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FALSE OR MISLEADING MAIL MATTER

GOVERNMEN't

Storage (Part II)

HEARING

BEFORE THE

8 MITTEE ON POSTAL OPERATIONS

OF THE

-

01 - COMMITTEE ON 0

WFICE AND CIVIL SERVICE

SE OF REPRESENTATIVES

EIGHTY-NINTH CONGRESS

SECOND SESSION

ON

H.R. 6102

A BILL TO AMEND SECTION 4005 OF TITLE 39, UNITED STATES

CODE, RELATING TO FRAUDULENT, FALSE, OR MISLEADING

AND LOTTERY MAIL MATTER, AND FOR OTHER PURPOSES

JULY 26, 1966

Printed for the use of the

Committee on Post Office and Civil Service

/!4

U.S. GOVERNMENT PRINTING OFFICE

66-684 WASHINGTON : 1966
COMMITTEE ON POST OFFICE AND CIVIL SERVICE

TOM MURRAY, Tennessee, Chairman

JAMES H. MORRISON, Louisiana, Vice Chairman

THADDEUS J. DULSKI, New York

DAVID N. HENDERSON, North Carolina

ARNOLD OLSEN, Montana

MORRIS K. UDALL, Arizona

DOMINICK V. DANIELS, New Jersey

LINDLEY BECKWORTH, Texas

ROBERT N. C. NIX, Pennsylvania

JOE R. POOL, Texas

WILLIAM J. GREEN, Pennsylvania

SPARK M. MATSUNAGA, Hawaii

PAUL J. KREBS, New Jersey

RAYMOND F. CLEVENGER, Michigan

JAMES M. HANLEY, New York

JOHN V. TUNNEY, California

CHARLES H. WILSON, California

JEROME R. WALDIE, California

CHARLES E. JOHNSON, Staff Director

B. BENTON BRAY, Associate Staff Director

JOHN H. MARTINY, Counsel

WILLIAM A. IRVINE, Assistant Staff Director

THEODORE J. KAZY, Senior Staff Assistant

ROBERT J. CORBETT, Pennsylvania

H. R. GROSS, Iowa

GLENN CUNNINGHAM, Nebraska

EDWARD J. DERWINSKI, Illinois

ROBERT F. ELLSWORTH, Kansas

ALBERT W. JOHNSON, Pennsylvania

JOHN H. BUCHANAN, JR., Alabama

JAMES T. BROYHILL, North Carolina

SUBCOMMITTEE ON POSTAL OPERATIONS

THADDEUS J. DULSKI, New York, Chairman

JAMES H. MORRISON, Louisiana

DAVID N. HENDERSON, North Carolina

DOMINICK V. DANIELS, New Jersey

ROBERT N. C. NIX, Pennsylvania

WILLIAM J. GREEN, Pennsylvania

GLENN CUNNINGHAM, Nebraska

H. R. GROSS, Iowa

ALBERT W. JOHNSON, Pennsylvania

Ex Officio Voting Members

TOM MURRAY, Tennessee ROBERT J. CORBETT, Pennsylvania
CONTENTS

Statement of—

Wozencraft, Frank M., Assistant Attorney General, Office of Legal Page

Counsel, Department of Justice 35

III
W
FALSE OR MISLEADING MAIL MATTER

TUESDAY, JULY 26, 1966

HOUSE OF REPRESENTATIVES,

SUBCOMMITTEE ON POSTAL OPERATIONS OF THE

COMMITTEE ON POST OFFICE AND CIVIL SERVICE,

Washington, D.C.

The subcommittee met, pursuant to notice, at 10:13 a.m., in room

346 Cannon House Office Building, Hon. Thaddeus J. Dulski (chairman of the subcommittee) presiding.

Mr. DULSKI. The committee will come to order.

This hearing is being held today to receive further testimony in

regard to H.R. 6102, which is intended to strengthen postal laws for

the protection of the public against schemes to obtain money or

property through the mail by false promises or representation. At

the first executive meeting of the subcommittee on this proposal,

questions were raised as to the actual meaning of the word 'misleading," which this bill proposes to substitute for the word "fraudulent" in section 4005 of title 39, United States Code.

Questions were also raised as to whether the Department of Justice

would have any difficulties under the amended language should they

be required to defend the U.S. Government in a court of law as a

result of actions under section 4005, as proposed to be amended by

H.R. 6102.

Accordingly, at the direction of the subcommittee, I have invited

representatives of the Department of Justice to appear at this hearing

for a discussion of these points and any other matters the witnesses

may care to present.

Our witness today is Mr. Wozencraft, Assistant Attorney General,

Office of Legal Counsel. We are very happy to have you with us.

STATEMENT OF FRANK M. WOZENCRAFT, ASSISTANT ATTORNEY

GENERAL, OFFICE OF LEGAL COUNSEL, DEPARTMENT OF

JUSTICE

Mr. WOZENCRAFT. Thank you, sir.

