In the Matter of the Complaint Against                   ) 
                                                                               )
R. JAMES ELLIS a/k/a                                             )
RON ELLIS and                                                       )
J.R. PUBLISHING, L.L.C.                                         )
248A North Higgins                                                )
Boxes 521, 522, 523, 524 and 525                        )
Missoula, MT 59802-4459                                      )
                                                                               )
JAMES ELLIS                                                          )
Resident Agent                                                      )
309 7th Avenue SE                                                )
Cut Bank, MT 59427-3520                                      )  P.S. Docket No. FR 98-286

APPEARANCE FOR COMPLAINANT:                     Janessa L. Grady, Esq.
                                                                               Joseph K. Moore, Esq.
                                                                               Civil Practice Section
                                                                               United States Postal Service
                                                                               475 L’Enfant Plaza, SW, Room 6533
                                                                               Washington, D.C. 20260-1127

APPEARANCE FOR RESPONDENTS:                     Booker T. Evans, Esq.
                                                                               Michael J. Plati, Esq.
                                                                               Streich Lang, P.A.
                                                                               Two North Central Avenue
                                                                               Phoenix, AZ 85004-2391

This proceeding was initiated on June 22, 1998, when the General Counsel for the United States Postal Service filed a Complaint alleging that Respondents Ronald J. Ellis and J. R. Publishing violated 39 U.S.C. §3005 by engaging in a scheme or device for obtaining money or property through the mail by means of false representations. The Complaint was later amended to also allege that Respondents were using the mail to conduct a lottery.⁽¹⁾

Specifically, paragraph 9 of the Complaint alleges that Respondents, advertising by direct mail to members of the public, make the following representations, and that these representations are false and material:

a. the addressee named in respondents’ solicitation has won a large cash prize;

b. the addressee named in respondents’ solicitation is guaranteed to win a large cash prize;

c. the primary reason respondents have sent their solicitation to the addressee is that the addressee has been selected to win a cash prize;

d. the addressee needs only to complete the word puzzle and to mail it with a judging fee to respondents to win a cash prize;

e. the recipient of respondents’ solicitation is one of a very limited number of persons who have been approved to be eligible for the cash prize;

f. the likelihood that a recipient of respondents’ solicitation will win a contest is far greater than is the fact;

g. the likelihood that a recipient of respondents’ solicitation will win or receive a large amount of cash from respondents is far greater than is the fact.

In timely filed Answers, Respondents denied making any false representations, or that they were conducting a lottery. A hearing was held in Las Vegas, Nevada on October 22, 1998. Both parties appeared and were represented by counsel. The Postal Service presented testimony from Postal Inspector Joseph Byers, who investigated this case; two consumer witnesses; and an expert witness, Dr. Terrell Williams of Western Washington University, who specializes in the study of consumer behavior. Respondent Ronald Ellis testified in his own behalf; and also presented expert testimony from Dr. Ned Silver, a psychology professor at the University of Nevada Las Vegas; and Dr. Edwin Nagelhout, a professor of English at the University of Nevada Las Vegas, who specializes in writing and linguistics. Both parties also presented documentary evidence. Both parties filed post-hearing briefs, in the form of proposed findings of fact and conclusions of law, and both parties filed reply briefs. To the extent indicated below, proposed findings and conclusions have been adopted; otherwise, they have been rejected as irrelevant or contrary to the evidence. The following findings of fact and conclusions of law are based on the entire record, including all testimony and documentary evidence introduced at the hearing, and observation of the witnesses and their demeanor.

1. Respondent Ronald James Ellis lives in Las Vegas, Nevada. He formed the corporation, J. R. Publishing, L.L.C., in Montana in December 1996. (Tr. 134-35; Cx. 59).⁽²⁾

2. Respondents solicit customers, through the mail, to remit money to participate in various puzzle contests (Tr. 135; Cxs. 9-35, 49-53, 60-63). Respondents obtain names of potential customers by purchasing mailing lists from a New York company (Tr. 138).

