The Enterprise, Inc. v. U.S., 86-3919

• Decision Date: 24 November 1987
• Docket Number: No. 86-3919,86-3919
• Citation: 833 F.2d 1216
• Parties: , 14 Media L. Rep. 2153 THE ENTERPRISE, INC., Petitioner, v. The UNITED STATES of America, United States Postal Service, Respondents, Association of Business Publishers; the Magazine Publishers Association; the American Newspaper Publishers Association; and National Newspaper Association, Intervenors-Respondents.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1216

833 F.2d 1216

56 USLW 2314, 14 Media L. Rep. 2153

THE ENTERPRISE, INC., Petitioner, v. The UNITED STATES of America, United States Postal Service Respondents Association of Business Publishers; the Magazine Publishers Association; the American Newspaper Publishers Association; and National Newspaper Association, Intervenors-Respondents.

No. 86-3919.

United States Court of Appeals Sixth Circuit.

Argued Aug. 20, 1987.

Decided Nov. 24, 1987.

Buddy D. Perry, argued, Winchester, Tenn., David A. Marlowe, for petitioner.

Frances G. Beck, Assoc. Gen. Counsel, Office of Rate & Classification Law, Washington D.C., Stanley F. Mires, Assoc. Gen. Counsel, Rate Application Div., Washington, D.C., Robert V. Zener, argued, Appellate Staff, Civ. Div., Dept. of Justice, Washington, D.C., for respondents.

Stephen M. Feldman, Wyatt & Saltzstein, Publishers, Washington, D.C., Robert A. Saltzstein, for Assoc. of Business Publishers.

David Minton, Washington, D.C., for Magazine Pub. Assoc.

Robert J. Brinkman, Gen. Counsel, Washington, D.C., for National Newspaper Assoc.

W. Terry Maguire, Tonda F. Rush, Washington, D.C., for American Newspapers Publishers Assoc.

Before GUY and BOGGS, Circuit Judges; and SUHRHEINRICH, District Judge. ^*

RALPH B. GUY, Jr., Circuit Judge.

This appeal presents the question of whether the United States Postal Service's (USPS) "paid-subscriber rule," compliance with which allows a publisher to qualify for more favorable second-class mailing rates, violates the first and fifth amendments to the Constitution. Because we agree with the conclusion of the Postal Service's Board of Governors that it does not, its decision will be affirmed.

I. Procedural History

Initially, the petitioner, The Enterprise, Inc. (Enterprise), publisher of a free publication mailed without request to over 18,000 homes in several rural counties in Tennessee, filed suit in federal district court challenging the constitutionality of two USPS regulations (commonly known as the paid subscriber rule) which set eligibility requirements for subsidized second-class mailing privileges. The District Court for the Eastern District of Tennessee upheld the Enterprise's constitutional challenge and ordered that the Enterprise be granted second-class mailing privileges. The Enterprise, Inc. v. Bolger, 582 F.Supp. 228 (E.D.Tenn.1984). On appeal by the Postal Service, this court vacated the judgment of the district court on the ground that 39 U.S.C. Sec. 3628 mandated that petitioner's challenge be first pursued through administrative channels. The Enterprise, Inc. v. Bolger, 774 F.2d 159, 161 (6th Cir.1985) (Enterprise I). Upon review of the legislative history of the Postal Reorganization Act of 1970, 39 U.S.C. Secs. 101-5605, we held that even constitutional questions must be raised initially at the agency level and that direct review of the agency's ruling was properly sought only in the court of appeals. Id. See 39 U.S.C. Sec. 3628 ("A decision of the Governors to approve, allow under protest, or modify the recommended decision of the Postal Rate Commission may be appealed to any court of appeals of the United States ...").

II. Administrative Proceedings

Following dismissal, the Enterprise pursued its claims before the Postal Rate Commission (PRC), an independent executive body charged with recommending appropriate postal rates, fees, and mail classifications to the USPS Board of Governors. See generally 39 U.S.C. Secs. 3601-3625. The PRC acts as a factfinding body and, as such, is required to extend an opportunity for a full hearing to all involved parties prior to issuing its recommended decision. 39 U.S.C. Sec. 3624. The Board of Governors retains final authority to approve, reject, or modify a PRC recommendation. 39 U.S.C. Sec. 3625.

