P.S. Docket No. FR 13-56
September 3, 2015
In the Matter of False Representation Complaint
UNITED STATES POSTAL SERVICE v. UST DEVELOPMENT, INC. and DAVID WILLIAM BELL d/b/a UST and US-TELECOM, INC.
P.S. Docket No. FR 13-56
APPEARANCE FOR COMPLAINANT:
Tammie Y. Moore, Esq.
United States Postal Inspection Service
APPEARANCE FOR RESPONDENT:
Patrick J. D’Arcy, Esq.
Lycia A. Bronilla, Esq.
POSTAL SERVICE DECISION ON BREACH OF CONSENT AGREEMENT
Complainant, the Chief Postal Inspector, filed a Petition for Orders and Civil Penalties Based on Breach of Consent Agreement and Cease and Desist Order (Breach Petition) alleging that David William Bell and UST Development, Inc. doing business as UST and US-Telecom, Inc. (Respondents) breached the terms of an agreement and resulting Cease and Desist Order. Complainant contends that Respondents continued to solicit payments through the mail using the false or misleading representations that they had been ordered to discontinue.
I rule in favor of the Chief Postal Inspector and issue the requested False Representation Orders. I also assess a $10,000 civil penalty against Respondents.
Case History
On February 1, 2013, the Postal Service’s Chief Postal Inspector filed a False Representation Complaint alleging that Respondents were engaged in a scheme to obtain money through the mail by means of materially false representations within the meaning of 39 U.S.C. § 3005. The Complaint alleged that Respondents had mailed solicitations to businesses in the guise of invoices which failed to include the disclaimers required by 39 U.S.C. § 3001(d) and Domestic Mail Manual (DMM) § 601.13.1. Essentially, Complainant contended that Respondents were engaged in a false billing scheme to trick businesses into paying what appeared to be invoices for services rendered or for the continuation of an existing relationship for services, while in reality the businesses were being asked to purchase new services.
The mailing attached to the Complaint (hereafter Enjoined Mailing) solicited payments to UST at P.O. Box 970, La Verne, California 91750-0970 (hereafter the La Verne P.O. Box). The front side of the Enjoined Mailing included a Reference Number for a $425 telecom maintenance agreement, and directed the recipient to “Please remit to the above address” the total amount of $425. A statement in smaller type above the payment information stated, “This warranty covers preventative maintenance on all telecom equipment. . . . This is not for services rendered.” Next to this statement appeared a box captioned Web Site with the internet address www.us-telecom.com. (Complaint, Exh. 1).
The reverse side of the Enjoined Mailing was captioned US-Telecom, Inc. “Maintenance Agreement Terms and Conditions.” It consisted of a full page of ten single-spaced paragraphs in 6-point type, captioned 1. Maintenance Services; 2. Excluded Services; 3. Additional Services; 4. Equipment Access; 5. Taxes; 6. Term Renewal; 7. Additional Equipment; 8. Limitation of Liability; 9. Entire Agreement; and 10. General. Within 10. General, between a statement that the agreement cannot be amended except in writing and legal statements regarding disputes and liability, appeared:
The Agreement
On May 15, 2013,[1] Respondents agreed that they had mailed the solicitation attached to the Complaint in connection with their business, and that the solicitation reasonably could be construed as making the representations alleged in the Complaint (Agreement Containing Consent Order to Cease and Desist (Agreement) ¶ 3). The Agreement resolved consequences from an investigation of Respondents conducted by the Postal Inspection Service after hundreds of complaints had been received (Bolz Decl. 1 ¶ 4;[2] Agreement, Introduction, ¶ 1).
Respondents agreed not to make “materially false representations, as alleged in the Complaint filed herein, in the future under any name or names, or through any corporate or other device” in exchange for suspension of further proceedings. Respondents agreed that their future mailings would “be clear that the mailing is a solicitation and not a bill or invoice, using the language prescribed by 39 U.S.C. Section 3001(d) and the language and guidelines prescribed by Section 601.13.1 of the DMM.”[3] (Agreement, Introduction, ¶ 4).
The Agreement permitted Respondents to continue to receive delivery of mail responding to their solicitations. However, they agreed to return any payments received with a letter explaining “why [the payment] is being returned, what services are being offered, the terms and conditions, and that if they do not accept the offer, they do not owe any money.” The Agreement also required Respondents to send a similar letter to businesses that previously had mailed payments responding to their solicitations. The parties agreed to the wording of these letters (the Bounce Back Letters). (Agreement ¶¶ 5, 6; Petition Exhs. K, L).
The parties agreed that, under the authority of 39 U.S.C. § 3005(a)(3), the Judicial Officer (or Associate Judicial Officer) would issue a cease and desist order using language they provided. Further, “Respondents understand that failure to comply with this order to cease and desist could result in the imposition of civil penalties pursuant to 39 U.S.C. § 3012.” (Agreement ¶ 8 (emphasis in original)). The parties also agreed that a “breach of this Agreement by Respondents or any other party in privity with Respondents will warrant the issuance of an order or orders pursuant to 39 U.S.C. § 3005 (a) against Respondents or any other name or names that they may be using. . . .” (Agreement ¶ 9).
