DIRECT MAIL/MARKETING ASS'N v. US Postal Service, 82 Civ. 5208 (PNL).

• Decision Date: 21 January 1983
• Docket Number: No. 82 Civ. 5208 (PNL).,82 Civ. 5208 (PNL).
• Citation: 555 F. Supp. 816
• Parties: DIRECT MAIL/MARKETING ASSOCIATION, INC., Plaintiffs, v. UNITED STATES POSTAL SERVICE, Defendant.
• Court: U.S. District Court — Southern District of New York

555 F. Supp. 816

DIRECT MAIL/MARKETING ASSOCIATION, INC., Plaintiffs, v. UNITED STATES POSTAL SERVICE, Defendant.

No. 82 Civ. 5208 (PNL).

United States District Court, S.D. New York.

January 21, 1983.

Dana T. Ackerly, Covington & Burling, Washington, D.C., for plaintiffs.

Frances G. Beck, Associate Gen. Counsel, David R. Straus, Washington, D.C., for intervenors, Advertisers Distribution Service.

OPINION AND ORDER

LEVAL, District Judge.

This is an action by Direct Mail/Marketing Association (DMMA), an organization representing bulk mail customers of the United States Postal Service, challenging the implementation under 39 U.S.C. § 3641 of temporary rates for third class bulk mail. Advertisers Distribution Services and Advertisers Postal Service Corp., representing competitors of the Postal Service in the handling of bulk mail, have intervened as defendants in support of the temporary rates promulgated. Both sides move for summary judgment.

FACTS

A. Background

Defendant, the United States Postal Service, is an independent establishment of the executive branch of the United States Government. 39 U.S.C. § 201. Among the postal services it provides is the distribution of third class bulk rate regular (BRR) mail, which consists primarily of advertising circulars, catalogues and the like. BRR mail receives lower priority service than first class mail and must be presorted by the mailer. More finely presorted mail benefits from lower rates.

Plaintiff DMMA, with some 2600 members, is the largest organization of firms engaged in marketing by mail. Its members are substantial users of BRR mail. Intervenors represent firms which compete with the Postal Service in the handling and delivery of bulk mailings.

This action is a round in the protracted battle over the fifth general ratemaking proceedings under the Postal Reorganization Act, 39 U.S.C. §§ 101 et seq. (the Act). Under the Act, the Postal Service is managed by its Board of Governors (the Board), which consists of nine Governors, the Postmaster General and the Deputy Postmaster General. 39 U.S.C. § 201.¹ Key ratemaking decisions, however, are entrusted to the Governors, whose decisions are then implemented by the Board of Governors. § 3625.

Responsibility for postal ratemaking under the Act is divided between the Postal Service and the Postal Rate Commission (the PRC).²See Newsweek, Inc. v. United States Postal Service, 663 F.2d 1186, 1190-91 (2d Cir.1981), cert. granted, 456 U.S. 925, 102 S.Ct. 1969, 72 L.Ed.2d 439 (1982). The procedure for establishing permanent rates begins with a detailed and specific "request" from the Postal Service to the PRC under 39 U.S.C. § 3622(a) and 39 C.F.R. § 3001.54. The PRC then conducts hearings and responds with a "recommended decision." §§ 3622(b) & 3624. The Governors may then "approve, allow under protest, reject, or modify" the PRC's recommended decision. 39 U.S.C. § 3625(a). If they choose any course other than approval, the Act provides procedures they must follow to establish valid permanent rates. The Governors' decisions under § 3625 are reviewable directly by the courts of appeals under § 3628.

The Act also establishes procedures for changes in the mail classification schedule. 39 U.S.C. § 3623.

The issue here does not relate to permanent BRR rates under § 3625, but to temporary BRR rates. When the PRC fails to transmit a recommended decision on a request from the Postal Service, § 3641 gives the Board of Governors power to establish temporary rates. This power is limited in several ways. Temporary rates must be "in accordance with the proposed changes under consideration by the PRC" (subsection (a)), and they must not exceed the permanent rates requested by the Postal Service (subsection (c)). Most importantly, as to this case, subsection (b) provides:

Any temporary rate or fee established by the Postal Service under subsection (a) of this section shall be in accordance with the policies of this title and shall not exceed such amount as may be necessary for sufficient revenues to assure that the total estimated income, including appropriations, of the Postal Service shall, to the extent practicable, be equal to the total estimated costs of the Postal Service.

The temporary rates must expire within 150 days after the PRC transmits its recommended decision (subsection (d)).

