U.S. Postal Service v. Athena Products, Ltd., 81-7303

• Decision Date: 27 August 1981
• Docket Number: No. 81-7303,81-7303
• Citation: 654 F.2d 362
• Parties: UNITED STATES POSTAL SERVICE, Plaintiff-Appellee, v. ATHENA PRODUCTS, LTD., Defendant-Appellant. . Unit B
• Court: U.S. Court of Appeals — Fifth Circuit

Page 362

654 F.2d 362

UNITED STATES POSTAL SERVICE, Plaintiff-Appellee, v. ATHENA PRODUCTS, LTD., Defendant-Appellant.

No. 81-7303.

United States Court of Appeals, Fifth Circuit.

Unit B

Aug. 27, 1981.

Benham & Cohen, P. C., Tom Benham, Atlanta, Ga., for defendant-appellant.

Kathie G. McClure, Asst. U.S. Atty., Atlanta, Ga., for defendant-appellee.

Appeal from the United States District Court for the Northern District of Georgia.

Before HILL and VANCE, Circuit Judges, and LYNNE ^*, District Judge.

VANCE, Circuit Judge:

This case involves a challenge to the statutory scheme authorizing the United States Postal Service to prevent the obtaining of money through the mail by means of false representations. Appellant contends that the statutory provisions restrain advertising in a manner inconsistent with the protection afforded by the first amendment to commercial speech.

The congressional scheme is embodied in 39 U.S.C. § 3005 and 39 U.S.C. § 3007. Under section 3005 ¹ the Postal Service may institute administrative proceedings to determine whether money is being obtained through the mails by means of false representations. If a violation of section 3005 is established, that section permits the postmaster to return to sender mail and money orders addressed to the violator. Section 3007 ² enables the Postal Service to obtain an injunction in district court to detain the mail of an alleged violator during the pendency of administrative proceedings under section 3005. The statute specifies that an injunction be granted upon a showing of probable cause to believe that section 3005 is being violated.

In February 1981, after instituting administrative proceedings under section 3005, the Postal Service filed the present suit against Athena Products, Ltd. under section 3007. Athena Products sells "health" products through the mails. It solicits orders for these products through advertisements in its own bi-monthly magazine, Soma, and through other publications. Each issue of Soma contains an order blank to be mailed to the address advertised in that issue along with payment for the desired products. This suit concerns alleged misrepresentations regarding fifteen advertised products.

At the hearing in district court in March 1981, both parties presented affidavits and testimony from expert witnesses as to the truth of the claims made in the advertising for the fifteen products. In its careful review of the evidence, the district court divided the fifteen products into three general categories: those claimed to cause weight loss and figure modification, ³ those advertised primarily as rejuvenating agents, ⁴ and a third group of miscellaneous products. ⁵ The court concluded that the plaintiff had gone substantially beyond meeting its burden of showing that probable cause existed to believe that Athena's advertisements were "reasonably calculated to deceive persons of ordinary prudence and comprehension." United States v. Outpost Development Corp., 369 F.Supp. 399, 402 (C.D.Calif.), aff'd, 414 U.S. 1105, 94 S.Ct. 832, 38 L.Ed.2d 733 (1973). Athena does not contend that we should overturn this determination.

In accordance with its findings, the district court issued an order directing the postmaster to detain all of Athena's incoming mail addressed to designated post office boxes and street addresses. The order also prohibited Athena from soliciting orders for the fifteen products to other post office boxes. The order provided that Athena could examine its mail and collect items unconnected with the alleged unlawful activities. Recognizing that Athena was "entitled to a speedy resolution of this matter by the USPS" the court limited the preliminary injunction to a period not to exceed 120 days.

On appeal, Athena pursues constitutional challenges rejected by the district court. Chief among these challenges is Athena's claim that the "chilling effect" of the statutory scheme upon its advertising infringes impermissibly upon its first amendment rights and those of the public. While no direct prohibition on speech is involved, Athena is obviously deterred from advertising products for which it cannot fill orders.

Athena relies heavily on the Supreme Court's opinion in Blount v. Rizzi, 400 U.S. 410, 91 S.Ct. 423, 27 L.Ed.2d 498 (1971) which struck down a statutory scheme virtually identical to that in this case enabling the postmaster to proceed against persons believed to be selling obscene materials through the mails. The Court held that the statutes did not possess the characteristics required by the decision in Freedman v. Maryland, 380 U.S. 51, 85 S.Ct. 734, 13 L.Ed.2d 649 (1965). The scheme did not place the burden of initiating judicial review on the Postal Service; nor did it provide for prompt judicial review. Similarly, the statute authorizing detention of mail during the pendency of administrative proceedings upon a showing of probable cause failed to meet the requirement that "(a)ny restraint imposed in advance of a final judicial determination on the merits must ... be limited to preservation of the status quo for the shortest fixed period compatible with sound judicial discretion." Blount v. Rizzi, 400 U.S. at 421, 91 S.Ct. at 430 (quoting Freedman v. Maryland, 380 U.S. at 59, 85 S.Ct. at 739).