The Cease and Desist Order
On July 25, 2013, I issued Cease and Desist Order No. CD-5685 as Associate Judicial Officer, utilizing the language provided by the parties. The Cease and Desist Order applied to Respondents, “individually or through any business, corporate or other device, or under any name or names” and “anyone who would be bound by an injunction issued against them pursuant to Rule 65 of the Federal Rules of Civil Procedure.” (Cease and Desist Order ¶¶ I, II).
The Cease and Desist Order provided:
a. the recipients of Respondents’ solicitations have had a prior business relationship with Respondents;
b. the recipients of Respondents’ solicitations have agreed to purchase services from Respondents;
c. the recipients of Respondents’ solicitations have agreed to pay the amount listed on the solicitations for the services; and
d. the recipients of Respondents’ solicitations owe the amount of money listed on the face of the solicitations.
It is further ordered that Respondents cease and desist from mailing solicitations in the guise of invoices as prohibited by 39 U.S.C. § 3001(d) and 39 U.S.C. § 3005. f
The Breach Petition - Revised Mailings # 1 and # 2
Revised Mailing # 1
Respondents revised the Enjoined Mailing following the Cease and Desist Order. Revised Mailing # 1 solicited payments to US Telecom at either P.O. Box 732275, Dallas, TX 75373-2275 (the Dallas 732275 P.O. Box) or to the La Verne P.O. Box. (Bolz Decl. 1 ¶¶ 25, 26; Exhs. 5-6, 8-9).
The front side of Revised Mailing # 1 included a Customer Reference Number, identified a $425 yearly maintenance fee, stated this amount was due “upon receipt,” and directed the recipient to “Mail Remittance with Payment” to US Telecom at the La Verne P.O. Box or the Dallas 732275 P.O. Box (Bolz Decl. 1, Exhs. 5, 6, 8) by “detach[ing] remittance and mail[ing] with payment.”
In uncaptioned boxes at the bottom appeared “Previous Balance 0.00 – Payment 0.00 + Total New Charges 425.00 = Pay This Amount 425.00.” Within another uncaptioned box immediately above these payment boxes appeared:
The reverse side of Revised Mailing # 1 included a form to update contact information, a double column of fine print in a very small size, and a diagram of the front side with the caption “How to Read Your Statement.” (Bolz Decl. 1, Exhs. 6, 8). The fine print on the reverse side of Revised Mailing # 1 was the same as that on the reverse side of the Enjoined Mailing (Bolz Decl. 1, Exhs. 6, 8).
The How To Read Your Statement diagram on the reverse side of Revised Mailing # 1 identified parts of a small reprint of the front side as follows:
Revised Mailing # 2
Respondents also used Revised Mailing # 2, which displayed in print larger than anything else on the front side, the labels “Invoice” and “Renewal” in the upper-right corner, included an “invoice number,” identified a $425 “maintenance warranty” “annual renewal,” and directed the recipient to “Please remit to the above address” the total of $425 to UST at the La Verne P.O. Box. The following statement appeared in small print size with a different background:
Your current telecom maintenance warranty is about to expire. The warranty covers preventative maintenance on all telecom system equipment. Remit payment to keep your warranty active. If you do not want to renew, please disregard this notice. This is not for services rendered. The US-Telecom web site was identified and “NET 10 DAYS” appeared within a box captioned “Terms.” Revised Mailing # 2 did not include a disclaimer. (Bolz Decl. 1, Exh. 7).
On October 30, 2013, the Chief Postal Inspector filed the Breach Petition contending that Respondents’ use of Revised Mailings # 1 and # 2 breached the terms of the Agreement and Cease and Desist Order. On November 6, 2013, the Judicial Officer issued an Interim Detention Order as provided by ¶ 9(b) of the Agreement directing detention of mail addressed to US-Telecom at the La Verne and Dallas 732275 P.O. Boxes unless determined not to be related to the false billing scheme that Complainant alleged. Respondents challenged the Breach Petition.
First Supplemental Breach Petition - Revised Mailings # 3 Through # 9
On February 21, 2014, the Chief Postal Inspector filed a Motion to Supplement Petition for Orders and Civil Penalties Based Upon Breach of Consent Agreement and Cease and Desist Order (First Supplemental Breach Petition). Complainant alleged that Respondents had breached the Agreement and violated the Cease and Desist Order when it mailed or prepared to mail several additional versions, using three additional addresses: P.O. Box 732366, Dallas, TX 75373-2366 (Dallas 732366 P.O. Box), P.O. Box 1223378, Dallas, TX 75312-3378 (Dallas 1223378 P.O. Box), and 155 N. Lake Ave, Suite 800, Pasadena, California 91101 (Pasadena Address). (Bolz Decl. 2 ¶¶ 4, 6, 8, 11; Exhs. 1-2, 4-8).