3. Respondents use several different names to identify the puzzle contests, including "Winners Millions," "Money Train," "Gateway to Riches," and "Cash Express." All these contests have a mailing address in Missoula, Montana, to which contestants are directed to send entry forms, along with a fee – either $5.00 or $20.00, depending on which contest one enters. (Tr. 148, 151-52; Cxs. 9-35, 49-53, 60-63). Respondents began mailing their solicitations in January 1997, and all four contests were running, at various stages, during 1997 and 1998 (Tr. 136, 139-40, 151-52).

4. Each contest consists of three stages. To win the grand prize, a contestant must receive the highest score of all entries submitted for a specific contest. Lesser prizes may be awarded for other high scores (Rx. 1). The puzzles for the first two stages are extremely simple, requiring the barest minimum education and intelligence to solve correctly. (Tr. 88-90; Cxs. 50, 51, 60, 61). The third stage puzzle is much more difficult. It has the appearance of a crossword puzzle, but there may be several "correct" words that could used in any particular space. Each letter of the alphabet is given a numerical value, and a contestant’s score is determined by the total value of all the words used in filling out the puzzle. (Tr. 175-78; Rx. 1).

5. The stage-one puzzle is sent to prospective customers as part of the initial solicitation. (Cxs. 49, 50, 51, 53). Purportedly, Respondents send a stage-two puzzle to any contestant who successfully completes stage-one, and likewise send a stage-three puzzle to anyone who successfully completes stage-two (Tr. 157-58, 170). This is explained, although not at all clearly, in the "Official Rules," printed on the reverse of the solicitation forms (E.g., Cxs. 49, 50, 53). In actual practice, however, the orderly procedure described above is not always followed. Respondents often send multiple copies of the same original solicitation, or several of the stage-one puzzles of the various different contests, to the same people (Tr. 41, 42, 70, 158-59, 162-63; Cxs. 9-30, 54, 57).

6. Respondents also offer contestants an opportunity to purchase a "bonus option." For an additional $20.00 fee, the contestant is told that the value of the grand prize will be increased to $15,000.00. According to Respondent Ellis, this mailing is sent to contestants after their stage-one entry is received, and before the stage-two puzzle is sent. (Tr. 144-45, 157-58; Cx. 52).

7. If a consumer asks for a refund, or complains about misunderstanding the nature of the solicitation, it is Respondents’ policy to refund the consumer’s money, and Respondents have done so on many occasions (Tr. 137; Cxs. 54, 57). Respondents have received many complaints from consumers who had believed they were entering a sweepstakes, and some from consumers who believed they had already won a sweepstakes prize (Tr. 148-49, 164-66, 169; Cxs. 54, 57).

8. In the "Official Rules," found on the reverse side of the solicitations, Respondents state, "This is not a sweepstakes, lottery, or telemarketing promotion. It is a contest of skill involving no luck or chance." (Cxs. 49, 50, 53, 60).

a. The addressee named in respondents’ solicitation has won a large cash prize.

b. The addressee named in respondents’ solicitation is guaranteed to win a large cash prize.

c. The primary reason respondents have sent their solicitation to the addressee is that the addressee has been selected to win a cash prize.

These three allegations are essentially the same and can be treated together. There are many features of all of Respondents’ solicitations that would suggest to the more gullible reader that he/she has won a large cash prize. The words "Guaranteed," "100% Guaranteed," or "fully Guaranteed" are used many times, and are always highlighted or underlined. Similarly, the word "Confirmed" is often used, and is highlighted either by underlining, color, or large type. The words "guaranteed," and "confirmed," suggest to the unsophisticated reader that a prize has already been awarded to him/her. The dollar amount of the prize, usually $10,000.00, is printed in large red type, with the word "confirmed," or "approved," also in highlighted type nearby. The word "Official," in large banner type, or in the form of various seals, is also commonly used. Again, all this is designed to lead the unwary reader to believe that there is authenticity to the statements suggesting that he/she has already won a prize. Some of the return envelopes also imply that the recipient has already won. E.g., one is stamped "APPROVED" over the words, "Cash Access Documents for Immediate Processing." (Cx. 51). Some of the solicitations are especially strong in their statements implying that the recipient is going to receive a large cash prize. E.g., "Let me repeat that, Helen. You are guaranteed $10,000.00 Cash as our sole Grand Prize Winner!" (Cx. 53).