Mr. .Chairman and members of the committee, I appreciate the

opportunity to appear here this morning to discuss the position of the

Department of Justice with respect to H.R. 6102, which is set forth

in Deputy Attorney General Clark's letter to the committee chairman,

dated July 15, 1966. As his letter indicates, the Department does not

oppose enactment of this bill. It does, however, feel that the bill

raises constitutional questions which should be considered by the

subcommittee.

The present 39 U.S.C. 4005 is a fraud statute. It authorizes the

Postmaster General to withhold mail delivery to any person engaged

35
36 FALSE OR MISLEADING MAIL MATTER

in conducting a scheme for obtaining money through the mails by

means of false or fraudulent pretenses, representations, or promises.

An intrinsic element of fraud has traditionally been an intent to deceive and, before issuing an order withholding mail delivery, the Postmaster General must find proof of such intent. Reilly v. Pinkus,

338 U.S. 269, decided in 1949. H.R. 6102 would expressly eliminate

this requirement and change "fraudulent" to "misleading.' It would

permit the Post Office Department to cut off mail delivery even to one

who has unintentionally advertised his product in a manner which

the Department considers misleading. What has always been called

a mail fraud order would no longer require proof of fraud.

Depriving a citizen of the use of the mails in a business venture is

stiff medicine. The Supreme Court has treated it accordingly. In

Reilly v. Pinkus, supra, the Court considered the Government's contention that, under the present "false or fraudulent" test, the respondent was barred from using the mails, "'regardless of the question of good faith, even if the respondent believed in all of his representations * * * if they were false as a matter of fact.' " Distinguishing mail fraud orders from FTC cease and desist orders, the

Court disposed of that contention as follows:

It is not amiss to -point out that the Federal Trade Commission does have

authority to issue cease-and-desist orders in cases like this without findings of

fraud. * * * But that remedy does not approach the severity of a mail fraud

order. * * * Unlike the Postmaster General, the Federal Trade Commission

cannot bar an offender from using the mails, an order which could wholly destroy

a business. See Brandeis, 

J., 

dissenting in Milwaukee Pub. Co. v. Burleson, 255

U.S. 407, 417 et seq. The strikingly different consequences of the orders issued

by the two agencies on the basis of analogous misrepresentations emphasize the

importance of limiting Post Office Department orders to instances where actual

fraud is clearly proved. (338 U.S. 277.)

The importance which the Supreme Court attaches to a citizen's

right to use the mails is emphasized again in the Court's recent

decision in Lamont v. Postmaster General, 381 U.S. 301, decided in

1965. There the Supreme Court struck down as unconstitutional a

statute which inhibited the delivery of Communist propaganda

(39 U.S.C. 4008(a)), holding that an addressee could not be deprived

of the right to receive such mail—or even be required to fill out a

form requesting delivery in order to receive such mail.

Obviously this decision dealt with first amendment rights, and did

not reach the case of preventing a citizen from purchasing by mail a

product which the Post Office Department has found misleadingly

advertised. In the case of communication by mail, however, it is

always difficult to define the scope which the courts will give to the

first amendment.

There is one more possible constitutional aspect which we feel the

subcommittee should consider—that of substantive due process.

It is true that section 4005 prescribes a civil rather than a criminal

sanction. As I have indicated, however, a fine and a criminal prosecution may be much less onerous than being driven out of business

because mail is returned to one's customers marked "fraudulent" or

"unlawful." In Reilly v. Pinkus the Supreme Court required a

greater showing to stop mail delivery than to support an FTC cease

and desist order. It is possible that on a constitutional basis the

Court could require almost as great a showing as for criminal sanctions. In criminal statutes the courts have read the requirement

of intent into statutes to preserve their constitutionality. Cf. Moris-
FALSE OR MISLEADING MAIL MUTER 37

sette v. United States, 342 U.S. 246 (1952). H.R. 6102 would preclude

this possibility. It would not, however, preclude the possibility of a

holding that section 4005 as amended by this bill denies substantive

due process in violation of the fifth amendment where a person has

not intentionally engaged in wrongful conduct and where no standards are prescribed as to what the Post Office Department will regard

as misleading. Nor does H.R. 6102 preclude the possibility of a

holding that under some circumstances one subjected to a mail fraud

order might be deprived of his property without due process of law.

Having invited the committee's attention to these possible problems,

let me quickly add that they are simply possibilities and not certainties. A mail fraud order is obviously less severe than a jail sentence.

Moreover, it serves one function which criminal penalties do not:

it can protect prospective purchasers by stopping violations dead in

their tracks. And where the Congress has sought to protect the

public from clearly harmful consequences, the courts in a few instances

have upheld even criminal penalties without proof of intent, as in

the Federal Food, Drug and Cosmetic Act, 21 U.S.C. 301 et seq.

The Supreme Court has explained the justification for such laws in

these terms:

"Such legislation dispenses with the conventional requirement for

criminal conduct—awareness of some wrongdoing. In the interest

of the larger good it puts the burden of acting at hazard upon a person

otherwise innocent but standing in responsible relation to a public

danger." United States v. Dotterweich, 320 U.S. 277, 280-281,

decided in 1943.