Revised Mailing # 3
On November 13, 2013, Respondents mailed Revised Mailing # 3 which was captioned in large, bold and capitalized print as “RENEWAL NOTICE” soliciting payments to US-Telecom at the Dallas 732366 P.O. Box (Bolz Decl. 2, Exh. 2). The front side of Revised Mailing # 3 included a “Reference Number,” a statement that: “YOUR 1 YEAR TELECOM WARRANTY IS ABOUT TO EXPIRE! RENEW TODAY TO AVOID INTERRUPTION IN SERVICE,” a box informing the recipient how to “CHANGE MY TELECOM BILLING METHOD,” a direction to make checks payable to US-Telecom, and identified a $425 yearly maintenance fee. At the bottom of the front side in 6-point type, which was smaller than anything else on the page, appeared:
Revised Mailing # 4
On November 15, 2013, Respondents mailed Revised Mailing # 4, similarly captioned “RENEWAL NOTICE” which solicited payments to US-Telecom at the Dallas 732366 P.O. Box. Revised Mailing # 4 is identical to Revised Mailing # 3 except that it includes a prominent “FINAL NOTICE” stamp on the front side (Bolz Decl. 2, Exh. 1).
Revised Mailing # 5
Respondent David Bell incorporated National Telecompany, Inc. in California in November 2013. The Statement of Information for the incorporation filed with the California Secretary of State identified Mr. Bell as Chief Executive Officer, Secretary, Chief Financial Officer and director of National Telecompany, Inc. (Bolz Decl. 2 ¶ 9; March 13, 2014 Bell Decl. ¶ 1).
On December 16, 2013, NTC, National Telecompany, Inc. mailed Revised Mailing # 5, captioned “RENEWAL NOTICE” in large bold print. The front side is identical to Revised Mailing # 3 except for the name, address (using the Pasadena Address), company web site (www.NationalTelecompany.com), an increase in the amount sought (to $1,900), a slightly different appearance of “RENEWAL NOTICE”, and elimination of one line of text - “YOUR 1 YEAR TELECOM WARRANTY IS ABOUT TO EXPIRE.” The disclaimer was the same as in Revised Mailing # 3 except for the website address. The reverse side of Revised Mailing # 5 consisted of a National TeleCompany Maintenance Agreement of ten paragraphs in single-spaced small print. No disclaimer appeared on the reverse side. (Bolz Decl. 2 ¶ 10, Exh. 4).
Revised Mailings # 6-9
Revised Mailings # 6 through # 9 were prepared by a mailing service for National Telecompany, Inc., soliciting payment to the Dallas 1223378 P.O. Box (Bolz Decl. 2, Exhs. 5-8). Their front sides were identical to Revised Mailing # 1 except for the name of the mailer, and “Customer Reference Number” was changed to “Customer Application Number.” The reverse sides of Revised Mailing # 6 through # 9 also were identical to Revised Mailing # 1 except for the name and website of the mailer, and the caption of the annotated diagram of the front of the mailing was changed from “How to Read Your Statement” to “How to Read Your Application.” Although “Reference Number” was changed to “Application Number” on the front side, the diagram’s annotation continued to refer to it as Reference Number. (Bolz Decl. 2, Exhs. 5-8).
Revised Mailing # 8 (Bolz Decl. 2, Exh. 7) also included a stamp on the front side in bold print and capital letters of a size approximately the same as the name of the company (National Telecompany) between the amount due and the disclaimer. The stamped words, which were the largest writings on the page, stated “THIS IS NOT AN INVOICE.” Revised Mailing # 9 (Bolz Decl. 2, Exh. 8) included a similar stamp which stated “THIS IS AN OFFER FROM NATIONAL TELECOMPANY, INC.”
On February 27, 2014, the Judicial Officer issued an Interim Detention Order as authorized by ¶ 9(b) of the Agreement directing the detention of mail addressed to US-Telecom, National Telecompany, Inc. and NTC at the Pasadena Address and the Dallas 123378 P.O. Box unless determined not to be related to the false billing scheme that Complainant alleged. Respondents challenged the First Supplemental Breach Petition.
Second Supplemental Breach Petition - Revised Mailing # 10
On July 18, 2014, the Chief Postal Inspector filed a Second Supplemental Breach Petition. Complainant alleged that National Telecompany, Inc. and NTC had breached the Agreement and violated the Cease and Desist Order by mailing Revised Mailing # 10 seeking payments to National Telecompany, Inc., at 357 W. Bonita Avenue, Pomona, California 91767-1851 (the Pomona Address). (Bolz Decl. 3, Exh. 1). Other than the payment address, Revised Mailing # 10 was identical to Revised Mailing # 6.
On July 24, 2014, the Judicial Officer issued an Interim Detention Order as authorized by ¶ 9(b) of the Agreement directing the detention of mail addressed to National Telecompany, Inc. and NTC at the Pomona Address unless determined not to be related to the false billing scheme that Complainant alleged. Respondents (and National Telecompany, Inc.) challenged the Second Supplemental Breach Petition.
Third Supplemental Breach Petition - Revised Mailing # 11
On November 3, 2014, the Chief Postal Inspector filed the Third Supplemental Breach Petition. Complainant alleged that Respondents breached the Agreement and violated the Cease and Desist Order by mailing Revised Mailing # 11, which solicited payments to National Telecompany, Inc., at 3281 E. Guasti Avenue, 7th Floor, Ontario, CA 91761 (Ontario Address). (Bolz Decl. 4, Exhs. 1-3).
