POSTAL SERVICE DECISION ON BREACH OF AGREEMENT
CONTAINING CONSENT ORDER TO CEASE AND DESIST

On February 7, 1994, the General Counsel of the United States Postal Service (Complainant) filed a Petition alleging that Respondent James R. Phipps (Respondent) has breached the terms of an Agreement Containing Consent Order to Cease and Desist (Agreement), executed on January 15, 1988. According to Complainant, Respondent has resumed conducting a multi-level marketing program and a lottery which he agreed to permanently discontinue.

On February 8, 1994, an interim order as authorized by Paragraph 8 of the Agreement was issued directing the detention of mail against the names and addresses currently being used by Respondent to conduct his promotion. On February 23, 1994, Complainant filed a Request for Revised Interim and Lottery Orders, alleging that Respondent was using an additional name and address in the operation of his program in an attempt to evade the provisions of the interim order. As a result, a revised interim order was issued on February 24, 1994, ordering that mail addressed to the additional name and address also be detained pending resolution of the issue concerning breach of the Agreement.

Both the February 8 and 24 orders granted Respondent ten days to file a reply to the Petition. Respondent filed a "Public Notice of Lack of Jurisdiction" on March 2, 1994, and a "Brief In Support of Second Notice of Lack of Jurisdiction" on March 8, 1994. In his filings, Respondent claims he is a sovereign not subject to the jurisdiction of the United States Postal Service; the Postal Service has violated his constitutional rights; the Postal Service discriminates against multi-level marketers; and the Agreement was signed under false pretenses, threat and intimidation. All of Respondent's contentions have been fully considered and are hereafter addressed.⁽¹⁾

FINDINGS OF FACT

1. Complainant initiated this proceeding by filing a Complaint alleging that Respondent was engaged in a false representation and lottery promotion in violation of 39 U.S.C. §3005. The promotion which was the subject of the Complaint consisted of a multi-level marketing program which Complainant alleged was a lottery. The program was described in the promotional materials attached to the Complaint as a six level marketing service which provided participants with the names, addresses, social security numbers, and phone numbers of all individuals in the participant's downline. Respondent's promotional literature also characterized the program as a "novelty program for your entertainment", with no products or services provided, and stated that "[a player's] earnings grow as [the player's] teammates sponsor new players."

2. On January 15, 1988, Respondent entered into the Agreement which Complainant now contends Respondent has breached. In Paragraph 3 of the Agreement, Respondent agreed to permanently discontinue "the use of the promotional activities and representations challenged in the Complaint, including lottery activity." In Paragraph 6 of the Agreement, Respondent agreed to the issuance of Cease and Desist Order No. CD-1703 which ordered Respondent and his "employees, agents, and representatives, in connection with solicitations urging members of the public to participate in a lottery and multi-level distribution program, [to] forthwith cease and desist from engaging in the conduct of a lottery."

3. Subsequent to the execution of the Agreement and the issuance of the Cease and Desist Order, Respondent began soliciting participation in a new multi-level marketing program called Marathon, Marathon Marketing or Marathon Project. Respondent uses telephone conferences and direct mail circulars to solicit participation in his new program. The program requires participants to remit monthly fees through the mail to three addresses currently being used by Respondent.

4. Unlike his previous program, which did not involve the purchase of any product, participants in Respondent's new program purchase what are described as educational materials consisting of audio tapes and booklets written by Respondent. Participants then solicit others to join the program and purchase Respondent's materials.

5. Participants receive commissions or bonuses from the amounts paid by each of the individuals they solicit directly as well as from individuals in their downline. In order to continue receiving commissions, participants must pay from $20 to $1,079 per month depending on their level of participation.

6. Although Respondent's current program involves the distribution of educational materials, the promotional literature states that participants are not required to sell the materials in order to participate in Respondent's program. While different educational materials are provided to participants as they enter each step of the program, participants can remain in any step without making any additional purchases or sales of the educational materials.⁽²⁾

7. A participant's commissions and bonuses in Respondent's current promotion are not tied to the sale of Respondent's educational materials. Rather, they are based on the continued submission of monthly fees by downline participants.

DISCUSSION

Complainant contends that Respondent's current multi-level marketing program is a lottery which Respondent agreed to permanently discontinue. According to Respondent, his program is not a lottery because participants have a right to purchase his educational materials, and the program is linear, not a pyramid as in a typical multi-level lottery promotion. Respondent further contends his program is not a lottery because participants are rewarded for their individual hard work, not through the chance that downline participants will continue to participate in the program.

Respondent's arguments are not persuasive. The elements of a lottery are prize, chance, and consideration.⁽³⁾ In Respondent's current multi-level marketing program, participants are required to pay from $20 per month to over $1,000 per month (consideration) in order to receive commissions or bonuses (prize). These bonuses or commissions are determined by chance since they are not related to the sale of Respondents' educational materials and are directly dependent on the continued payment of fees by downline participants over whom the upper level participant has little or no control. Additionally, the lack of emphasis on course materials in the promotional literature as well as the high cost of continued participation (up to $1,079 per month) indicates that any product provided in the current promotion is not a significant part of the program. Thus, despite the addition of the educational materials, Respondent's current multi-level marketing program, like his previous program, is a lottery activity which Respondent agreed to permanently discontinue.

Respondent's jurisdictional, constitutional, and discrimination claims are equally without merit. All of Complainant's actions have been taken in accordance with the provisions of the Agreement signed by Respondent, and Respondent has not shown that any threats, intimidation, or false pretenses were used in obtaining the executed Agreement.

CONCLUSION

Respondent has breached the terms of the Agreement in the manner alleged in the Petition. Accordingly, pursuant to the terms of the Agreement, the order sought in the Petition and authorized by the terms of the Agreement is being issued with this Decision.

James A. Cohen
Judicial Officer

1. Under the terms of the Agreement "[no] oral hearing. . .will be held, except for good cause shown as ordered by the Judicial Officer. . . ." Since there are no genuine issues of material fact, there is no good cause for a hearing to be held. Accordingly, the issues raised by the Petition and the responses thereto are being decided on the record without an oral hearing.

2. In his filings, Respondent refers to "course materials for the month" and materials, newsletters, memos, etc. being provided to active members on an ongoing basis, but these materials are not mentioned in his promotional literature.

3. FCC v. American Broadcasting Co., 347 U.S. 284, 290 (1954); Horner v. United States, 147 U.S. 449, 458-60 (1893); Brooklyn Daily Eagle v. Voorhies, 181 F. 579, 581 (E.D.N.Y. 1910); Great American Give Away, et al, P.S. Docket No. 36/102 at 3 (P.S.D. Feb. 5, 1993); Ron Cooper, P.S. Docket No. 35/112 at 4 (P.S.D. Feb. 7, 1992); Claud Koch, P.S. Docket No. 22/140 at 7 (P.S.D. Nov. 6, 1987); Opportunity Research Corp., P.S. Docket No. 24/131 at 3 (P.S.D. Oct. 30, 1987); Charles Wagner, P.S. Docket No. 24/10 at 5 (P.S.D. Oct. 28, 1986).