Moreover, in S.E.C. v. Capital Gains Bureau, 375 U.S. 180, decided

in 1963, the Supreme Court held that an injunction against fraud

could be granted under the Investment Advisers Act of 1940 even

where no intent is established, on the theory that, in equity, fraud has

a broader meaning than in law, especially where a fiduciary relationship is present. The same general theory might be used to support

a statute based on a determination of Congress that false and misleading mail schemes are such a threat to the public that mail fraud

orders can be justified without proof of intent. The case would be

more analogous, of course, if the statutory remedy were an injunction

rather than an administrative order.

This concludes my prepared testimony. As you can see, it is a

situation where the Department of Justice, as I stated earlier, rather

than opposing the bill, simply feels that it should call these matters

and possible problems to the attention of the committee. And,

in this connection, I want to make one point which my friend, Mr.

Lawrence, has been chiding me about since yesterday when we started

chatting. I was a law clerk for Justice Black when the Supreme

Court decided the case of Reilly v. Pinkus. So, I did have one occasion back in 1949 to get familiar with this problem. I must admit

that I haven't looked at it since, until I reached the Department of

Justice and became Assistant Attorney General about 3 months ago.

So I am getting newly acquainted with these problems.

Mr. DuLsKi. Thank you very much.

You have given me a lead to my first question. What bearing

does the case of Reilly v. Pinkus have on this bill?

Mr. WOZENCRAFT. Mr. Chairman, I think it establishes that the

Court regards the mail fraud order as something so severe that it

read into the existing statute the requirement of intent, differentiating
38 FALSE OR MISLEADING MAIL MATTER

it from the FTC cease and desist order, where basically the same circumstances are involved. The severity of the sanction is such that

the Court regards this as more than simply an order to stop doing

something, such as a cease and desist order, but rather, a really

severe sanction.

You will note that the word "severe" does arise in the opinion.

Given this judicial view and given the fact that a mail fraud order

or any order stopping the use of the mails, absolutely stops those

things from going through the mails, we get into this prior-restraint

kind of concept that gave the Court so much concern in the Lamont

case, even though, admittedly, the first amendment area involved in

the Lamont case would rarely be involved in a mail fraud order

situation.

Mr. D ULSKI. Mr. Gross?

Mr. GROSS. I was a little bit surprised that you didn't come forth

at the close of your presentation with a statement as to your position

on this bill. After all, I assume that you in the Justice Department

will be involved if we pass a bill of this kind. Are you opposed to it

or are you not opposed to it?

I am not a lawyer, understand, but I think you should state a

firm position on this bill to the committee.

Mr. WOZENCRAFT. The matter of forecasting constitutionality—

and that is what we are dealing with here, not simply matters of

policy—is always one, of course, of deciding what nine men in black

robes, after hearing many arguments and considering the matter

thoroughly for many months, will decide, often by 5-to-4 vote. We

are not saying that this would be unconstitutional; we are saying

that it raises constitutional problems. Now, insofar as 

Mr. GROSS. The whole weight of your statement—unless I am

mistaken—is that you feel that such a law, if enacted in the form

presented to this committee, would be unconstitutional.

Mr. WOZENCRAFT. We think that there is a danger that this might

be the holding of the Court. We would not presume to predict that

this would be the holding of the Court. And, in that connection,

let me point out that the constitutionality of any statute is determined by the Court in the fact context of a particular case and on the

record of the entire legislative history. And, if this committee and

this Congress reached the conclusion that this is really the only way

that this kind of abuse of the public can be stopped, I am confident

that the courts would give that great weight. And I think how they

would decide might very well depend on the particular factual context

of the case that arises—in other words, the statute as applied in actual

practice.

Mr. GROSS. Well, what is the opinion of the Justice Department

as to the proposition that this is the only way that this sort of thing

can be stopped?

Mr. WOZENCRAFT. Without having nearly the knowledge that the

Post Office Department has on this subject, we would doubt that it

is the only way, frankly.

It would seem to us that there are other possibilities. One method,

for instance, would be to authorize the statutory injunction, where,

as in the case of the S.E.C. v. Capital Gains Bureau that I quoted, the

Post Office Department could go into the courts and ask for judicial

stopping of the distribution of this particular mail. That can be
FALSE OR MISLEADING MAIL MATTER 39

done quite promptly. I think it would take no more time than the.

present administrative hearings.

Another possibility would be to take care of the finding of intent

under the present law, by notifying the person in advance and being

sure that he has a chance to change his position and then going to the

hearing examiner with the proposition that, having known of that,

and having violated it after that, he then has made a willful violation,

which would at least strengthen the Government's case considerably

on this point.

• A third possibility would be to take care of the intent aspect by,

for instance, saying that the proof that something is misleading would

be a prima facie case but that the defendant could have a good

defense by showing that he did not have any intent to deceive. Now,

this shifts the burden; it would be rather unusual in this kind of

proceeding, but it would be another possibility.