B. The genesis of the BRR rates

The fifth general ratemaking proceeding began in April, 1980, when the Postal Service asked the PRC for a recommended rate change covering virtually all classes of mail, including BRR. Request of the United States Postal Service, Postal Rate Commission Docket R80-1 (the "Request"). This Request proposed new BRR rates (the "requested BRR rates") which were substantially higher than those then in force (the "1980 BRR rates"). The Service included among the voluminous documents supporting its Request (see Newsweek, supra, 663 F.2d at 1191 & n. 3) witness testimony and documents directed specifically at the BRR rates. See, e.g., Request, testimony of Don S. Allen, at 16-19, 93-116; id., testimony of George S. Tolley, at 39-49. The Request also asked for new classifications for some types of mail, but not for BRR.

The PRC then conducted a proceeding in which more than 50 parties, including DMMA, intervened and more than 90 witnesses testified. On February 19, 1981 it transmitted its Opinion and Recommended Decision in Docket No. R80-1 ("First RD"). The First RD included BRR rates that were predicated on a change in the existing classification. Under the existing classification, a mailer pays either a per-pound charge or a minimum-per-piece charge, whichever is greater. This structure means that light pieces pay the minimum-per-piece rate, while heavier pieces pay the per-pound rate. The PRC recommended instead that BRR be divided into light-weight and heavy-weight categories, and it recommended different rates for each.

On March 10, 1981 the Governors issued a Decision of the Governors of the United States Postal Service on Rates of Postage and Fees for Postal Service (the "First Decision"). It rejected the PRC's First RD. Among its features which the Governors found objectionable were the PRC's use of the Service-Related Cost (SRC) method for assigning costs to classes of mail, its reduction of the Service's estimate of its revenue requirements, and its classification change for BRR mail. As to the BRR rates recommended by the PRC, the Governors found that the PRC had failed to recommend rates since the recommendations were based on a classification change which the Board considered unauthorized. The Governors therefore ordered the Service to institute temporary rates under § 3641 (the "March BRR rates") and asked the PRC to recommend new rates based on the existing classifications.³

There followed a new exchange between the PRC and the Governors. On June 4, 1981 the PRC reiterated most of its earlier proposals, including those regarding BRR rates (the "Second RD"). The Governors rejected the recommendations anew on June 29, 1981 (the "Second Decision").

On September 17, 1981 the PRC again reiterated the same recommendations (the "third RD"). On September 29, 1981 the Governors again refused the PRC's recommendations, but this time promulgated new permanent rates for all classes of mail, including BRR, which were then implemented by the Postal Service.⁴ In so doing the Governors acted under authority of § 3625(d), which allows them to "modify" rates recommended by the PRC. Their decision incorporated by reference the earlier Governors' arguments against the PRC's methodology and revenue determination and referred repeatedly to the Service's original request. As to BRR rates, the Governors stated:

For third-class mail, we are generally ordering into effect the rates which the Postal Service proposed in April 1980.

... The Commission has now, for the third time, recommended to us rates which both we and the Court have found to be incompatible with the structure of third-class bulk mail. ... The rates to which we are modifying are consistent with the existing classification structure approved by us and are fully supported by evidence on the record. They accurately reflect the actual costs of handling the mail while at the same time they make a substantial contribution to the recovery of institutional costs.

The rates to which we are modifying third-class bulk mail are different from those originally proposed by the Postal Service in one respect. This alteration is incorporated from the Commission's recommendations.

Decision of the Governors of the United States Postal Service on Rates of Postage and Fees for Postal Service, September 29, 1981 (the "September 1981 Decision"), at 19-21.⁵

Meanwhile, the Second Circuit Court of Appeals had been considering various challenges to the rates put into effect in March 1981 for all classes of mail. On November 2, 1981 it issued its decision. Newsweek, Inc. v. United States Postal Service, 663 F.2d 1186 (2d Cir.1981), cert. granted, 456 U.S. 925, 102 S.Ct. 1969, 72 L.Ed.2d 439 (1982). The Newsweek decision held first that the costing methodology which had been imposed on the PRC by a decision of the D.C. Circuit,⁶ although possibly appropriate, was not required by the Act. Newsweek also held that the PRC had exceeded its authority in basing its recommendations on a lowered estimate of Postal Service revenue requirements. Finally, Newsweek upheld the Postal Service's use of its temporary rate authority for the March BRR rates.

The PRC recommended third class bulk rates which were inconsistent with the existing classification schedule .... The Board properly disregarded these changes which were, legally and practicably speaking, impossible to implement. Once these changes were disregarded, the Board acted properly in filling the gaps by establishing temporary rates pursuant to its authority under Section 3641(a).

663 F.2d at 1206-07 (footnote omitted). See...