P.S. Docket No. FR 96381
August 13, 1998
In the Matter of the Complaint Against )
)
TOP CHOICE DISTRIBUTORS, INC. )
c/o The Corporation )
253 Crestwood Avenue )
Buffalo, NY 142161811 )
)
and )
)
SALVATORE SCIANDRA )
253 Crestwood Avenue )
Buffalo, NY 142161811 )
)
both d/b/a )
)
UNITED RELEASE CENTER )
P. O. Box 8300 )
Buffalo, NY 142078300 ) P.S. Docket No. FR 96381
APPEARANCES FOR COMPLAINANT: Rodney Gould, Esq.
Civil Practice Section
United States Postal Service
475 L'Enfant Plaza, SW
Washington, DC 20260-1147
Peter J. Wheeler, Esq.
Inspection Service Operations
Support Group
United States Postal Service
Two Gateway Center, 9th Floor
Newark, NJ 07175-0005
APPEARANCES FOR RESPONDENTS: Charles B. Chernofsky, Esq.
Chernofsky & deNoyelles
12 W. 37th Street, 7th Floor
New York, NY 10018-7404
Salvatore R. Martoche, Esq.
Hiscock & Barclay, LLP
50 Fountain Plaza
Buffalo, NY 14202-2291
DECISION ON MOTION FOR SUMMARY JUDGMENT
Background
In June 1994, the General Counsel of the United States Postal Service (Complainant) filed a complaint against Top Choice Distributors, Inc. and Salvatore Sciandra, alleging that Respondents were soliciting money through the mail by means of various sweepstakes promotions which contained several false representations, in violation of 39 U.S.C. §3005.(1) Almost simultaneously with the filing of the Complaint, the parties entered into an Agreement Containing Consent Order to Cease and Desist. The Cease and Desist Order was issued on June 17, 1994.
Thereafter, Respondents began distributing new solicitations seeking remittance of money through the mail in connection with new sweepstakes promotions. On April 13, 1995, Complainant filed a Petition ("Breach Petition"), alleging that Respondents had breached the terms of the Consent Agreement because the new promotions continued to use a representation that Respondents had agreed to discontinue.
Twelve sweepstakes circulars were attached to the Breach Petition. On July 28, 1995, the Judicial Officer issued a Postal Service Decision, holding that four of the new sweepstakes circulars did not violate the Cease and Desist Order, but that the other eight did. Appropriate orders were issued, and Respondents again made modifications to their promotion circulars and began mailing a new solicitation.
On October 21, 1996, Complainant filed the Complaint that is the subject of this current case. This Complaint alleges that Respondents' new solicitation, which is attached to the Complaint, makes the following representations and that these representations are false:
(a) the recipient has been selected to receive a substantial amount of cash;
(b) the payment of the "entitlement fee" entitles the recipient to a substantial amount of cash;
(c) a "Payout Privilege Presentation Fee", "Payout Privilege Entitlement Fee" or similar fee is not the purchase price of a product; and
(d) the $2,000.00 Payout Privilege entitlement is a cash award.
On November 1, 1996, Respondents sought an injunction in United States District Court for the Western District of New York to enjoin the Postal Service from proceeding with this case. Further action on the administrative case was suspended. On December 26, 1996, the District Court denied the injunction. Over the next many months, a hearing on this administrative case was postponed several times, at the request of both parties, to await the results of other actions pending in the Federal Courts. One such action was a Motion for Summary Judgment by Respondents, arguing that the Postal Service should be barred from pursuing the present case by the doctrines of res judicata and/or collateral estoppel. On July 21, 1997, the District Court denied that motion on the ground that Respondents could present those arguments in the administrative proceeding and, therefore, had not exhausted their administrative remedies. The administrative hearing was further postponed pending an appeal of that decision to the United States Court of Appeals for the Second Circuit, but on May 15, 1998, Respondents filed a Motion for Summary Judgment in this administrative forum.(2) Complainant replied to the motion, Respondents filed additional argument, and the motion is now ripe for decision.