While the fact that Respondents’ solicitations are actually inviting recipients to participate in a puzzle contest is spelled out somewhere on each solicitation, this essential information is likely to be missed by the less-than-careful reader. The more clearly stated explanation is found only on the reverse side of the solicitations, which many people are apt not to read at all (Tr. 86).⁽³⁾ The fact that Respondents’ solicitations are likely to deceive some recipients is demonstrated by the large number of complaints registered by those recipients (Cxs. 54, 57), and to some extent by the testimony offered at the hearing (Tr. 44-46, 69-71). It is clear from the letters of complaint that many people, upon receiving the solicitations, believed they had won, or were sure to win, a sweepstakes cash award. There are at least 24 such letters, including that of Ms. Clark, whose affidavit was presented at the hearing (Tr. 68; Cxs. 54, 57).⁽⁴⁾ There is no doubt that many people have mailed checks to Respondents, based on a misunderstanding of what Respondents’ solicitations really are. Respondent Ellis admitted this in his testimony (Tr. 148-49, 164-65, 169). The solicitations are deceptive. It would not be difficult to write solicitations that would make it clear, even to unsophisticated readers, that Respondents are running a puzzle contest. In addition, the substance of many of the complaints, and Respondent Ellis’ acknowledgment that an individual might send in as many as six completed stage-one and stage-two entries but receive only one stage-three puzzle (Tr. 162-63), raises a question about Respondents’ motives in sending multiple solicitations to individual people.

These representations are false, as Respondent Ellis testified that the only way a person can win a cash award is to submit the highest scoring stage-three puzzle. The representations are material because people are more likely to pay the required "fee" if they believe they have won, or are certain to win, a large cash prize.

d. The addressee needs only to complete the word puzzle and to mail it with a judging fee to respondents to win a cash prize.

It is true, as Respondents argue, that the solicitations do not actually make this statement. Because of the characteristics of the solicitations heretofore described, however, along with many exhortations to hurry and mail the entry fee before a specified deadline, gullible readers are likely to believe that all they need do is to complete the elementary stage-one word puzzle and send the money. In some cases, the solicitation quite strongly implies that obtaining $10,000.00 is that simple. E.g., "By following the instructions below and enclosing your one-time $20 judging fee, your $10,000.00 Cash eligibility determination will be finalized Helen. This will begin your immediate processing for the payment of the $10,000.00 Grand Prize, . . .." (Cx. 53).

It is also true, as Respondents argue, that if a recipient reads the entire solicitation carefully he/she will probably understand the true nature of Respondents’ contests. It is an indisputable fact, however, that not every recipient reads such solicitations carefully (see Professor Williams’ discussion in Cx. 55). Respondents also point to the use of the words "eligible," and "nominee," to argue that most people understand these words, and that these words inform them that they have not yet won a prize. Again, this may be true of the careful, sophisticated reader. The less careful, more naïve reader, however, even if they understand those words, may overlook their meaning in this context, or may simply ignore those words, having already focused on the message that they were going to win a prize (Tr. 117-18, 123-24). The law protects such people by judging a solicitation on the overall impression it makes on them. As is evidenced by the many letters of complaint (Cxs. 54, 57), these solicitations are very capable of giving a false impression.

This representation is false and material for the same reasons as were stated in the discussion of allegations a-c.

e. The recipient of respondents’ solicitation is one of a very limited number of persons who have been approved to be eligible for the cash prize.

