility of AAA developing evidence of improper actions by a Mr. Adam Spiegel on behalf of Complainant (see infra).
In regard to AAA's initial argument, the false representation statute 39 U.S.C. § 3005 is not limited to written solicitations. By its express terms a violation of the statute occurs where any person is found to be "conducting a scheme or device for obtaining money or property through the mail by means of false representation" (emphasis supplied). A representation made by whatever means or a solicitation sent by means other than mail which gives an address for obtaining remittances through the mail is sufficient to establish jurisdiction under 39 U.S.C. § 3005. Sergio & Spiegel Television For Oncor, Inc., P. S. Docket No. 37/105 (P.S.D. March 12, 1993) (representation made in television informercial); Canadian Express Club, P. S. Docket No. 28/52 (P.S..D. Dec. 23, 1991) (credit card billings); IAAIC, P.S. Docket No. 13/173 (P.S.D. Dec. 29, 1982). Here AAA sent both sales confirmation letters and invoices to its advertisers seeking remittances through the mail based on representations which had previously been made (Tr. 530, 595). Thus, AAA was engaged in a plan or program prohibited by 39 U.S.C. § 3005. AAA's initial argument therefore lacks merit.
AAA's contention that Complainant failed in its burden of establishing the existence of a false representation scheme is premised on Complainant's reliance on the testimony of only three individuals whose firms had placed advertisements with AAA and the testimony of the Postal Inspector who investigated this matter.The testimony of these witnesses was found credible by the Administrative Law Judge and was properly considered and was given due weight along with all the other evidence in his determination that AAA was conducting a scheme in violation of 39 U.S.C. § 3005. In any event, it is established that it is unnecessary to rely on lay testimony to establish a violation of 39 U.S.C. § 3005. Telco Directories Inc., et al., P.S. Docket No. 22/112 (P.S.D. Feb. 25, 1987). Further, whether anyone complains or has been deceived by Respondent's solicitation need not be proved in order to establish the existence of a false representation scheme. The decisive factor is whether the mails are being used to obtain money by means of false representation. Gilles J. Bitbol, et al., P.S. Docket No. 12/158 (P.S.D. Aug. 24, 1982); The Washington Mint, Inc., P.S. Docket No. 30/42 (P.S.D. June 1, 1989).
Here, Respondent's own witness, a principal of AAA, testified that circulation information is very important to an advertiser, as it is needed to establish the price paid for an advertisement (Tr. 533). It is thus most probable that those solicited by AAA sought information as to the circulation of S&S. It is established from the record that AAA instructed its sales representatives to tell prospective advertisers that the S&S circulation was 200,000 to 250,000 per issue (Tr. 551-52). Sales representatives were also told on at least five occasions to tell prospective purchasers that special editions of S&S would be sent to "our desert forces" in the Persian Gulf (thus implying the distribution of thousands of copies of each issue). The information provided was false, as the circulation of S&S did not exceed ten thousand copies per issue and the greatest number of copies per issue of any of the five special editions sent to the Gulf was two thousand.4/ AAA thus falsely represented S&S's circulation to prospective advertisers. The false representations were material as they influenced those solicited to place advertisements. Chaachou v. American Central Ins. Co., 241 F.2d 889, 893 (5th Cir. 1957); Richard W. Verret, P. S. Docket No. 20/18 (P.S.D. Dec. 31, 1986); The National Gold Mint, P. S. Docket No. 22/165 (P.S.D. May 1, 1987).
AAA's contention that there exists a serious question of misconduct by Complainant based on Complainant's alleged use of information supplied by a Mr. Adam Spiegel, who initiated his own investigation of AAA's advertising solicitation practices is equally unavailing. According to AAA, Complainant's association with Mr. Spiegel "calls into question the propriety of the resulting 39 U.S.C. § 3005 proceedings against AAA." Mr. Spiegel did not testify in this proceeding and whatever investigatory processes he utilized, his motivations and conveyance of information to Complainant are not relevant to the issue pending -- that of materially false representations made by AAA, which the record conclusively establishes.
