P. S. Docket No. 37/176
June 23, 1993
In the Matter of the Complaint )
Against )
)
DENNIS SMITH )
310 Second Street #2 )
at )
Palisades Park, NJ 07650-1705 ) P. S. Docket No. 37/176
APPEARANCES FOR COMPLAINANT: H. Richard Hefner, Esq.
Peter J. Wheeler, Esq.
Consumer Protection Division
Law Department
United States Postal Service
Washington, D.C. 20260-1144
APPEARANCE FOR RESPONDENT: Dennis Smith
310 Second Street #2
Palisades Park, NJ 07650-1705
POSTAL SERVICE DECISION
Respondent has filed an appeal from the Initial Decision of an Administrative Law Judge which concluded that Respondent is engaged in 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. Complainant opposes Respondent's appeal.
Background
The General Counsel of the United States Postal Service (Complainant) initiated this proceeding by filing a Complaint alleging that Respondent, in connection with a work-at-home envelope stuffing promotion, is 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. Specifically, Complainant in Paragraphs 8 and 9 of the Complaint alleges that Respondent falsely represents that:
"(a) the program consists primarily of stuffing envelopes;
(b) the program provides a means whereby each participant can earn a large amount of money (e.g. $1000 a week);
(c) the program is legal;
(d) responding consumers will not have to spend money beyond the initial registration fee to participate in the program."
Complainant also alleges in Paragraphs 10 and 11 that Respondent causes participants to make the same misrepresentations to third parties, and thereby seeks remittances or property "through the mails by means of false representations to third parties made by participants at Respondent's express direction."
In his Answer to the Complaint, Respondent denied that he makes the false representations alleged in the Complaint or that he has otherwise violated 39 U.S.C § 3005. Additionally, Respondent asserted that he has terminated the alleged enterprise and therefore, no issue remained for determination in this proceeding. In a motion to dismiss filed thereafter, Respondent again claimed that no issue for determination remained since he is no longer engaged in the envelope stuffing promotion nor receives mail at the address alleged in the Complaint. However, the Administrative Law Judge denied Respondent's motion on the grounds that the discontinuance of the promotion does not deprive the Postal Service of jurisdiction to decide the issues originally presented.
At a hearing before the Administrative Law Judge, Complainant presented the testimony of Postal Inspector Robert G. DeMuro and expert witness Roger H. Lourie, and introduced documentary evidence (Exhibits (Exhs.) CX-1 to CX-5). Although Respondent presented no witnesses, he did offer documentary evidence (Exh. RX-1)1/ and in addition cross-examined Complainant's witnesses, objected to admission of Complainant's evidence, and renewed his motion to dismiss the Complaint.
Following the hearing and the parties' submission of proposed findings of fact and conclusions of law, the Administrative Law Judge issued an Initial Decision in which he determined that Respondent makes the representations alleged in Paragraphs 8(a), (b) & (d) of the Complaint and that those representations are materially false. The Administrative Law Judge also found that, as alleged in Paragraphs 10 and 11 of the Complaint, Respondent seeks money through the mail by means of the same false representations which participants in his program make to third parties. Accordingly, the Administrative Law Judge concluded that Respondent is engaged in conducting a scheme for obtaining money through the mail by means of materially false representations in violation of 39 U.S.C. § 3005.
Respondent has filed a timely appeal in which he takes issue with the Administrative Law Judge's findings and conclusions. Complainant has filed a response in which it urges that the Administrative Law Judge's findings and conclusions be affirmed on appeal.
Exceptions and Discussion
In his appeal, Respondent contends that the Administrative Law Judge erred in denying his motion to dismiss the Complaint. In addition, Respondent contends the Administrative Law Judge erred in allowing one of Complainant's witnesses to testify as an expert, and admitting into evidence certain testimony and exhibits introduced by Complainant. Respondent also claims that Complainant failed to substantiate the allegations against him, failed to make a test purchase of his product under 39 U.S.C. § 3005(e)(1), and improperly attempted to pressure him into entering into a consent agreement. Each of these contentions is hereafter addressed.