The tone of familiarity in the solicitations, including the repeated use of the addressee’s first name; the use of personal "identification numbers;" references to "our records," concerning the addressee’s name and address; references to the addressee as a "target candidate," and efforts in "locating you;" the terms, "private," and "confidential" on the envelope; statements that "I have been instructed to inform you;" reference to the addressee as the "sole validated claimant;" and reference to a "specially prepared envelope;" all are demonstrative of an attempt to lead the recipient to believe that he/she has been specially identified and selected. (Tr. 45; Cxs. 49-51).

This representation is false, as Respondent Ellis testified that he mailed approximately 30,000 solicitations in the first month of operation, and that he obtained the names and addresses by purchasing mailing lists (Tr. 136, 138). The representation is material because people are more likely to respond if they believe they are part of a select group.

f. The likelihood that a recipient of respondents’ solicitation will win a contest is far greater than is the fact.

The repeated use, and highlighting, of words such as "guaranteed," "confirmed," and "approved," discussed earlier, as well as many statements about how easy it is to receive the large amounts of cash, make these representations. E.g, the solicitations make many statements such as, "By simply following the instructions," "It is as easy as 1-2-3;" "This is not a fluke and there is no luck involved!" Statements such as these, along with the simplicity of the puzzles contained in the flood of stage-one solicitations that are mailed to individuals, lead the gullible reader to believe that all he/she need do to collect the prize is fill out the form, write the $20 check, and mail it in.

The representation is false because the actual chance of winning the $10,000.00 or $15,000.00 is very small, as is explained in the relatively fine print as part of the "Official Rules" on the reverse of the solicitations. If the figures contained in these rules are even close to accurate, they suggest that Respondents will collect approximately $900,000.00 and pay out only $20,050.00 (Cxs. 49, 53, 60-62).⁽⁵⁾ The representation is material because people are more likely to remit the entry fee if they believe their chance of winning is very good.

1. The elements of a lottery are prize, chance and consideration. Federal Communications Commission v. American Broadcasting Co., 347 U.S. 284, 290 (1954); Horner v. United States, 147 U.S. 449, 458-60 (1893); American Testing Institute v. United States Postal Service, 579 F. Supp1345, 1347 (D.D.C. 1984); James R. Phipps, P.S. Docket No. 29/35 (P.S.D. March 24, 1994); Great American Giveaway, et al., P.S. Docket No. 36/102 (P.S.D. Feb. 5, 1993).

2. The elements of prize and consideration are clearly present here, but Complainant has not proved that prizes are awarded based on chance. There is no evidence to disprove Mr. Ellis’ assertions that the stage-three puzzles are actually scored, based on letter value (see FOF ¶4), and that prizes are awarded accordingly. The fact that some of the consumers who complained may have believed they were participating in a lottery, or sweepstakes, does not make it one. The same evidence that proves the false representation allegations tends to disprove the lottery allegation.

3. Respondents’ solicitations must be considered as a whole and their meaning determined in light of the probable impact on the mind of the ordinary recipients to whom they are directed. Donaldson v. Read Magazine, 333 U.S. 178 (1948); Peak Laboratories v. U.S. Postal Service, 556 F.2d 1387 (5th Cir. 1977); Allen Glazer, P.S. Docket No. 40/59 (P.S.D. January 27, 1994); Charles Smith, P.S. Docket No. 37/180 at 14 (P.S.D. January 31, 1994); Building Trades Association, P.S. Docket No. 37/88 at 6 (P.S.D. August 2, 1993).

