Reese Bros., Inc. v. U.S. Postal Serv.

• Decision Date: 27 November 2012
• Docket Number: Civil Action No. 06–0434 (ESH).
• Citation: 905 F.Supp.2d 223
• Court: U.S. District Court — District of Columbia
• Parties: REESE BROTHERS, INC., Plaintiff/Counterclaim Defendant, v. UNITED STATES POSTAL SERVICE, Defendant/Counterclaim Plaintiff/Third–Party Plaintiff, v. Reese Teleservices, Inc. & The Resources Group, LLC d/b/a/ TRG Holdings, Inc., Third–Party Defendants.

905 F.Supp.2d 223

REESE BROTHERS, INC., Plaintiff/Counterclaim Defendant,

v.UNITED STATES POSTAL SERVICE, Defendant/Counterclaim Plaintiff/Third–Party Plaintiff,

v.Reese Teleservices, Inc. & The Resources Group, LLC d/b/a/ TRG Holdings, Inc., Third–Party Defendants.

Civil Action No. 06–0434 (ESH).

United States District Court, District of Columbia.

Nov. 27, 2012.

Charles H. Nave, Charles H. Nave, P.C., Roanoke, VA, Pittsburgh, PA, Geoffrey W. Peters, Vienna, VA, for Plaintiff/Counterclaim Defendant.

Marian L. Borum, Terri Lynn Roman, U.S. Attorney's Office, Washington, DC, for Defendant/Counterclaim Plaintiff/Third–Party Plaintiff.

Jeffrey B. Balicki, Feldstein Grinberg Stein & McKee, Pittsburgh, PA, for Reese Brothers, Inc. and Third–Party Defendants.

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, District Judge.

Plaintiff Reese Brothers, Inc. (“RBI”) brings this action against the United States Postal Service (“Postal Service” or “USPS”) seeking to set aside a final agency decision that assessed a revenue deficiency against RBI in excess of $3.5 million for improper use of the nonprofit mailing rate (“Final Agency Decision”). RBI also seeks damages for the injury to its business allegedly caused by that decision. The Postal Service filed a counterclaim against RBI to collect the unpaid deficiency, and a third-party claim based on a theory of successor liability against Reese Teleservices, Inc. (“RTI”), which acquired RBI in December 2002, and The Resources Group, LLC (d/b/a TRG Holdings, Inc.) (“TRG”), which now has a controlling interest in RTI.

Before the Court are the parties' cross-motions for summary judgment on all claims.¹ These include: (1) RBI's motion for partial summary judgment on its complaint against the Postal Service (partial only in that it does not include damages) (“RBI Mot.”); (2) the Postal Service's cross-motion for summary judgment on RBI's complaint, on its counterclaims against RBI, and also on its third-party complaint against RTI and TRG (“PS Mot.”); and (3) RTI and TRG's joint motion for summary judgment on the Postal Service's third-party complaint (“RTI/TRG Mot.”).² For the reasons stated herein, RBI's motion will be granted in part and denied in part; the Postal Service's motion will be granted in part and denied in part; and RTI/TRG's motion will be denied. The Final Agency Decision will be upheld except as to the amount of the assessed deficiency, which will be set aside.

BACKGROUND

I. STATUTORY AND REGULATORY BACKGROUND

A. Origins of Reduced Rates for Mail Sent by Qualified Nonprofit Organizations (the “Nonprofit Rate”)³

Congress adopted the first statutory mail classification providing a reduced rate for certain mail sent by qualified nonprofit organizations in 1951. See Act of Oct. 30, 1951, Pub. L. No. 233, § 6, 65 Stat. 672, 673 (1951) (codified at 39 U.S.C. § 4452 (1964)); see also Nat'l Retired Teachers Ass'n v. U.S. Postal Serv., 593 F.2d 1360, 1361 n. 2 (D.C.Cir.1979). When the Postal Reorganization Act (“PRA”) was enacted in 1970, establishing the United States Postal Service as “an independent establishment of the executive branch of the Government of the United States,” it provided that qualified nonprofit organizations would continue to be eligible for a reduced rates.⁴ Postal Reorganization Act, Pub. L. No. 91–375, §§ 201, 3626, 84 Stat. 719, 720, 762–63 (1970) (codified at 39 U.S.C. §§ 201, 3626). The mail classification schedule the Postal Service thereafter adopted included the following provision: ⁵

The nonprofit bulk rate is available for bulk rate third-class mail mailed by qualified nonprofit organizations. A qualified nonprofit organization is a religious, educational, scientific, philanthropic, agricultural, labor, veteran's or fraternal organization or association that is not organized for profit and none of the net income of which inures to the benefit of any private stockholder or individual. Before being entitled to mail at the nonprofit bulk rate, the organization shall furnish proof of its qualifications to the Postal Service.