I. Motion to Dismiss
Respondent argues that the Administrative Law Judge erred in denying his motion to dismiss the Complaint since he voluntarily discontinued the promotion prior to the date the Complaint was filed. Complainant counters that Respondent's discontinuance of the scheme was not voluntary because it occurred as a result of the Postal Service's investigation, but even if voluntary, does not deprive the Administrative Law Judge and Judicial Officer of jurisdiction to decide this case.
Despite Respondent's contentions to the contrary, it has been consistently held that § 3005 proceedings are not rendered moot because a scheme has been voluntarily discontinued prior to the filing of the Complaint. See Professional Opportunity Magazine, Inc., P.S. Docket No. 33/55 at 6 (P.S.D. Sept. 14, 1990); Paul W. Schuette, P.S. Docket No. 29/117 at 9-10 (P.S.D. Mar. 16, 1989); CM/NA Comm'n Mailers of North Am., P.S. Docket No. 20/33 at 9-10 (P.S.D. Aug. 29, 1986). In this case, even though Respondent discontinued the promotion which is the subject of the Complaint, a genuine issue of material fact remained as to whether Respondent made the alleged false representations and whether there was a "reasonable expectation that the wrong will be repeated."2/ United States v. W.T. Grant Co., 345 U.S. at 632; United States v. Aluminum Co. of Am., 148 F.2d 416, 448 (2d Cir. 1945). See also County of Los Angeles v. Davis, 440 U.S. 625, 631 (1979); Professional Opportunity Magazine, Inc., P.S. Docket No. 33/55> at 5-6. Accordingly, the Administrative Law Judge did not err in denying Respondent's motion to dismiss the Complaint (I.D., Conclusions of Law (COL) ¶ ¶ 7-9).3/
II. Expert's Qualifications
Respondent contends that the Administrative Law Judge improperly found Mr. Lourie qualified to testify as an expert in the field of direct response marketing and advertising. Respondent, however, presents no argument supporting this contention other than stating that Mr. Lourie went from one job to another, studied engineering, and received a master's degree in business administration and international affairs. Complainant in turn argues that the Administrative Law Judge properly accepted Mr. Lourie as an expert witness based on his knowledge, skill, experience, training, and education in the field of direct response marketing and advertising.
There is no merit to Respondent's contention that Mr. Lourie was not qualified to testify as an expert witness. The record reflects that, in addition to obtaining a master's degree in business administration, Mr. Lourie worked in direct response marketing and advertising for over 12 years, and now owns his own company where he is engaged in direct response sales (I.D., Findings of Fact (FOF) ¶ 4). Not only is Mr. Lourie a member of the Direct Marketing Association, and former Chairman of its Committee on Ethical Business Practices, but he has published four articles on direct mail advertising and direct response analysis, participated in many seminars in his area of expertise, and reviewed other envelope stuffing programs as an expert witness4/ (Id.). Under these circumstances, the Administrative Law Judge properly concluded that Mr. Lourie was well qualified to testify as an expert in the field of direct response marketing and advertising5/ (Id.).
III. Admission of Testimony and Exhibits
Respondent argues that Exhibits CX-1 through CX-5 should have been excluded from the record since they were not properly authenticated and are hearsay evidence and prejudicial. Respondent also claims that the Administrative Law Judge improperly relaxed the rules of evidence to admit into evidence Exhibit CX-3, which is a letter purportedly written by Respondent.6/ Similarly, Respondent claims that the Administrative Law Judge improperly admitted into evidence and relied on the testimony of both Inspector DeMuro and Mr. Lourie which testimony was irrelevant, hearsay, and speculative. Specifically, Respondent complains that Inspector DeMuro was allowed to testify with respect to Exhibit CX-1 even though he had no firsthand knowledge of that exhibit. Respondent contends that Mr. Lourie should not have been permitted to testify since his opinion testimony was speculative, based on assumptions not founded in fact, and based on Exhibits CX-1 and -27/ which Respondent contends contain solicitations and programs that were never shown to be distributed by him. Finally, Respondent contends that neither the testimony nor exhibits offered by Complainant establishes that Respondent is engaged in the promotion which is the subject of this proceeding.
