Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
|IN THE CASE OF|
Social Security Administraation,
|DATE: August 08, 2003|
- v -
United Seniors Association, Inc.,
| Docket No.C-02-061
Decision No. CR1075
I sustain the determination of the Social Security Administration Inspector General (SSA I.G.) to impose civil money penalties totaling $554,196 against Respondent, United Seniors Association, Inc.
Respondent is a private lobbying and advocacy organization that focuses on helping senior citizens in matters relating to Social Security benefits, health care freedom, retirement investment freedom, tax freedom, and economic freedom. Tr. at 134. (1) It is not part of nor is it funded by the Social Security Administration and it does not act as an agent or representative of that agency. The Social Security Administration neither approves nor endorses Respondent's advocacy positions. Respondent utilizes mass mailings as a vehicle for communicating its message to the public. Id. at 135.
On August 13, 2001, counsel for the Social Security Administration Office of Counsel to the Inspector General (the SSA I.G.) sent a notice to Respondent in which she advised Respondent that the SSA I.G. was proposing to impose civil money penalties against it totaling $554,196. The notice alleged that Respondent had mailed at least 554,196 solicitations in envelopes that misused the Social Security Administration's program words and/or letters in violation of section 1140 of the Social Security Act (Act). The notice alleged further that the envelopes sent by Respondent violated the Act by using words and letters specifically covered by section 1140 in a misleading manner.
Respondent requested a hearing and the case was assigned to me for a hearing and a decision. I held a hearing in Washington, D.C. on April 8, 2003. At the hearing I received testimony from witnesses for each party. I received into evidence exhibits from the SSA I.G. consisting of SSA I.G. Ex. 1, 2, 5 - 39, and 51 - 53. (2) I received into evidence exhibits from Respondent consisting of R. Ex. 1 - 12, 13A, 13B, and 14 - 34. (3)
II. Issues, findings of fact and conclusions of law
The issues in this case are whether:
I make findings of fact and conclusions of law (Findings) to support my decision. I set forth each Finding below as a separately numbered heading. I discuss each Finding in detail.
At issue in this case are two envelope designs that Respondent used for mass mailings. R. Ex. 13A, 13B; SSA I.G. Ex. 17, 26. The two designs are reproduced at the end of this decision as Attachments A and B. There is no dispute that Respondent sent individual mailings in envelopes of the first of these two designs to at least 554,196 senior citizens. SSA I.G. Ex. 17, at 4. Respondent sent mailings in envelopes of the second design to more than 60,000 senior citizens. SSA I.G. Ex. 26, at 3.
The SSA I.G. contends that Respondent violated the requirements of section 1140 of the Act by sending the envelopes. Section 1140(a)(1) of the Act prohibits any person from using in connection with any communication, including an advertisement, solicitation, or circular, the words "Social Security" and other, similar enumerated phrases:
The section establishes two compliance standards for determining whether a person violates its prohibitions against misleading communications. (4) First, it prohibits a person from intentionally, recklessly, or negligently sending a communication that would convey the false impression that it is approved, endorsed, or authorized by the Social Security Administration. Second, it prohibits a person from sending a communication which reasonably could be interpreted or construed as conveying the false impression that it is approved, endorsed, or authorized by the Social Security Administration. Intent is an element of the first standard. Under the second standard a party may be found to have violated the prohibitions of section 1140(a)(1) regardless of that party's intent.
Both the plain meaning of section 1140(a)(1) and its legislative history support the conclusion that words or symbols on the outside of an envelope may be proscribed without consideration of the envelope's contents. (5) Section 1140(a)(1) prohibits the use of words or symbols "alone or with other words, letters, symbols or emblems . . . ." which might convey the false impression that the mailing is approved, endorsed or authorized by the Social Security Administration. (emphasis added). The word "alone" plainly means that words, symbols, or combinations of words and symbols, may, in and of themselves, create a false impression of approval, endorsement, authorization, or a relationship. Thus, it is irrelevant to deciding whether words or designs on an envelope violate section 1140(a)(1) that the contents of an envelope may dispel false impressions created by words or designs on the outside of that envelope.
The legislative history of section 1140(a)(1) is entirely consistent with this reading. Congress concluded that an objective of some direct mailers was to entice recipients into opening an envelope and reading its contents by putting language or symbols on the envelope's outside that would mislead recipients into believing that they had received an official mailing from the Social Security Administration. It drafted section 1140(a)(1) with the express purpose of putting an end to that practice.
The House Committee on Ways and Means, whose report provided legislative support for the 1994 amendments to section 1140, found that mass mailers often sent mailings in envelopes which bore language or logos on their exteriors that misled recipients into believing that the envelopes were sent from agencies of the United States Government:
Staff of House Comm. On Ways and Means, 102d Cong., 2d Sess., Report on Deceptive Solicitations (Comm. Print 1992), at 5.
The committee found that the practice of sending deceptive envelopes posed a threat to the integrity of government operations even if the material placed inside the envelopes was not deceptive. From the committee's standpoint, deceptive envelopes were as great a problem as deceptive statements within envelopes.