Respondents' Contentions
Respondents make three arguments. First, they contend that Complainant's attorney, in open court during argument on the preliminary injunction in the Western District of New York, made admissions that Respondents' solicitation being challenged in this case does not violate 39 U.S.C. §3005, and that such an admission is binding on Complainant. Second, they contend that the doctrine of collateral estoppel (issue preclusion) bars this action because the issues presented here are identical to issues that were resolved in the prior case, P.S. Docket No. FR 94-25. Finally, they argue that the doctrine of res judicata (claim preclusion) bars this action because Respondents' earlier solicitations contained the same representations that Complainant is now alleging are false, and that Complainant either litigated those same allegations, or had the opportunity to litigate them, in the earlier case. In essence, Respondents' arguments are all based on the premise that the Judicial Officer's Decision on the Breach Petition in FR 94-25 found that the only infirmity in Respondents' solicitations was that some of them did not place the words "no purchase is necessary" in bold, underlined type. Because the solicitation that is the subject of the current Complaint corrected that problem, and because the new solicitation is otherwise "identical in substance" to some of the earlier solicitations, Respondents assert that Complainant should be barred from making a new attack.
Complainant's Contentions
Complainant argues that the current Complaint is based on Respondents' new solicitation, which was introduced after the earlier case was concluded and which is significantly different from the earlier solicitations. Therefore, Complainant argues that the issues presented now have not previously been litigated or decided. As for the statement by Complainant's counsel, Complainant asserts that the statement made during argument before the District Court did not amount to a concession that the new solicitation was free of misrepresentations.
I. Admission by Counsel
Respondents' argument is based on the following colloquy between the Court and Mr. Gould:
COURT: If I understand you, the Postal Service would have no objection if the Top Choice here were to resume or continue or restart its old type of solicitation?
* * *
MR. GOULD: No, I have an objection.
COURT: Why?
MR. GOULD: Well, those are the ones they agreed not to do. Now, if some of the solicitations that they prevailed at the breach level, at the breach petition they prevailed. If they want to continue on those, fine, go ahead, but what they've done is they've made a different - -
* * *
COURT: But, you're admitting that they could go back and use the earlier approach?
* * *
MR. GOULD: Yeah, the ones that they prevailed and the Judicial Officer said, Gould, Wheeler, Postal Service attorneys, you're wrong, if they want to do that fine. But what they've done is they've specifically changed the solicitation from especially the initial matter two years ago . ...
To get to the admission that Respondents claim is present in these statements requires some interpolation. One must assume that the new solicitation is not significantly different from those that the Judicial Officer found inoffensive, and that the only significant difference between the new solicitation and those that the Judicial Officer found violative of §3005 is the bold, underlined type for the phrase, "no purchase is necessary." Having made these assumptions, one could then say that logic dictates that Mr. Gould, whether or not he intended to, has also admitted that the new solicitation does not violate §3005. Mr. Gould, however, was clearly attempting to assert that the new solicitation is significantly different. Whether he is correct is a matter to be decided, but I do not find in his statements the admission that Respondents claim is there.
II. Collateral Estoppel
The policy behind this doctrine is that a party who has litigated and lost on a specific issue should not be able to relitigate that same issue in a subsequent action. Montana v. United States, 440 U.S. 147, 153 (1979); Mother's Restaurant, Inc. v. Mama's Pizza, Inc., 723 F.2d 1566, 1569 (Fed. Cir. 1983); Allenfield Associates v. United States, 40 Fed. Cl. 471, 480 (1998); Kaufman v. Eli Lilly and Co., 65 N.Y.2d 449, 455 (1985); Ryan v. New York Telephone Company, 62 N.Y.2d 494, 500 (1984). The requirements for application of collateral estoppel are: (1) the issue in both proceedings must be identical; (2) the issue was raised and actually litigated and decided in the prior action; (3) determination of the issue was necessary to support the judgment; and, (4) the party sought to be precluded from raising the issue had a full and fair opportunity to litigate the issue in the prior proceeding. Beck v. Levering, 947 F.2d 639, 642 (2d Cir. 1991); Allenfield Associates, supra.