Complainant in response argues that Exhibits CX-1 through CX-5 were properly admitted into the record. According to Complainant, these documents were admitted in order to assure a fair hearing since Respondent failed to respond to Complainant's discovery requests and the Administrative Law Judge's Order to compel. Complainant also claims the exhibits were properly admitted for the purpose of showing the existence of the documents and the statements contained therein, and not for the purpose of showing the truth of those statements.
As Complainant points out, Respondent refused to properly respond to Complainant's discovery requests and the Administrative Law Judge's Order to compel responses (Tr. 10-20; Order issued May 31, 1991; I.D., at 2). Although the Administrative Law Judge denied Complainant's request to impose sanctions for Respondent's failure to provide discovery responses, the sanctions authorized by 39 C.F.R. § 952.21(j)8/ could have been invoked based on Respondent's refusal to provide the documents requested and his failure to admit or deny each of the facts set forth in Complainant's requests for admissions (Tr. 10-28). As a result, Complainant's requests for admissions could have been deemed admitted,9/ the facts set forth in Complainant's exhibits could have been deemed established,10/ and the solicitation and homemailer's program literature included in the exhibits could have been found to have been distributed by Respondent. Nevertheless, the Administrative Law Judge did not impose such sanctions, but instead relaxed the rules of evidence in order to assure a fair hearing.11/ Such relaxation was not improper under the circumstances. Therefore, despite Respondent's contentions to the contrary, the Administrative Law Judge did not err in admitting Exhibits CX-112/ through CX-5 into the record under the relaxed evidentiary standard or in allowing the testimony of Inspector DeMuro or Mr. Lourie to be presented at the hearing.13/
Even without a relaxed evidentiary standard, Exhibits CX -1 through -5 could have been properly admitted into evidence. Although, as Respondent argues, better evidence authenticating Exhibits CX-1, -2 & -4 could have been presented, Respondent's admission that he operated as National Business Services (Tr. 22-25), and the evidence he operated as both National Business Services and National Marketing Services (Exhs. CX-3 and -5, and RX-1) provide a sufficient basis for concluding that Exhibits CX-1, -2 and -4 are authentic and for admitting those exhibits into the record.14/ Further, Exhibits CX-3 and -5 are business records of the Palisades Park and Leonia Post Offices and are therefore admissible under the business records exception to the hearsay rule. See Fed. R. of Evid. 803(6).
Exhibit CX-3 is also an admission by a party-opponent and therefore admissible under Federal Rule of Evidence 801(d)(2).15/
Respondent's argument that the admission of Exhibits CX-1 through -5 was unduly prejudicial is not persuasive. While the documents were adverse to Respondent's case, they were not the type of documents which would ordinarily be inadmissible because of their prejudicial effect on the trier of fact. Therefore, the admission of the exhibits was not unduly prejudicial and the Administrative Law Judge did not err in receiving the exhibits into evidence.
Respondent also incorrectly contends that the testimony and exhibits offered by Complainant do not establish that he distributes the solicitation and program in issue in this proceeding or that he is responsible for making the representations alleged in the Complaint. The classified advertisement directs inquiries to be sent to National Business Services, Box 44-1, Palisades Park, NJ 07650 (Exh. CX-1, p. 4). Individuals responding to that advertisement receive the circular in issue in this proceeding which requests remittances be sent to National Business Services at Box 444, Palisades Park, NJ 07650 (Exh. CX-2, p. 3-4). Individuals sending the requested remittance to that name and address most probably receive the homemailer's program literature contained in Exhibit CX-1 since that program contains informational materials which are identical to those distributed under the name National Business Services. The business records maintained by the Palisades Post Office establish that at the time the solicitations were distributed, Box 444 was rented to Respondent and National Business Services (Exh. CX-3). Thus, the unrebutted evidence establishes a prima facie case that Respondent distributes the solicitation and program in issue in this proceeding and that he makes the representations alleged in Paragraphs 8(a), (b) and (d) of the Complaint and causes those same representations to be made to third parties as alleged in Paragraphs 10 and 11 of the Complaint.
