US Postal Service v. Allied Treatment, Inc., Civ. A. No. CA 3-90-0017-G.

• Decision Date: 08 February 1990
• Docket Number: Civ. A. No. CA 3-90-0017-G.
• Citation: 730 F. Supp. 738
• Parties: UNITED STATES POSTAL SERVICE, Plaintiff, v. ALLIED TREATMENT, INC., a/k/a Allied Treatment, a/k/a Allied Awards Center, a/k/a Allied, Defendant.
• Court: U.S. District Court — Northern District of Texas

730 F. Supp. 738

UNITED STATES POSTAL SERVICE, Plaintiff, v. ALLIED TREATMENT, INC., a/k/a Allied Treatment, a/k/a Allied Awards Center, a/k/a Allied, Defendant.

Civ. A. No. CA 3-90-0017-G.

United States District Court, N.D. Texas, Dallas Division.

February 8, 1990.

Linda Groves, Asst. U.S. Atty., Dallas, Tex., and Geoffrey A. Drucker, and Stacy M. Ludwig, Consumer Protection Div., Washington, D.C., for plaintiff.

Mark Frels, Denton & Guinan, Dallas, Tex., for defendant.

MEMORANDUM ORDER

FISH, District Judge.

This case is before the court on the application of the United States Postal Service ("USPS") for preliminary injunctive relief. For the reasons stated here, preliminary relief is granted.¹

I. Factual Background

Defendant Allied Treatment, Inc. ("Allied") is a Texas corporation which was incorporated on October 9, 1989, and which has its principal place of business in Dallas, Texas. Allied sends unsolicited letters by United States mail to out of state consumers which contain certificates captioned "Official Notification Certificate of Guarantee." The Postal Inspection Service has received 20 to 30 complaints from the recipients of this unsolicited mail. The Texas Council of Better Business Bureaus has received over 1,100 complaints and inquiries about Allied.

During the five day period from December 26, 1989 through December 30, 1989, Allied received an average of 440 pieces of mail per day. On January 3, 1990, a statutory administrative proceeding was begun in Washington, D.C. by the USPS to determine whether the business practices of Allied violate the provisions of 39 U.S.C. § 3005 as a lottery or scheme or device which obtains property or money through the mails by means of a false representation.

On January 5, 1990, the USPS applied to this court for a temporary restraining order and a preliminary injunction against Allied pending the outcome of the statutory administrative proceeding. On January 5, the court entered a temporary restraining order against Allied which directed, pursuant to 39 U.S.C. § 3007, detention of Allied's mail pending conclusion of the administrative proceeding. The temporary restraining order was extended for ten (10) days on January 22, 1990 and for an additional ten (10) days at the hearing held on February 2, 1990.

II. Analysis

Section 3007 of 39 U.S.C. provides that a United States District Court shall, upon application of the USPS and upon a showing of probable cause to believe that section 3005 of 39 U.S.C. is being violated, enter a temporary restraining order and preliminary injunction. 39 U.S.C. § 3007. A finding of probable cause must be based on reasonably trustworthy information. United States Postal Service v. Stimpson, 515 F.Supp. 1149, 1150 (N.D.Fla.1981).

A. False Representations

To obtain injunctive relief under section 3007 on grounds of false representations, the USPS must show that there is probable cause to believe that the defendant's scheme is reasonably calculated to deceive persons of ordinary prudence and comprehension. United States v. Outpost Development Corporation, 369 F.Supp. 399, 402 (C.D.Cal.), affirmed, 414 U.S. 1105, 94 S.Ct. 832, 38 L.Ed.2d 733 (1973). To determine whether an advertisement or solicitation makes a false or misleading representation, the court must consider the effect that the advertisement, taken as a whole, would produce on one with an ordinary and unsuspecting mind. A court must consider the implications of an advertisement because, if it is designed to deceive the reader, an advertisement "may be completely misleading" even if "every sentence separately considered is literally true." Donaldson v. Read Magazine, 333 U.S. 178, 188-89, 68 S.Ct. 591, 596-97, 92 L.Ed. 628 (1948). Taking an advertisement or solicitation as a whole means considering not only what it states literally, but also what it reasonably implies. Unique Ideas, Inc. v. United States Postal Service, 416 F.Supp. 1142, 1145 (S.D.N.Y.1976); N. Van Dyne Advertising Agency, Inc. v. United States Postal Service, 371 F.Supp. 1373, 1376 (S.D.N.Y.1974). A section 3007 injunction is only appropriate in situations "strongly suggestive of consumer fraud." United States Postal Service v. Beamish, 466 F.2d 804, 807 (3rd Cir.1972). An advertisement may be fraudulent even though "exceptionally acute and sophisticated readers might have been able by penetrating analysis to have deciphered its true nature." Donaldson, 333 U.S. at 189, 68 S.Ct. at 597.

The court is of the opinion that the representations of Allied in its mail solicitation and subsequent telephone marketing convey a false impression to the ordinary, unsuspecting consumer. First, the certificate mailed to a consumer makes no mention that Allied's business is selling water purification units. The consumer who reads it will thus have no reason to suppose that he will be solicited to buy one of these units to receive his prize. Second, the consumer is led to believe in subsequent conversations with Allied's telephone marketers that he must buy a water purifier or send for a test kit (both of which cost money) before he can collect his prize. Only if pressed by the consumer is the telemarketer authorized to admit that the consumer may claim his prize without spending any money. Third, there is a lengthy disclaimer in fine print on back of Allied's certificate. According to that disclaimer, a consumer who participates in the $5,000 "shopping spree" (the most frequently awarded prize) is required to pay up to 12 percent of the cost of merchandise for shipping and up to an additional 12 percent for handling. Such a consumer may consequently be misled into thinking that he is receiving a much...