Combined Communications Corp. v. U.S. Postal Service

• Decision Date: 15 December 1989
• Docket Number: 88-5819,Nos. 88-5817,s. 88-5817
• Citation: 891 F.2d 1221
• Parties: COMBINED COMMUNICATIONS CORPORATION; Nashville Banner Publishing Company, Plaintiffs-Appellants Cross-Appellees, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee Cross-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1221

891 F.2d 1221

COMBINED COMMUNICATIONS CORPORATION; Nashville Banner

Publishing Company, Plaintiffs-Appellants Cross-Appellees, v. UNITED STATES POSTAL SERVICE, Defendant-Appellee Cross-Appellant.

Nos. 88-5817, 88-5819.

United States Court of Appeals, Sixth Circuit.

Argued March 31, 1989.

Decided Dec. 15, 1989.

William R. Willis, Jr., Willis & Knight, Nashville, Tenn., Timothy J. May, David C. Todd (argued), David J. Farber, Patton, Boggs & Blow, Washington, D.C., Lawrence J. Aldrich, Gannett Co., Inc., Arlington, Va., Alan Marx, King & Ballow, Nashville, Tenn., for plaintiffs-appellants cross-appellees.

John L. DeWeerdt (argued), Asst. Gen. Counsel, U.S. Postal Service, Washington, D.C., Joe B. Brown, U.S. Atty., James C. Thomason, III, Asst. U.S. Atty., Nashville, Tenn., Grayson M. Poats, Assoc. Gen. Counsel, Joseph F. Wackerman, U.S. Postal Service, Washington, D.C., for defendant-appellee cross-appellant.

Before MARTIN, KRUPANSKY and MILBURN, Circuit Judges.

BOYCE F. MARTIN, Jr., Circuit Judge.

Combined Communications Corp. and the Nashville Banner Publishing Co. appeal the judgment of the district court denying them a postal refund for the payment of third-class rates for second-class mail. The United States Postal Service appeals the judgment of the district court finding its promulgation and implementation of Domestic Mail Manual § 425.226 to be an ultra vires act. For the reasons stated below we affirm the judgment of the district court.

I. FACTUAL BACKGROUND

In 1986 Combined Communications Corp., a subsidiary of Gannett Co., Inc., published a newspaper, The Tennessean, seven days a week with two issues on Wednesday. Also during this time, the Nashville Banner Publishing Co. published its newspaper, The Nashville Banner, six days a week with two issues on Wednesday. The second issue for each paper on Wednesday was a "Plus" issue of the newspaper. A "Plus" issue is a market coverage publication which consists almost entirely of advertising. Combined Communications and Nashville Banner Publishing distributed these "Plus" issues to nonsubscribers through use of the Postal Service's second-class mail rates. Second-class provides lower rates, better service and more prestige than do classes of a greater number.

Classification of mail items within the various postage rates is determined by the procedures established by Congress under the Postal Reorganization Act of 1970, 39 U.S.C. § 101 et seq. This legislation created the United States Postal Service as an independent establishment of the executive branch of government with broad statutory powers. Congress provided for these powers to be directed by an eleven member Board of Governors. See 39 U.S.C. § 202. Although ultimate authority for ratemaking and mail classification is vested in the Board, 39 U.S.C. § 3621, the primary responsibility for establishing classifications and rates rests with the Postal Rate Commission. See 39 U.S.C. §§ 3601-3604.

The Postal Rate Commission, like the Service, is an independent establishment of the executive branch. Congress intended the Commission to be both fully independent of the Board and an integral part of the Service. Congress achieved a balance between these conflicting goals in the comprehensive ratemaking and classification procedures articulated in the statute. See 39 U.S.C. §§ 3621-3625. Under these procedures, the Postal Service may request the Postal Rate Commission to submit, or the Commission may submit of its own accord a recommended decision concerning changes in the classification of mail to the Board of Governors. See 39 U.S.C. § 3623. Such a recommended decision may follow the disposition of a complaint filed by a party who believes that the Service is incorrectly charging rates for some postage. See 39 U.S.C. § 3662. Regardless of the impetus for a recommendation, the Commission may not recommend a decision to the Board until an opportunity for a hearing on the record is held in compliance with §§ 556-557 of the Administrative Procedure Act, 5 U.S.C. §§ 556-557. See 39 U.S.C. §§ 3624, 3662. The Board may approve the Commission's recommendation, allow it under protest, reject it or modify it. 39 U.S.C. § 3625. The various classifications of mail are codified in the Domestic Mail Classification Schedule found at 39 C.F.R. § 3001, Subpt. C, App. A. A decision by the Board may ultimately be appealed to the appropriate United States Court of Appeals. See 39 U.S.C. § 3628.