The thing that worries us is that when you strike out the requirement of intent, when you strike out the word "fraud" and all reference

to "fraud," you have really changed the nature of this animal, which

has always been called a mail fraud order. And now we are saying

that it is not a mail fraud order, it is a "mail stop order" against mail

which is either false or misleading, whether or not it is fraudulent.

And that concerns us.

And, I think that it would give us problems in the courts. Whether

we could successfully overcome those problems would depend a great

deal, I believe, on the record made in the legislative history in this

committee, on the regulations which the Post Office Department

would issue to give people some advance notice of what they would

regard as misleading, what kind of standards they would require.

Right now there would be nothing in the act to guide the Post Office

Department except its own conscience. Let me quickly add that I

think this conscience will always provide a very sturdy barrier against

any sort of oppression or misuse of this great power. But the power,

itself, is one which obviously the Supreme Court has viewed with

concern, and it concerns the Justice Department that there are so

few mileposts to point directions in applying these standards.

Mr. GROSS. I agree with the latter part of your statement.

Mr. Chairman, in deference to the gentlemen on the other side of

the aisle who are schooled in the, law, I am going to yield the floor,

with the hope, perhaps, I may have the opportunity to ask a few

more questions later. I should like to hear them develop this

further. There are two lawyers present here—or three.

Mr. DuLsm. Three.

Mr. GRoss. Three, yes.

Mr. Dui. sxi. Mr. Daniels.

Mr. DANIELS. Mr. Wozencraft, you pointed out in your statunent

and in youi• oral testimony that in the case of Reilly v. Pinkus the

Court definitely declared that an intent to deceive would have to be

proved by the prosecution.

Mr. WOZEN CR.A FT. Yes.

Mr. DANIELS. And that the Court there dealt with the severity

of the penalty and thought that, without proving an intent to deceive

or actual fraud, that was going too far, that a man could be put out

of business; is that correct?

Mr. WOZENCRA FT. Yes, sir.

66-684-66—pt. 2 2
40 FALSE OR MISLEADING MAIL MATTER

Mr. DANIELS. Now, you indicated that instead of adopting the

amendment that is proposed under this bill, that, perhaps, it would

be better to apply for injunctive relief and you cited the case of S.E.C.

v. Capital Gains Bureau. Would you recommend that procedure

instead of the amendment proposed by this bill?

Mr. WOZENCRAFT. There are so many factors involved in that

kind of a decision that I would certainly wish to defer to the Post

Office Department on many aspects of whether they feel this would

solve their problem. I do believe that in order to authorize this

kind of injunction, it would be desirable to provide for the injunction

in the statute and not simply rely on equity proceedings, because

provision in a statute for an injunction would get rid of two requirements which otherwise would need to be proved: irreparable injury

and lack of adequate remedy at law. It would also forestall an ancient

equity argument that one should not enjoin what could be a crime.

And there are, of course, criminal fraud statutes on the books here.

It would seem to me that this statutory kind of injunction proceeding has proven pretty practical for some agencies who need to

stop things quickly. Of course, there are also cases of administrative proceedings such as cease and desist orders in the FTC's case.

I think the problem that makes this mail fraud area so difficult is

that this particular penalty can be, in some circumstances, so severe.

The injunctive relief avoids some of that severity. You don't get

the mail just being shipped back to somebody with a stamp "Unlawful" on it and you don't arrange for the mails to be impounded. Of

course, there is an impounding provision presently in the statute

which can be obtained in a court, while proceedings are in progress.

Mr. DANIELS. Well, I join with my colleague, Mr. Gross, in asking

you: What recommendation does the Department make? Do you

approve or disapprove of this legislation?

Mr. WOZENCRAFT. We feel that this legislation will cause problems.

We certainly, therefore, cannot approve it. If this committee and

the Post Office Department tell us that this is the only way, or the

best way, that they feel that these problems can be handled, then,

we are going to do our best to support that law. But we could not

approve it in this form, frankly.

Mr. DANIELS. I don't think the Post Office Department will take

that position, because I read in the paper, only yesterday, that there

was a mail-order conviction obtained recently. So, if convictions can

be obtained, I doubt very much if the Department is going to say

that "we must have this legislation because it is the only legislation

that will help us."

Mr. WOZENCRAFT. Well, as I acknowledged earlier, I think there is

an area for some injunctive relief, stopping the violations in addition

to just criminal penalties. The question is not whether some such

provision is desirable, but what kind of provision it should be. We

would suggest, first, that there are ways of handling this intent, the

difficulty of the proof of intent, without wiping it out. For instance,

the Post Office Department could be given subpena power which it

now complains that it does not have. This injunctive relief possibility is one that I have not discussed with the Post Office Department.

Our invitation to discuss this with the committee came very recently

and we have been addressing ourselves to this particular provision.

I have not had an opportunity to get with Mr. May, the General

Counsel of the Post Office Department, until late yesterday afternoon.
FALSE OR MISLEADING MAIL MATTER 41

I would hope that some consideration could be given to these

possibilities.