Likewise irrelevant is AAA's exception to an Order of the Administrative Law Judge, denying its motion to supplement the record with two additional documents.5/ The documents pertain to a mailing solicitation sent by Respondent NTC subsequent to its execution of the Agreement Containing Consent Order to Cease and Desist (see footnote one). The documents do not appear to have any bearing on the issue of whether AAA made materially false representations. Respondent's exceptions are denied.
EXCEPTION TWO
The Issuance Of A Mail Stop Order Against AAA Is Improper
And Unsupported By The Record Evidence.
AAA excepts to that portion of Conclusion of Law No. 4 which states that a false representation order should be issued against the name and address to which AAA sought remittances for subscriptions to S&S. AAA contends the Administrative Law Judge erred in concluding that a false representation order should be issued. According to AAA an adequate basis does not exist for the issuance of a false representation order and moreover the order recommended is unreasonably and improperly broad in scope.
As argued by AAA the record does not support the issuance of a false representation order in this instance. AAA no longer solicits remittances on behalf of NTC and has not done so since shortly after it learned that NTC had falsely represented its circulation figures (see discussion under Complainant's Exception 4, infra). Any false representations made by AAA were inadvertent and AAA took corrective action immediately upon learning of NTC's actual circulation figures (Id.). Since the representations were innocent misrepresentations on the part of AAA, AAA has not been shown to have previously been in violation of 39 U.S.C. § 3005 and has severed its relationship with NTC the likelihood of recurrence of the prior false representation is not present (Id.). Therefore, there is no need for the issuance of a false representation order. Accordingly, AAA's Exception Two is sustained.
COMPLAINANT'S EXCEPTIONS
Complainant has filed four exceptions to the Initial Decision, encompassing findings of fact and conclusions of law, which lead to the Administrative Law Judge's ultimate conclusion that a cease and desist order should not be issued against AAA.
EXCEPTION ONE
AAA Knew Or Had Reason To Know That Its Personnel Were
Falsely Representing The Circulation Of The Stars and Stripes,
And It Condoned Such Conduct.
In support of this exception Complainant argues that Findings of Fact (FOF) Nos. 20, 23, and 24 are erroneous and that the Administrative Law Judge further erred in excluding Complainant's Exhibits 22 and 23 from the record. In FOF 20 the Administrative Law Judge found that it was AAA's policy not to permit its sales representatives to make false representations to potential advertisers, to discipline those caught doing so, and to fire employees who continued to make misrepresentations. Complainant argues the evidence in support of this finding consisted entirely of self-serving testimony by Respondent, and is contradicted by other evidence which consists of an attempt at impeachment on cross-examination by Complainant of one of Respondent's principals and proof of some instances of misrepresentations made by Respondent's salespersons when no subsequent disciplinary action was taken.
An Administrative Law Judge's findings of a witness's credibility are generally afforded great weight. ABC Trans-National Transport Inc. v. N.L.R.B., 642 F.2d 675, 684 (3rd Cir. 1981); Kallman v. N.L.R.B., 640 F.2d 1094, 1098 (9th Cir. 1981); Cosvetic Laboratories, P.S. Docket Nos. 9/173-9/185 (P.S.D. Dec. 11, 1981); National Gold Mint, P. S. Docket No. 22/165 (P.S.D. May 1, 1987). It appears from the record that the Administrative Law Judge found Respondent's witnesses credible as he based FOF 20 on their testimony and disregarded or found unpersuasive Complainant's impeachment attempt. The instances of misrepresentation (other than misrepresentations based on information provided to AAA from NTC pertaining to NTC circulation figures) by AAA's employees where no disciplinary action was taken were isolated in nature, and no evidence was introduced by Complainant that AAA was aware of such instances so that disciplinary action could be taken. One misrepresentation, made by Peter Bourjaily, was premised on information contained on AAA's rate card, which information was furnished by Respondent NTC (Tr. 627-28). It cannot be said that FOF 20 is erroneous.
In FOF 23 the Administrative Law Judge found that NTC had furnished AAA certain circulation information found on AAA's order confirmation notice.