Respondents argue vigorously that any issues presented in the current case were resolved in the earlier case, either in the Consent Agreement or in the Postal Service Decision on the Breach Petition. In making their arguments, Respondents define the issues in terms of what they believe the issues should be. However, the language used to describe the alleged false representations is not the same in the current Complaint as it was in the earlier Complaint, or in the Breach Petition. Complainant argues that this reflects, at least in part, differences between Respondents' current solicitation and the earlier solicitations. Respondents' arguments go more to the merits of the Complaint and their defenses to it, but the issues that Complainant is raising in this case were not "actually litigated and decided" in the prior case and are not barred by collateral estoppel.
Res Judicata
The application of the doctrine of res judicata is well stated in Securities and Exchange Commission v. First Jersey Securities, Inc., 101 F.3d 1450 (2d Cir. 1996):
Simply put, the doctrine of res judicata provides that when a final judgment has been entered on the merits of a case, it is a finality as to the claim or demand in controversy, concluding parties and those in privity with them, not only as to every matter which was offered and received to sustain or defeat the claim or demand, but as to any other admissible matter which might have been offered for that purpose. 101 F.3d at 1463, quoting Nevada v. United States, 463 U.S. 110, 129-30 (1983).
A first judgment will generally have preclusive effect only where the transaction or connected series of transactions at issue in both suits is the same, that is "where the same evidence is needed to support both claims, and where the facts essential to the second were present in the first." 101 F.3d at 1463-64, quoting NLRB v. United Technologies Corp., 706 F.2d 1254, 1260 (2d Cir. 1983).
If the second litigation involved different transactions, especially subsequent transactions, there generally is no claim preclusion. 101 F.3d at 1464.
The scope of litigation is framed by the complaint at the time it is filed. The rule that a judgment is conclusive as to every matter that might have been litigated does not apply to new rights acquired pending the action which might have been, but which were not, required to be litigated. 101 F.3d at 1464, quoting Los Angeles Branch NAACP v. Los Angeles Unified School District, 750 F.2d 731, 739 (9th Cir. 1984).
The focus of Respondents' motion is on the phrase, "every matter that might have been litigated." Respondents argue that their earlier solicitations, especially those which were the subject of the Breach Petition, contained essentially all the same provisions and the same language as does the current solicitation. Therefore, the Postal Service could have made all the same false representation allegations then that are being made now. Having chosen to attack certain specific deficiencies of Respondents' solicitations, which Respondents have since fixed, Respondents argue that the Postal Service should not be able to go back and attack those same solicitations again by alleging different false representations.
This issue is complicated by the procedural context in which Respondents' earlier solicitations were litigated. The solicitations attached to the original Complaint in 1994 are noticeably different from the current solicitation, and the misrepresentations alleged in the original Complaint are different from those alleged now. The Cease and Desist Order issued as a result of the Consent Agreement directed Respondents to cease and desist from falsely representing that:
(A) A consumer has won a prize;
(B) A consumer received a document as a result of an occurrence other than the appearance of his/her name and address on a mailing list;
(C) A consumer has won a prize in a contest or sweepstakes that he/she previously participated in;
(D) A document was issued by a professional organization.
(e.g., a law or accounting firm);
(E) A consumer will receive a prize within a short period of time upon responding to a document;
(F) The submission of a completed form entitles a consumer to receive the prize described in a document.
In defining a "prize," the Cease and Desist Order stated that a prize "shall exclude a cash disbursement providing that the advertisement clearly and conspicuously informs consumers that no purchase is necessary in order to receive the disbursement."