Respondent next contends that Inspector DeMuro had no firsthand knowledge of Exhibit CX-1, and therefore should not have been allowed to testify with respect to this exhibit. However, Inspector DeMuro is a Postal Inspector who, as part of his official duties, was assigned to investigate the promotion which is the subject of this proceeding. Having determined that Inspector DeMuro received this exhibit and Exhibit CX-2 in the course of his investigation, the Administrative Law Judge did not err in allowing his testimony with regard to these exhibits (Tr. 32-34, 37-38, 41 and 45-50). See Project Prayer, P.S. Docket No. 8/68 at 6.16/
Since the advertisements and programs which were admitted as part of Exhibits CX-1 and -2 were most probably distributed by Respondent, there is no merit to Respondent's contention that Mr. Lourie should not have been allowed to testify regarding these exhibits. Respondent's contention that Mr. Lourie's testimony was based on speculation and assumptions not founded in fact is equally lacking in merit. It has been consistently held that expert opinion testimony need not be based on personal knowledge, and may be based on facts or data presented at a hearing. See Fed. R. of Evid. 703; Cabrales v. County of Los Angeles, 864 F.2d 1454, 1460 (9th Cir. 1988), aff'd, 886 F.2d 235 (1989), cert. denied, 494 U.S. 1091 (1990); Carter v. Massey-Ferguson, Inc., 716 F.2d 344, 349-350 (5th Cir. 1983); Teen-Ed., Inc. v. Kimball Int'l, Inc., 620 F.2d 399, 403-404 (3d Cir. 1980); Standard Research Labs, P.S. Docket No. 7/78 & 7/86 at 11 (P.S.D. Oct. 27, 1980); Eden Valley Nursery Sales, P.S. Docket No. 7/23 at 14 (P.S.D. Feb. 15, 1980). Thus, the Administrative Law Judge properly allowed Mr. Lourie to testify on the basis of his review of Complainant's exhibits. Moreover, the Administrative Law Judge did not err in relying on Mr. Lourie's opinion to reach the conclusion that Respondent's program does not consist primarily of stuffing envelopes, that participants in the program would not realize the monetary returns represented and that additional funds would be required beyond the initial registration fee requested in order to participate in the program (Tr. 92-99) (I.D., FOF ¶ ¶ 6-8 & 11, COL ¶ ¶ 2-3 & 8).
IV. Unsubstantiated Allegations
Respondent suggests that the allegations in the Complaint and the arguments presented in this case are identical to those presented in United States v. Stimpson, 515 F. Supp. 1149 (N.D. Fla. 1981), in which the court found that the Postal Service had not substantiated its claim that a violation of 39 U.S.C. § 3005 had occurred. Complainant counters that the holding in Stimpson is not controlling since it involved a proceeding under 39 U.S.C. § 3007,17/ and the same court subsequently upheld the Postal Service Decision which found a violation of 39 U.S.C. § 3005.
As Complainant contends, and as stated by the Stimpson court, its decision concerning the issuance of a temporary restraining order is not dispositive of the issues presented in a § 3005 proceeding. See N. Stimpson v. USPS, GCA 82-0024, slip op. at 1-2 (N.D. Fla. 1982), citing Berrigan v. Sigler, 499 F.2d 514 (D.C. Cir. 1974). Moreover as Complainant also points out, the court in Stimpson ultimately concluded that the administrative determination that the advertisements contained materially false representations in violation of 39 U.S.C. § 3005 was supported by substantial evidence. See N. Stimpson, slip. op. at 2-3; N. Stimpson, P.S. Docket No. 11/80 (I.D. Oct. 16, 1981), aff'd, (P.S.D. April 30, 1992). Accordingly, Respondent's contention that Stimpson establishes that the allegations of the Complaint are unsubstantiated is without merit.
V. Test Purchase
Respondent next contends that the Postal Service failed to make a test purchase under 39 U.S.C. § 3005(e)(1) and that such failure somehow constitutes prejudicial error which would have an effect on this proceeding. Complainant counters that § 3005(e)(1)18/ authorizes, but does not require, the Postal Service to make such a purchase.