The committee was concerned not just with the possibility that recipients of deceptive envelopes could be gulled into reading material that they might otherwise discard unopened. From the committee's standpoint a problem of at least equal significance was that recipients might become so inured to deceptively worded envelopes that they might throw out unopened mailings that were actually from government agencies:
Respondent argues that a prerequisite for deciding whether the envelopes violate section 1140(a)(1) is whether they "convey the false impression that they are approved, endorsed, or authorized by the . . . [Social Security Administration]." Respondent's Posthearing Brief at 1. This assertion states the statutory test too narrowly. The issue before me is not whether the envelopes do convey a false impression but whether they "reasonably could be interpreted or construed as conveying" a false impression of official approval, endorsement, or authorization. Act, section 1140(a)(1) (emphasis added). The Act states the test for liability not in terms of certainty but in terms of possibility.
The phrase "reasonably could be interpreted or construed as conveying" in section 1140(a)(1) creates a very low threshold for liability. It is not necessary to prove a likelihood of deception in order to establish a violation of section 1140(a)(1). It is only necessary to prove a reasonable possibility that a recipient would be misled. An entity crosses the liability threshold if it mails envelopes that "could" mislead a reasonable person into believing that they had official sanction. In this regard, section 1140(a)(1) is notably distinguishable from federal consumer protection statutes which impose a higher standard of liability. For example, the Lanham Act, 15 U.S.C. § 1125(a)(1)(A), prohibits the publication of certain communications that are "likely to cause confusion, or to cause mistake, or to deceive." (emphasis added).
Congress' adoption of a low threshold of liability in section 1140(a)(1) means that an individual or entity who contemplates sending envelopes containing the phrase "Social Security" is under an onus to exercise great caution not to use that phrase, either by itself, or in the context of other language or symbols, in a way that could mislead a recipient into believing that the envelopes are from or authorized by the Social Security Administration. It is not a defense under this section for the sending party to argue that its transmittals are only unintentionally misleading or that close scrutiny of them by a recipient would lead that recipient to decide on balance that they are not official.
The uniquely low threshold of liability in section 1140(a)(1) reflects the reality that many people do not study intensively the outside of an envelope before deciding whether to open it or discard it. In an age where individuals are beset with mass mailings people often make snap decisions as to what to open or what to discard based on the instant impression created by the exterior of an envelope. Congress made it clear in enacting section 1140(a)(1) that it did not want mass mailers to attempt to induce mailing recipients to make snap judgments to open envelopes based on their "official" appearance. And, just as important, Congress did not want recipients to throw out official mailings because they are inured to and disaffected by official looking but privately sent mass mailings.
The preponderance of the evidence in this case establishes that envelopes of the two designs that are at issue reasonably could be construed as being either from the Social Security Administration or as being authorized or endorsed by the Social Security Administration. (6) The envelopes are misleading because they employ the words "Social Security" with additional statements and devices which, when read in context, suggest that the envelopes had an official source, authority, or endorsement. For that reason, Respondent violated section 1140(a) when it sent these envelopes to senior citizens.
A reasonable person could be deceived by an envelope of the first design, which is reproduced at Attachment A and which is in evidence as SSA I.G. Ex. 17 and R. Ex. 13A, into believing that it was sent by the Social Security Administration or by an entity having some authorized relationship with the Social Security Administration. Tr. at 73. The deceptive character of the envelope is caused by the envelope's repetitive and featured placement of the phrase "Social Security" and closely related language in the context of a design that makes the envelope resemble an overnight delivery or express mailing.
The words "Social Security" appear numerous times on the envelope. The phrase "Social Security Alert" is printed 18 times as part of a patterned design that forms the front border of the envelope. R. Ex. 13A (front). The identical patterned border design is repeated on the rear of the envelope. R. Ex. 13A (rear). The address portion of the envelope's front contains the phrase "SOCIAL SECURITY ALERT" in highlighted capital letters. R. Ex. 13A (front). (7)
The envelope is decorated with language which highlights the urgency of the mailing. On the rear of the envelope appears the phrase "OPEN IMMEDIATELY". That phrase is placed above the word " - URGENT - ", which is printed diagonally across the envelope in a manner that makes it look as if the word had been stamped on the envelope. R. Ex. 13A (rear). Beneath " - URGENT - " there appears the phrase "SOCIAL SECURITY INFORMATION ENCLOSED" in large print. Id.
Perhaps most significantly, the address label on the front of the envelope incorporates the phrase "SOCIAL SECURITY ALERT" into its logo in large, contrasting (white for "SOCIAL SECURITY" and red for "ALERT") on a black background), stylized print. R. Ex. 13A (front). The phrase is set forth in a way that makes it more noticeable on first impression than any other part of the envelope's front. The phrase's incorporation into the address label makes it appear at first glance that the label, and the envelope itself, is from the Social Security Administration.