4. The statute (39 U.S.C. §3005) is intended to protect the gullible, less critical reader, as well as the sophisticated and the wary. Fields v. Hannegan, 162 F.2d 17 (D.C. Cir. 1947), cert. denied, 332 U.S. 773 (1947); Leo Daboub, P.S. Docket No. 19/185 (P.S.D. July 10, 1986). Representations may be false, within the meaning of §3005, even if many of the statements in a solicitation are literally true. Borg-Johnson Electronics, Inc. v. Christenberry, 169 F. Supp. 746, 750-51 (S.D.N.Y. 1959); Joseph N. Wilkinson, P.S. Docket No. 38/183 (I.D. June 2, 1992). "This section forbids representations that are false or artfully designed to mislead." Dynaquest Corp. v. U.S. Postal Service, 12 F.3d 1144, 1146 (D.C. Cir. 1994). It is the net impression likely to be made by the solicitation that determines whether false representations are made. Donaldson, supra; G.J. Howard Co. v. Cassidy, 162 F. Supp. 568, 572 (E.D.N.Y. 1958); Vibra Brush Corp. v. Schaffer, 152 F. Supp. 461 (S.D.N.Y. 1957), rev’d on other grounds, 256 F.2d 681 (2d Cir. 1958); Charles Smith, supra at 15. In this case, a careful reader may well realize that Respondents are promoting a puzzle contest, but the overall impression created by the front page of the solicitation, and the form to be returned, is that the recipient has been selected to win a cash prize. Respondents argue that the "ordinary consumer" will read and understand the solicitations. I find them likely to mislead a gullible reader, however, and the evidence demonstrates that there are many such people. There is nothing to prohibit Respondents from marketing puzzle contests, but the law requires them to adequately identify their product. The overall impression of these solicitations is that they are something which they are not.

5. Solicitations themselves are the best evidence as to what representations are made, and the Administrative Law Judge is qualified to make that determination. Directory Publishing Services, Inc. v. Runyon, 851 F. Supp. 484, 488 (D.D.C. 1994); Erica Lynn Kortje, P.S. Docket No. 40/176 at 3 (P.S.D. September 27, 1995); Directory Publishing Services, P.S. Docket No. 38/122 at 6 (P.S.D. February 28, 1994); Allen Glazer, supra at 4. The use of lay or expert testimony is not required, Dynaquest, supra at 1149; Scott P. Cullinane, P.S. Docket No. 39/32 at 7 (P.S.D. November 7, 1994), and the receipt of consumer complaints is not necessary to prove a violation of 39 U.S.C. §3005. Dynaquest, supra at 1147; Hallstone Products, Ltd., P.S. Docket Nos. 41-55-62, FR 95-167 & 168 at 8 (P.S.D. February 14, 1996); The Stars and Stripes-The National Tribune, P.S. Docket No. 37/128 at 6 (P.S.D. October 21, 1993). Such testimony and evidence may properly be considered, however, as it was in this case. Joseph N. Wilkinson, supra at 13.

6. Solicitations that are ambiguous or capable of more than one meaning are misleading if one of those meanings is false. Rhodes Pharmacal Co. Inc. v. FTC, 208 F.2d 382,387 (7th Cir. 1953); Scott P. Cullinane, supra at 13; Directory Publishing Services, P.S. Docket No. 38/122 at 11 (P.S.D. February 28, 1994). It is not difficult to select words that will not deceive. United States v. 95 Barrels of Vinegar, 265 U.S. 438, 443 (1924); Oriental Nurseries, Inc., P.S. Docket No. 9/116 at 4 (P.S.D. May 19, 1981).

7. The recipient of a direct mail solicitation is not required to carefully scrutinize every sentence to determine what is being offered. IT&T AG, P.S. Docket No. FOR 98-227 at 4 (P.S.D. January 27, 1999); Scott P. Cullinane , supra at 20; Charles Smith supra at 15; Directory Publishing Services, supra at 14-15.

8. A solicitation may be deceptive because it makes statements that are untrue, or because it omits information that should be disclosed. It is the total impression on the reader, or recipient, that must be judged. Harold P. Weingold, P.S. Docket No. 41/23-30 at 63 (I.D. July 3, 1995); Michael C. Spence, P.S. Docket No. 40/143 at 19 (I.D. October 21, 1994); see also U.S. v. Keplinger, 776 F.2d 678,697 (7th Cir. 1985), cert. denied, 476 U.S. 1183 (1986).

