PREFERRED MERCANTILE CO. of BOSTON et al. v. HIBBARD, Postmaster

PREFERRED MERCANTILE CO. of BOSTON et al. v. HIBBARD, Postmaster. (Circuit Court, D. Massachusetts. June 29, 1905.) Post Office — Fbaud Obdebs — Lottery Scheme. A scheme conducted by a company by the issuance and sale of so-called “diamond leases,” numbered consecutively in order of their issuance and arranged in series, each purchaser being required to make a certain number of weekly payments, and the fund thus created to be applied in fixed proportions to the payment of the expenses of the company and the redemption of the oldest outstanding lease in the same series and in prior series by purchasing and delivering to each holder a diamond of a stated weight and value, there being no ottier fund applicable to such redemption, except that arising from such weekly payments and from fines and forfeitures on account of lapses, is a lottery or scheme for the distribution of property by lot or chance, within the meaning of Rev. St. §§ 3929, 4041, as amended by Act Sept. 19, 1890, c. 908, §§ 2, 3, 26 Stat. 406 [U. S. Comp. St 1901, pp. 2686, 2749), authorizing the Postmaster General to deny the privileges of the mails and of the money order and registered letter service to any person or company conducting such schemes. [Ed. Note.- — Use of mails in lottery schemes, see note to Timmons v., United States, 30 C. C. A. 90.) In Equity. Suit for injunction. This was a bill in equity brought by the Preferred Mercantile Company of Boston, a corporation,- and George E. Stillings, and Guy C. Stillings, respectively, president and secretary of the corporation, against George A. Hibbard, as Postmaster of the United States at Boston, for the purpose of restraining the respondent from enforcing the provisions of a so-called “fraud order” issued by the Postmaster General against the Preferred Mercantile Company and its officers or agents as such, under the authority of Rev. St. §§ 3929, 4041, as amended. [U. S. Comp. St. 1901, pp. 2686, 2749.) The respondent pleaded that the business of the company, as set forth in their bill, was a lottery and scheme for the distribution of money and personal property by chance, and an enterprise offering prizes dependent upon chance, and was in violation of the provisions of Kev. St. § 3894, as amended. Lü. S. Comp. St. 1901, p. 2659.] The facts disclosed by the complainants’ bill were substantially as follows: The Preferred Mercantile Company of Boston was incorporated November 11, 1903, under the laws of Massachusetts for the purpose, as its charter declared, of “dealing in diamonds, buying and selling the same, acquiring such real and personal estate and other property as the interests of the corporation my require, and doing all things which may be useful or incidental to such purpose, or convenient or necessary for the carrying on of said business.” Its sole business was the issuance and sale of certain so-called “Diamond Leases” ; the course of such business being as follows: Applications for leases were made in writing at the main office of the company, or to its agents in other parts of the country. The exact time of application was noted in each case, and the lease subsequently issued to the applicant from the home office. The leases ran in series. The order of issuance in the series, as well as the order of redemption, as hereinafter stated, was determined by the chronological order of application. The number of leases in each series was arbitrarily determined by the managers of the company. By the terms of the contract the holder agreed to pay to the company $110 in weekly installments of $1 each, and agreed that, if he should fail to pay each installment when due, he should forfeit 25 cents as a fine for each week in default up to the fifth week, after which time the lease should, because of the default, become void, and all payments theretofore made should be forfeited as “liquidated damages.” The company agreed that upon the completion of payments by the holder the lease should be deemed “fully paid up and nonforfeitable,” and the holder should be entitled to “redemption” ; that is, to receive a diamond of the retail value of $200 (or at his option $160 in cash) at such time as the amount of money in the hands of the company to the credit of his lease should equal the sum of $200. The company had no invested funds, and no resources other than the payments of the leaseholders as aforesaid. Each installment was appropriated as follows: (1) 35 cents to the redemption fund of the series to which the lease belonged; (2) 35 cents to the redemption fund of the next preceding series; (3) 10 cents to a contingent fund for the redemption of the oldest unredeemed leases of the oldest unredeemed series; (4) 20 cents, together with the difference between the retail value of the diamonds and the wholesale price, to defray the cost of managing the business. All moneys forfeited by delinquent leaseholders, together with the fines, and fees of $1 each, charged for the transfer of leases on the books of the company, were appropriated to the redemption fund of the series to which the lease belonged. The case was argued upon the bill and plea. Asa P. French and James S. Allen, Jr., for complainants. William H. Garland, Assist. U. S. Atty., for respondent. The applications and contracts used by complainant were in the form set out post, pp. 879-882. [MAJORITY — LOWELL, Circuit Judge.] LOWELL, Circuit Judge. Following the decision of the Supreme Court in Public Clearing House v. Coyne, 194 U. S. 497, 24 Sup. Ct. 789, 48 L. Ed. 1092, from which this case is indistinguishable, I hold the complainants’ business to be a lottery. Bill to be dismissed.