11-1117 usps brief
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Oral Argument Has Not Been Scheduled
_____________________
No. 11-1117_____________________
IN THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT_____________________
UNITED STATES POSTAL SERVICE,
Petitioner,
v.POSTAL REGULATORY COMMISSION,
Respondent.
_____________________
On Petition for Review of an Order of the Postal Regulatory Commission
_____________________
BRIEF OF THE UNITED STATES POSTAL SERVICE_____________________
MARY ANNE GIBBONSExecutive Vice President & General Counsel
Of counsel:
R. ANDREW GERMAN MICHAEL J. ELSTON*Managing Counsel, Legal Strategy Chief Counsel, AppellateUnited States Postal Service & Commercial Litigation475 L'Enfant Plaza, SW United States Postal ServiceWashington, D.C. 20260 475 L'Enfant Plaza, SW
Washington, D.C. 20260(202) 268-7432
Attorneys for the United States Postal Service
FINAL BRIEF:OCTOBER 7, 2011 *Counsel of Record
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CERTIFICATE AS TO PARTIES,
RULINGS AND RELATED CASES
A. Parties, Intervenors and Amici
Petitioner in this matter is the UNITED STATES POSTAL SERVICE.
Respondent in this matter is the POSTAL REGULATORY COMMISSION (PRC).
This is a petition for review of an agency decision. Numerous persons and
entities filed comments in the agencys docket but did not seek to intervene in the
proceedings. The AMERICAN CATALOG MAILERS ASSOCIATION (ACMA)
intervened in this review proceeding on behalf of the Postal Service. VALPAK
DEALERS ASSOCIATION, VALPAK DIRECT MARKETING SYSTEMS,
INC., and L.L. BEAN, INC., intervened on behalf of the PRC.
B. Ruling Under Review
The ruling under review is that portion of the Postal Regulatory
Commissions 2010 Annual Compliance Determination (ACD) relating to the
pricing of Standard Mail Flats. The PRC issued the ACD on March 29, 2011. The
PRCs docket number for its review of the Postal Services Annual Compliance
Report for fiscal year 2010 was Docket No. ACR2010.
C. Related Cases
This matter has not previously been before this Court or any other court.
Petitioners counsel are unaware of any related cases pending in this Court or any
other court except that in this case the PRC reached a decision that appears to
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contradict another order presently before this Court on a petition for review. See
United States Postal Service v. Postal Regulatory Commission, No. 10-1324 (D.C.
Cir.) (argued Sept. 21, 2011).
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TABLE OF CONTENTS
Certificate as to Parties, Rulings and Related Cases ..................................................i
Table of Authorities ...................................................................................................v
Glossary.................................................................................................................. viii
Jurisdictional Statement.............................................................................................1
Standing......................................................................................................................1
Statutory Provisions...................................................................................................3
Statement of the Issues...............................................................................................7
Statement of the Case.................................................................................................8
Statement of the Facts ................................................................................................9
Summary of the Argument.......................................................................................17
Argument..................................................................................................................21
I. The PAEA specifically requires that market-dominant productscover their attributable costs by class while simultaneously requiringeach competitive product to cover its own costs by product.Standard Mail Flats is a product within the market-dominant class ofStandard Mail, not a competitive product, and thus it is not requiredby law to cover its own costs; the PAEA requires only that StandardMail products cover their costs as a class. Thus the PRCsconclusion that the Standard Mail Flats product must cover its own
costs is contrary to law, arbitrary and capricious. .........................................21
A. Standard of Review .............................................................................21
B. Analysis ..............................................................................................21
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TABLE OF CONTENTS
(continued)
II. The PRCs authority in the context of reviewing the Postal ServicesAnnual Compliance Report is limited by 39 U.S.C. 3653 todeterminations that any rates or fees in effect during such year (forproducts individually or collectively) were not in compliance withapplicable provisions of [Chapter 36] (or regulations promulgatedthereunder). In the 2010 ACD, the Commission concluded that therates for Standard Mail Flats violated 39 U.S.C. 101(d), which isnot in Chapter 36. Thus the PRC exceeded its statutory authority byconcluding that the Postal Services rates violated a policy statementfound outside of Chapter 36. .........................................................................28
A. Standard of Review .............................................................................28
B. Analysis ..............................................................................................28
III. Under the PAEA, one of the PRCs objectives is [t]o assureadequate revenues, including retained earnings, to maintain financialstability. The PRC failed to even address the argument that itsdecision could result in the Standard Mail class as a whole makingless contribution toward costs because the volume of flats isdecreasing while the volume of letters is increasing. Thus the PRCsorder requiring the Postal Service to prioritize limited CPI price-capauthority to Standard Mail Flats without regard to the financialconsequences is arbitrary and capricious. .....................................................32
A. Standard of Review .............................................................................32
B. Analysis ..............................................................................................32
Conclusion ...............................................................................................................35
Certificate of Compliance........................................................................................36
Certificate of Service ...............................................................................................37
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TABLE OF AUTHORITIES
CASES
Assoc. of Data Processing Serv. Orgs. v. Board of Governors of
the Fed. Reserve Sys., 745 F.2d 677 (D.C. Cir. 1984) .................................32
*Bowman Transportation, Inc. v. Arkansas-Best Freight System, Inc.
419 U.S. 281 (1974).................................................................................32, 34
*Chevron U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837 (1984).....................................25
Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402 (1971) .................32
*FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, (2000) ....................25
Halverson v. Slater, 129 F.3d 180 (D.C. Cir. 1997) ................................................31
Morton v. Mancari, 417 U.S. 535 (1974) .......................................................... 26-27
Pharmaceutical Research & Mfrs. of Am. v. Thompson,251 F.3d 219 (D.C. Cir. 2001).......................................................................25
Pillsbury v. United Eng'g Co.,342 U.S. 197 (1952) ......................................... 30-31
Qi-Zhuo v. Meissner, 70 F.3d 136 (D.C. Cir. 1995)................................................31
Radzanower v. Touche Ross & Co., 426 U.S. 148 (1976).......................................26
Simpson v. United States, 435 U.S. 6 (1978)...........................................................26
S. Cal. Edison Co. v. FERC, 195 F.3d 17 (D.C. Cir. 1999) ....................................25
United States v. Wong Kim Bo, 472 F.2d 720 (5th Cir. 1972) ................................23
USPS v. PRC, 640 F.3d 1263 (D.C. Cir. 2011) .......................................................12
*Wells Fargo Bank, N.A. v. FDIC, 310 F.3d 202 (D.C. Cir. 2002) ........................25
* Authorities upon which we chiefly rely are marked with asterisks.