The bold use and frequent repetition of the words "Social Security" and the above-described phrases certainly suggest that the envelope contains important information about Social Security. It is arguable whether the frequent repetition and highlighting of the words "Social Security" on the envelope is misleading in and of itself. But, it is unnecessary that I answer that question. These words are part of an overall design that clearly conveys the impression that the envelope contains important Social Security information sent from an official source.
What gives the envelope a distinctly official appearance is its address label. The address label looks very much like the type of label that appears on an express mail, overnight delivery, or certified mail envelope or package. I take notice of the fact that glued on labels used by express mail companies such as Federal Express contain features that are similar to those used by Respondent in its address labels. A person receiving one of these envelopes could easily be convinced at first impression that the envelope is an express mail or overnight delivery.
The similarities between the envelope and express mail or overnight delivery mailings are evident from the address label's layout and design. To begin with, the right- and left-hand margins of the label resemble perforations that would permit the sender to tear off a top copy, just as would be the case with a Federal Express label. R. Ex. 13A (front). At first glance, then, the address label looks like a tear-off label. In fact, the address label is printed as part of the envelope itself, it cannot be torn off, and the "perforations" are meaningless.
Furthermore, the address label contains the kind of information that appears typically in overnight or express mail delivery labels such as a Federal Express mailing label. The sender's and recipient's addresses are printed in the label but they are printed with a style that, to the casual observer, would look like handwriting. R. Ex. 13A (front). At the bottom of the address portion is the statement "Sender Authorizes Delivery of this Shipment Without Obtaining a Delivery Signature" followed by "handwritten" (in fact, printed) initials. Id. Immediately above this box is a "package tracking" number that is reminiscent of tracking numbers that appear commonly on express mail or overnight delivery labels. Id. A bar code is placed on the right margin of the address label. The label also contains a box entitled "Handling Instructions:". This box contains three choices marked "Urgent Alert", "Express Service", and "Standard Delivery" and the "Urgent Alert" box is checked, with a seemingly handwritten but, in fact, printed checkmark. Id. Underneath this box appears the phrase "Postal Audit Control No." and a 21-character "control number" appears directly beneath the phrase. Id.
The resemblance between the envelope and an overnight delivery or express mail envelope imparts an official quality to it. An overnight delivery or express mail envelope is expensive to send and the recipient would understand that this mode of transmission is used to expedite and assure delivery of important information of an urgent quality. A person who received one of these envelopes might assume that the apparent express delivery of the envelope meant that it came from an official source. And, that person could easily conclude, based on the use of the words "Social Security" and similar phrases in conjunction with the envelope's apparent express or overnight mode of delivery, that the envelope contained something official relating to that recipient's Social Security benefits.
The second envelope design, which is reproduced at Attachment B and which is in evidence as SSA I.G. Ex. 26 and R. Ex. 13B, is very similar in appearance to the first envelope design that I have just discussed. The second envelope design has essentially the same misleading features as the first envelope design. A recipient of an envelope of the second design could have been misled into believing that it contained information from the Social Security Administration.
The front of an envelope of the second design contains an address label that closely resembles that which appears on the first envelope design. The address label on the second envelope design is as potentially misleading as is the label on the first envelope design. See discussion, above. As with the first envelope, the second envelope could have led a reasonable person to believe that he or she was the recipient of a certified mail, express mail, or overnight delivery document from the Social Security Administration.
The rear of the second envelope design also contains information which, when read in context with the front, could lead the recipient of one of the envelopes of the second design to believe it is from an official source. Printed on the rear of the design in large red capitalized letters is the phrase "Social Security Information". Immediately beneath that, in even larger capitalized letters is the word "Enclosed".
Respondent argues that its name appears in the address portion of both envelope designs and that information would have dispelled any false impression that they were from the Social Security Administration. It contends that there is other information on the envelopes which also would dispel any incorrect impression about their source. I am not persuaded by these arguments.
A recipient might have understood from careful examination of one of these envelopes, either of the first or of the second design, that the sender was not the Social Security Administration or connected with it. As Respondent contends, the return address on each envelope tells the recipient that the sender is Respondent and not the Social Security Administration. An individual who is familiar with the differences between the address labels on the envelopes and the specific labels that are used by overnight delivery companies or by the Post Office might have understood after close scrutiny that these labels were not overnight delivery, express mail, or certified labels. A careful reading of the label by a sophisticated recipient might lead that person to conclude that the envelopes were sent bulk rate because, in the upper right-hand corner of the labels on both envelope designs, there is a stamp facsimile which reads "Non-Profit Org. U.S. Postage PAID United Seniors Association." R. Ex. 13A (Front); R. Ex. 13B (Front). Finally, a sophisticated recipient might know that the Social Security Administration does not generally send out its mailings in brightly colored envelopes. (8)
But, this begs the question of whether the two designs are misleading. Close scrutiny is not what one generally gives to an envelope before deciding between opening it and reading the contents or throwing it out unopened. An envelope may create an instant impression which induces the recipient to open it even if a different impression might emerge from close scrutiny of the envelope. The point of mass marketing techniques - and certainly Respondent's objective with the two envelope designs that are at issue - is to create such an impression. As was testified persuasively by Ms. Sally Balch Hurme, a campaign consultant for the AARP:
Tr. at 180; SSA I.G. Ex. 2.
