Peak Laboratories, Inc. v. United States Postal Service

Fifth Circuit

Peak Laboratories, Inc. v. United States Postal Service

556 F.2d 1387, 1977 U.S. App. LEXIS 12104

CourtCourt of Appeals for the Fifth Circuit

DecidedAugust 8, 1977

Docket75-3798

StatusPublished

Cited by8 cases

This text of 556 F.2d 1387 (Peak Laboratories, Inc. v. United States Postal Service) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

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Peak Laboratories, Inc. v. United States Postal Service, 556 F.2d 1387, 1977 U.S. App. LEXIS 12104 (5th Cir. 1977).

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PER CURIAM.

The ultimate issue in this case is whether Donaldson v. Read Magazine, 333 U.S. 178, 68 S.Ct. 591, 92 L.Ed. 628 (1948), compels us to decide that the appellant, Peak Laboratories (Peak), made a false representation in an advertisement extolling the virtues of their product, “Fat-Off.” A Postal Service Judicial Officer upheld the contentions in an administrative complaint of the appellee, the United States Postal Service (Postal Service), alleging that Peak was engaged in a scheme or device for obtaining money or property through the mails by means of a false representation in violation of 39 U.S.C. § 3005.¹ Peak sought judicial review of the Postal Service order in the United States District Court for the Northern District of Georgia. The District Court granted summary judgment for the Postal Service,² and Peak appeals. We are bound by the District Court’s findings of fact unless clearly erroneous and, in this case, we are convinced that the District Court did not misapply the applicable law to the factual situation presented. Accordingly, we affirm.

Peak was responsible for running advertisements promoting their product, “Fat-Off.” In its administrative complaint³ the Postal Service alleged that by means of such advertisements, Peak falsely represented, directly or indirectly, in substance and effect:

a. That the use of the product will cause a loss of fat;

b. That the effective cause of fat loss is the capsule and not caloric restriction [1389]*1389(dieting) and/or caloric expenditure (exercising);

c. That the product will dissolve fat, i. e., “the fat dissolver”;

d. That the lecithin in the product in the doses provided therein will cause a decrease of 30 per cent in the cholesterol level of the average person;

e. That use of the product will cause fat to be redistributed;

f. That the capsule will significantly contribute to the effectiveness of a conscientious diet program.

For purposes of 39 U.S.C. § 3005, the Postal Service need prove but one of the aforementioned representations to be false. At oral argument, counsel for the Postal Service told this Court that its strongest argument concerned alleged misrepresentation “d”, concerning lecithin’s effect in reducing cholesterol level by 30% in the average person, using the recommended dosage.

Peak admitted the use of the mails, admitted making all of the representations alleged to be false except “d”, but denied that the representations were materially false.

The alleged offending language with regard to “d” in the advertisement reads:

Dr. Lester L. Morrison, in a recent project, found that Lecithin produced a decrease of as much as 30% in cholesterol of the body.

Peak denies that the above portion of their advertisement represented in substance and effect that the lecithin in the product, in the recommended doses, will cause a decrease of 30% in the cholesterol level of the average person. The Postal Service Judicial Officer interpreted the advertisement pursuant to the criteria delineated in Donaldson v. Read Magazine, 333 U.S. 178, 68 S.Ct. 591, 92 L.Ed. 628 (1948). Donaldson counsels that the advertisement is to be read in light of its effect on the ordinary mind. Thus, inclusion of “scientific results” for an ingredient of the product necessarily represents that the product that will be sent to the purchaser will have the same or similar results.

Peak argues that although the judicial officer correctly applied Donaldson to the issue of whether or not representation (d) was made, the judicial officer went far beyond the scope of Donaldson in erroneously applying such principle to the issue of the material falsity of the representation. We find no merit in this contention. We do not read Donaldson as so limited in its application, in view of the purpose of protecting the public. Any other reading of the case would subvert the instructive admonition of the Supreme Court in Don aid-son at page 188, 68 S.Ct. at page 597 of that opinion:

Advertisements as a whole may be completely misleading, although every sentence separately considered is literally true. This is because things are omitted that should be said, or because advertisements are composed or purposely printed in such a way as to mislead.