Revised Mailing # 11 was significantly different than those previously described. It utilized just one side of a page prominently titled INVOICE, with boxes labeled “Date”, “Invoice #”, “Bill To” (with the recipient’s name and address), “Ship To” (blank) and a separate section stating:
Additional Background Information
Respondents issued refunds to customers requesting them (November 18, 2013 Bell Decl. ¶ 8). Respondents generally cooperated with the Postal Inspection Service during the course of the investigation, and they have stopped the mailings of the various types described (November 18, 2013 Bell Decl. ¶ 10, 16; March 13, 2014 Bell Decl. ¶ 16). Respondents also paid restitution to Attorneys General from several states because of their mailings (November 18, 2013 Bell Decl. ¶ 9; November 18, 2013 P. D’Arcy Decl. ¶ 4).
Respondents are close to bankruptcy, have lost nearly all their employees, and largely have stopped paying their counsel (March 13, 2014 Bell Decl. ¶¶ 3, 16; November 13, 2013 Bell Decl. ¶ 3).
Decision
The Complaint alleged that the Enjoined Mailing constituted a solicitation in the guise of an invoice, which failed to comply with the disclaimer notice requirements of 39 U.S.C. § 3001(d) and the language and guidelines prescribed by the DMM. Complainant therefore alleged that Respondents had engaged in conducting a scheme to obtain money through the mail by means of false representations within the meaning of 39 U.S.C. § 3005(a). Respondents agreed that the Enjoined Mailing reasonably could be construed as making the false representations alleged in the Complaint, and I issued the Cease and Desist Order using language provided by the parties.
I now am asked to decide whether Respondents violated the Cease and Desist Order and the Agreement when they mailed or proposed to mail Revised Mailings # 1 through # 11. Based on my examination of those mailings, I conclude that Respondents have violated the Cease and Desist Order.
The Enjoined Mailing
Section 3001(d) of Title 39 requires that matter “in the form of, and [which] reasonably could be interpreted or construed as, a bill, invoice, or statement of account due; but . . . [which] constitutes, in fact, a solicitation for the order by the addressee of goods or services, or both” is nonmailable. However, the statute provides an exception if “such matter bears on its face, in conspicuous and legible type in contrast by typography, layout, or color with other printing on its face . . . the following notice: ‘This is a solicitation for the order of goods or services, or both, and not a bill, invoice, or statement of account due. You are under no obligation to make any payments on account of this offer unless you accept this offer.’, or . . . a notice to the same effect.” Implementing regulations found in the DMM at § 601.9.1.2 identify an alternative disclaimer - “THIS IS NOT A BILL. THIS IS A SOLICITATION. YOU ARE UNDER NO OBLIGATION TO PAY THE AMOUNT STATED ABOVE UNLESS YOU ACCEPT THIS OFFER.” The DMM describes how to display a disclaimer to satisfy the statute:
I begin my analysis by comparing the mailings in dispute in this case against the Enjoined Mailing based both on their overall impressions and in consideration of the DMM disclaimer provisions.[4]
The visual appearance of the Enjoined Mailing in all respects except two looks like a bill, invoice or statement of account due rather than a solicitation. First, “This is not for services rendered” appeared on the front side, and second, the following disclaimer appeared on the reverse side within a page of fine print in a section captioned General, in capital (except for the final sentence), non-bold 6-point type:
The Mailings Challenged in the Petition – Revised Mailings # 1-2
The mailings themselves constitute the essential evidence, and my analysis relies virtually entirely on my own examination of those mailings. See American Geneologies, Inc. v. United States Postal Service, 717 F. Supp. 895, 897 (D.D.C. 1989). Because much of my analysis of subsequent mailings will refer back to Revised Mailing # 1, I will analyze it in some detail.
My overall impression of the appearance of Revised Mailing # 1 is one of a solicitation that looks like an invoice, as prohibited by the Cease and Desist Order. See Erica Lynn Kortje d/b/a Employment Classifieds, P.S. Docket No. 40/176 (I.D. August 4, 1994). I have considered the following attributes of the mailing to reach that conclusion.
The front side of Revised Mailing # 1 identified a “Customer Reference Number.”[5] I conclude that a recipient reasonably could believe that this referred to an existing customer identification number, not a new account. Any implication that a recipient has had a prior business relationship with Respondents violates the Cease and Desist Order. Revised Mailing # 1 also states that payment is due upon receipt (which the Enjoined Mailing did not state), which I conclude also implies that the mailing involves an invoice to an existing customer, reflects a prior agreement to pay the listed amount, or implies that the amount is owed, all of which are prohibited by the Cease and Desist Order. Revised Mailing # 1 asked the recipient to “Mail Remittance With Payment” and to “Detach remittance and mail with payment” to UST whereas the Enjoined Mailing asked for the recipient to “remit to the above address.” The wording of these payment requests are more similar to an invoice than even the Enjoined Mailing.