On December 27, 1984, Advo-System Inc., a large volume mailer of third-class bulk mail, filed a complaint with the Commission pursuant to 29 U.S.C. § 3662. Advo asked the Commission to review the rates charged to newspapers for mailing "Plus" issues to non-subscribers at second-class rates. Following an administrative hearing, the Commission concluded that "Plus" issues were not properly characterized as issues of daily newspapers and that they must independently qualify for second-class rates. In its recommended decision to the Board, the Commission proposed the addition of § 200.0123 to the Domestic Mail Classification Schedule. On March 3, 1986, the Board approved this recommendation. It provides:

For purposes of determining second-class eligibility and postage ... an "issue" of a newspaper or other periodical shall be deemed a separate publication if:

a. It is published at a regular frequency on the same day as another regular issue of the same publication, and

b. It is distributed to more than (i) 10 percent nonsubscribers, or (ii) twice as many nonsubscribers as the other issue on that same day, whichever is greater.

Such separate publications must independently meet the qualifications in section 200.0101 through 200.0109, or 200.0110.

39 C.F.R. § 3001, Subpt. C, App. A, § 200.0123 (1988). Because Domestic Mail Classification Schedule § 200.012 provides that "[p]ublications designed primarily for advertising purposes ... do not qualify for second-class privileges," 39 C.F.R. § 3001, Subpt. C, App. A, § 200.012, "Plus" issues deemed to be separate publications would in all likelihood be denied second-class rates.

To avoid the costly effects of this amendment to the Domestic Mail Classification Schedule, Combined Communications and Nashville Banner Publishing adjusted their publication schedules so that their respective "Plus" issues would not be published on the same day as any regular issue. On June 2, 1986, Combined Communications changed The Tennessean's frequency of publication from seven to six days per week. It then established a new publication, The Sunday Tennessean, for what used to be The Tennessean's Sunday issue. A "Plus" issue of The Sunday Tennessean was also published on Wednesday to replace the The Tennessean's Wednesday "Plus" issue. Prior to June 2, 1986, The Nashville Banner had been published on a Monday through Saturday schedule with two issues on Wednesday, one of which was a "Plus" issue. On June 2, 1986, The Nashville Banner became a daily newspaper with its "Plus" issue now published on Sunday instead of Wednesday. Initially, the Service questioned the second-class eligibility of these issues so that the third-class rates were charged for these publications. The Service later recognized that these issues were eligible for second-class rates under Domestic Mail Classification Schedule § 200.0123, and the excess postage paid was refunded.

On July 15, 1986, the Postal Service decided to change this state of affairs. It published for comment in the Federal Register an interim rule amending the Domestic Mail Manual. The Domestic Mail Manual is a detailed set of regulations which interpret and implement the Domestic Mail Classification Schedule and is incorporated by reference in 39 C.F.R. § 111.1. Interim Domestic Mail Manual § 425.226, the proposed amendment, provided:

An "issue" of a newspaper or other periodical shall also be deemed to be a separate publication ... and must independently meet the applicable second-class eligibility qualifications ... when ...:

a. The issue is published at a regular frequency, such as once a week, and

b. more than 10 percent of the total number of copies of the issue are distributed to recipients that do not subscribe to it, and

c. the number of copies of the issues distributed through the mails is more than twice the number of copies of any other single issue of the parent publication distributed through the mails during the same week.

51 Fed.Reg. 25,526 (July 15, 1986).

On August 21, 1986, four newspapers, including The Tennessean and The Nashville Banner, filed a complaint with the Postal Rate Commission. They complained that the Postal Service violated the procedures mandated by 39 U.S.C. § 3623 by effectively changing the Domestic Mail Classification Schedule through interim Domestic Mail Manual § 425.226 without a recommended decision by the Commission.

The Service published and adopted a revised version of Domestic Mail Manual § 425.226 on September 22, 1986. This final version of Domestic Mail Manual § 425.226 provided:

An "issue" of a newspaper or other periodical shall also be deemed to be a separate publication ... and must independently meet the applicable second-class eligibility qualifications ... when ...:

a. the "issue" is published at a regular frequency, such as once a week, but not on the same day as another regular "issue" of the same publication, and

b. more than 10 percent of the total number of copies of the "issue" are distributed on a regular basis, more frequently than once each month, to recipients that do not subscribe to it, and

c. the number of copies of the "issue" distributed to nonsubscribers is more than twice the number of any other regular issue distributed to nonsubscribers during the same week.

51 Fed.Reg. 33,610 (September 22, 1986) (emphasis added). The combined effect of final Domestic Mail Manual § 425.226 and Domestic Mail Classification Schedule § 200.0123 is to deny second-class eligibility to "Plus"...