Mr. DANIELS. What do you think of this procedure—along an

administrative level—that the Post Office - Department notify the

alleged offender- of his actions and that he appear before the Bureau,

perhaps before a review board or a reviewer, and explain what his

answer is to the alleged violation? And then if a satisfactory reply

is not received, the Post Office Department issue an order to desist

from such practices. Do you think that would be providing the

necessary legal relief?

Mr. WOZENCRAFT. In terms of legality, I think that would be an

improvement, sir.

Mr. DANIELS. In other words, when I say necessary legal relief,

would that be providing the alleged offender with due process?

Mr. WOZENCRAFT. Well, assuming that the hearings are in accordance with the Administrative Procedure Act, as I am sure they are

now and would be there, the only real problem that would then arise—

you are talking now about a cease and desist order and not a mail

stop order?

Mr. DANIELS. That is right.

Mr. WOZENCRAFT. I think that that would provide him with the

same kind of protection that he receives in the Federal Trade Commission kind of cases, and therefore would be adequate protection.

Now, in the Federal Trade Commission kind of cases, also, there are

provisions made for judicial enforcement or appeal from the cease

and desist orders which could also be provided.

One of the difficulties with the mail fraud order is that it is very

difficult to get into court on it. If you go ahead and make the change

that the Department wants, then the case becomes moot, and the only

way you can get it tested is to persevere and insist on leaving your

materials the same. If you think you are correct and want to test it

out, test out that assumption, it is very difficult for you to do. It is

a very cumbersome kind of animal, in other words.

Mr. DANIELS. No further questions.

Mr. DULSKI. Mr. Johnson.

Mr. JOHNSON. I regret, sir, that I was not here to hear your testimony. What I am going to ask you may be repetitive.

Under present law, as you stated in your statement, in order to

issue a cease and desist order or invoke criminal penalties you must

make out a case of fraud and show an intention to defraud, and

prove it?

Mr. WOZENCRAFT. That would not apply to cease and desist orders,

but it would to the mail fraud order which we are discussing here,

which is a little different from the cease and desist order. The cease

and desist order orders the man not to violate; the mail fraud order

summarily 'stops him from receiving mail.

Mr. JOHNSON. I see. From even receiving mail?

Mr. WOZENCRAFT. From receiving mail from people who want to

send in an order for one of those things that he is selling. They just

can't do that by mail. The mail gets stopped and sent back to them,

under the present bill, stamped "Fraudulent"; under the proposed bill,

stamped "Unlawful."

Mr. JOHNSON. Now, if this bill were to pass, then, rather than have a

hearing and being required to prove intent, all you would have to do,

in sort of an ex parte manner, in your own opinion decide that this
42 FALSE OR MISLEADING MAIL MATTER

mail is misleading, and you could issue a similar order, and the man

would not be able to receive his mail; is that correct?

Mr. WOZENCRAFT. Yes, sir. Now, this is the position of this bill.

I gather you know, sir, I am not with the Post Office Department, I am

with the Justice Department. So, I am approaching this from the

standpoint of legality and the constitutional problems.

Mr. JOHNSON. Yes.

Mr. WOZENCRAFT. Although, I hope I notice the practicalities, too.

Mr. JOHNSON. In other words, the Post Office Department, to

repeat, would have to just make a finding, within themselves, that it

was misleading, and then they could proceed and invoke the same

drastic penalty that they presently can do if they issue a mail fraud

order, if this bill passes?

Mr. WOZENCRAFT. Yes, sir.

Now, of course, "within themselves" would mean by the processes

provided under their regulations, which provide for hearing examiners

and appeal to a judicial officer within the Department, but it is still

within themselves in that it is a departmental decision.

Mr. JOHNSON. Yes. And it is your contention, apparently, that

even while they must show an intention to defraud under present law,

if this bill passes they would not have to show an intention to mislead?

Mr. WOZENCRAFT. That is right. And that is where our concern

comes.

Mr. JOHNSON. Had you thought of this: Supposing that this bill

were, say, watered up a little, wherein the Department could issue a

mail fraud order by themselves finding that, in their opinion, on its

face, per se, it was a fraudulent advertisement, and could go ahead

and issue a mail fraud order? How would that facilitate the Post

Office Department in stopping fraudulent mail?

Mr. WOZENCRAFT. Well, I believe that that would be something

that they could handle under the present statute, Congressman, without any amendment. When they conclude that something is fraudulent, per se, I think, in a sense, fraudulent includes intent to deceive.

So, they are finding that, on its face, there is intent to deceive, perhaps.

Now, it might be of some help to them to have it spelled out in the

statute that there is some concept of fraudulent, per se. It is awfully

tough, though, to call something fraudulent without getting into the

facts and evaluating the whole situation. The thing that might be

fraudulent in one context might not be in another context. So, I am

concerned, frankly, about the possibility or desirability of getting

"per se" language on something like "fraud."

Mr. JOHNSON. Of course, I know, that in law, practically any

phase of law, either criminal or civil, you just can't say 'and so-and-so

fraudulently did this or that"; you can allege that word and say he did

it "fraudulently." That is to say, he did the following, and the facts

that you allege must make out a case of fraud.

Mr. WOZENCRAFT. Yes.