Revised Mailing # 1 identified a “previous balance” of [$]0, minus a [$]0“payment,” plus “total new charges [$]425” leading to “= Pay This Amount [$]425.” Identification of and resulting calculations based on a “previous balance” and “new charges” imply a pre-existing relationship and that the recipient owes the new charges, practices prohibited by the Cease and Desist Order.
The reverse side of Revised Mailing # 1 included a change of address form, which I consider typical of invoices to existing customers. It contained a diagram of the front side of the mailing captioned ”How to Read Your Statement.” The word “Statement” is part of the statutory definition of a prohibited mailing (matter that “reasonably could be interpreted as a bill, invoice or statement of account due”).
The How To Read Your Statement diagram characterizes sections of the front side including Services Provided, and Disclosure. I find that the phrase “services provided” is capable of two reasonable meanings: services that alreffady have been provided, or services that will be provided in the future. The first of these contributes to my conclusion that the mailing implies that recipients are being asked to pay for services previously provided and the resulting fee is due based on a pre-existing relationship. See Card Redemption Center et al., P.S. Docket No. 30/35 (P.S.D. June 30, 1989) (violation where one of two reasonable meanings is false).
The disclaimer on the front side of Revised Mailing # 1 appeared within a larger paragraph of text rather than set apart from other writing, and it impermissibly appeared immediately above the payment information. The disclaimer portion within that paragraph stated:
I must analyze whether the disclaimers render unreasonable a perception that the mailing is a bill, invoice, or statement of account due rather than a solicitation for an order of services, or stated using the more-specific prohibitions of the Cease and Desist Order, whether they negate the implications that the recipients have a prior business relationship with Respondents, have agreed to purchase services from Respondents, have agreed to pay the amount listed on the solicitation for the services, or owe the amount listed. I conclude that the disclaimers are insufficient to invoke the statutory exception or to satisfy the Cease and Desist Order under these circumstances.
While the wording of the disclaimer on the front side satisfies the DMM standards, its location and appearance do not. See, e.g., Mid-Am. Marketing, Inc., et al., P.S. Docket No. FR 24/12 (P.S.D. January 5, 1987; aff’d, Op. on Recon. May 7, 1987) (disclaimers in small print and inconspicuous locations are insufficient to dispel the effect of a false representation); Figure Dynamics, P.S. Docket No. FR 10/8 (I.D. August 25, 1981 (disclaimers must dispel overall impression to be effective).
As in the Enjoined Mailing, these disclaimers appear to have been printed in 6-point type. While capitalized, they are not bolded. They are not set apart so as to be conspicuous from other writing. Indeed, the disclaimer on the front side appears immediately above the previous balance/new charges/pay this amount calculation. The disclaimer on the reverse side is identical to the disclaimer in the Enjoined Mailing and therefore insufficient as determined by the parties’ Agreement as implemented by the Cease and Desist Order. The overall impression of Revised Mailing # 1 is insufficiently different from the admittedly prohibited version to reach a contrary conclusion.
Although my analysis is based on my examination of the entirety of Revised Mailing # 1, I also find it helpful to consider the specific standards of the DMM. The Agreement includes Respondents’ obligation that future mailings would be clear that the mailing is a solicitation, not a bill or invoice, and that it must do so considering the statutory standards and using the language and guidelines in the DMM.
Among the elements identified in the DMM for a sufficient disclaimer which Revised Mailing # 1 fails to satisfy are that: it was not displayed in a conspicuous manner prominently contrasting with other print on the face of the solicitation; it was printed smaller than 30-point type, and it was not displayed conspicuously apart from other print immediately below which specified a monetary amount due and payable. Indeed, as I have explained, immediately beneath the disclaimer on the front side of Revised Mailing # 1 appears all the payment information.
Although this Decision does not require that I determine whether Respondents’ failure to use at least 30-point type for the disclaimer would be sufficient alone (if that were the only deficiency) to render the mailing illegal, below I demonstrate the significance of the type size printed in the context of the conspicuousness requirement.
It is difficult to read the disclaimers clearly without the use of magnification. I used a typometer under magnification to reveal that the disclaimers were printed in 6-point type. By way of illustration, below I show a portion of the disclaimer as it appeared in the mailing in 6-point type and show how it would appear in 30-point type. The difference in effect upon recipients is obvious.
Using 6-point type:
THIS IS NOT A BILL. THIS IS A SOLICITATION.
THIS IS NOT A BILL. THIS IS A SOLICITATION.
Revised Mailing # 2 is labeled prominently in letters larger than any other print on the front side as “Invoice” and “Renewal.” It includes an “invoice number” identifying the price for “annual renewal for your 1 year maintenance warranty.” The recipient is instructed to “[r]emit payment to keep your warranty active. If you do not want to renew, please disregard this notice.” I conclude that all this phrasing states or at least implies that payment is owed based on a prior business relationship and could lead to a recipient’s reasonable conclusion that the mailing is an invoice for services rendered rather than a solicitation for new services. Further, captioning the mailing (as Invoice) with exactly the word prohibited by the Agreement and Cease and Desist Order (mailing must be clear to be a solicitation not a bill or invoice) presents a clear violation.