In the Breach Petition, Complainant, while making a broad, general allegation, specifically charged only that Respondents' twelve new sweepstakes advertisements violated item (A) above.(3) Consequently, in his decision, the Judicial Officer considered only item (A), i.e. the representation that "the consumer has won a prize," in determining whether the Consent Agreement had been breached.(4)
Based on the definition of a "prize" that was contained in the Cease and Desist Order, the Judicial Officer concluded that those solicitations which included the words "No Purchase Necessary," or "No Purchase Required," in bold, underlined type on the front page of the solicitation satisfied the requirement to "clearly and conspicuously" inform consumers that no purchase was necessary. There were four such solicitations.(5) Of the eight others, four of them are almost identical to the solicitation that is challenged in the current Complaint.(6) These were found by the Judicial Officer to be in breach of the Consent Agreement because the words "No purchase necessary" were buried in the text, rather than being in bold, underlined type. Respondents argue that because the current solicitation has corrected this flaw, and because this was the only aspect of those four identical solicitations that was alleged to violate the Cease and Desist Order, this amounts to a finding that those solicitations and the current solicitation make no other false representations. The res judicata argument is that the Postal Service had the opportunity to litigate the new false representation allegations made in the current Complaint, either in the original Complaint or when the Breach Petition was filed, and having chosen not to do so, should now be barred.
The allegations in the original Complaint were resolved not by litigation and final judgment, but by a Consent Agreement. There is ample Postal Service precedent that a Consent Agreement does not amount to a final judgment and is not a basis for application of res judicata. Rush Industries, Inc. and Harold Breindel, P.S. Docket No. 18/169 at 3 (P.S.D. July 2, 1985); Eden Valley Nursery Sales, P.S. Docket No. 7/23 at 11 (P.S.D. February 15, 1980). Further, although there are similarities between the solicitations that generated the original Complaint and the one that is challenged by the current Complaint, there are also enough differences that would support a new cause of action. Charles Smith, P.S. Docket No. 37/180 at 22 (I.D. December 18, 1991)(P.S.D. January 31, 1994.
Consideration of the Breach Petition presents a more unique issue, but a very similar issue was addressed in the Eden Valley decision, at page 11.
"Although Respondent's advertisement which was the basis for the breach of consent agreement action also served as the basis for this action, the causes of action arising in connection with the advertisement are different and distinct. The representations which could be adjudicated in the breach action, while possessing certain similarities, also include substantial differences. In addition, the breach of consent agreement action was essentially a breach of contract action, whereas the pending action is predicated upon Respondent's alleged violation of 39 U.S.C. §3005. While there are some similarities in proof, such as the content of the advertisement, other elements of proof are significantly different, such as the material falsity of the representations under the statute versus the resumption of representations agreed to be discontinued under the consent agreement. It is concluded, therefore, that the action on breach of consent agreement and the pending action arose from separate and distinct causes of action. Therefore, the doctrine of res judicata is inapplicable."
For these same reasons, I find that this action is not barred by res judicata. Respondents' Motion for Summary Judgment is denied.
Bruce R. Houston
Chief Administrative Law Judge
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2. A statement in Respondents’ current motion indicates that the Second Circuit ruled against Respondents, but that decision is not in the record.
3. In a footnote, the Petition stated that “Respondents’ advertisements contain almost all of the false representations prohibited by the Cease and Desist Order. However, in the interest of brevity, this breach petition only addresses Respondents’ violations of paragraph III (A) of the Cease and Desist Order.
4. The issue to be decided in connection with a Petition for Breach of a Consent Agreement is whether the party signing the agreement has breached its terms by continuing to make the representations which it agreed to discontinue. The determination of the truth or falsity of the representations is generally not in issue.” Associated Writers Guild of America and AWG, P.S. Docket No. 12/180 at 8 (P.S.D. June 6, 1990).