Here, the hook was created by making both designs look as if they contained official materials. The instant impression that could have been created by one of these envelopes - even if that impression might have been dispelled by close scrutiny - was that it was some sort of official mailing containing information from the Social Security Administration. It was the instant impression that mattered for purposes of inducing recipients of the envelopes to open them.
Respondent argues that the SSA I.G. has not advocated any meaningful standard by which the envelope designs may be adjudicated as either unlawfully misleading or not. It contends that the SSA I.G. would have the envelope designs in this case adjudicated to be misleading essentially because the SSA I.G. contends that they are so. Moreover, according to Respondent, the SSA I.G. has been inconsistent in its conclusions as to what is and what is not misleading. Respondent points to an envelope design that is in evidence as SSA I.G. Ex. 20, at 3, as proof of the SSA I.G.'s alleged arbitrariness. Respondent notes that this design, which it asserts that the SSA I.G. approved, contains some of the same features as do the two designs that are at issue here.
Section 1140(a)(1) does not contain narrowly stated criteria for deciding whether an envelope is unlawfully misleading. But, the absence of a narrow standard in the statute does not mean that there is no basis for separating misleading communications from those that are not misleading. There are numerous instances in law where statutes separate that which is lawful from that which is not without stating narrow standards for doing so. In such instances, adjudicators follow rules of reason for separating the lawful from the unlawful.
In this case I have found that the two designs are misleading within the meaning of section 1140(a)(1) because they prominently and repeatedly refer to Social Security in a context which could alarm a recipient into believing that the envelopes contain urgent official communications. The question that I have answered affirmatively here is whether the aggregate information on envelopes of these designs could convince a recipient of one of them to make a snap judgment that it was from an official source thereby persuading that person to open it. Would it have been a simpler task to decide this case if the Act established rigid standards - such as proscribing per se the use of certain words or phrases - for deciding whether a mailing is misleading? Of course, that would have simplified my responsibility. But, that is not to say that a rigidly objective standard is required any more than it is to say that rules of reason are never appropriate mechanisms for adjudication.
The envelope design that is depicted as SSA I.G. Ex. 20, at 3, is clearly distinguishable from the two designs that are at issue here. It is true that the design in SSA I.G. Ex. 20, at 3, contains superfluous information such as a "Package Tracking No." and a "Postal Audit Control No." In that sense it is similar to the two designs that are the subject of this case. But, the design also contains a clear statement of the purpose of its contents which removes any ambiguity as to its source or contents. The front of the design contains the printed message:
IMPORTANT NEW INFORMATION ENCLOSED ON:
PENDING SENATE ACTION ON THE
SOCIAL SECURITY LOCK BOX BILL
Id. Not only does it provide a clear statement of its purpose but the design is distinguishable from the two that are at issue in this case by what it does not say. Nowhere on the design are there ambiguous references to Social Security that might mislead a person into believing that an envelope of this design is from or authorized by the Social Security Administration or that it contains information about a recipient's Social Security benefits.
Respondent argues that its designs should not be found to be misleading because they do not physically resemble envelopes used routinely by the Social Security Administration for its mailings. In fact, neither of the two envelope designs at issue here closely resemble envelopes routinely used by the Social Security Administration. See SSA I.G. Ex. 28; R. Ex. 33. But, the absence of close physical resemblance between Respondent's envelopes and those that are issued by the Social Security Administration does not resolve the issue of whether Respondent's envelopes could mislead a person into believing that the envelopes were approved, endorsed, or authorized by the Social Security Administration. As Respondent acknowledges:
Respondent's Posthearing Brief at 4. Above, I explain why I find that the envelope designs at issue could create such an impression. I find it to be highly unlikely that any recipient of one of Respondent's envelopes would pause and reflect on the differences between what he or she had just received and what he or she could recall of the appearance of official Social Security envelopes. Respondent's envelopes could create an immediate impression of having an official source. That impression depended on designs and usage of phrases without imitating the precise style of official envelopes.
Respondent also suggests that its envelopes cannot be found to be misleading because the SSA I.G. has offered no proof that any recipients of the envelopes actually were misled. However, the Act does not require, as a prerequisite to establishing that a mailing is unlawful, that people have been misled into believing that it is from, authorized, or endorsed by the Social Security Administration. The standard expressed in the Act is only whether a mailing could be interpreted as conveying a false impression. Proof of actual deception is unnecessary.
An entity may be found liable for contravening the proscriptions of section 1140(a)(1) of the Act if it sends envelopes that it knows are deceptive, where it is indifferent to their deceptive appearance, or where it is negligent in ensuring that the envelopes that it sends are not misleading. The preponderance of the evidence in this case establishes that Respondent violated this standard. First, Respondent's intent to deceive is evident from the design of the envelopes. Second, Respondent was on notice from the SSA I.G. that the envelope designs were likely to be found to be illegal but sent them anyway. This evidence is not rebutted by the denials of Respondent's officers of any intent to send misleading envelopes.
Respondent is a sophisticated mass marketer of ideas. Its life blood is its appeals to senior citizens on a range of social and policy issues. It has vast experience in making mass mailings. That sophistication makes it obvious that Respondent knew what it was doing when it designed the envelopes that are at issue in this case.
The inescapable inference that I draw from the envelopes' designs in light of Respondent's sophisticated marketing experience is that Respondent intended that its envelopes would deceive recipients into believing, at least momentarily, that the envelopes were from or authorized by the Social Security Administration. First, these envelopes were designed to look like overnight delivery or express mail envelopes. In fact, the envelopes were not sent as express mail or overnight delivery. Respondent sent the envelopes as bulk rate mailings. Tr. at 70. With the exception of the address, none of the information in the address label was necessary for delivery of the envelope as part of a bulk rate mailing. Id. at 70 - 73.
Much of the information on the address labels of the envelopes had nothing to do with the fact that these envelopes were being sent as bulk rate mailings. Indeed, such information - including the use of printed "handwritten" addresses, the gratuitous inclusion of a box telling the recipient that no signature was required for delivery, the use of phrases such as "Urgent Alert", "Express Service", and "Standard Delivery", and the inclusion of meaningless "Postal Audit Control" numbers and bar codes - was a transparent imitation of express mail or overnight delivery labels.
For example, there was no need to authorize delivery of any of these envelopes without obtaining a delivery signature. The bulk rate postage paid by Respondent guaranteed delivery with or without a recipient's signature. In fact, the Postal Service has no mechanism for collecting recipient signatures for bulk rate mail. Also meaningless is the "Package Tracking No." and the bar code in the right hand margin of the label on the envelopes of the first design. Respondent offered no evidence to show that it "tracked" any of these envelopes or that it even had the means to do so.
But, not only were the envelopes intended to deceive recipients into believing that they contained urgent messages, they were intended to deceive the recipient into believing that they were from, or at least authorized by, the Social Security Administration. That is made evident by the incessant repetition of the phrase "Social Security", and by the use of phrases such as "Social Security Alert" or the phrases "Open Immediately", "Urgent", and "Social Security Information Enclosed" used in conjunction with each other. It is also made evident by the incorporation of the phrase "Social Security Alert" into the address label part of the envelopes.
As I discuss above, at part a. of this Finding, a knowledgeable recipient might not be misled by the envelopes after scrutinizing them closely. But, Respondent did not operate on the premise that many would scrutinize the envelopes closely before deciding whether to open them. The obvious purpose of making the envelopes look like some express or overnight mailing about Social Security was to cause recipients to make immediate judgments upon seeing them that these mailings contained urgent and official documents from or authorized by the Social Security Administration and that they must be opened at once.
Moreover, when Respondent used the envelope designs that are at issue in this case for mass mailings it knew that it might be crossing a line that would cause it to be found in violation of section 1140(a)(1). Respondent had been involved in protracted discussions with the Social Security Administration prior to sending mass mailings using the envelope designs which are at issue in which the Social Security Administration had expressed serious concerns about Respondent's envelope designs. Some of those discussions involved Respondent's use of language on its envelopes that is very similar to that which is at issue in this case.
These discussions put Respondent on notice that using the kinds of words and devices that it used in the envelope designs that are at issue here put it at risk for being charged with violations of section 1140(a)(1). SSA I.G. Ex. 29 - 39. Indeed, the SSA I.G. specifically warned Respondent against using envelopes whose design included the phrases "Social Security Alert" and "Urgent Social Security Information Enclosed" in November 1998, mere months before Respondent made use of the designs that are at issue in this case. SSA I.G. Ex. 34, at 1. And, in fact, Respondent's officers knew that the SSA I.G. believed that Respondent's use of these phrases contravened the proscriptions of section 1140(a)(1). Tr. at 85 - 88.
Respondent argues that it cannot be held intentionally or negligently to have violated the requirements of section 1140(a)(1) based on its long-running dispute with the Social Security Administration over the use of certain words and phrases on the outside of its envelopes. According to Respondent:
Respondent's Reply Brief at 2.
I disagree with this analysis. It ignores the SSA I.G.'s authoritative role to interpret and enforce section 1140(a)(1). Followed to its logical conclusion Petitioner's argument would allow any individual or entity to avoid being found culpable for violating a law simply by asserting its disagreement with the interpretation advocated by the agency which bore the responsibility for enforcing that law. For example, Respondent's argument would insulate from prosecution any person who refused to pay his or her income taxes if that person asserted that he or she had refused to pay because he or she disagreed that the Internal Revenue Service had the authority to collect taxes.
