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AMERICAN IMAGE CORP. v. USPS

January 14, 1974

AMERICAN IMAGE CORPORATION, etc., Plaintiff,
v.
UNITED STATES POSTAL SERVICE and John R. Strachan, Postmaster, etc., Defendant


Whitman Knapp, District Judge.


The opinion of the court was delivered by: KNAPP

WHITMAN KNAPP, District Judge.

This is an action by plaintiff to enjoin the Postal Service from enforcing Order No. 73-86 issued pursuant to 39 U.S.C. § 3005. The effect of the Order is to intercept mail and payments sent to plaintiff in connection with a scheme perpetrated by plaintiff to obtain money by means of representations deemed by the Postal Service to be false. Jurisdiction rests on 39 U.S.C. § 409. Both parties move for summary judgment.

 The following facts are undisputed:

 In April, 1972, the Postal Service initiated administrative proceedings against plaintiff by filing a complaint under 39 U.S.C. § 3005 based on plaintiff's advertisements for its cosmetic product called "'Baby Face' Formula." Plaintiff filed an Answer to the complaint.

 On May 31, 1972, plaintiff and the Postal Service signed a Compromise Agreement. The Agreement provided inter alia that the Postal Service would suspend further proceedings against plaintiff, and in return, plaintiff consented (1) to discontinue use of the offending advertisement, and (2) to a procedure whereby "A breach of this agreement . . . will warrant the issuance of an order pursuant to, . . . provided that the undersigned . . . is first served with a copy of the petition for such order."

 In June, 1973, the Postal Service filed such a petition, claiming that the Compromise Agreement had been breached by use of a subsequent advertisement for "'Baby Face' Formula." Plaintiff answered the petition. On July 19, 1973, a Judicial Officer for the Postal Service made a finding that plaintiff had breached the Agreement and the § 3005 Order here sought to be enjoined.

 The questions presented are:

 (1) Whether plaintiff should have been afforded a full administrative hearing prior to issuance of the adverse finding and Order;

 (2) if the first question is decided in the negative, what evidentiary standard should be applied to review the administrative action here challenged, and

 (3) applying the proper standard, whether the administrative action should be upheld or overturned.

 As to the first question, the court has no doubt that by signing the Compromise Agreement plaintiff waived its right to a hearing on the issue of (1) whether its original advertisement contained the alleged false representations, and (2) whether the subsequent advertisement constituted a breach of the Compromise Agreement. Plaintiff's argument to the contrary is completely unpersuasive in that any interpretation of the Compromise Agreement other than the one above stated renders meaningless the consideration given by plaintiff in return for the suspension of proceedings by the Postal Service. See Judge Palmieri's well-reasoned discussion in U.S. Bio-Genics Corp. v. Christenberry (S.D.N.Y. 1959) 173 F. Supp. 645.

 As to the second question, the court is of the view -- and counsel agree -- that a de novo review of the administrative finding is permissible under these circumstances -- viz., where no hearing was held nor testimony taken. To determine whether plaintiff breached the Agreement all that is required is an examination of the exhibits, and the Court is in as good a position as the Judicial Officer to so examine them. Compare Mark Eden v. Lee (9th Cir. 1970) 433 F.2d 1077, and Baslee Products Corp. v. United States Postal Service (D.N.J. 1973, Judge Lacey) 356 F. Supp. 841 (hearings held; thus "substantial evidence" standard applied).

 Turning then to the final question, upon careful comparison of plaintiff's discontinued and "new" advertisements the court is persuaded of the correctness of the administrative finding.

 The discontinued advertisement was originally complained of because it contained in substance the following false ...


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