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TABLE OF AUTHORITIES
(continued)
STATUTES
5 U.S.C. 706..............................................................................................21, 28, 32
39 U.S.C. 101...........................................................8, 10, 16, 21, 24, 26-27, 28-31
39 U.S.C. 102........................................................................................................22
39 U.S.C. 201..........................................................................................................9
*39 U.S.C. 3622...........................................................11-13, 19, 21-25, 27, 30, 34
*39 U.S.C. 3633..............................................................................................22, 25
39 U.S.C. 3652 ...................................................................................... 8, 11, 30-31
*39 U.S.C. 3653 .................................................................1, 7, 8, 11, 18-19, 28-31
39 U.S.C. 3663 ..................................................................................1, 9, 21, 28, 32
Postal Accountability and Enhancement Act (PAEA), Pub. L. No. 109-435,120 Stat. 3198 (2006) ........................................... 7, 10, 17, 22, 23, 29, 32, 33
Postal Reorganization Act of 1970 (PRA),Pub. L. No. 91-375, 84 Stat. 719 (1970) ...................................................9, 29
LEGISLATIVE HISTORY
Sen. Rep. No. 108-318 at 8, 10 (2004) ..............................................................10, 23
DECISIONS OF THE PRC
Order No. 26, Docket No. RM2007-1 (P.R.C. Aug. 15, 2007) .........................10, 23
Order No. 43, Docket No. RM2007-1 (P.R.C. Oct. 29, 2007) ................................11
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TABLE OF AUTHORITIES
(continued)
DECISIONS OF THE PRC(continued)
Order No. 66, Docket No. R2008-1 (P.R.C. Mar. 17, 2008)...................................10
Order No. 536, Docket No. RM2009-3 (P.R.C. Sept. 14, 2010)................. 18, 23-24
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GLOSSARY
CPI Consumer Price Index
ACR Annual Compliance Report orthe 2010 Annual ComplianceReport of the U.S. Postal Service (Dec. 29, 2010)
ACD Annual Compliance Determination orthe 2010 AnnualCompliance Determination, PRC Docket No. ACR2010(Mar. 29, 2011)
PAEA Postal Accountability and Enhancement Act
PRA Postal Reorganization Act
PRC Postal Regulatory CommissionPostal Rate Commission (prior to 2006)
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JURISDICTIONAL STATEMENT
This petition challenges an order of the Postal Regulatory Commission
(PRC) issued pursuant to 39 U.S.C. 3653(c). This Court has jurisdiction pursuant
to 39 U.S.C. 3663. The final order below was rendered on March 29, 2011, and
this petition was timely filed on April 27, 2011.
STANDING
The Postal Service has standing under 39 U.S.C. 3663 because it is
adversely affected or aggrieved by the PRCs Annual Compliance
Determination. The order declares the Postal Services rates for Standard Mail
Flats to be illegal and directs the Postal Service to increase the cost coverage of
the Standard Mail Flats product through a combination of above-average price
adjustments, consistent with the price cap requirements, and cost reductions until
such time that the revenues for this product exceed attributable costs beginning
with the next Notice of Market Dominant Price Adjustment. ACD at 106, 107
(J.A. 44, 45). The PRC also ordered the Postal Service to present a schedule of
future above-CPI price increases for Standard Mail Flats [w]ithin 90 days of the
issuance of the FY 2010 ACD and to update the schedule annually until the
revenue of the Flats product exceeds its attributable cost. ACD at 107 (J.A. 45).
The statute governing the PRC and the Postal Service, however, does not require
that each market-dominant product cover its attributable costs, and correcting the
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long-standing cost-coverage issue with respect to Standard Mail Flats a product
with a current downward trend in volume is not in the best interests of the Postal
Service. Because such above-CPI price increases must be consistent with the
price cap requirements, the PRCs order necessarily curtails the Postal Services
limited price-cap increase authority and precludes it from allocating that authority
in such a fashion as to maximize our ability to maximize retained earnings and
achieve financial stability by, for example, allocating more of that increase to
Standard Mail Letters, a product with a trend of increasing volumes. The PRCs
order which it lacked authority to issue may well have the perverse effect of
decreasing the Standard Mail Classs contribution to attributable costs of the Postal
Service at a time when the Postal Service can ill afford to absorb such a loss in
contribution. This Court may redress these injuries by granting the petition for
review and setting aside the PRCs conclusions as contrary to law, arbitrary and
capricious.
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STATUTORY PROVISIONS
United States Code Title 39
101. Postal policy***
(d) Postal rates shall be established to apportion the costs of all postaloperations to all users of the mail on a fair and equitable basis.
***
3622. Modern rate regulation
(a) Authority GenerallyThe Postal Regulatory Commission shall . . . byregulation establish (and may from time to time thereafter by regulation revise) a
modern system for regulating rates and classes for market-dominant products.
(b) ObjectivesSuch system shall be designed to achieve the followingobjectives, each of which shall be applied in conjunction with the others:
(1) To maximize incentives to reduce costs and increase efficiency.
(2) To create predictability and stability in rates.
(3) To maintain high quality service standards established under section3691.
(4) To allow the Postal Service pricing flexibility.(5) To assure adequate revenues, including retained earnings, to maintainfinancial stability.
(6) To reduce the administrative burden and increase the transparency ofthe ratemaking process.
(7) To enhance mail security and deter terrorism.
(8) To establish and maintain a just and reasonable schedule for rates andclassifications, however the objective under this paragraph shall not be
construed to prohibit the Postal Service from making changes of unequalmagnitude within, between, or among classes of mail.
(9) To allocate the total institutional costs of the Postal Serviceappropriately between market-dominant and competitive products.
(c) FactorsIn establishing or revising such system, the Postal RegulatoryCommission shall take into account
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***
(2) the requirement that each class of mail or type of mail service bear thedirect and indirect postal costs attributable to each class or type of mailservice through reliably identified causal relationships plus that portion
of all other costs of the Postal Service reasonably assignable to such classor type;
***
(d) Requirements
(1) In general.The system for regulating rates and classes for market-dominant products shall
(A) include an annual limitation on the percentage changes in ratesto be set by the Postal Regulatory Commission that will be equal to
the change in the Consumer Price Index for All Urban Consumersunadjusted for seasonal variation over the most recent available12-month period preceding the date the Postal Service files noticeof its intention to increase rates;
***
(2) Limitations
(A) Classes of mailExcept as provided under subparagraph (C),the annual limitations under paragraph (1)(A) shall apply to a classof mail, as defined in the Domestic Mail Classification Schedule asin effect on the date of enactment of the Postal Accountability andEnhancement Act.
***
3633. Provisions applicable to rates for competitive products
(a) In GeneralThe Postal Regulatory Commission shall . . . promulgate (andmay from time to time thereafter revise) regulations to
(1) prohibit the subsidization of competitive products by market-dominant products;
(2) ensure that each competitive product covers its costs attributable; and
(3) ensure that all competitive products collectively cover what theCommission determines to be an appropriate share of the institutionalcosts of the Postal Service.