Respondent's contention that the Postal Service is required to make a test purchase is without merit. While § 3005(e)(1) authorizes the Postal Service to make a test purchase during an investigation, no test purchase is required. See Barbara Ann Moore, P.S. Docket No. 36/164 at 8 (I.D. Mar. 19, 1991), finalized, (Order April 30, 1992); Athena Products, Ltd., P.S. Docket No. 12/136 at 30 (I.D. Aug. 13, 1982), aff'd, (P.S.D. May 6, 1983); Athena Products, Ltd., P.S. Docket No. 11/77 at 12-13 (I.D. Nov. 24, 1981), aff'd, (P.S.D. June 21, 1982). Thus, the failure to make a test purchase does not provide any basis for granting Respondent's appeal.
VI. Miscellaneous Contention
Finally, Respondent contends that Complainant attempted to "extort" a consent agreement from him by threatening litigation, and that the current proceeding is a matter of malicious prosecution initiated by Complainant and continued by the skillful manipulation, misstatement and omission of fact by the Administrative Law Judge. Respondent has offered no support for his allegation of impropriety on the part of Complainant or the Administrative Law Judge. It is not inappropriate for Complainant to seek a consent agreement prior to the filing of a complaint or at any time during the course of a § 3005 proceeding. Further,
Respondent has not shown, and nothing in the record reflects, that the Administrative Law Judge committed any improprieties prejudicial to Respondent or improperly decided the merits of the issues presented. Accordingly, Respondent's unsupported contention of wrongdoing has no merit.
Conclusion
Based on a review of the entire record and Respondent's exceptions on appeal, it is concluded that Respondent 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 and the cease and desist order authorized by 39 U.S.C. § 3005 is issued with this decision.
James A. Cohen
Judicial Officer
1/ Exhibit RX-1 is an unopened envelope addressed to National Business Services, P.O. Box 444, Palisades Park, NJ 07650, sent by Dennis Smith and returned to him marked "Undeliverable As Addressed No Forwarding Order On File," which, as he contends, establishes that the box has been closed (Tr. 111).
2/ The burden of establishing that there is no reasonable expectation that the wrong will not be repeated lies with Respondent. See United States v. W.T. Grant Co., 345 U.S. 629, 633 (1953). Respondent failed to present any evidence to sustain his burden in this case.
3/ Respondent additionally contends that the Administrative Law Judge intentionally misapplied the law established in United States v. W. T. Grant, Co., 345 U.S. 629 (1953). Since the holding of the Grant case has not been misapplied, there is no merit to his contention.
4/ Mr. Lourie has been accepted and recognized as an expert in prior § 3005 proceedings and such acceptance was upheld in N. Stimpson v. USPS, GCA 82-0024, slip op. at 4 (N.D. Fla. 1982).
5/ The acceptance of expert testimony rests within the discretion of the presiding officer and may be admitted to aid the trier of fact. N. Stimpson v. USPS, slip op. at 4. Since the presiding officer in this case was also the trier of fact, it was clearly within his discretion to accept Mr. Lourie as an expert witness.
6/ Exhibit CX-3 is a letter to the Palisades Park Postmaster signed by "Dennis Smith" which states that he is terminating his "enterprise" and requests that Post Office Box 444 be closed and all mail returned to sender.
7/ Exhibits CX-1 and -2 are consumer complaints filed with the Inspection Service against National Business Services, and attachments consisting of a solicitation for a work-at-home envelope stuffing promotion which requests thatremittances be sent to P.O. Box 44-1, Palisades Park, NJ. Exhibit CX-1 also includes a copy of literature for a homemailer's program.
8/ Section 952.21(j) provides that a party's failure to respond to the presiding officer's order compelling discovery may result in the admission of the facts to which the Order related. This rule is similar to Federal Rule of Civil Procedure 37(b)(2)(A) which provides that the failure to obey an order to provide discovery may result in the "matters regarding which the order was made or any other designated facts" being deemed established.
9/ See, e.g., United States v. Linnas, 527 F. Supp. 426, 429 (E.D.N.Y. 1981) (relevant facts pertaining to unanswered interrogatories deemed admitted); International Union UAW v. National Right to Work Legal Defense and Educ. Found., Inc., 433 F. Supp. 474, 477-78 (D.D.C. 1977) (count I of complaint deemed established); Center On Corporate Responsibility, Inc. v. Shultz, 368 F. Supp. 863, 873 (D.D.C. 1973) (allegation in complaint deemed established).