Mr. JOHNSON. That goes all through our system of jurisprudence.

Mr. WOZENCRAFT. Yes, sir.

Mr. JOHNSON. Now, if this passes, I am thinking of, say, a Member

of Congress' newsletter. We are bound to be partisan, let's say, on

the Republican side where a newsletter goes out and we accuse the

President of something which, in our opinion, partywise, we thinklis

a pretty unconscionable thing, but to the other side, the Democratic

side, they might say, "Well, that statement in that newsletter is
FALSE OR MISLEADING MAIL MATTER 43

misleading." And all of a sudden one of we Members of Congress

may find that our newsletter is stopped and we are stopped from

receiving any more mail. Would that be possible under this "misleading' statute?

Mr. WOZENCRAFT. I think any interpretation of that nature of it

would be held unconstitutional by the Supreme Court, clearly, under

its decision in the Lamont case which I referred to in my testimony;

Lamont v. Postmaster General.

Also, I hope that the Congress would never be accused of actually

obtaining money through the mails by means of false or misleading

pretenses. I guess campaign contributions might represent money

being mailed to a Congressman, but it is a good deal different from

what this is intended to cover.

Mr. JOHNSON. This statute is primarily aimed at obtaining money

through the mails by false pretenses.

Mr. WOZENCRAFT. Yes, sir. Of course, part of our concern here is

the absence of guidelines and what is false and misleading — false or

misleading. It is not even "and misleading." It is "or misleading."

This means a decision within the Department that an advertisement,

a brochure, anything like that, is misleading. We might just have a

seller's puff involved. I am sure that the Post Office Department

would not intend to apply the statute in that kind of a case but there

is nothing that says it couldn't in the statute itself, under this amendment.

Mr. GROSS. Is it your opinion, sir, that there' would have to be

money or property involved?

Mr. WOZENCRAFT. I think someone has to be conducting a scheme

to obtain money before this gets involved under this particular section. There are other sections. There is one on mailing obscene

matter. There is another that was declared unconstitutional in the

Lamont case against mailing Communist propaganda to a man unless

he actually sent in a card that he wanted to receive it, in which case

he could.

Mr. GROSS. Then we come down to a definition of property. We

understand, I think, what money is supposed to be. Then we come

down to a definition of property—what constitutes property. I

suppose there is a definition for it. Would property involve a seat

in Congress? In other words, the estoppage of campaign material

going out which the Postmaster General or his lieutenants in the

Post Office Department determined to be misleading. Would this be

an involvement of a property right?

Mr. WOZENCRAFT. I really believe that in the political area there is

no cause for concern under the holding in the Lamont case. I think

any effort to apply any tatute to restrict distribution through the

mails of political materials of any character would be held unconstitutional. So I do not believe that should really be a topic of concern.

Mr. JOHNSON. If this bill passes, nothing would stop the Postmaster General from stopping political mail that he determines misleading and it would put the candidate to go to court to assert his

rights and the campaign would be over by that time.

Mr. WOZENCRAFT. I suppose, really, under the present statute, that

could happen if the Postmaster General found the mail was fraudulent

and you were really trying to mislead the voters. The removal of the

phrase "intent" would not make much difference in that.
44 FALSE OR MISLEADING MAIL MATTER

Mr. JOHNSON. He would have to show intent.

Mr. WOZENCRAFT. Yes, sir.

Again let me say I really feel that the fact or the idea of obtaining

money is an integral aspect of section 4005. It has been aimed traditionally at commercial type schemes, not at political schemes,

where other elements such as political come in. The only instance of

the latter that I know of was in the Communist case where there was

a specific provision enacted by the Congress.

Mr. JOHNSON. Can you conceive of a statute, a compromise here,

where the statute, instead of using the word "misleading" would use

the word "fraudulent," where the Postmaster General could proceed

as he would under this misleading situation, without a finding of intent

to defraud?

Mr. WOZENCRAFT. It is very hard for me to see what kind of

language you could have that would use the word "fraudulent" and

still omit this element. It is possible, as I mentioned in the S.E.C.

case earlier, S.E.C. v. Capital Gains Bureau, in the opinion of the

Court, Justice Goldberg goes to considerable length to point out that

fraud is a developing concept. In a situation where an investment

adviser was misleading his customers by failing—what he was doing

if I remember the facts correctly, and I may not—he was giving them

information on stocks that were going up, but he might have just

bought some of those stocks. Then when all the people came in and

bought them it might go up for them, too, but it had gone up even

more for him.

The Court held that this was a breach of fiduciary duty and also

held that it was equitable fraud. It drew a line between equitable

fraud and legal fraud. It is possible that some language might be

fashioned that would indicate that where the language was misleading

it was presumed to be fraudulent, if the Post Office Department found

that it actually had defrauded people, unless proof of absence of

intent is introduced by the defendant. There are a lot of possibilities

like that, but equally possible, I believe, would be either a utilization

of the present remedy with perhaps this kind of advance notice before

one starts the proceedings. I do not know exactly what the Post

Office does in this regard. It seems to me if the Post Office Department tells a man that what he is sending out is misleading, and he

continues to do it anyway, certainly that is willful.