9. An inconspicuous disclaimer is not sufficient to overcome the overall impression made by an advertisement. Gottlieb v. Schaffer, 141 F. Supp. 7, 17 (S.D.N.Y. 1956); American Publishing Services, P.S. Docket No. 34/191 at 6-7 (P.S.D. June 20, 1994); Scott P. Cullinane, supra at 14-16; Leo Daboub, supra at 16. In this case, the information about the true nature of the solicitation is unhighlighted and on the reverse side of the page. Likewise, an offer to pay refunds to dissatisfied customers does not dispel the effect of false advertisements. Farley v. Heininger, 105 F.2d 79, 84 (D.C. Cir. 1939); Jackie Sibold, P.S. Docket No. 39/115 (I.D. December 14, 1992).

10. A representation is material when it is calculated to cause the reader to do what the representor wants the reader to do, or causes the reader to do other than he or she would have done had the truth been told. F.T.C. v. Colgate-Palmolive Co., 380 U.S. 374,387 (1965); Chaachou v. American Central Insurance Co., 241 F.2d 889, 893 (5th Cir. 1957); Charles Smith, supra at 30; Directory Publishing Services, supra at 16.

11. Applying the foregoing standards, I find that Respondents’ solicitations make the representations alleged in the Complaint, and that these representations are materially false.

12. Complainant has established its false representation case by a preponderance of the reliable and probative evidence of record. S.E.C. v. Savoy Industries, Inc., 587 F.2d 1149, 1168 (D.C. Cir. 1978). Respondents are engaged in the conduct of a scheme for obtaining remittance of money through the mail by means of false representation, in violation of 39 U.S.C. §3005. Respondents are not engaged in conducting a lottery.

13. The attached False Representation Order and Cease and Desist Order should be issued.

Bruce R. Houston
Chief Administrative Law Judge

1. 39 U.S.C. §3005 provides, in pertinent part, as follows: (a) Upon evidence satisfactory to the Postal Service that any person is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representations, . . ., or is engaged in conducting a lottery, gift enterprise, or scheme for the distribution of money or of real or personal property, by lottery, chance, or drawing of any kind, the Postal Service may issue an [appropriate] order . . ..

2. References to the hearing transcript are "Tr._." References to Complainant's Exhibits are "Cx._," and Respondents' Exhibits will be "Rx._."

3. On this point, and others related to consumer behavior, I found Professor Williams' testimony more persuasive that that of the two experts offered by Respondents. He has specialized in the study of consumer behavior for many years, and has written a textbook on the subject (Tr. 78-79; Cx. 58). While Professors Silver and Nagelhout had credentials in their own specialties, their testimony that average consumers would understand Respondents' solicitations was based on little more than personal opinion (Tr. 193, 209, 230, 247).

4. It must also be noted that some of the complaints are of a different nature, i.e., the writers seem to understand that Respondents are offering a puzzle contest, but complain that Respondents keep sending them more copies of the stage-one and stage-two solicitations, and that they never get the stage-three puzzle. These writers seem to be complaining that they are paying the same fee several times. This was also the nature of the complaint by the witness, Ms. Waldner. Although her first impression was that she had already won a prize, she realized upon reading the entire solicitation that this was a puzzle contest. Her complaint was that she had paid three entry fees for the same contest, and that she never received any explanation for why her stage-three entry did not win anything. (Tr. 45-50, 63). Perhaps these are valid complaints about how Respondents run their business, but they are not the false representations alleged in the Complaint.

5. The figures in some of the other solicitations are even more outrageous. E.g., Cx. 50 says that approximately $2,250,000.00 will be collected, and $20,050.00 will be paid out. Cxs. 51-53 say that approximately $1,375,000.00 will be collected, and $13,750.00 will be paid out.