Here, Respondent knew that the SSA I.G., who was charged by Congress and the Commissioner of Social Security with interpretation and enforcement of section 1140(a)(1), had expressed opinions that Respondent's use of words, phrases, and designs in other mass mailings that were similar to those used in the two envelopes that are at issue in this case might be unlawful. Contrary to Respondent's contentions, the SSA I.G.'s interpretations of the law were not uncertain. Respondent knew or should have known that what it was doing was illegal in the eyes of the SSA I.G. Notwithstanding, Respondent deliberately decided to play high stakes poker with the SSA I.G. over enforcement of section 1140(a)(1). At stake was the possibility that Respondent would be found to have deliberately contravened the law, and Respondent knew that. In short, Respondent dared the SSA I.G. to act, hoping that Respondent would prevail at some level of review.
I note that, in some of its correspondence with the SSA I.G., Respondent acted as if the SSA I.G.'s concern was Respondent's use of phrases such as "Social Security Information Enclosed" only in the specific and narrow context of envelopes that contained addressee information in cut out address windows. SSA I.G. Ex. 30. Respondent carefully pledged not to continue using such phrases only on envelopes with cut out address windows. It is clear from this and other correspondence that Respondent sought to interpret the SSA I.G.'s concerns as narrowly as possible in order to give itself the greatest possible freedom to continue sending mass mailings in envelopes of its choosing. But, it is obvious from the SSA I.G.'s correspondence to Respondent that the SSA I.G.'s concerns were not about Respondent's use of window envelopes so much as they were about the phrases and language that Respondent used on the exterior of its envelopes. SSA I.G. Ex. 29. Respondent's responses to the SSA I.G. may have been designed to give Respondent maximum room to maneuver but they do not convince me that Respondent actually believed that the SSA I.G. was concerned only about the use by Respondent of certain phrases on envelopes with cut out address windows.
Respondent's officers testified that Respondent's intent in sending envelopes using the designs that are at issue was not to deceive recipients. Ms. Kathleen Patten, Respondent's vice president for marketing, testified that Respondent did not intend to send envelopes that resembled envelopes sent by the Social Security Administration. Tr. at 87. I find that this assertion begs the question of whether Respondent intended with its mailings to deceive recipients. As I discuss above, Respondent's envelopes were deceptive even if they were not made to resemble the designs used by the Social Security Administration. One way to convince a recipient of an envelope that the envelope is from an official source other than the actual sender is to make the envelope physically resemble the official source's envelopes. But, that is not the only way by which a recipient may be deceived. Making the envelope appear to be an overnight or express mail delivery containing official information may be as effective as aping an official source's envelope design in convincing a recipient into believing that the envelope is from an official source.
Section 1140 of the Act is remedial like other sections of the Act which authorize civil money penalties. See, e.g., Act, section 1128A. Its purpose is not to punish an offender but to compensate the Social Security Administration for damage caused to its program integrity by individuals or entities who mislead the public into believing that their publications are official or are officially sanctioned. Statutory and regulatory criteria for determining penalty amounts provide a way of gauging the extent of damage that is caused to the Social Security program by a misleading mailing.
At section 1140(b)(1) the Act provides that the Commissioner of Social Security may impose civil money penalties of up to $5,000 for each violation of section 1140(a)(1). Section 1140(b)(2) defines a "violation" to constitute each piece of mail that contains one or more word, letter, symbol, or emblem which violates section 1140(a). The Act provides, at section 1129(c)(1) - (3), that penalty amounts should take into account: (1) the nature of a party's statements and the circumstances under which they were made; (2) the degree of a party's culpability, its history of prior offenses, and its financial condition; and (3) any such other matters as justice may require.
The statutory criteria are implemented by 20 C.F.R. § 498.106(b)(1) - (6). The specific regulatory criteria are as follows:
The I.G. proposes to impose civil money penalties of $1.00 for each of the envelopes that were sent as part of the mailing utilizing the envelope design that is depicted as SSA I.G. Ex. 17 and Respondent Ex. 13A (the first of the two envelope designs). The total penalty amount that the SSA I.G. would impose against Respondent is $554,196. This total proposed penalty amount is a tiny fraction of the maximum civil money penalties which the law theoretically permits and is, in fact, a sum that is less than $1.00 per violation as measured against the total number of envelopes of both designs (more than 600,000) that Respondent mailed in contravention of the Act. (9) But, the penalties that the SSA I.G. advocates be imposed nevertheless constitute a large sum even if they represent only a minuscule percentage of the theoretical maximum. I do not find that these substantial proposed penalties can be held to be reasonable simply because they constitute a small percentage of the allowable maximum amounts. Rather, I consider them in light of the evidence of record and the specific regulatory criteria that I have described above.
I find that the substantial penalties proposed by the SSA I.G. are reasonable compensation for the damages that Respondent's violations of section 1140(a)(1) caused to the integrity of the Social Security program. In general I find the penalties to be reasonable partly because I find that Respondent's envelopes created a serious threat to the ability of the Social Security Administration to communicate freely with the public. The envelopes are precisely the kinds of mailings that concerned Congress when it enacted the 1994 amendments to the Act, communications that could not only delude the public into believing that a non-governmental organization's mailings had an official imprimatur, but which might inure the public against opening and reading official communications from the Social Security Administration. I also find the penalties to be reasonable because Respondent knew what it was doing when it sent the envelopes and is, thus, highly culpable for its mailings. Finally, I find the penalties to be reasonable because they do not place an undue financial burden on Respondent.