The only problem then would be, and the Post Office Department

points to these cases, there are some where the man honestly believes

that what he is doing is not misleading and is absolutely true and

correct. The question then is whether the determination in that

kind of circumstance is one the Post Office should make in the, mail

fraud order.

Mr. JOHNSON. I yield back my time.

Mr. DULSKI. Mr. Nix.

Mr. Nix. Mr. Wozencraft, I have been sitting here for about 30

minutes trying to figure out whether or not it is not true that there

is no need for H.R. 6102.

Mr. WOZENCRAFT. This is something which I and the Justice

Department would be very presumptuous to announce a decision on.

I would hope, as I mentioned, that within the present framework,

perhaps more effective results could be achieved with some devices

of the kind I have been talking about. Prior notice and publishing

regulations within the Department that whenever a notice is dis-
FALSE OR MISLEADING MAIL MATTER 45

regarded that it will be deemed to be a willful violation from that

point on. This is a very marshy area.

Mr. Nix. Suppose that we were able to convince you that by

giving us your opinion, by answering the question I put to you, that

you would in no way offend anyone, would you then say that in your

opinion this thing is not needed at all.

Mr. WOZENCRAFT. Seriously, it is not my fear of offending anyone.

It is my feeling that I am not sufficiently familiar with the facts or

situation on which the proposed amendment is based.

Mr. Nix. I mean this, Mr. Wozencraft. You are thoroughly

familiar with the existing law covering this issue or this type of situation. Calling upon your knowledge of the existing law, I now ask

you whether or not you think there is any need for H.R. 6102.

Mr. WOZENCRAFT. I would hope that there is not because I would

hope that by perhaps amending regulations within the Department,

and changing somewhat the method of handling these things, the

legitimate aims of the Post Office Department could be achieved

without amendment. As I say, however, I am speaking as an

individual when I say this. As an individual I have a certain predilection toward the statutory injunction as a method of enforcement.

But this is not something that the Department of Justice has taken

any position on. This is just something I have seen work in various

kinds of cases. It is very different from the mail fraud order. There

is just no doubt about that.

Mr. Nix. Even if the change from fraudulent to misleading had

not been incorporated in H.R. 6102, it still would have been objectionable, would it not?

Mr.WOZENCRAFT. I feel that the present statute is limited to

situations where there is fraud rather than where there is something

that is misleading.

It presents a vastly stronger case for administrative action, a

vastly stronger need to protect the public, than something that may

be regarded by somebody as simply selling fluff, and by somebody

else as misleading. Fraud is fraud, and that is worse.

Mr. Nix. The last thing I suggest to you is that, whatever we do

with H.R. 6102, it certainly would remain objectionable. So we are

left to the device of either discarding it or drawing up something

altogether different.

Would you say that?

Mr. WOZENCRAFT. I feel, as I have just said, that the situation

where there is actual fraud to me is quite different from the situation

where there is simply some misleading aspects to some advertising

materials. So I do not regard the present statute as objectionable

when used in that way. I think Reilly v. Pinlcus makes it very clear

that there are only limited kinds of situations in which the statute can

properly be used. I also feel that there may be other ways of improving on this without jettisoning the entire mail fraud order structure.

On the other hand, there is something to be said for shifting the

approach either with a cease and desist order or to a statutory injunction. These involve so many practical aspects on which I would really

welcome the thoughts of the Post Office Department and of this

subcommittee that again I can only speak as an individual on these

matters.

Mr. Nix. It would seem to me that, in view of the fact that in

your private opinion you do not feel it is necessary to have this thing,
46 FALSE OR MISLEADING MAIL MATTER

because present law is adequate to accomplish the objectives of this,

then I do not see any need to try to reform it or to make it acceptable.

Mr. WOZENCRAFT. Again I do not feel I am in a position to say

that the law is not necessary or that it is not objectionable.

Mr. Nix. May I say this to you? Having said that the objective

sought by H.R. 6102 can be accomplished by present law, then it

seems to me it follows that there is no need to enact additional

legislation.

Mr. WOZENCRAFT. Sir, the question of need is something I feel it

would be a little presumptuous of the Department of Justice to speak

on. What we speak on is the kind of constitutional and legal problems

which are encountered when it is changed in this way. It is to this

bill that we have addressed our attention. It is on this bill that we

have been invited to comment and on which we have commented.

Mr. Nix. I have no further questions.

Mr. DULSKI. Mr. Gross.

Mr. GROSS. No, thank you, Mr. Chairman.

Mr. DULSKI. Mr. Johnson, our staff director, has some questions.

Staff Director JOHNSON. Thank you, Mr. Chairman.

Mr. Chairman, these questions are ones in the interest of Mr. Udall,

the author of the bill, who cannot be present. First, is it not true,

Mr. Wozencraft, that a defendant or respondent to a mail fraud

order who is dissatisfied with the outcome of the administrative

proceedings always has recourse to the courts for relief?