The disclaimer found on the front side of Revised Mailing # 1 did not appear. Rather, the only disclaimer on the front of Revised Mailing # 2 appeared in small print similar to that which I considered in my analysis of Revised Mailing # 1, except it was not capitalized. The disclaimer stated:
I conclude that considered as a whole, Revised Mailings # 1 and # 2 violate the Cease and Desist Order, and I rule in favor of Complainant.
The Mailings Challenged in the Supplemental Breach Petitions
Revised Mailings # 3 – 9
Revised Mailings # 3 and # 4 prominently were labeled “Renewal Notice” and they resembled invoices. They state:
The only disclaimer language on the front side of Revised Mailings # 3 and # 4 appeared in the same non-bolded 6-point type previously discussed:
The reverse sides of Revised Mailings # 3 and # 4 include the same disclaimer, buried in fine print, as appeared in the Enjoined Mailing that the parties agreed was inadequate, requiring no further analysis. The annotated diagram also was present, except that its caption was changed from “How to Read Your Statement” to “How to Read Your Notice.” That wording change does not significantly affect my conclusions, and the diagram continues to use the problematic “Services Provided” annotation which I previously analyzed.
Revised Mailings # 5 through # 9 seek payments to NTC, National Telecompany, Inc., at either the Pasadena Address or the Dallas 1223378 P.O. Box. Revised Mailing # 5 prominently is captioned RENEWAL NOTICE. The front side is very similar to Revised Mailing # 3 except for the name and location of the mailer, and the elimination of the “Your 1 year telecom warranty” line. It violates the Cease and Desist Order for the same reasons previously analyzed. The reverse side of Revised Mailing # 5 was captioned National Telecompany Maintenance Agreement, and filled the entire page with 6-point condensed type. The reverse side did not include a disclaimer.
The identity of the mailer presents another issue. Respondents argue that National Telecompany, Inc. (or NTC) cannot be bound by the Cease and Desist Order because it did not exist until after the Cease and Desist Order was issued. Respondents also argue that their new company, National Telecompany, should not be bound by the Agreement or Cease and Desist Order because Complainant specifically advised them that they could operate under a new name and address.
I do not address any factual dispute concerning advice, since the broad language of the Cease and Desist Order binds Mr. Bell “individually or through any . . . . corporate . . . device, or under any name or names.” Respondents do not dispute that Mr. Bell created, controlled, and played a major role in National Telecompany, Inc., which mailed essentially the same solicitations as UST-Telecom, and did so very shortly after National Telecompany was created. The Cease and Desist Order bound Mr. Bell not only individually but also through the “corporate device” of National Telecompany (under “any name or names”). Mr. Bell was entitled to create such a corporation, but I agree with Complainant that the corporation Mr. Bell created was bound by the same restrictions placed on him by the Agreement and Cease and Desist Order. See Claud Koch, P.S. Docket No. FR 22/140; J.W. Arthur, et al., P.S. Docket No. FR 20/85 (P.S.D. December 23, 1987); W.G. Charles Co., et al., P.S. Docket No. 19/103, (I.D. January 28, 1985), (P.S.D. September 30, 1985); The National Gold Mint, P.S. Docket No. 22/165 (I.D. July 22, 1986).
Aside from the name of the mailer, with two exceptions Revised Mailings # 6 and # 7 appear virtually identical to Revised Mailing # 1 which I have concluded to have violated the Cease and Desist Order. The Customer Reference Number has been changed to read “Application Number,” and the “How to Read Your Statement” caption of the diagram on the reverse side has been changed to “How to Read Your Application.” Although referencing an application is a bit less misleading, I find that change insufficient to distinguish the mailing from the others I have found to violate the Cease and Desist Order.
Revised Mailings # 8 and # 9 are substantially the same as Revised Mailings # 6 and # 7, except that the front side of Revised Mailing # 8 included “THIS IS NOT AN INVOICE” and the front side of Revised Mailing # 9 included “THIS IS AN OFFER FROM NATIONAL TELECOMPANY, INC.” Those statements were considerably larger and darker in appearance than the rest of the words on the page, although well less than the 30-point type standard. Although these markings reduce the misleading elements somewhat, they do not use sufficient disclaimer language and fail to provide a controlling distinction from the mailings I have found to violate the Cease and Desist Order.
Revised Mailing # 10, at issue in the Second Supplemental Breach Petition, appears substantially similar to Revised Mailing # 3 (previously found to violate the Cease and Desist Order) except that the Pasadena Address is used and the “Due Upon Receipt” line has been omitted. I find the latter change insufficient to distinguish the mailing from those I have found to violate the Cease and Desist Order.
Revised Mailing # 11, at issue in the Third Supplemental Breach Petition, prominently was captioned “Invoice,” stated that it was from National Telecompany, Inc. at the Ontario Address, and seemed to seek payment through a website rather than by return mail. Revised Mailing # 11 does not include any disclaimer whatsoever. Captioning Revised Mailing # 11 as an “Invoice”, separately citing an “Invoice #”, including a “Bill to” name and address, and requesting the recipient to “Pay your bill online!” (emphases added), used the prohibited words and resulted in the mailing failing clearly to constitute a solicitation for new business rather than an invoice or bill. Combined with the absence of any disclaimer, the overall appearance that the mailing is an invoice, and to the extent that Revised Mailing #f 11 was mailed to recipients who had not had a prior agreement for services with National Telecompany,[7] I conclude that it violates the Cease and Desist Order as well.