***
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3652. Annual Reports to the Commission
(a) Costs, Revenues, Rates, and Service.Except as provided in subsection (c),the Postal Service shall, no later than 90 days after the end of each year, prepareand submit to the Postal Regulatory Commission a report (together with such
nonpublic annex the report as the Commission may require under subsection (e))(1) which shall analyze costs, revenues, rates, and quality of service, using
such methodologies as the Commission shall by regulation prescribe, and insufficient detail to demonstrate that all products during such year complied withall applicable requirements of this title; and
(2) which shall, for each market-dominant product provided in such year,provide
(A) product information, including mail volumes; and
(B) measures of the quality of service afforded by the Postal Service inconnection with such product, including
(i) the level of service (described in terms of speed of delivery andreliability) provided; and
(ii) the degree of customer satisfaction with the service provided.
The Inspector General shall regularly audit the data collection systems andprocedures utilized in collecting information and preparing such report (includingany annex thereto and the information required under subsection (b)). The resultsof any such audit shall be submitted to the Postal Service and the Postal RegulatoryCommission.
***
3653. Annual Determination of Compliance
(a) Opportunity For Public CommentAfter receiving the reports requiredunder section 3652 for any year, the Postal Regulatory Commission shall promptlyprovide an opportunity for comment on such reports by users of the mails, affectedparties, and an officer of the Commission who shall be required to represent theinterests of the general public.
(b) Determination of Compliance or NoncomplianceNot later than 90 daysafter receiving the submissions required under section 3652 with respect to a year,the Postal Regulatory Commission shall make a written determination as to
(1) whether any rates or fees in effect during such year (for productsindividually or collectively) were not in compliance with applicable provisionsof this chapter (or regulations promulgated thereunder); or
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(2) whether any service standards in effect during such year were not met.
If, with respect to a year, no instance of noncompliance is found underthis subsection to have occurred in such year, the written determinationshall be to that effect.
(c) Noncompliance With Regard to Rates or ServicesIf, for a year, a timelywritten determination of noncompliance is made under subsection (b), the PostalRegulatory Commission shall take appropriate action in accordance withsubsections (c) and (e) of section 3662 (as if a complaint averring suchnoncompliance had been duly filed and found under such section to be justified).
***
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STATEMENT OF THE ISSUES
I. The PAEA specifically requires that market-dominant products covertheir attributable costs by class while simultaneously requiring each competitive
product to cover its own costs by product. Standard Mail Flats is a product within
the market-dominant class of Standard Mail, not a competitive product, and thus it
is not required by law to cover its own costs; the PAEA requires only that Standard
Mail products cover their costs as a class. Is the PRCs conclusion that the
Standard Mail Flats product must cover its own costs contrary to law, arbitrary and
capricious?
II. The PRCs authority in the context of reviewing the Postal ServicesAnnual Compliance Report is limited by 39 U.S.C. 3653 to determinations that
any rates or fees in effect during such year (for products individually or
collectively) were not in compliance with applicable provisions of [Chapter 36] (or
regulations promulgated thereunder). In the 2010 ACD, the Commission
concluded that the rates for Standard Mail Flats violated 39 U.S.C. 101(d), which
is not in Chapter 36. Did the PRC exceed its statutory authority by concluding that
the Postal Services rates violated a policy statement found outside of Chapter 36?
III. Under the PAEA, one of the PRCs objectives is [t]o assure adequaterevenues, including retained earnings, to maintain financial stability. The PRC
failed to even address the argument that its decision could result in the Standard
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Mail class as a whole making less contribution toward costs because the volume of
flats is decreasing while the volume of letters is increasing. Is the PRCs order
requiring the Postal Service to prioritize limited CPI price-cap authority to
Standard Mail Flats without regard to the financial consequences arbitrary and
capricious?
STATEMENT OF THE CASE
On December 29, 2010, the Postal Service filed its Fiscal Year 2010 Annual
Compliance Report (ACR) as required by 39 U.S.C. 3652. After providing for a
period of public comment, on March 29, 2011, the Postal Regulatory Commission
(PRC) issued its Annual Compliance Determination Report for Fiscal Year 2010
(ACD) as required by 39 U.S.C. 3653.
In its ACD, the PRC noted that the postal product known as Standard Mail
Flats is covering only 81.6 percent of its costs. Despite the fact that Congress
explicitly chose not to require each market-dominant product to cover its costs, the
PRC concluded that the prices in effect for the Standard Mail Flats product do not
comply with section 101(d) of Title 39 because they do not cover the costs
attributable to the product. ACD at 106 (J.A. 44). Accordingly, purporting to act
pursuant to its authority under 39 U.S.C. 3653(c), the PRC directed the Postal
Service to increase the cost coverage of the Standard Mail Flats product through a
combination of above-average price adjustments, consistent with the price cap
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requirements, and cost reductions until such time that the revenues for this product
exceed attributable costs. Id. While the PRC did not set a deadline for the Postal
Service to exceed full cost coverage for the Standard Mail Flats product, it ordered
the Postal Service to present a schedule of future above-CPI price increases for
Standard Mail Flats within 90 days1 and to begin the process of transitioning
Standard Flats prices to full cost coverage starting with the next Notice of
Market Dominant Price Adjustment. ACD at 107 (J.A. 45).
On April 27, 2011, the Postal Service filed a timely Petition for Review by
this Court pursuant to 39 U.S.C. 3663.
STATEMENT OF THE FACTS
Under the Postal Reorganization Act of 1970 (PRA), Pub. L. No. 91-375, 84
Stat. 719 (1970), the Postal Service became an independent establishment of the
executive branch of the government of the United States. 39 U.S.C. 201. From
1971 to 2006, the Postal Service initiated rate changes by requesting a
recommended decision from the PRCs predecessor agency, the Postal Rate
Commission. In 2006, Congress adopted and President George W. Bush signed
1 On May 17, 2011, the Postal Service moved the PRC to stay those portionsof the ACD requiring the Postal Service to provide schedules or take otherremedial actions regarding Standard Mail Flats. The Commission granted thePostal Services motion on May 27, 2011, and the stay is in effect until 30 daysfollowing the resolution of this petition for review. PRC Order No. 739 (availableon-line at http://www.prc.gov/Docs/73/73096/Order_No_739.pdf).
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into law the Postal Accountability and Enhancement Act (PAEA), Pub. L. No.
109-435, 120 Stat. 3198 (2006). The PAEA, among other things, greatly narrowed
the PRCs role in pricing decisions, and the Postal Service now may set prices
within certain express limitations. The PAEA also directed the PRC to develop a
modern system for regulating the prices of market-dominant products, such as
Standard Mail Flats, designed to achieve a statutory list of objectives, each of
which shall be applied in conjunction with the others. 39 U.S.C. 3622(a)&(b).
A prominent goal of the PAEA was to provide the Postal Service with increased
flexibility in pricing, as compared to the prior pricing regime. This is evident both from
the language of the statute and from its legislative history. See, e.g., 39 U.S.C.