Subsequent to the decision in Blount v. Rizzi, however, the Supreme Court twice upheld the validity of the statutes at issue in this case. In Lynch v. Blount, 404 U.S. 1007, 92 S.Ct. 673, 30 L.Ed.2d 656 (1972), aff'g 330 F.Supp. 689 (S.D.N.Y.1971) the Supreme Court affirmed the opinion of a three judge court holding that "the safeguards defined in Blount v. Rizzi (citation omitted) for obscenity cases are wholly inappropriate, unnecessary and inapplicable to the field of commercial fraud." 330 F.Supp. at 694. The principal distinction drawn by the lower court in reaching its judgment was that unlike obscenity, "(a) scheme to defraud by false representations can be objectively proved by evidence in an administrative hearing without going through the delay of a trial before a judge. Good old-fashioned schemes to defraud by the use of false representations are as old as the hills, and as easily recognized once the issues of credibility have been resolved." 330 F.Supp. at 695. The court also drew support from Supreme Court decisions upholding legislation authorizing the Postal Service to investigate commercial frauds and to issue stop orders. Id. at 692 (citing Donaldson v. Read Magazine, Inc., 333 U.S. 178, 68 S.Ct. 591, 92 L.Ed. 628 (1948); Public Clearing House v. Coyne, 194 U.S. 497, 24 S.Ct. 789, 48 L.Ed. 1092 (1904)). Lynch v. Blount involved only section 3005. The following year, however, the Supreme Court upheld the constitutionality of section 3007 as well in United States v. Outpost Development Corp., 414 U.S. 1105, 94 S.Ct. 832, 38 L.Ed.2d 733 (1973), aff'g 369 F.Supp. 399 (C.D.Calif.1973). Accord, United States Postal Service v. Beamish, 466 F.2d 804 (3d Cir. 1972).

This considerable body of precedent is not dispositive of the present case, however, since it predates the Court's holding in Virginia State Board of Pharmacy v. Virginia Citizens Consumer Council, Inc., 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346 (1976) that unwarranted governmental regulation of commercial speech infringes upon the first amendment rights of both speaker and listener. The present case thus poses the question whether Lynch v. Blount and United States v. Outpost Development Corp. survive Virginia Board and subsequent cases, or whether Blount v. Rizzi is now applicable even where only commercial speech is restrained.

In Virginia Board the Court made clear that it did not intend by its decision to impair the government's ability to regulate misleading or deceptive speech. "Obviously, much commercial speech is not provably false, or even wholly false, but only deceptive and misleading. We foresee no obstacle to a State's dealing effectively with this problem." 425 U.S. at 771, 96 S.Ct. at 1830. The Court went on to note that "(t)here are commonsense differences between speech that does 'no more than propose a commercial transaction' ... and other varieties. Even if the differences do not justify the conclusion that commercial speech is valueless, and thus subject to complete suppression by the State, they nonetheless suggest that a different degree of protection is necessary to insure that the flow of truthful and legitimate commercial information is unimpaired." Id. at 771 n.24, 96 S.Ct. at 1830 (citation omitted). The differences noted by the Court were primarily practical. The truth of commercial speech may be more easily verified by its disseminator than in the case of news reporting or political commentary. Moreover, the chilling effect of government regulation would be mitigated by the urgency of the profit motive. Id.

In his concurring opinion, Justice Stewart drew more fundamental distinctions contrasting commercial speech with "ideological expression." Ideological expression "is integrally related to the exposition of thought thought that may shape our concepts of the whole universe of man." Id. at 779, 96 S.Ct. at 1834. The truth or falsity of any information contained in such speech is irrelevant in according first amendment protection. In contrast, commercial speech is valued only because of the information conveyed, "rather than because of any direct contribution to the interchange of ideas." Id. at 780, 96 S.Ct. at 1835. Thus government measures to insure accuracy are appropriate in the context of commercial speech although they would be repugnant elsewhere.

In the years since Virginia Board the Court has repeatedly emphasized that its decisions offer commercial speech only "a limited measure of protection, commensurate with its subordinate position in the scale of First Amendment values, while allowing modes of regulation that might be impermissible in the realm of noncommercial expression." Ohralik v....