More specifically, I find
As I have discussed above, at Finding 1, the envelopes that are at issue here were intended to induce recipients to open them by being designed to look like official communications about the recipients' Social Security benefits. A reasonable person could have assumed, on first impression, that it was necessary to open an envelope sent to him by Respondent because it contained urgent information from the Social Security Administration about that person's benefits.
These envelopes had the potential for causing precisely the damage to the Social Security Administration that Congress was concerned about when it enacted the 1994 amendments to the Act. The concern expressed by Congress was that recipients of mass mailings by private entities might become so inured to them that they would throw out unopened official communications that the Social Security Administration sent to them. It is easy to see how the envelopes that are at issue here could confuse an individual into believing that they were official. Indeed, as I discuss above, that was the purpose of the envelopes. A recipient of one of these, once burned, might become twice shy.
Respondent is a sophisticated mass mailer that knew what it was doing when it designed the envelopes that are at issue in this case. It is not reasonable to conclude that the envelopes' design was accidental or inadvertent. Respondent intended to create an impression that the envelopes were from an official source and contained urgent information about recipients' benefits.
The envelopes in question were sent to more than 600,000 recipients. Respondent specifically targeted senior citizens as recipients of the envelopes. The widespread distribution of these envelopes to a segment of the population that comprises the Social Security Administration's principal constituency increased the risk that large numbers of Social Security beneficiaries would become confused and that some of them might not open future official mailings from the Social Security Administration.
Respondent's culpability for the envelopes that are at issue is increased by virtue of the fact that it knew that the SSA I.G. had already concluded that Respondent's use of some of the language that it used in connection with these envelopes contravened section 1140(a)(1) of the Act. Respondent and the SSA I.G. had been corresponding for years about Respondent's use of phrases such as "Social Security Alert" on its envelopes. But, Respondent sent the envelopes in question in defiance of the SSA I.G., using this controversial language.
Respondent does not have a history of having been charged with violations of section 1140(a)(1) of the Act. However, that does not suggest an exemplary compliance record on Respondent's part. The long record of correspondence between Respondent and the SSA I.G. shows that Respondent and the SSA I.G. argued almost continuously over a period of several years concerning the SSA I.G.'s conclusion that Respondent's envelopes were deceptive. SSA I.G. Ex. 29 - 39. On several occasions the SSA I.G. extracted promises from Respondent to withdraw or cease sending mailings only after the SSA I.G. threatened to institute compliance proceedings against Respondent. See, e.g., SSA I.G. Ex. 29. In light of that I find that the SSA I.G.'s failure to bring compliance proceedings against Respondent previously is no basis for me to reduce the civil money penalties.
Respondent's financial condition enables it to pay the civil money penalties totaling $554,196. Tr. at 158. There is no persuasive evidence that establishes that penalties of this amount would unduly hamper Respondent's lobbying operations or jeopardize its ability to continue as an advocate for the individuals or groups that it represents.
Respondent's financial success establishes its ability to pay the penalties. Its revenues have consistently exceeded its expenditures. In each of the years 1999, 2000, and 2001, Respondent's revenues exceeded its expenditures by several hundred thousand dollars. SSA I.G. Ex. 6, at 7; SSA I.G. Ex. 8, at 21; SSA I.G. Ex. 11, at 4. It has managed significant growth during recent years. Id.; SSA I.G. Ex. 53, at 4. In 2002, Respondent garnered revenues of more than $24,000,000. This is approximately a threefold increase from Respondent's 1999 revenues. Respondent's ability to pay the penalties is also established by its substantial cash reserves. As of November 30, 2002, it maintained a cash balance of $725,792. SSA I.G. Ex. 53, at 2.
Respondent has not offered evidence which rebuts this proof of its financial strength except to assert that it does not maintain large amounts of cash on hand. Tr. at 137 - 138. Respondent's chairman and chief executive, Charles Jarvis, testified that Respondent does not maintain reserve accounts. Id. But, notwithstanding this testimony, Respondent does maintain cash balances at times. SSA I.G. Ex. 53, at 2. And, Respondent demonstrates a substantial ability to raise large sums when needed.
Respondent argues that this case is distinguishable from other cases in which the SSA I.G. has imposed remedies pursuant to section 1140 of the Act. It argues that in another instance, involving the National Federation of Retired Persons, the SSA I.G. sought to impose civil money penalties totaling only about one-sixth of those that are sought here based on facts that were far more egregious than the facts of this case. See National Federation of Retired Persons, DAB CR968 (2002), aff'd DAB No. 1885 (2003). Respondent asserts also that, prior to this case, the SSA I.G. has used section 1140 only against entities that sought and obtained personal information from seniors, entities that tried to disguise their identities, and entities that engaged in purely commercial transactions. Respondent's Reply Brief at 10. Respondent asserts that its conduct is distinguishable from such conduct. Moreover, according to Respondent, this case represents a departure from precedent, in that it is the first instance in which the SSA I.G. seeks to impose civil money penalties against an advocacy organization. Finally, Respondent contends that substantial penalties should not be imposed against it because no evidence was offered that anyone actually complained about one of the envelopes that are at issue here.