Complainant excepts to the finding, alleging that in 1987 NTC sent AAA a letter containing revised circulation figures, which AAA allegedly ignored. The exception is not well taken. The 1987 transmittal contained no information as to actual circulation figures except for the Veterans Administration, and with one exception6/ the record does not indicate that NTC advised AAA the circulation information contained in AAA's confirmation orders was erroneous or requested AAA to revise such information.
In FOF 24, the Administrative Law Judge found that upon learning of the actual circulation figures for S&S, AAA revised its letterhead by eliminating circulation numbers in the "Circulation Categories" portion of the letterhead. Complainant contends the finding is erroneous since the old letterhead was used at least three times by AAA subsequent to the date that it learned the circulation figures were inaccurate. Complainant has not established that the finding is erroneous. Respondent's Paul Bourjaily testified that the letterhead in fact was revised, but that the old letterhead was used for a short period of time until the revised letterhead was received from the printer (Tr. 583, 596-97).
Complainant alleges the Administrative Law Judge erred in excluding CX-22 and CX-23 from evidence as the exhibits, a tape recording and transcript of the tape, were relevant, citing Fed. R. Evid. R. 402. The exception lacks merit. The record in this matter establishes that the exhibits were neither properly identified nor authenticated. The individual who purportedly made the tape recording of one of AAA's employees (without the employee's knowledge) was not present to testify at the hearing. The exception is denied.
EXCEPTION TWO
AAA Did Not Promptly Sever Its Relationship With NTC.
In this Exception Complainant disagrees with the portion of Conclusion of Law No. 4 which states that AAA's severance of its relationship with NTC upon learning of the true circulation and distribution of S&S was "prompt." The exception is not well taken. AAA learned on December 19, 1990, that NTC had been utilizing false circulation figures. Immediately, thereafter AAA advised its entire staff, including sales representatives of the actual circulation figure of S&S and instructed them to use that figure in promoting sales of advertising to be included in S&S. AAA also revised the S&S letterhead by eliminating all the numbers under the "Circulation Categories" heading which NTC had furnished AAA. Thereafter, in March 1991, upon obtaining further information as to NTC's activities, AAA determined that the most appropriate action to take would be to terminate its relationship with NTC, and accordingly did so. AAA's immediate action to correct the circulation figure and its subsequent termination of its relationship with NTC was under the circumstances reasonably prompt. Thus the Administrative Law Judge did not err in concluding that AAA promptly severed its relationship with NTC.
EXCEPTION THREE
The Initial Decision Errs In Finding That AAA Has Never Before Been The Object Of A Complaint Or Investigation Regarding Misrepresentation
In determining whether to issue a cease and desist order against AAA, the Administrative Law Judge concluded that AAA had operated for nearly half a century without any evidence of involvement in, investigation for, or charge of violation of 39 U.S.C. § 3005 (COL 4). Complainant contends that the lack of prior complaints or investigations is not relevant in determining whether to issue a cease and desist order with respect to a particular scheme. The exception is without merit. While prior conduct ordinarily would have no bearing on the existence of a current false representation scheme, prior business operations, including charges of false representations, may be considered as one of many factors in determining whether to issue a cease and desist order or the breadth or scope of such an order.7/ Accordingly, the Administrative Law Judge did not err in considering AAA's prior business practices in determining whether a cease and desist should be issued.
EXCEPTION FOUR
AAA Failed To Prove That It Is Unlikely To Resume The Scheme.