Mr. WOZENCRAFT. Mr. Johnson, it is particularly awkward to get

judicial review in the situation of a mail fraud order in comparison to

a situation where there is statutory provision for appeal. There is

no such provision in the mail fraud statutes. The only recourse that

a man has is by way of an injunction against the Post Office Department which is moot unless he has continued his violation and the

order continues in effect. This makes it very difficult to get judicial

review of his contention that the statements are not fraudulent or

misleading without subjecting himself first to the mail fraud order

from which there is no direct appeal.

Staff Director JOHNSON. In your opinion, would it correct deficiencies in H.R. 6102 if provisions were written into section 4005 granting

specific statutory right to judicial review similar to those that are

written into the statutes with respect to obscenity?

Mr. WOZENCRAFT. It would be most helpful. I would still be a

little concerned of the test of just plain misleading with no further

criteria. But it would certainly be most helpful.

Staff Director JOHNSON. Another question, Mr. Wozencraft, with

respect to the word "misleading." It is true, is it not, that the word

"misleading" is used in the Food and Drug Act and perhaps several

other statutes where administrative sanctions are applied by cease

and desist orders or something of the kind?

Mr. WOZENCROFT. Yes, sir; that is correct.

Staff Director JOHNSON. So it has been interpreted.

Mr. WOZENCRAFT. It has been interpreted, yes. Of course, in each

context, in each statute it often has a different interpretation, because

the context of the statute can often give fabric to the meaning of the

term. I think that our concern with the word "misleading" is not

the word itself. It is really a perfectly nice word. It has a little
FALSE OR MISLEADING MAIL MATTER 47

different consequence in a situation where you have a cease and desist

order on the one hand, and where everybody trying to send you mail

gets it back stamped "Unlawful" on the other.

Staff Director JOHNSON. I have two more, Mr. Chairman, if I may.

Is there any essential difference, Mr. Wozencraft, in the proof that is

required in proving criminal fraud and in proving civil fraud?

Mr. WOZENCRAFT. Obviously in a criminal situation the burden of

proof is on the state to prove something beyond reasonable doubt.

In a civil case a preponderance of the evidence will carry the day.

So there is that rather substantial difference. Usually fraud is fraud,

whether it is in a civil statute or a criminal statute. I did mention

earlier a developing doctrine of equitable fraud that the Supreme

Court referred to in the case of S.E.C. v. Capital Gains Bureau. It

might be that this would work over into that kind of context, but it

is not presently in that kind of distinction.

Staff Director JOHNSON. Could you express an opinion on this?

In view of the Reilly v. Pinkus decision, and several other cases which

were cited by our Chief Postal Inspector in his testimony, wouldn't

it appear to be possible or even probable that section 4005 of the

Postal Code might as well be written out of the law and have the

Post Office Department proceed under title XVIII, Criminal Fraud,

in all of these cases?

Mr. WOZENCRAFT. Mr. Johnson, I feel, as I said a little earlier,

that there is room for some kind of civil relief as well as criminal

prosecution, something that will make the man stop sending out

these misleading things or these fraudulent things.

Staff Director JOHNSON. A cease and desist order.

Mr. WOZENCRAFT. A cease and desist order or an injunction or

something like that. I think if you relegate the Post Office Department to simply criminal action it can take an awful long time to finish

a criminal action and a lot of damage can be done in the meantime.

I think that some interim remedy that can stop what can be a real

abuse, a real fraudulent situation, should be possible.

Staff Director JOHNSON. The final question, Mr. Chairman: Would

the views of the Department of Justice be modified or changed if

H.R. 6102 were amended so as to merely strike out the two words

"or fraudulent" from the present section 4005? Then in effect it

would apply to persons engaged in conducting a scheme or device for

obtaining money or property through the mails by means of false

pretenses representations or promises.

Mr. WOZENCRAFT. While I cannot speak for the Department

without checking with the Department, it would seem to me that

certainly that would be considerably less troublesome than the

present wording of H.R. 6102. You still have Reilly v. Pinkus which

read "false or fraudulent as still requiring intent.' When you cut

out "or fraudulent," query whether you remove the intent requirement

of Reilly v. Pinkus. I would be inclined to think that perhaps you

would. It would seem to me that a plain false statement is a false

statement. There is no particular room for intent to come in there

as there is in the word "fraudulent." However, the courts might still

require some showipg of intent.

Staff Director JOHNSON. Thank you very much, Mr. Wozencraft

and Mr. Chairman.
48 FALSE OR MISLEADING MAIL MATTER

Mr. DuLsKI. Are there any further questions?

Mr. JOHNSON. I have no more questions. I want to compliment

the witness on the depth of his knowledge on this and his frankness

with the committee. I think he did an excellent job this morning.

Mr. WOZENCRAFT. Thank you.

Mr. GROSS. I want to join in that statement.

Mr. WOZENCRAFT. Thank you. It has been a pleasure to discuss

the matter with you and appear before you.

Mr. DULSKI. The hearings will now be adjourned.

(Whereupon, at 11:05 a.m., the hearing was adjourned.)

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