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AMERICAN CONSUMER, INC. v. USPS

January 12, 1977

AMERICAN CONSUMER, INC., d/b/a American Consumer, Long N' Strong, STS Plan
v.
UNITED STATES POSTAL SERVICE et al.



The opinion of the court was delivered by: CAHN

 CAHN, District Judge.

 I. FACTUAL BACKGROUND

 Before this court is a motion by the defendants for summary judgment and a motion by the plaintiff for a preliminary injunction. This dispute pertains to consent agreements entered into by the plaintiff with the United States Postal Service in which the latter agreed to suspend further proceedings under the postal false representation and lottery statute, 39 U.S.C. § 3005, involving two of the plaintiff's products (Long N' Strong and the Slim through Sleep Plan). In return, the plaintiff agreed that it would permanently discontinue its former promotional activities and that if a petition alleging a breach of this consent agreement were filed, the judicial officer would be authorized to issue an ex parte order detaining mail pending the final resolution of the issue. The consent agreements also provide the plaintiff with the right to answer the petition alleging breach of the agreement. The consent agreements set out the procedures to be followed in determining whether the agreement has been breached and who is to make that determination. Neither party alleges that fraud or coercion was used in reaching this agreement. Therefore, this court finds that the plaintiff entered this agreement voluntarily and with full knowledge of its consequences.

 As a result of these stop mail orders the plaintiff has petitioned this court for a preliminary injunction prohibiting the defendants from enforcing their orders. *fn1" The defendants have filed a motion for summary judgment alleging no genuine issue of a material fact.

 II. EFFECT OF THE CONSENT AGREEMENTS

 As a result of the consent agreements the plaintiff is bound by the procedures set forth in the agreements for determining whether a breach has been committed. In addition, the plaintiff has waived its right to litigate whether the present or former advertisements were actually fraudulent. The only question that remained for the judicial officer as a result of the agreement was whether the consent agreement was violated. United States Bio-Genics Corp. v. Christenberry, 173 F. Supp. 645 (S.D.N.Y.), aff'd, 278 F.2d 561 (2d Cir. 1960); see American Image Corp. v. United States Postal Serv., 370 F. Supp. 964 (S.D.N.Y.), aff'd, 503 F.2d 1397 (2d Cir. 1974). The consent agreement also precludes the plaintiff from raising constitutional claims at this time. By agreeing to submit to the consent agreement the plaintiff has waived this defense. It is clear that one can knowledgably and intentionally waive a constitutional right. Brookhart v. Janis, 384 U.S. 1, 86 S. Ct. 1245, 16 L. Ed. 2d 314 (1966).

 The judicial officer concluded that a breach of the consent agreements had occurred. What remains for this court to decide is the proper scope of review and whether the decision of the judicial officer will withstand the proper review.

 III. STANDARD OF JUDICIAL REVIEW

 The plaintiff argues, based on American Image Corp. v. United States Postal Serv., supra, that de novo review of an administrative finding is proper under the circumstances that are present here, where no hearing was held or testimony taken. This court agrees with the plaintiff's reading of this case but takes issue with the conclusions reached therein. The American Image Corp. case is the only precedent found by this court and by the parties to support the proposition of a de novo review of this type administrative finding.

 The proper scope of review in this type of proceeding is mandated by the Administrative Procedure Act, 5 U.S.C. § 706. Mark Eden v. Lee, 433 F.2d 1077 (9th Cir. 1970); Institute for Weight Control, Inc. v. Klassen, 348 F. Supp. 1304 (D.N.J.1972). "The express language of 5 U.S.C. § 706(2)(E) makes [the substantial evidence] standard of review applicable only to agency action taken after a mandatory hearing." Twiggs v. U.S. Small Business Administration, 541 F.2d 150, 152 (3d Cir. 1976); National Nutritional Foods Ass'n v. Weinberger, 512 F.2d 688 (2d Cir. 1975). Therefore, it would be improper for this court to use the substantial evidence standard of review.

 In addition, a de novo review of the judicial officer's finding would be inappropriate. "[Trial] de novo is appropriate in those unusual circumstances 'when the action is adjudicatory in nature and the agency fact-finding procedures are inadequate . ..' An agency's procedures are not inadequate simply because no formal hearing is held . . ." United States v. International Harvester Company, 387 F. Supp. 1338, 1341 (D.D.C.1974). In the cases before this court the administrative fact-finding procedures were adequate for the judicial officer to decide the issues before him. As was mentioned in Section II above, the judicial officer had to decide only whether the consent agreement was breached. He had before him the postal complaints, plaintiff's responses, the consent agreements and copies of advertisements used before and after the effective date of the consent agreements. Therefore the proper standard of review is whether the administrative action was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law . . ." 5 U.S.C. § 706(2)(A).

 The circumstances before this court present a stronger case for the application of a limited judicial review. In this case the parties to the consent agreement designated who was to make the factual determination of whether the agreement was breached. Where the parties have agreed on who was to make the factual determination, this court is of the opinion that it would be improper for it to substitute its factual determination for the factual determination made by the trier of fact agreed to by the parties. For this reason and the mandates of the Administrative Procedure Act, this court concludes that a de novo ...


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