3622(d)(4), (c)(7); Sen. Rep. No. 108-318 at 8, 10 (2004). This is not just the Postal
Services view. The PRC has also recognized that increased flexibility is central to the
Congressional design of the PAEA. See, e.g., Order No. 66, Docket No. R2008-1, p. 51
(P.R.C. Mar. 17, 2008) (http://www.prc.gov/Docs/59/59312/R2008-1FINAL.pdf);
Order No. 26, Docket No. RM2007-1, p. 78 at 3070 (P.R.C. Aug. 15, 2007) (The
revamped ratemaking under the PAEA is designed to achieve various goals, principal
among them are to afford the Postal Service enhanced pricing flexibility. . . .)
(http://www.prc.gov/Docs/57/57348/RM2007-1FINAL.pdf). In another order, the PRC
stated as follows:
The Commission concludes that one of Congresss mainmotives in enacting the PAEA was to simplify and expedite
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the setting of postal rates. It further concludes that Congressintended to give the Postal Service wide latitude in designingspecific rates and rate relationships, expecting that theCommission would alter those decisions only wheredisregard of particular statutory standards is clear.
Order No. 43, Docket No. RM2007-1, 2025 at p. 11 (P.R.C. Oct. 29, 2007).
Price changes for market-dominant products under the PAEA are now an
almost annual occurrence. The overall increase for each class of mail products that
have been designated as market-dominant products is essentially capped at the
level of inflation. 39 U.S.C. 3622(d)(1)(A). Price averaging is allowed within
classes to meet the overall cap, but is not allowed between classes. 39 U.S.C.
3622(d)(2)(A).
Within 90 days of the end of each fiscal year, the Postal Service is required
to submit to the PRC an annual report that, among other things, shall analyze
costs, revenues, rates, and quality of service, using such methodologies as the
Commission shall by regulation prescribe, and in sufficient detail to demonstrate
that all products during such year complied with all applicable requirements of this
title. 39 U.S.C. 3652(a). The PRC then provides an opportunity for public
comment, id. 3653(a), and makes a written determination regarding, among other
things, whether any rates . . . in effect during such year (for products individually
or collectively) were not in compliance with applicable provisions of this chapter
(or regulations promulgated thereunder), id. 3653(b)(1).
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After the Postal Service submitted its 2010 Annual Compliance Report, the
PRC concluded that [c]ost coverage for Standard Mail Flats was 81.6 percent,
and that neither commercial flats nor nonprofit flats covered their costs, resulting
in a cost coverage below 100 percent for the whole product. ACD at 103 (J.A.
41). As the PRC explained, it had expressed its concerns with what it called a
growing intra-class cross subsidy on several occasions since 2008. ACD at 103-
04 (J.A. 41-42). In the 2009 ACD, for example, the PRC stated that the failure of
the Standard Mail Flats product to cover its costs directly implicates the
requirement of section 101(d), which directs the Postal Service to apportion
[attributable costs] on a fair and equitable basis[,] and section 3622(b)(5), which
requires that rates must be set to ensure adequate revenues to maintain financial
stability. ACD at 104 (quoting 2009 ACD at 86) (J.A. 42). In response to the
directive to devise a plan to improve the cost coverage of the Standard Mail Flats
product, the Postal Service presented such a plan in its request for an exigent rate
increase. The PRC, however, denied the request for an exigent rate increase. See
generally USPS v. PRC, 640 F.3d 1263 (D.C. Cir. 2011) (granting in part petition
for review of decision denying exigent rate increase).
In its 2010 Annual Compliance Report, the Postal Service stated that the
PRCs denial of the exigent rate increase made its plan which had relied on a
one-time 5.1 percent increase that could not be made within the limitations of the
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inflation-based price cap unworkable and suggested that the PRC decide whether
it could use any of its powers to remedy the cost coverage shortfall of the
fourteen products that did not cover full attributable costs, including the Standard
Mail Flats product. ACD at 105 (J.A. 43) (quoting ACR at 8-9 (J.A. 14-15)).
In addition to the Postal Services comments in the ACR and its reply
comments, the American Catalog Mailers Association (ACMA), L.L. Bean, the
Public Representative and Valpak submitted comments regarding the cost coverage
of Standard Flats. ACD at 105 (J.A. 43). Although the PRC ignored it, one of the
most important comments offered was the ACMAs comment regarding the impact
on the Postal Services overall revenue of implementing above-CPI changes on
Standard Mail Flats. The ACMA wrote as follows:
Further, within the framework of a cap for a class of mail withmore than one [Section 3622](c)(2) category, (c)(2) is notaimed at any net-income improvements that might result fromfixing any shortfall. ACMA noted this phenomenon in its replycomments in Docket No. R2010-4 (pp. 3-5). The workings arereasonably simple. If a shortfall in Category 1 is fixed byraising the rates for Category 1 and lowering them forCategories 2 and 3, staying within a cap, the net effect dependson the various elasticities (own-price and cross-price) andwould in all cases be no more than a small fraction of theshortfall at issue. It is obvious, then, that (c)(2) does not
highlight money that is available to improve the PostalServices net income position.
ACMA Comments at 8-9 (J.A. 62-63).
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Put another way, if the Postal Service implements above-average price
increases on one product and below-average price increases on other products
within the class in order to comply with the price cap, the result is not necessarily
an improvement in the overall contribution that the class of mail makes toward
attributable costs. The charts on the next page demonstrate this issue with a simple
hypothetical example.2
The chart assumes that the volume of Standard Mail
Letters was 700 in 2009 and the volume of Standard Mail Flats was 100 in 2009,
which reflects the approximate ratio of the volumes of the two products. It also
assumes a price cap of five percent and a decrease in the volume of flats in 2010 by
10 percent and an increase in the volume of letters by 10 percent, which stands
proxy for the present volume trends of these two products.3 The first box assumes
2 This hypothetical example is in no way intended to be a proxy for thecomplicated business of ratemaking, and the Postal Service acknowledges thatother factors bear on these calculations. For example, changes in price may impactvolumes. Instead, the hypothetical is intended merely to illustrate the point that thePRC's approach can result in less money for the Postal Service. To perform all ofthe actual calculations is beyond the scope of this brief as well as the publiclyavailable data.
3 Compare Annual Compliance Determination: Fiscal Year 2009, PostalRegulatory Commission (Mar. 29, 2010), at Table VII-11 (p. 83) (listing the Fiscal
Year 2009 volumes for Standard Mail Letters and Standard Mail Flats), withAnnual Compliance Determination: Fiscal Year 2010, Postal RegulatoryCommission (Mar. 29, 2011), at Table VII-15 (p. 102) (listing the Fiscal Year 2010volumes for Standard Mail Letters and Standard Mail Flats, showing a one-yearincrease in Standard Mail Letters volume of approximately 1.64 billion pieces anda one-year decrease in Standard Mail Flats volume of approximately .75 billionpieces) (both available on-line at www.prc.gov).