The case was submitted to the PRC on stipulated facts, which were that the Enterprise is a weekly newspaper and is mailed free of charge to approximately 18,000 homes in several rural counties in Tennessee. Prior to initiating these proceedings, the Enterprise was mailed at third-class bulk rates. Its publisher was told by the local postmaster that an application for second-class rates would be futile since the publication is mailed free of charge to its recipients without request. One of the requirements for a publication's entry to second-class mail status is that it have a "legitimate list of subscribers." This requirement has been refined and clarified in postal regulations as requiring that over fifty percent (50%) of the copies of a periodical be sent to persons paying or promising to pay at a rate above nominal for a stated period of time. Second-class rates are generally available for periodical publications meeting this and other requirements. The rate is complex, varying by weight, destination, level of presortation, and proportion of nonadvertising matter. In general, for most publications, the second-class rate is less costly than alternative first and third-class rates.

Throughout its history, second-class rates have been subsidized. Since the Postal Reorganization Act of 1970, this subsidy is being phased out, but it remains in effect for certain limited categories, including publications mailed for delivery within the county of publication. However, even for publications not qualifying for this "in-county" subsidy, the second-class rate is typically more favorable than first or third class.

In the PRC proceedings, the Enterprise adopted the legal arguments contained in the brief of an earlier filed and nearly identical case, Tri-Parish Journal, Inc., No. C85-2. Therefore, several of the Enterprise's arguments were most fully addressed in the PRC's recommended decision in the Tri-Parish case, and that decision was referenced frequently by the PRC in its decision in the case at bar. The PRC found the applicable first amendment law to require that the challenged regulations be content neutral, narrowly tailored to serve a significant governmental interest, and leave open alternative channels of communication. Since no question had been raised as to the regulations' content neutrality, the PRC assessed the availability of alternative channels of communication and found that the use of third-class or an alternate second-class "requester" status (whereby second-class status is conferred by virtue of fifty percent (50%) or more of a periodical's copies being requested by its recipients, despite the fact that the publication is free) satisfied the criteria. The PRC also concluded that, although neither of these options would permit it the preferred in-county rates, the Enterprise did not have a constitutional right to government "subsidies." Finally, with respect to the presence of a significant governmental interest, the PRC found that the valid governmental purpose here was to restrict the advantageous second-class rate to informational publications objectively demonstrated to be of value to the recipient. Since review of the legislative history of the second-class revealed that other mechanisms had proved unsuccessful in restricting publications to those containing primarily public information as opposed to advertising, the PRC found that the paid-subscriber rule functioned effectively as the least restrictive means of achieving second-class objectives.

In its recommended decision, the PRC also considered the Enterprise's contention that it should receive a second-class subsidy because it is a newspaper:

In [Tri-Parish ], we discussed the concern of the parties that "newspaperness" is insufficient as a measure of the "worthiness" of a publication for eligibility to second-class. For instance, in Tri-Parish, the parties had competing views on whether that publication qualified as a legitimate newspaper, based on testimony about issues such as the proportion of advertising content and the editorial and management practices of Tri-Parish. The debate among the parties highlighted, in our view, the difficulties with such a largely subjective standard. Even though we do not have similar testimony about the practices and/or content of The Enterprise, our prior conclusion that the quality of being a "newspaper" fails to provide a meaningful criterion for second-class eligibility, is just as appropriate here.

The Commission concluded:

[T]he paid subscriber rule [is] an "objective" standard which avoids assessments of quality by Postal Service personnel and thereby complies with the Constitution: "[The current rule] avoids the need for judging motives, and addresses the objectively demonstrated desires of the public, as shown in willingness to purchase, or request, any particular publication." Tri-Parish, PRC Op. C85-2 at p 510. This reasoning also is applicable to this case, and we reaffirm our conclusion in Tri-Parish that "newspaperness" is inadequate for assessing second-class eligibility.

In Tri-Parish, the Board of Governors had approved the PRC's recommended decision, commenting that Tri-Parish's suggested alternative to the paid-subscriber rule--that a board of journalism experts be set up to review second-class mailing permit applications and approve those which the board found to be submitted by legitimate "newspapers"--would present considerably more substantial first amendment problems, since it would necessarily involve subjective, content-based determinations. Since the Enterprise had not presented any new arguments in support of its position, aside from the fact that its status as a bona fide "newspaper" was not contested, the Board approved the PRC's recommendation to retain the paid-subscriber rule and thereby continue the use of an objective test for determining a publication's value to the consuming public as a prerequisite for enjoyment of second-class mailing privileges.

III. Origin and History of the Paid Subscriber Rule

The paid-circulation requirement was first established by Congress in 1879. In that year, Congress repealed all laws relating to...