Mark Eden v. Lee

• Decision Date: 03 November 1970
• Docket Number: No. 24118.,24118.
• Citation: 433 F.2d 1077
• Parties: MARK EDEN, a California corporation, Plaintiff-Appellee, v. Lim P. LEE, as Postmaster of the United States Post Office at San Francisco, California, Defendant-Appellant, and S. Victor Wagler, as Trustee of certain impounded funds, Defendant.
• Court: U.S. Court of Appeals — Ninth Circuit

433 F.2d 1077 (1970)

MARK EDEN, a California corporation, Plaintiff-Appellee, v. Lim P. LEE, as Postmaster of the United States Post Office at San Francisco, California, Defendant-Appellant, and S. Victor Wagler, as Trustee of certain impounded funds, Defendant.

No. 24118.

United States Court of Appeals, Ninth Circuit.

November 3, 1970.

Walter H. Fleischer (argued), William D. Ruckelshaus, Asst. Atty. Gen., Cecil F. Poole, U. S. Atty., Alan S. Rosenthal, Stephen R. Felson, Washington, D. C., for defendant-appellant.

John F. Wells (argued), Nathan G. Gray, Stark, Simon & Sparrowe, Oakland, Cal., for plaintiff-appellee.

Before MERRILL and HUFSTEDLER, Circuit Judges, and ^*JAMESON, District Judge.

JAMESON, District Judge:

This is an appeal from a summary judgment in favor of plaintiff-appellee, Mark Eden, enjoining defendant-appellant, Lim P. Lee, the Postmaster at San Francisco, California, from enforcing a decision and impound order of the Acting Judicial Officer of the United States Post Office Department.¹

Background of Litigation

Mark Eden, a California corporation, manufactures and sells a mechanical exercising device known as the Mark Eden Developer, designed to aid in the development of the female bust. In March, 1965 Mark Eden began to market the device through the mails and published its "First Ad" in several national magazines.² This ad contained a guarantee "to any woman that she will gain at least three full inches on her bust" by using the device and following the Mark Eden program.

On April 21, 1965 the Post Office Department commenced a fraud order proceeding against Mark Eden pursuant to 39 U.S.C. § 4005. Shortly after this proceeding was instituted the First Ad was discontinued and replaced with a somewhat more conservative advertisement, the so-called "Barbara Hayes Ad." This ad was used until January, 1967.

A hearing was held in May, 1965 on the fraud order. The Hearing Examiner did not find an "actual intent to deceive" by false representation — essential to the issuance of a fraud order.³ He did, however, find that certain representations tended to raise doubts about Mark Eden's complete good faith and suggested several changes which should be made. The Judicial Officer of the Post Office Department reversed and issued a fraud order in November 1966, and Mark Eden's mail was impounded. Mark Eden obtained a temporary restraining order in district court enjoining enforcement of the fraud order.

Following protracted negotiations the parties agreed upon a settlement. The terms of the settlement are set forth in an Affidavit of Discontinuance executed by the owners of the capital stock of Mark Eden on January 30, 1967. Following the execution of the Affidavit, Mark Eden began using its third advertisement, known as the "Compliance Ad," and on February 7, 1967 ordered all of its publishers to publish this ad in place of all other advertisements.

In the settlement negotiations, Mark Eden was represented by its counsel, John F. Banker, and the Post Office Department by its counsel, Abraham Levine. Prior to execution of the Affidavit Banker sought assurance from Levine that the proposed Compliance Ad would be an acceptable advertisement and comply with the provisions of the proposed settlement agreement. Levine in a letter dated December 7, 1966 states:

"* * * We are not authorized to review proposed advertising copy for an express or implied approval. I would be willing, however, to examine such proposed copy and advise you if any portion thereof presents a problem. I would undertake this with the stipulation that any comments submitted would not bind the General Counsel Office in any future action taken with respect to such proposed advertising."

On January 3, 1967 Banker sent Levine a copy of the proposed Compliance Ad, with blank spaces for photographs and quotations from letters from customers. The Associate General Counsel replied on January 12. Without commenting on the advertisement he proposed a number of changes in the Affidavit, including a recital that:

"* * * the General Counsel\'s office has not reviewed, screened, or evaluated any advertising matter submitted or exhibits by Mark Eden or its attorneys, nor has the General Counsel\'s office indicated or suggested any express or implied approval or acceptance of such advertising matter."

This provision was incorporated in the affidavit.

Banker testified before the Hearing Examiner in the present litigation that in a telephone conversation on January 19, 1967, Levine "stated that he was required to follow the Department policy against approving specific ads and that he could not vary that policy in our case. He stated, however, that he had in fact reviewed the form of advertisement sent him by us and that if there had been anything in that form of advertisement which he felt was seriously objectionable, he would have so informed us."⁴

Settlement Agreement

The settlement agreement, embodied in the Affidavit of Continuance, recites that the "advertisement complained against," i. e., the First Ad, had been discontinued and provided that Mark Eden would not fill any orders based on that advertisement and that any remittances thereafter received would be returned to the purchaser with the statement that the advertisement had been discontinued and orders relating thereto were no longer being filled. Upon approval of the Affidavit by the General Counsel's Office, the fraud order and temporary restraining order would be revoked, and the impounded funds released to Mark Eden for the same disposition as new orders based on the discontinued advertisement.⁵

With respect to future advertisements, the Affidavit provided:

"3. It is agreed that future advertising matter employed by Respondent or the undersigned will not contain any representation, whether expressly stated or reasonably implied from express statements, or reasonably implied from the advertisement as a whole, including any pictorial display or other advertising device therein contained to the effect that:

(a) Every female user of the `Mark Eden\' device and exercise program is assured some degree of development or enlargement of the female breasts;

* * * * * *

(c) The use of aforesaid product will assure the female user of results in breast development or enlargement to the extent of specifically stated proportions or measurements;

(d) The use of aforesaid product will assure the female user of results in the development or enlargement of her breasts equivalent to that depicted by any illustration, model, or other demonstration."

Paragraph 5 of the Affidavit prescribes the procedure to be followed if the Post Office Department received evidence showing a breach of the Affidavit. It provides that the Department may apply for a fraud order and that Mark Eden "may at any time prior to * * * hearing revise its advertising matter consonant with the charges of alleged breach * * *. Pending a hearing on the matter of breach, the Judicial Officer of the Department may order the mail of the Respondent (Mark Eden) to be impounded * * * provided, however, that any mail relating to the alleged breach which is so impounded shall upon the request of Respondent be ordered released to Respondent upon the condition that Respondent deposit all * * * remittances therein contained, in trust, with a responsible trustee. Upon a hearing and determination on the question of breach, the hearing examiner shall order appropriate distribution of the funds so deposited in trust. * * *"

Present Litigation

The Compliance Ad was first published in March, 1967. During that month the Post Office Department began a further investigation of Mark Eden's advertising. Banker wrote Levine and was informed that the investigation related to "compliance with the Affidavit of Discontinuance." On April 10, 1967 Banker transmitted to Levine and the Post Office Inspector conducting the investigation a copy of the full Compliance Ad. This investigation was terminated and the file marked "Closed" sometime in April, 1967.⁶

On December 12, 1967 the Post Office Department moved for the issuance of a fraud order and for an order impounding Mark Eden's mail, on the ground that new advertising had come to its attention which violated the terms of the Affidavit.⁷ On December 15 the Judicial Officer ordered the impounding of Mark Eden's mail, with delivery to be conditioned upon incoming funds being placed in trust. Following a suspension of the order pending negotiations, the order was reinstated on January 24, 1968. Approximately $900,000 is now held in the trust fund. On March 7, 1968 Mark Eden revised its advertisements, discontinued the use of the Compliance Ad, and began using its Revised Compliance Ad.⁸

Following a hearing, the Hearing Examiner rendered his decision on March 21, 1968, finding that "a preponderance of the evidence fails to show that the respondent has violated the Affidavit of January 30, 1967 in respect to any items specified or referred to in complainant's motion of December 12, 1967." On appeal by the Department, the Acting Judicial Officer on April 30, 1968 reversed the Hearing Examiner in part and held that paragraph 3(a) of the Affidavit, quoted supra, had been violated by Mark Eden's subsequent advertisements. He found from samples of the Compliance Ad received as exhibits, that Mark Eden "did and does represent * * * that `every female user of the "Mark Eden" device and exercise program is insured some degree of development or enlargement of the female breasts.'"⁹

He agreed with the Hearing Examiner that other allegations of breach of the terms of the Affidavit had not been established and held that the new advertising i. e., the Revised Compliance Ad,¹⁰ did not violate the Affidavit.

The Acting Judicial Officer ordered all funds which had been or would be sent to Mark Eden in response to the offending advertisements returned to the senders with a statement that such advertising had...