Additional Defenses
I have considered and reject all of Respondents’ additional defenses. Respondents argue that they have complied voluntarily with all requests by the Postal Inspection Service to stop their mailings, have attempted to comply with what they consider confusing standards, and have provided refunds to complaining customers. They characterize these efforts as demonstrating their cooperation and good faith. Respondents’ cooperation or good faith does not present a defense against breach of the Cease and Desist Order (see Sergio & Spiegel Television for Oncor, Inc., P.S. Docket No. 37/105 (P.S.D. March 12, 1993)), although I consider it in their favor in connection with imposition of a civil penalty. The statutory and regulatory standards provide appropriately precise guidance, particularly the DMM standards, which provides specific phrasing, placement directions, and type size. Respondents simply did not comply despite their agreement and legal obligation to do so. Refunds to dissatisfied customers do not dispel the effect of mailings involving false representations and do not present a defense. See R. James Ellis a/k/a Ron Ellis and J.R. Publishing, L.L.C., P.S. Docket No. FR 98-286 (I.D. March 26, 1999).
Respondents present various legal arguments based on United Commercial Ins. Serv. v. United States Postal Service, 650 F. Supp. 592 (D.D.C. 1986), including assertions about the appropriate standard of review. United Commercial addressed an initial action under 39 U.S.C. § 3005, not a breach of a Cease and Desist Order, and arguments about its standard of review are irrelevant. See Scott P. Cullinane, et al., P.S. Docket No. 39/32 (P.S.D. November 7, 1994), n. 6. Moreover, as I previously have emphasized, I am not resolving disputed facts in this Decision, negating any potential standard of proof implications.
Respondents’ arguments about whether their mailings violated 39 U.S.C. § 3005 under the reasoning of United Commercial also miss the point. The only issue for me to decide in a breach proceeding such as this is whether Respondents have continued to make the representations that the Cease and Desist Order prohibited. See Mark Eden v. Lee, 433 F.2d 1077, 1082-83 (9th Cir. 1970); Associated Writer’s Guild of America, P.S. Docket No. FR 12/180 (P.S.D. June 6, 1990).
Respondents complain about various statements offered in Inspector Bolz’ declarations about recipients’ reactions to their mailings. They also take exception to the conduct of the Postal Inspection Service’s investigation. As previously stated, in a breach proceeding, my analysis is based on my examination of the mailings themselves, which are the best evidence of their content. See Kevin Michael Rhoades and Associated Capital Finance, Inc., P.S. Docket No. 37/10 (P.S.D. January 14, 1992). Additional testimony is not necessary to establish whether Respondents continued to make the representations alleged in the Breach Petition and Supplemental Breach Petitions. See Ruby Juergens d/b/a The Worldlife Company, P.S. Docket No. 40/132 (P.S.D. September 20, 1996). Inspector Bolz’ characterizations about the background of this case, and his descriptions about recipients’ reactions to the mailings have been disregarded as irrelevant, and how the Postal Inspection Service conducted its investigation also is inconsequential in this breach proceeding.
I reject Respondents’ defense that their mailings’ deficiencies should be excused because a mailing house prepared them. Respondents remain responsible for their own mailings whether they prepared and printed them in-house or whether another entity prepared and printed them. See Dr. Corrine Allen d/b/a Agape Health, P.S. Docket No. FR 29/1 (I.D. March 9, 1988) (“no defense to this proceeding that the false representations are . . . prepared by a third party. By using such representations . . . Respondent adopted them and thereby subjected herself to the possibility of a proceeding under 39 U.S.C. 3005”).
I also reject Respondents’ argument that deficiencies in their mailings should be excused because they were directed to businesses rather than individuals. I have no reason to believe that business recipients would be any more adept at understanding the misleading aspects of Respondents’ mailings than any other recipient, nor would that matter in any event. See generally Donaldson v. Read Magazine, 333 U.S. 178, 189 (1948) (“That exceptionally acute and sophisticated readers might have been able by penetrating analysis to have deciphered the true nature of the . . . terms is not sufficient to bar findings of fraud by a factfinding tribunal. Questions of fraud may be determined in the light of the effect advertisements would most probably produce on ordinary minds.”); Cullinane, P.S. Docket No. 39/32 (Nothing indicates that businessmen are any more adept than other readers at understanding the subtle aspects of a misleading solicitation. The protection of the false representation statute is not limited to those not sophisticated enough to ascertain the true nature of a product from a confusing solicitation.).