The Court in Donaldson cited a number of decisions, some reaching back to the turn of the century. In Wiser v. Lawler, 189 U.S. 260, 23 S.Ct. 624, 47 L.Ed. 802 (1903), the Court, on appeal from the Supreme Court of the then Territory of Arizona, held that promoters of mining enterprises, in the preparation of prospectuses, were bound to consider the effect that would be produced upon an ordinary mind by the representations of the prospectuses. In addition, in estimating the probability of the public being misled, the Court held that a reviewing court could take into consideration not only the facts stated, but the facts suppressed. This line of reasoning is also evident in the latest decision cited by Mr. Justice Black in the Donaldson opinion, which was Farley v. Simmons, 69 App.D.C. 110, 99 F.2d 343 (1938). The Court in Farley held that an advertisement so worded that it does not make an express misrepresentation, but is artfully designed to mislead those responding to it, is subject to the mail fraud statutes. In light of the consist[1390]*1390ent theme of the earlier cases, we read Donaldson as applicable to both whether a representation was made and whether a representation is substantially false, in light of its effect on the ordinary mind.

Putting the case in the most favorable light for the appellant, there is still clearly substantial evidence to support the judicial officer’s finding that lecithin in the doses prescribed by the “Fat-Off” product will not reduce body cholesterol by as much as 30%. The only ingredient potentially affecting cholesterol is lecithin and its presence in the product is limited to an extent permitting, at most, 600 milligrams per day in dosage.

The Postal Service’s expert, Dr. Segal, testified that a decrease in total body cholesterol of 30% might well be a terminal event in a human being, and that lecithin would not reduce cholesterol by 30%.

Peak’s expert, Dr. Rudolph, testified that his only knowledge of 30% reduction in cholesterol was based upon studies performed in the 1950’s. The patients involved had high blood cholesterol levels, and were taking other medicines and following nutritional programs. He had not seen any studies using daily quantities of 400 to 600 milligrams of lecithin but was of the opinion that it would have some eventual cumulative effect in the reduction of cholesterol.

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PER CURIAM.

The ultimate issue in this case is whether Donaldson v. Read Magazine, 333 U.S. 178, 68 S.Ct. 591, 92 L.Ed. 628 (1948), compels us to decide that the appellant, Peak Laboratories (Peak), made a false representation in an advertisement extolling the virtues of their product, “Fat-Off.” A Postal Service Judicial Officer upheld the contentions in an administrative complaint of the appellee, the United States Postal Service (Postal Service), alleging that Peak was engaged in a scheme or device for obtaining money or property through the mails by means of a false representation in violation of 39 U.S.C. § 3005.¹ Peak sought judicial review of the Postal Service order in the United States District Court for the Northern District of Georgia. The District Court granted summary judgment for the Postal Service,² and Peak appeals. We are bound by the District Court’s findings of fact unless clearly erroneous and, in this case, we are convinced that the District Court did not misapply the applicable law to the factual situation presented. Accordingly, we affirm.

Peak was responsible for running advertisements promoting their product, “Fat-Off.” In its administrative complaint³ the Postal Service alleged that by means of such advertisements, Peak falsely represented, directly or indirectly, in substance and effect:

a. That the use of the product will cause a loss of fat;

b. That the effective cause of fat loss is the capsule and not caloric restriction [1389]*1389(dieting) and/or caloric expenditure (exercising);

c. That the product will dissolve fat, i. e., “the fat dissolver”;

d. That the lecithin in the product in the doses provided therein will cause a decrease of 30 per cent in the cholesterol level of the average person;

e. That use of the product will cause fat to be redistributed;

f. That the capsule will significantly contribute to the effectiveness of a conscientious diet program.

For purposes of 39 U.S.C. § 3005, the Postal Service need prove but one of the aforementioned representations to be false. At oral argument, counsel for the Postal Service told this Court that its strongest argument concerned alleged misrepresentation “d”, concerning lecithin’s effect in reducing cholesterol level by 30% in the average person, using the recommended dosage.

Peak admitted the use of the mails, admitted making all of the representations alleged to be false except “d”, but denied that the representations were materially false.

The alleged offending language with regard to “d” in the advertisement reads:

Dr. Lester L. Morrison, in a recent project, found that Lecithin produced a decrease of as much as 30% in cholesterol of the body.

Peak denies that the above portion of their advertisement represented in substance and effect that the lecithin in the product, in the recommended doses, will cause a decrease of 30% in the cholesterol level of the average person. The Postal Service Judicial Officer interpreted the advertisement pursuant to the criteria delineated in Donaldson v. Read Magazine, 333 U.S. 178, 68 S.Ct. 591, 92 L.Ed. 628 (1948). Donaldson counsels that the advertisement is to be read in light of its effect on the ordinary mind. Thus, inclusion of “scientific results” for an ingredient of the product necessarily represents that the product that will be sent to the purchaser will have the same or similar results.

Peak argues that although the judicial officer correctly applied Donaldson to the issue of whether or not representation (d) was made, the judicial officer went far beyond the scope of Donaldson in erroneously applying such principle to the issue of the material falsity of the representation. We find no merit in this contention. We do not read Donaldson as so limited in its application, in view of the purpose of protecting the public. Any other reading of the case would subvert the instructive admonition of the Supreme Court in Don aid-son at page 188, 68 S.Ct. at page 597 of that opinion:

Advertisements as a whole may be completely misleading, although every sentence separately considered is literally true. This is because things are omitted that should be said, or because advertisements are composed or purposely printed in such a way as to mislead.

The Court in Donaldson cited a number of decisions, some reaching back to the turn of the century. In Wiser v. Lawler, 189 U.S. 260, 23 S.Ct. 624, 47 L.Ed. 802 (1903), the Court, on appeal from the Supreme Court of the then Territory of Arizona, held that promoters of mining enterprises, in the preparation of prospectuses, were bound to consider the effect that would be produced upon an ordinary mind by the representations of the prospectuses. In addition, in estimating the probability of the public being misled, the Court held that a reviewing court could take into consideration not only the facts stated, but the facts suppressed. This line of reasoning is also evident in the latest decision cited by Mr. Justice Black in the Donaldson opinion, which was Farley v. Simmons, 69 App.D.C. 110, 99 F.2d 343 (1938). The Court in Farley held that an advertisement so worded that it does not make an express misrepresentation, but is artfully designed to mislead those responding to it, is subject to the mail fraud statutes. In light of the consist[1390]*1390ent theme of the earlier cases, we read Donaldson as applicable to both whether a representation was made and whether a representation is substantially false, in light of its effect on the ordinary mind.

Putting the case in the most favorable light for the appellant, there is still clearly substantial evidence to support the judicial officer’s finding that lecithin in the doses prescribed by the “Fat-Off” product will not reduce body cholesterol by as much as 30%. The only ingredient potentially affecting cholesterol is lecithin and its presence in the product is limited to an extent permitting, at most, 600 milligrams per day in dosage.

The Postal Service’s expert, Dr. Segal, testified that a decrease in total body cholesterol of 30% might well be a terminal event in a human being, and that lecithin would not reduce cholesterol by 30%.

Peak’s expert, Dr. Rudolph, testified that his only knowledge of 30% reduction in cholesterol was based upon studies performed in the 1950’s. The patients involved had high blood cholesterol levels, and were taking other medicines and following nutritional programs. He had not seen any studies using daily quantities of 400 to 600 milligrams of lecithin but was of the opinion that it would have some eventual cumulative effect in the reduction of cholesterol.

Peak’s next expert, Dr. Cooper, testified that he would not expect a person within the range of normalcy to drop his cholesterol level by 30% even taking two and one-half to five grams (2500 to 5000 milligrams) of lecithin, much less 600 milligrams, the recommended maximum daily dosage.

We think that the judicial officer correctly applied Donaldson, and that substantial evidence existed to prove that representation “d” was materially false.

We also hold that no error was committed in regard to burden of proof. Once the Postal Service presented a prima facie case of falsity, the burden of rebutting such shifted back to Peak.

AFFIRMED.

¹

. As pertinent, such statute reads:

§ 3005. False Representation; lotteries (a) Upon evidence satisfactory to the Postal Service that any person is engaged in conducting a scheme or device for obtaining money or property through the mail by means of false representation, or is engaged in conducting a lottery, gift enterprise, or scheme for the distribution of money or of real or personal property, by lottery, chance, or drawing of any kind, the Postal Service may issue an order which—

(1) directs the postmaster of the post office at which mail arrives, addressed to such a person or to his representative, to return such mail to the sender appropriately marked as in violation of this section, if the person, or his representative, is first notified and given a reasonable opportunity to be present at the receiving post office to survey the mail before the postmaster returns the mail to the sender.

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