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2009Volume
100
Year
Pro
duc
t
Vo
lume
R
ev
/Pc
Cos
t/Pc
Con
t/Pc
To
tCon
t
To
tal
2009RevenueP
erPiece
36
Flats
100
36
44
-8
-800
2009&2010Co
stPerPiece
44
Letters
700
19
10
9
6300
2010VolumeCh
ange%
-10%
Flats
90
36
44
-8
-720
2010PriceCapAppliedtoFlats
0%
Letters
770
20.2
0714
10
10.2
0714
7
859.5
2009Volume
700
2009RevenueP
erPiece
19
2009&2010Co
stPerPiece
10
2010VolumeCh
ange%
10%
2010PriceCapAppliedtoLetters
5%
2009Volume
100
Year
Pro
duc
t
Vo
lume
R
ev
/Pc
Cos
t/Pc
Con
t/Pc
To
tCon
t
To
tal
2009RevenueP
erPiece
36
Flats
100
36
44
-8
-800
2009&2010Co
stPerPiece
44
Letters
700
19
10
9
6300
2010VolumeCh
ange%
-10%
Flats
90
44.4
5
44
0.4
5
40.5
2010PriceCapAppliedtoFlats
5%
Letters
770
19
10
9
6930
2009Volume
700
2009RevenueP
erPiece
19
2009&2010Co
stPerPiece
10
2010VolumeCh
ange%
10%
2010PriceCapAppliedtoLetters
0%
RESULTS
Flats
Letters
INPUTS
7139.5
5500
2010
2009
Letters
FULLPR
ICECAPAPPLIEDTO
LETTERS
FULLPRICECAPAPPLIEDTO
FLATS
INPUTS
RESULTS
Flats
2009
5500
2010
6970.5
15
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that the entire price increase allowed under the cap is applied to letters while the
second box assumes that the entire price increase is applied to flats. Relatively
simple math demonstrates that increasing the price for standard flats (a product in
decline) while holding the price steady for standard letters (a product with
increasing volume) may result in less class-wide contribution toward attributable
costs at a time when it is common knowledge that the Postal Service can hardly
afford such a course of action.
After considering the comments and reply comments, the PRC concluded
that despite the price cap the Postal Service has pricing and operational
flexibility to increase the cost coverage of Standard Mail Flats but that [i]t has
simply chosen not to utilize that flexibility with respect to Standard Mail Flats.
ACD at 106 (J.A. 44). As a result, the negative contribution per piece continues
to grow. Id. According to the PRC, [t]he Postal Service has lost $1.4 billion in
contribution from Standard Mail Flats over the last three years, which reflects an
unfair and inequitable apportionment of the costs of postal operations to all
Standard Mail users. Id. Based on these reasons, the PRC concluded that the
Standard Mail Flats prices in effect for the 2010 fiscal year do not comply with
section 101(d) of title 39, id., which provides that [p]ostal rates shall be
established to apportion the costs of all postal operations to all users of the mail on
a fair and equitable basis. The PRC, however, did not address the ACMAs
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comments regarding the impact of lower Standard Mail Letter rates on the overall
contribution of the class of Standard Mail toward the Postal Services attributable
costs.
SUMMARY OF THE ARGUMENT
The PRCs directives regarding the cost coverage of the Standard Mail flats
product should be set aside as contrary to law, arbitrary and capricious because
they are contrary to the plain language of the PAEA and inconsistent with other
orders of the PRC. When it enacted the PAEA, Congress decided that each
competitive product should cover its attributable costs, but it provided more
flexibility to the Postal Service regarding market-dominant products.
Market-dominant products need not cover their attributable costs; instead
market-dominant classes must cover their costs, and the individual products within
any given class may or may not do so. Congress was explicit in this regard.
Moreover, price averaging is allowed within classes to meet the overall cap, but is
not allowed between classes. To justify its directive to raise the cost coverage of a
single, market-dominant product, the PRC relied on a vague, standardless policy
statement while at the same time ignoring an entire market-dominant class that
fails to cover its attributable costs. Such an interpretation of the PAEA is
impermissible when the traditional tools of statutory constriction are applied to the
statute. That analysis reveals Congresss clear intent to allow the Postal Service
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the flexibility to price products within a class in the manner that it thinks will
maximize its revenue, even if some products do not individually cover their costs.
The PRCs insistence that a single market-dominant product must exceed
full cost coverage is inexplicable given that the same PRC wrote in a September
2010 order that [t]he concept of product takes on significance in the system for
regulating market dominant services only in areas that are unrelated to price.
Order No. 536, Docket No. RM2009-3, p. 27 n.17 (P.R.C. Sept. 14, 2010). This
failure to be consistent from order to order is the hallmark of a regulator acting in
an arbitrary and capricious fashion.
The PRCs order also exceeds its authority in the context of making its
annual compliance determination. Congress limited the PRCs authority to
enforcing applicable provisions of this chapter [Chapter 36] (or regulations
promulgated thereunder), 39 U.S.C. 3653(b)(1), but the ACD does not conclude
that the pricing for Standard Mail Flats violates any provision of Chapter 36.
Indeed, it could not do so as Chapter 36 does not require market-dominant
products to cover their costs on a product-by-product basis. Instead, the PRC
concluded that the pricing of that product violates a standardless policy statement
in Chapter 1 of Title 39. If Congress had intended for the PRC to enforce the
policy statements in Chapter 1 in the context of the annual compliance
determination, it would have written this title rather than this chapter.
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Moreover, the same section of the PAEA that limits the scope of the PRCs
enforcement authority to Chapter 36 permits the PRC to provide
recommendations to the Postal Service related to the protection or promotion of
public policy objectives set out in this title. 39 U.S.C. 3653(d). That provision
hardly suggests that the PRC may enforce those same policy objectives.
Finally, the PRCs directives regarding the pricing of the Standard Mail
Flats product should be set aside as arbitrary and capricious because the PRC failed
to consider the larger picture of the Postal Services financial condition, even
though one of objectives Congress established for the PRCs modern system for
regulating rates and classes for market-dominant products is [t]o assure adequate
revenues, including retained earnings, to maintain financial stability. 39 U.S.C.
3622(b)(5). In the context of an inflation-based price cap, judgments have to be
made about how to allocate limited pricing flexibility in order to maximize profit
(or contribution to attributable costs). It makes little sense to use a
disproportionate share of the Postal Services limited pricing authority to raise the
prices of a product with a trend of declining volumes. But that is precisely what
the PRC has ordered here, even though the Postal Service exercising its business
judgment has chosen not to do so. It is certainly a possibility that the course of
action mandated by the PRC in the ACD will decrease the amount of contribution
generated by the Standard Mail class of products as a whole. The Postal Services
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goal at this time in its history must be to maximize contribution, not reduce it; it is
unclear why the Postal Services regulator refused to even consider this issue.
That refusal renders the PRCs order regarding Standard Mail Flats arbitrary and
capricious.
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ARGUMENT
I. The PAEA specifically requires that market-dominant productscover their attributable costsby class while simultaneously requiring
each competitive product to cover its own costsby product. Standard
Mail Flats is a product within the market-dominant class of
Standard Mail, not a competitive product, and thus it is not required
by law to cover its own costs; the PAEA requires only that Standard
Mail products cover their costs as a class. Thus the PRCs
conclusion that the Standard Mail Flats product must cover its own
costs is contrary to law, arbitrary and capricious.
A. Standard of ReviewThis Courts review of the PRCs order is governed by the Administrative
Procedure Act, 5 U.S.C. 706. See 39 U.S.C. 3663. The order below thus must
be held unlawful and set aside if, inter alia, it is arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law. 5 U.S.C. 706(2)(A).
B. AnalysisThe PRCs decision regarding the pricing of Standard Mail Flats is based on
the false premise that every market-dominant product must cover its attributable
costs in order to apportion the costs of all postal operations to all users of the mail
on a fair and equitable basis. 39 U.S.C. 101(d). But Congress has already
spoken to this precise issue and reached the opposite conclusion. Instead of
requiring that each market-dominant product cover its attributable costs, Congress
required that each class of market-dominant products cover their attributable costs
as a group. Thus the plain language of the statute recognizes that, within a
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particular class of mail, individual products may cover more or less of their
attributable costs as long as the class as a whole covers at least 100 percent of its
attributable costs. Because the PRCs decision conflicts with the PAEA, it must be
set aside as contrary to law.
When Congress decided to enhance the pricing flexibility of the Postal
Service and restrict the role of the PRC in setting prices, it established a distinction
between competitive products and market-dominant products and established
different rules for pricing the two types of products. See 39 U.S.C. 102(8)&(9)
(defining market-dominant product and competitive product by reference to
the subchapter of Chapter 36 of Title 39 that governs each of the two types of
products). With respect to market-dominant products, the PAEA requires that
each class of mail . . . bear the direct and indirect postal costs attributable to each
class . . . plus that portion of all other costs of the Postal Service reasonably
assignable to such class or type. 39 U.S.C. 3622(c)(2) (emphasis added). In
contrast, Congress decided that the PRC should ensure that each competitive
productcovers its costs attributable. 39 U.S.C. 3633(a)(2) (emphasis added).
Had Congress intended for each individual market-dominant product to
cover its costs, it would have written Section 3622(c)(2) to match Section
3633(a)(2). Because it did not do so, the only conclusion that can be drawn from
the plain language of the statute is that its intention was to provide the Postal
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Service pricing flexibility for products within each market-dominant class of mail.
[W]here Congress includes particular language in one section of a statute but
omits it in another section of the same Act, it is generally presumed that Congress
acts intentionally and purposely in the disparate inclusion or exclusion. United
States v. Wong Kim Bo, 472 F.2d 720, 722 (5th Cir. 1972).
Allowing pricing flexibility within each class of mail is entirely consistent
with one of the purposes of the PAEA. As described above, supra pp. 9-11,
Congress designed the PAEA to provide the Postal Service with increased
flexibility in pricing, as compared to the prior pricing regime. See, e.g., 39 U.S.C.
3622(d)(4), (c)(7); Sen. Rep. No. 108-318 at 8, 10 (2004). Likewise, the PRC has
recognized that increased flexibility is central to the Congressional design of the
PAEA. See, e.g., Order No. 26, Docket No. RM2007-1, p. 78 at 3070 (P.R.C.
Aug. 15, 2007) (The revamped ratemaking under the PAEA is designed to
achieve various goals, principal among them are to afford the Postal Service
enhanced pricing flexibility. . . .) (http://www.prc.gov/Docs/57/57348/RM2007-
1FINAL.pdf). Moreover, the PRCs decision in this case, which elevates the role
of a single product in connection with regulating prices, is strangely at odds with
the PRCs order six months earlier establishing an analytical framework for
workshare discounts in which the PRC stated that [t]he concept of product takes
on significance in the system for regulating market dominant services only in areas
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that are unrelated to price. PRC Order No. 536 at 27 n.17 (Sept. 14, 2010)
(emphasis added).4 As the Postal Service pointed out in the ACR, the PRC
concluded that the product level is not the appropriate level for applying pricing
standards, suggesting instead that the class level is the appropriate level. (J.A. 15-
16). The PRC made no effort to explain how it reached the opposite conclusion
with respect to the Standard Mail Flats product just over six months later, and thus
its decision is arbitrary and capricious in addition to being contrary to law.
Allowing pricing flexibility within each class of market-dominant mail
products is entirely consistent with the structure of the PAEA. As explained
above, the overall increase for each class of mail products that have been
designated as market-dominant products is essentially capped at the level of
inflation. 39 U.S.C. 3622(d)(1)(A). Price averaging is allowed within classes to
meet the overall cap, but is not allowed between classes. 39 U.S.C.
3622(d)(2)(A). It would make little sense to allow price averaging within a class if
Section 101(d) required the Postal Service to ensure that market-dominant products
such as Standard Mail Flats cover their costs on a product-by-product basis
rather than collectively as a class.
4 Order No. 536 is the subject of a separate petition for review argued beforea panel of this Court on September 21, 2011, and still pending as of the date of thefiling of this brief. USPS v. PRC, No. 10-1324 (D.C. Cir.).
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No Chevron deference is owed to the PRCs decision on this issue because
its decision is directly contrary to the plain language of the statute. Under Chevron
U.S.A. Inc. v. NRDC, Inc., 467 U.S. 837 (1984), this Court must first exhaust the
traditional tools of . . . construction to determine de novo whether the statute
unambiguously addresses the matter at issue. Id. at 843 & n.9; S. Cal. Edison
Co. v. FERC, 195 F.3d 17, 23 (D.C. Cir. 1999). The traditional tools of statutory
construction include the statutes text, structure, purpose, and legislative history.
Pharmaceutical Research & Mfrs. of Am. v. Thompson, 251 F.3d 219, 224 (D.C.
Cir. 2001). Where Congress has spoken to the precise question at issue, Wells
Fargo Bank, N.A. v. FDIC, 310 F.3d 202, 205 (D.C. Cir. 2002) (quoting Chevron,
467 U.S. at 842), the inquiry is at an end; the court must give effect to the
unambiguously expressed intent of Congress. FDA v. Brown & Williamson
Tobacco Corp., 529 U.S. 120, 132 (2000) (quoting Chevron, 467 U.S. at 843).
Here, Congress has spoken unambiguously in Sections 3622 and 3633:
competitive products must each cover their own costs; market-dominant products
need not do so individually but must as a class cover the costs attributable to the
class. In these circumstances, the PRCs order requiring the Postal Service to raise
prices so that a single market-dominant product covers its costs is contrary to law,
and this Courts inquiry should be at an end.
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Section 101(d), which was part of the PRA and was not amended by the
PAEA, is a general statement of policy, does not speak to the precise question at
issue, and does not create any ambiguity. Section 101 is titled Postal Policy,
and subsection (d) provides as follows:
Postal rates shall be established to apportion the costs of allpostal operations to all users of the mail on a fair and equitablebasis.
Subsection (d) does not say anything about products market-dominant or
otherwise and it does not in any way suggest that the only way to apportion costs
in a fair and equitable way is for each market-dominant product to cover its
costs.
Even if subsection (d) could be stretched to loosely address market-
dominant product cost coverage, it would not create an ambiguity in Section
3622(c)(2) because the traditional tools of statutory construction require that the
specific controls the general. It is a basic principle of statutory construction that a
statute dealing with a narrow, precise, and specific subject is not submerged by a
. . . statute covering a more generalized spectrum. Radzanower v. Touche Ross &
Co., 426 U.S. 148, 153 (1976); see also Simpson v. United States, 435 U.S. 6, 15
(1978) (Precedence [is given] to the terms of the more specific statute where a
general statute and a specific statute speak to the same concern, even if the general
provision was enacted later.); Morton v. Mancari, 417 U.S. 535, 550-51 (1974)
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(Where there is no clear intention otherwise, a specific statute will not be
controlled or nullified by a general one, regardless of a priority of enactment.)
(cited cases omitted).
Section 3622(c)(2), enacted in 2006, is a specific statute. It explicitly
requires that each class of mail . . . bear the direct and indirect postal costs
attributable to each class . . . plus that portion of all other costs of the Postal
Service reasonably assignable to such class or type. 39 U.S.C. 3622(c)(2)
(emphasis added). Section 101(d), enacted in 1970, is a general policy statement,
and it cannot control or nullify the more specific requirements of Section
3622(c)(2).
In sum, Title 39 requires only that the Postal Service sets prices for its
market-dominant products so that each class of products covers its costs. The
PRCs ACD requires a single market-dominant product in the Standard Mail class
to cover its costs, and it relies on Section 101(d) as authority to do so. Section
101(d), however, provides the PRC with no such authority, and thus this Court
should set aside the PRCs order regarding the Standard Mail Flats product as
contrary to law.
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II. The PRCs authority in the context of reviewing the Postal Services
Annual Compliance Report is limited by 39 U.S.C. 3653 to
determinations that any rates or fees in effect during such year (for
products individually or collectively) were not in compliance with
applicable provisions of [Chapter 36] (or regulations promulgated
thereunder). In the 2010 ACD, the Commission concluded that the
rates for Standard Mail Flats violated 39 U.S.C. 101(d), which is not in
Chapter 36. Thus the PRC exceeded its statutory authority by
concluding that the Postal Services rates violated a policy statement
found outside of Chapter 36.
A. Standard of ReviewThis Courts review of the PRCs order is governed by the Administrative
Procedure Act, 5 U.S.C. 706. See 39 U.S.C. 3663. The order below thus must
be held unlawful and set aside if, inter alia, it is arbitrary, capricious, an abuse of
discretion, or otherwise not in accordance with law. 5 U.S.C. 706(2)(A).
B. AnalysisEven if Section 101(d) required the Postal Service to set the price of the
Standard Mail Flats product so as to cover its attributable costs (which it does not),
the PRC lacked the authority to order the Postal Service to do so in the context of
its Annual Compliance Determination. The PRCs enforcement authority in an
ACD proceeding is limited to the requirements of Chapter 36 of Title 39, and
Section 101(d) appears in Chapter 1 not Chapter 36.
In connection with an annual compliance determination, the PRC has the
authority to take appropriate action in accordance with subsections (c) and (e) of
section 3662 if a timely written determination of noncompliance is made under
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subsection (b). 39 U.S.C. 3653(c). Subsection (b), in pertinent part, requires
the PRC to make a written determination as to . . . whether any rates or fees in
effect during such year (for products individually or collectively) were not in
compliance with applicable provisions of this chapter (or regulations promulgated
thereunder). The words this chapter refer to the chapter in which they appear:
Chapter 36. This makes perfect sense, of course, because the general policy
statements in Section 101 are given definition by the specific requirements of
chapter 36, such as the allocation of institutional costs between the market-
dominant and competitive product groupings and the requirement that market-
dominant classes and competitiveproducts cover their attributable costs. In other
words, Congress authorized the PRC to enforce through the ACD process the
specific requirements of the PAEA in Chapter 36, but not the general, standardless
policy statements of the PRA in Chapter 1 of Title 39.
Moreover, the same section of the PAEA that limits the scope of the PRCs
enforcement authority to Chapter 36 explicitly permits the PRC to provide
recommendations to the Postal Service related to the protection or promotion of
public policy objectives set out in this title. 39 U.S.C. 3653(d). It seems
unlikely that Congress would have thought it necessary to authorize the PRC to
make recommendations regarding the policy objectives of Title 39 in subsection
(d) if it had already given the PRC the authority to enforce those objectives in
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subsections (b) and (c). Indeed, by explicitly authorizing the PRC to make
recommendations to the Postal Service, Congress implicitly prohibited the PRC
from doing more than that. At the very least, subsection (d) provides further
support for the intentional use of the words this chapter rather than this title in
subsection (b). In any event, as noted previously, the general policy of Section
101(d) finds expression in the specific provisions pertaining to cost in Chapter 36;
that is, if rates are in compliance with the specific provisions of Chapter 36, they
cannot fail to be in compliance with general guidance of Section 101(d).
It is no answer to suggest, as the PRC did in the ACD (ACD at 15 (J.A. 37)),
that all of the policies of Title 39 are incorporated within Chapter 36 because those
policies are collectively described as a factor the PRC was to take into account in
establishing or revising [its] system of modern rate regulation in 39 U.S.C.
3622(c)(14). Congress restricted the PRCs authority in the ACD context to
compliance with applicable provisions of this chapter, 39 U.S.C. 3653(b)(1)
(emphasis added), even though the Postal Service is required to report whether all
products . . . complied with all applicable requirements of this title, 39 U.S.C.
3652(a)(1) (emphasis added). The PRCs expansive view of its authority in the
ACD context renders meaningless Congresss choice of the words this chapter,
and therefore violates basic canons of statutory interpretation. See Pillsbury v.
United Eng'g Co.,342 U.S. 197, 199 (1952) (holding that Congress is presumed to
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mean different things when it uses different words); Qi-Zhuo v. Meissner, 70 F.3d
136, 139 (D.C. Cir. 1995) (all words in a statute are to be assigned meaning); see
also Halverson v. Slater, 129 F.3d 180, 185 (D.C. Cir. 1997) (Congress cannot be
presumed to do a futile thing.). If Congress had meant this title in Section
3653, it would have said this title as it did in section 3652.
The PRCs directives regarding the cost coverage for Standard Mail Flats are
based on the purported failure of the current prices to comply with the
requirements of Section 101(d), not the provisions of [Chapter 36] (or regulations
promulgated thereunder). The relevant portion of the ACD does not conclude that
the prices in effect for Standard Mail Flats are inconsistent with any provision of
Chapter 36. It states only that the Commission finds that the prices in effect in
FY 2010 for Standard Flats do not comply with section 101(d) of title 39. ACD at
106 (J.A. 44). There is no reference to any regulation of the PRC, let alone one
promulgated under the provisions of Chapter 36.
Because the PRC lacked the authority to enforce the purported requirements
of Section 101(d) in an Annual Compliance Determination proceeding, this Court
should set aside its attempt to do so as contrary to law.
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III. Under the PAEA, one of the PRCs objectives is [t]o assure adequate
revenues, including retained earnings, to maintain financial stability.
The PRC failed to even address the argument that its decision could
result in the Standard Mail class as a whole making less contribution
toward costs because the volume of flats is decreasing while the volume
of letters is increasing. Thus the PRCs order requiring the Postal
Service to prioritize limited CPI price-cap authority to Standard Mail
Flats without regard to the financial consequences is arbitrary and
capricious.
A. Standard of ReviewThe PRCs directives should be set aside if they are arbitrary, capricious, an
abuse of discretion, or otherwise not in accordance with law. 5 U.S.C.
706(2)(A); see also 39 U.S.C. 3663. An agency action is arbitrary and capricious
if the decision was not based on a consideration of the relevant factors or if there
has been a clear error of judgment. See BowmanTransportation, Inc. v. Arkansas-
Best Freight System, Inc., 419 U.S. 281, 285 (1974) (quoting Citizens to Preserve
Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971). Similarly, an agency action
that is devoid of needed factual support may be struck down as arbitrary or
capricious. Assoc. of Data Processing Serv. Orgs. v. Board of Governors of the
Fed. Reserve Sys., 745 F.2d 677, 683 (D.C. Cir. 1984).
B. AnalysisIt is a matter of public record that the Postal Service is in the midst of a
financial crisis and has been for several years. Thus it seems incredible that the
Postal Services regulator would make decisions without reference to their impact
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on the overall financial condition of the Postal Service, yet that is exactly what the
PRC did when it ordered the Postal Service to increase the cost coverage of the
Standard Mail Flats product through a combination of above-average price
adjustments, consistent with the price cap requirements, and cost reductions until
such time that the revenues for this product exceed attributable costs. ACD at 106
(J.A. 44).
As the ACMA pointed out in its comments, requiring above-CPI increases
for one product within the framework of a cap for a class of mail may not
generate any net-income improvements . . . . ACMA Comments at 8-9 (J.A. 62-
63). As set forth in the Statement of Facts, supra pp. 13-16, there are
circumstances in which such a course of action will actually result in less coverage
of attributable costs for the class of mail. The simple hypothetical example above
shows how that can happen when the price-cap authority is used to raise prices on
a product with decreasing volumes while no price increase is allocated to a product
with increasing volumes. The conclusion is not complicated. If a business is
limited to a certain level of price increases that may be allocated to a basket of
products, maximization of profit (or, in the Postal Service context, contribution)
would usually be best served by allocating the price increase to the product or
products with increasing volumes. That is a business judgment left to the Postal
Service by the PAEA.
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From fiscal year 2009 to fiscal year 2010, the total volume of Standard Mail
Letters increased by approximately 1.64 billion pieces of mail while the volume of
Standard Mail Flats decreased by approximately 750 million pieces. See supra p.
14 n.3. In these circumstances, it makes little sense to apply the most significant
increases in Standard Mail prices to flats rather than letters for several years
running as the PRCs directives contemplate. As the charts above suggest, it is
certainly a possibility that such a course of action will decrease the amount of
contribution generated by the Standard Mail class of products. The Postal
Services goal at this time in its history must be to maximize contribution, not
reduce it.
The failure to address the ACMAs argument or even consider the overall
impact of the Standard Mail Flats order on the Postal Services overall financial
condition satisfies is arbitrary and capricious because the Postal Services financial
condition is, by statute, a relevant consideration. See BowmanTransportation, 419
U.S. at 285. Under the PAEA, one of objectives Congress established for the
PRCs modern system for regulating rates and classes for market-dominant
products is [t]o assure adequate revenues, including retained earnings, to
maintain financial stability. 39 U.S.C. 3622(b)(5).
This Court should set aside the PRCs order regarding the cost coverage of
the Standard Mail Flats product because the PRC failed to even consider a relevant
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factor the impact of the decision on the revenues of the Postal Service and its
financial stability. This failure renders the PRCs order arbitrary and capricious.
CONCLUSION
For the reasons stated, this Court should grant the petition for review and set
aside the PRCs directives relating to the cost coverage of the Standard Mail Flats
product as arbitrary, capricious and contrary to law.
Dated: October 7, 2011 Respectfully submitted,
MARY ANNE GIBBONSExecutive Vice President & General Counsel
/s/ Michael J. ElstonMICHAEL J. ELSTONChief Counsel, Appellate &
Commercial LitigationUnited States Postal Service475 LEnfant Plaza, SWWashington, DC 20260(202) [email protected]
Of Counsel:
R. ANDREW GERMANManaging Counsel, Legal StrategyUnited States Postal Service475 L'Enfant Plaza, SWWashington, D.C. 20260
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CERTIFICATE OF COMPLIANCE
Certificate of Compliance With Type-Volume Limitation,Typeface Requirements, and Type Style Requirements
1. This brief complies with the type-volume limitation of Fed. R. App. P.32(a)(7)(B) because:
X this brief contains 7,792 words, excluding the parts ofthe brief exempted by Fed. R. App. P. 32(a)(7)(B)(iii), or
this brief uses a monospaced typeface and contains linesof text, excluding the parts of the brief exempted by Fed. R. App. P.32(a)(7)(B)(iii).
2. This brief complies with the typeface requirements of Fed. R. App. P.32(a)(5) and the type style requirements of Fed. R. App. P. 32(a)(6) because:
X this brief has been prepared in a proportionally spaced typeface usingTimes New Roman in 14 point , or
this brief has been prepared in a monospaced typeface usingwith .
/s/ Michael J. ElstonAttorney for the U.S. Postal ServiceDated: October 7, 2011
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CERTIFICATE OF SERVICE
I hereby certify that on October 7, 2011, the foregoing brief and its
addendum were electronically filed with the U.S. Court of Appeals for the District
of Columbia Circuit by using the CM/ECF system. I further certify that counsel
for the respondent and intervenors are registered as ECF filers and that they will be
served by the CM/ECF system.
/s/ Michael J. ElstonMICHAEL J. ELSTONOffice of the General CounselUnited States Postal Service475 LEnfant Plaza, SWWashington, DC 20260(202) [email protected]
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