Regardless, all that matters to my Decision is that Respondents violated the Cease and Desist Order – not whether recipients actually were deceived. Respondents similarly contend that the statute does not protect recipients against careless payments ffof a solicitation. The entire purpose of the false representation statute is to protect the public from unreasonably deceptive mailed solicitations while not affecting legitimate business enterprises. See Donaldson, 333 U.S. at 184, 189-90. The statute and DMM establish that balance and Respondents agreed to abide by them. They fhave not. Blaming the result on consumer carelessness does not excuse Respondents’ failure to have complied with the Cease and Desist Order.
Respondents complain that solicitations by companies in other industries are mailed in the guise of invoices without prosecution under the false representation statute. Those mailings are not before me and do not present a defense. See Claud Koch d/b/a B.K. Enterprises, Inc. et al., P.S. Docket No. FR 22/140 (P.S.D. November 6, 1987) (“the fact that others may be engaged in similar activities does not serve as a defense to the allegations in this proceeding”). Similarly, Respondents argue that transmitting solicitations that appear as renewal notices is consistent with its industry’s business model. I find that argument irrelevant to my determination that Respondents violated the Cease and Desist Order.
I also reject any argument that application of the Cease and Desist Order to Respondents’ mailings violates the First Amendment to the U.S. Constitution. See Donaldson, 333 U.S. at 191-92. Respondents agreed to the issuance of the Cease and Desist Order which I am enforcing here. Enforcement of an authorizefd and legally binding Cease and Desist Order does not intrude on Respondents’ First Amendment rights. See United States Postal Service v. Athena Prods., Ltd., 654 F.2d 362 (4th Cir. 1981) (false or misleading commercial communications not protected by First Amendment).
Civil Penalties
Complainant asks me to assess a $100,000 civil penalty against Respondents, the maximum allowable penalty for mailing between 50,000 and 100,000 pieces. Complainant requests the penalty in accordance with 39 U.S.C. § 3012(a). Section 3012(a), however, applies only to civil actions in federal district court. I infer that Complainant is seeking an equivalent administrative civil penalty under the correct statutory provision, 39 U.S.C. § 3012(c), for the same number of mail pieces.
Although Complainant presented little information as to the number of mail pieces at issue, Mr. Bell declared that National Telecompany had “sent out about 100,000 mailings, although this pales in comparison to UST” (Bell June 23, 2014 Decl. ¶ 3). Based on Mr. Bell’s admission, I conclude that Respondents’ mailings number at least 50,000 to 100,000 pieces, and therefore it is appropriate for me to begin my analysis at $50,000 pursuant to 39 U.S.C. § 3012(c).
Section 3012(c)(2) of Title 39 requires that I take several factors into account in determining a civil penalty:
However, several factors weigh in Respondents’ favor within the meaning of the statute to reduce the civil penalty. Respondents generally cooperated with the Postal Inspection Service, have stopped mailing the solicitations at issue, have paid restitution to Attorneys General from several states, and have issued refunds to customers requesting them. These mitigating factors favorably implicate Respondents’ history of violations and reduce the degree of their culpability within the meaning of the statute.
Respondents also have shown that their ability to pay a civil penalty is limited and that a substantial civil penalty would affect their ability to conduct lawful business. In consideration of these factors, I conclude that a civil penalty equivalent to twenty percent of my $50,000 starting point is appropriate. Accordingly, I assess a $10,000 civil penalty.
Conclusion
Respondents breached the Cease and Desist Order. I grant Complainant’s Breach Petition and its three Supplemental Breach Petitions.
Accordingly, I separately issue false representation orders as described in 39 U.S.C. § 3005(a) against the names and addresses at issue in this case, and assess a $10,000 civil penalty.
ORDER
False Representation Orders will be issued as requested by Complainant.
Respondent shall pay a $10,000 civil penalty.
Gary E. Shapiro
Associate Judicial Officer
[1] The parties agreed to substitute the Agreement dated August 1, 2013 for the Agreement dated May 15, 2013. See August 15, 2013 Order. All references in this Decision to the Agreement are to the substituted August 1, 2013 Agreement unless otherwise indicated.
[2] Postal Inspector Steven Bolz submitted five declarations in this case, which are referenced as follows: Bolz Decl. 1 (September 26, 2013); Bolz Decl. 2 (January 23, 2014); Bolz Decl. 3 (April 29, 2014); Bolz Decl. 4 (July 14, 2014); Bolz Decl. 5 (October 27, 2014).
[3] DMM § 601.9 subsequently replaced § 601.13.1. Postal Bulletin 22394 (July 24, 2014). The changes are not material to this Decision.
[4] Many of the arguments presented by the parties, such as recipients’ reactions to the mailings, whether Respondents failed to mail the required Bounce Back Letters, and issues concerning investigators’ tactics are irrelevant to my decision-making. In this Decision, I am not resolving disputed facts – all I am doing is determining whether Revised Mailings # 1 through # 11 breach the Cease and Desist Order. I do so by reviewing those mailings, not by resolving factual disputes.
[5] The Enjoined Mailing had identified a “Reference Number.”
[6] Revised Mailing # 3, but not Revised Mailing # 4, bears a prominent stamp on its front side stating “Final Notice.” The presence or absence of that stamp does not affect my conclusions.
[7] Respondents do not claim that Revised Mailing # 11 was mailed only to existing customers.
Using 30-point type: