The opinion of the court was delivered by: KAUFMAN
These are cross motions for summary judgment, pursuant to Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A., in an action seeking to enjoin enforcement of a fraud order issued by the Postmaster General. The order directed that mail addressed to the plaintiff corporation be returned to the senders marked 'Fraudulent'; and that postal money orders payable to its order be returned to the remitters. Both parties agree that there are no triable issues of fact and that either one or the other is entitled to summary judgment as a matter of law.
The fraud order was issued after an administrative hearing before a representative of the Post Office Department known as the Judicial Officer, at which plaintiff was represented by counsel.
At the conclusion of the hearing, the Judicial Officer found that plaintiff was engaged in conducting a fraudulent scheme for obtaining money through the mails in violation of Sections 259 and 732 of Title 39 U.S.C.A.
Plaintiff thereupon instituted the instant action to enjoin enforcement of the fraud order upon the grounds that:
(1) Defendant has failed to prove, by substantial evidence, fraud in fact on the part of plaintiff;
(2) Material error was committed in the admission into evidence of testimony of lay witnesses relative to the efficacy of the product and the interpretation of advertising and in the admission into evidence of a television advertising film;
(3) The agency's Rules of Practice, Procedure and Organization, under which the instant proceedings were had, are void in that they violate the provisions of the Administrative Procedure Act. 5 U.S.C.A. § 1001 et seq.
While I am of the opinion that plaintiff's motion must be granted because the hearing before the Judicial Officer was not conducted in conformity with the provisions of the Administrative Procedure Act, nevertheless in view of the novelty of this question, and the possibility that an appellate court may not agree with my interpretation of the law, I will discuss as well the other grounds raised by plaintiff.
1. Proof of Fraud by Substantial Evidence
Plaintiff, Borg-Johnson Electronics, Inc., sells at a price of $ 4.95 a portable radio about the size of a king-size package of cigarettes which it calls the 'Lifetime Pocket Radio.' Plaintiff advertises and solicits mail orders for this radio in newspapers and magazines and on television. The complaint by which proceedings before the Post Office Department were initiated alleges that plaintiff, through its advertising, represents to the public in substance and effect:
'a. That respondent's so-called 'Lifetime Pocket-Portable' device is 'A Portable Radio' that will enable any person to '* * * tune in your favorite radio programs any time, anywhere * * * by simply reaching into your pocket and and (sic) flipping a switch'; i.e., that said device is capable, per se, of receiving radio transmissions at any point where electric or battery-operated radio reception is possible, without the use of a ground or antenna;
'b. That respondent's said device contains a '* * * built-in lifetime powerplant', '* * * a new type of self-powered rectifier' that 'actually generates its own power by drawing electric waves right out of the air just like a magnet, and converts those waves into power-producing electricity.';
'c. That the principle of respondent's said device is '* * * the same miracle invention now being used on all ('Army and Navy') radar and sonar equipment';
'd. That respondent's device is capable of giving 'Perfect Reception * * * No Interference', and '* * * gives you perfect interference-free reception even in fringe areas * * * even on boats * * * why even during rain and lightning storms when other radios 'stutter' with static';
'e. That respondent's device has 'Super-Distance Range', and regardless where used, the same '* * * pulls in programs as sharp and clear as if you were sitting right in the broadcasting studio * * * pulls in radio signals so strongly that it doesn't even have to warm up.' '* * * even pulls in broadcasts from miles and miles away as clear and sharp as if they were coming from next door' and is 'so powerful it picks up broadcasts from as far as 10 cities away';
'f. That respondent's device contains an 'amazing electronic discovery' that constitutes 'an entire radio powerplant * * * that generates more power than 1,000 batteries';
'g. That respondent's device is designed to be and is capable of being used in the same fashion and manner as battery and electrically-operated radios 'on trains * * * on planes * * * on boats'; i.e., that said device will give 'Perfect Reception' to any passenger on airplanes, trains and boats, without the use of grounds or antennae;
'h. That to any purchaser, respondent sends as an 'Extra Bonus Feature' a 'Direct-circuit personal earphone speaker that enables you to listen to your favorite program in complete privacy * * * why even in bed, without disturbing others'; i.e., that respondent's device may be used ...