Complainant next takes issue with the portion of Conclusion of Law No. 4 in which the Administrative Law Judge found that there was no need for a cease and desist order because a change of circumstances had occurred so as to make a resumption of the scheme [by AAA] impracticable and a recurrent violation not a cognizable danger. In support of its position Complainant argues that AAA's "Irrevocable Undertaking" is nothing more than an unenforceable promise; that AAA could misrepresent the circulation of other publications absent the issuance of a cease and desist order; and that at least one of AAA's managers has a propensity to make false representations.8/
The burden of establishing that there is no reasonable expectation that the wrong will be repeated lies with Respondent. See United States v. W. T. Grant Co., 345 U.S. 629, 633 (1953). Under the circumstance presented in this case AAA has sustained its burden. While AAA's "Irrevocable Undertaking" standing alone would not be entitled to much weight, there are other factors which support the Administrative Law Judge's conclusion. As previously discussed, AAA took immediate corrective action to discontinue the false representation upon learning of the actual circulation and distribution figures of S&S and thereafter totally severed its relationship with NTC. AAA did not know and had no reason to know the circulation figures it was utilizing were not accurate. AAA has never been shown to misrepresent in the past in its nearly half a century of operation, and in fact, AAA had a policy against making false representations, which it actively pursued. Accordingly, it cannot be found that there is a likelihood of future violation of the false representation statute by AAA and no purpose would be served by issuing a cease and desist order. Complainant's exception is denied and the Administrative Law Judge's recommendation is sustained.
CONCLUSION
After consideration of the entire record, and the parties' exceptions on appeal, it is concluded that Respondent, AAA, was engaged in conducting a scheme or device for obtaining money or property through the mail by means of materially false representations in violation of 39 U.S.C. § 3005. Accordingly, the Initial Decision is affirmed, as modified herein. However the orders sought in the Complaint and authorized by 39 U.S.C. § 3005 will not be issued. Pursuant to the terms of the Escrow Agreement, previously executed by the parties, those funds representing payments contained in mail subject to a mail detention agreement of March 18, 1991, and payments received thereafter may be released to AAA by counsel for AAA according to arrangements between AAA and its counsel.
James D. Finn, Jr.
Acting Judicial Officer
CEASE AND DESIST ORDER NO.October 21, 1993 RE: THE STARS AND STRIPES-THE NATIONAL TRIBUNE THE NATIONAL TRIBUNE CORPORATION ASSOCIATED ADVERTISERS OF AMERICA P.S. Docket No. 37/128
I. Authority and Scope
This Order is issued pursuant to 39 U.S.C. § 3005(a)(3) and extends to any materials that seek the remittance of money or property through the mail.
II. Persons Covered
This Order binds Associated Advertisers of America, and anyone who would be bound by an injunction issued against this entity pursuant to Federal Rule of Civil Procedure 65.
III. Conduct Prohibited:
The persons identified in paragraph II are ordered to cease and desist immediately from falsely representing:
a. the circulation of a publication;
b. the distribution of a publication;
c. the characteristics of the persons to whom a publication is circulated or distributed.
IV. Definition:
Representing means asserting directly or indirectly, in substance and effect, whether by affirmative statements, implications, or omissions.
James A. Cohen
Judicial Officer
1/ After the hearing in this matter Respondent National Tribune Corporation executed an Agreement Containing Consent Order to Cease and Desist. Based on the terms of the Agreement the Judicial Officer issued Cease and Desist Order No. CD-3263 against Respondent, National Tribune Corporation, and suspended indefinitely further proceedings against National Tribune Corporation.
2/ The Stars and Stripes-The National Tribune, the first named Respondent in the Complaint, is a newspaper published by Respondent National Tribune Corporation.
3/ In view of the suspension of proceedings against Respondent NTC, further reference to its participation in this proceeding is unnecessary except as it relates to the present appeals by Complainant and AAA.
4/ On three occasions only one thousand copies were sent.
5/ The Judicial Officer by Order ruled that AAA's Motion for Reconsideration of the ruling by the Administrative Law Judge would be considered as an additional exception to the Initial Decision.
6/ NTC's representative advised AAA that a figure of 334 issues of S&S for the National Alliance of Businessmen was inaccurate (Tr. 370).
7/ A Respondent's past practice constitutes an issue of fact on which evidence may be taken to determine whether recurring violations may occur. See Professional Opportunity Magazine, Inc., P.S. Docket No. 33/55 (P.S.D. Sept. 14, 1990).
8/ The manager, Peter Bourjaily, testified however, that any false representation he made was based upon information supplied by NTC and that he had no knowledge such information was not accurate (Tr. 626-28).