10/ See, e.g., United States v. ACB Sales & Serv., Inc., 95 F.R.D. 316, 318 (D. Ariz. 1982) (facts set forth in 145 consumer complaints deemed established based on failure to produce documents); Hammond v. Coastal Rental & Equip. Co., Inc., 95 F.R.D. 74, 78 (S.D. Tx. 1982) (plaintiffs' audit taken as true based on defendants' failure to produce payroll records); Black v. Sheraton Corp. of Am., 371 F. Supp. 97, 102 (D.D.C. 1974) (failure to produce FBI reports resulted in certain facts being established as true).
11/ The rules of evidence have consistently been relaxed in administrative proceedings. See, e.g., Richardson v. Perales, 402 U.S. 389, 400 (1971); Brousseau v. United States, 640 F.2d 1235, 1241 (Ct. Cl. 1981); Grover v. United State, 200 Ct. Cl. 337, 351 (1973); Reil v. United States, 456 F.2d 777, 780 (Ct. Cl. 1972); Jacobowitz v. United States, 424 F.2d 555, 559 (Ct. Cl. 1970); Scott David Wilcox, P.S. Docket No. 18/147 at 5 (P.S.D. Oct. 27, 1988); Project Prayer, P.S. Docket No. 8/68 at 6 (P.S.D. May 29, 1981).
12/ Consumer complaints have previously been deemed admissible as evidence in a § 3005 proceeding, and may be relied on to prove the existence of a false representation. See Card Redemption Center, P.S. Docket No. 30/35 at 14 (P.S.D. June 30, 1989).
13/ Although Respondent was given a full opportunity to present evidence on his own behalf and rebut the allegations of the Complaint and the evidence introduced by Complainant, see Harlan Bell Coal Co. v. Lemar, 904 F.2d 1042, 1048-50 (6th Cir. 1990); Ralpho v. Bell, 569 F.2d 607, 628-29 (D.C.Cir. 1977), Respondent failed to rebut the allegations in the Complaint or the evidence offered by Complainant in this proceeding.
14/ Exhibit CX-4 is a consumer complaint filed with the Inspection Service against National Marketing Services, P.O. Box 447, Leonia, NJ, and includes an attachment consisting of literature for a homemailer's program almost identical to the literature included in Exhibit CX-1. Exhibit CX-5 establishes that Respondent uses Box 447 to receive mail. While this post office box is not the subject of this proceeding, Exhibits CX-4 and -5 were received into evidence for the purpose of showing that a reasonable expectation exists that Respondent will continue the promotion he claims he discontinued (Tr. 58-64).
15/ Under Federal Rule of Evidence 901(b)(3), authentication of Exhibit CX-3 for the purpose of admission may be made by comparing Respondent's signature on Exhibit CX-3 with his signature on documents filed in this proceeding. See, e.g., Stokes v. United States, 157 U.S. 187, 194-195 (1895); Desimone v. United States, 227 F.2d 864, 867 (9th Cir. 1955); Shelton v. United States, 205 F.2d 806, 814 (5th Cir.), cert. denied, 346 U.S. 892 (1953); Reining v. United States, 167 F.2d 362, 364 (5th Cir.), cert. denied, 335 U.S. 830 (1948).
16/ Once Exhibits CX-1 and -2 were shown to be connected to Respondent, the Administrative Law Judge did not err in determining that Respondent made the false representations alleged in the Complaint based on the statements made in the classified advertisement, circular, and homemailer's program included in Exhibits CX-1 and -2 since those documents qualify as an admission of a party opponent, and as such, are not hearsay. See Fed. R. of Evid. 801(d)(2).
17/ Under 39 U.S.C. § 3007, the United States District Court may issue a temporary restraining order and preliminary injunction directing the detention of Respondent's mail by the postmaster pending an administrative proceeding under § 3005.
18/ Section 3005(e)(1) provides that in conducting an investigation to determine if a person is engaged in any of the activities covered by § 3005, a designated postal employee "may tender, at any reasonable time and by any reasonable means, the price advertised or otherwise requested for any article or service that such person has offered to provide through the mails."