I find these arguments not to be persuasive justification to reduce the civil money penalties. First, I do not find the facts of this case to establish that Respondent's conduct was less egregious than that of the respondent in National Federation of Retired Persons or that the penalties that I sustain here are disproportionate to those which the Departmental Appeals Board (Board) recommended be sustained in that case. In National Federation of Retired Persons the penalties that the Board recommended be sustained were $1.00 per violation, a per-violation amount that is greater than that which I impose here. National Federation of Retired Persons, DAB No. 1885, at 31. Indeed, the larger total penalties that I impose in this case reflect the fact that the much more widespread distribution of envelopes that occurred in this case than occurred in National Federation of Retired Persons had the potential of causing much greater harm to the integrity and reputation of the Social Security Administration here than did the distribution in National Federation of Retired Persons. In that case, the total distribution of misleading envelopes was 83,569. Id. at 30. Here, the total exceeded 600,000.
More important, the penalties that I impose here are strongly supported by the evidence of this case. I do not find that penalties necessarily should be decided based on a comparison with penalties in other cases. Here, Respondent distributed misleading envelopes which had the potential for causing substantial damage to the integrity of the Social Security program. The penalties that the SSA I.G. imposed reflect that fact.
As I have discussed, Respondent's mass mailings using envelopes of the two designs that are at issue in this case had the potential for causing the precise problem identified by Congress as a reason for enacting the 1994 amendments to the Act. They created at least the possibility that hundreds of thousands of recipients would be benumbed to the extent that they might in the future discard mailings to them from the Social Security Administration.
Furthermore, the SSA I.G.'s enforcement efforts in this case did not spring fully formed from a blank background. There was a long history of discussion between the SSA I.G. and Respondent in which the SSA I.G. struggled vainly to convince Respondent to curb its practices of sending potentially deceptive mailings to senior citizens. Respondent had been warned on several occasions by the SSA I.G. that its conduct verged on violating or violated the Act. It chose to ignore these warnings.
Finally, I am not persuaded that the SSA I.G.'s failure to provide proof that citizens complained about the envelopes is a reason for me to reduce the civil money penalty amounts. The fact that the SSA I.G. chose not to offer evidence that complaints were made does not support the inference that the envelopes were not misleading.
Steven T. Kessel
Administrative Law Judge
1. Throughout this decision I cite to transcript excerpts as "Tr. at (page)." I cite to SSA I.G. exhibits as "SSA I.G. Ex. (number), at (page)". I cite to Respondent exhibits as "R. Ex. (number), at (page)".
2. The SSA I.G. did not submit exhibits under exhibit numbers SSA I.G. Ex. 3 and 4. The SSA I.G. withdrew SSA I.G. Ex. 40 - 50 at the hearing. Tr. at 28, 43.
3. I meant to admit R. Ex. 34 at the hearing, but did not do so. I admit R. Ex. 34 here. See Tr. at 203 - 208.
4. At the parties' request I issued preliminary rulings in this case which addressed legal issues including some of the legal issues which I discuss in this decision. Rulings on Legal Issues and Identification of Remaining Issues to be Heard and Decided, August 13, 2002. I restate and amplify these rulings here.
5. Respondent argues that the contents of the envelopes that are at issue here were constitutionally protected advocacy documents. Respondent contends that its constitutional right to engage in advocacy is curtailed by enforcement proceedings which focus solely on the packaging in which that advocacy is sent. I do not have the authority to address Respondent's constitutional arguments. However, I note that nothing in the Act would have barred Respondent from sending the identical advocacy documents to recipients in envelopes that were not even arguably unlawful.
6. I address the second standard of liability under section 1140(a)(1) - whether the envelopes reasonably could be interpreted as conveying the false impression that they were approved, authorized, or endorsed by the Social Security Administration - before I address the question of Respondent's intent in sending the envelopes.
7. As noted above, Attachment A is a black and white reproduction of the envelope design found at R. Ex. 13(A), which is printed in black, white, and red. On the front of the envelope which is reproduced at Attachment A, the word "ALERT" in the phrase "SOCIAL SECURITY ALERT" is not legible because the word "ALERT" is printed in red on a black background and the red shows up as black on Attachment A and is indistinguishable from the black background.
8. The envelopes at issue here have brightly colored designs and backgrounds. SSA I.G. Ex. 17, 26; R. Ex. 13A, 13B.
9. In theory, the Act would permit the SSA I.G. to at least consider imposing civil money penalties against Respondent totaling more than $3 billion, based on a maximum penalty per violation of $5,000 multiplied by more than 600,000 individual mailings of the proscribed envelopes. Act, section 1140(b).