DMCS § 300.221 (emphasis added).

B. Postal Service Regulations re Use of the Nonprofit Rate

The PRA authorized the new Postal Service “to adopt, amend, and repeal such rules and regulations as it deems necessary to accomplish the objectives of this title.” 39 U.S.C. § 401(2) (1970). It also exempted the Postal Service from chapters 5 and 7 of the Administrative Procedure Act (“APA”). Id. § 410(a) (“no Federal law dealing with public or Federal contracts, property, works, officers, employees, budgets, or funds, including the provisions of chapters 5 and 7 of title 5, shall apply to the exercise of the powers of the Postal Service”). Chapter 5 of the APA, entitled “Administrative Procedure,” generally sets forth the procedural requirements for administrative decision-making, including rulemaking and adjudication. Chapter 7, entitled “Judicial Review,” generally sets forth the requirements for and scope of judicial review of administrative decisions.

In 1975, the Postal Service issued a regulation that “define[d] the conditions under which nonprofit organizations qualified for special third-class mailing privileges under [DMCS § ] 300.221.” Nat'l Retired Teachers, 593 F.2d at 1361;see40 Fed. Reg. 37,209 (Aug. 26, 1975). In relevant part, that regulation provided:

An organization authorized to mail at the [nonprofit] rates for qualified nonprofit organizations may mail only its own matter at these rates. An organization may not delegate, or lend the use of its permit to mail at [nonprofit] rates to any other person, organization, or association. Cooperative mailings may not be made at the [nonprofit] rates for qualified nonprofit organizations if one or more of the cooperating persons or organizations is not entitled itself to the special rates. Cooperative mailings involving the mailing of matter in behalf of or produced for an organization not authorized to mail at the [nonprofit] rates for qualified nonprofit organizations must be paid at the applicable regular rate....

Postal Service Manual § 134.57. In 1979, the Court of Appeals for the District of Columbia Circuit upheld this regulation as “a valid exercise by [the Postal Service] of its authority to interpret the mail classification schedule established by the PRC,” specifically the requirement that the mail matter be “mailed by qualified nonprofit organizations.” Nat'l Retired Teachers, 593 F.2d at 1361 n. 2, 1364.⁶

The regulation was carried over without substantive change to the Domestic Mail Manual (“DMM”),⁷ although it was subdivided into two parts within a subsection entitled “Eligible Matter.” See DMM § 625.5. The first part, entitled “Matter of Eligible Organizations,” stated:

An organization authorized to mail at the [nonprofit] rates may mail only its own matter at these rates. An organization may not delegate, or lend the use of its authorization to mail at the [nonprofit] rates to any other person or organization.

DMM § 625.51. The second part, entitled “Cooperative Mailings,” stated:

Cooperative mailings may not be made at the [nonprofit] rates for qualified nonprofit organizations if one or more of the cooperating persons or organizations is not entitled itself to the special rates. Cooperative mailings involving the mailing of matter in behalf of or produced for an organization not authorized to mail at the [nonprofit] rates for qualified nonprofit organizations must, be paid at the applicable regular rate....

DMM § 625.52. In 1981, the Postal Service amended DMM § 625.52 “to clarify that a cooperative mailing may be made at the [nonprofit] rates by two or more nonprofit organizations only when each of the cooperating organizations is authorized to mail at the special rates at the post office where the cooperative mailing is deposited.” 46 Fed. Reg. 25,090 (May 5, 1981) (emphasis added).⁸ Thereafter, and throughout the time period relevant to this case, DMM § 625.52 provided:

Cooperative mailings may be made at the special bulk rates only when each of the cooperating organizations is individually authorized to mail at the [nonprofit] rates at the post office where the mailing is deposited. Cooperative mailings involving the mailing of any matter in behalf of or produced for an organization not itself authorized to mail at the [nonprofit] rates at the post office where the mailing is deposited must be paid at the applicable regular rates....

DMM § 625.521.⁹

C. Responses to Perceived Misuse of the Nonprofit Rate

1. Postal Service

In 1989 and 1990, the Postal Service issued several lengthy interpretive rulings to further define its “cooperative mailing” regulation.¹⁰ First, in July 1989, the PostalService issued Customer Support Ruling, PS–209.¹¹ ( See PS Mot., Ex. H (“PS–209”).) In relevant part, PS–209 provided:

The term “Cooperative Mailing” refers to mailings made at the [nonprofit rate] in which one or more parties “cooperate” with the authorized permit holder....

Under [the applicable rules], the mailing must be owned by the authorized nonprofit entity at the time of mailing in order to be mailed at the special rates. A cooperative mailing may be considered proper if the authorized organization uses a for-profit entity (or other unauthorized entity) as an agent.

The mailer must be able to show, however, that the relationship is a legitimate principal/agent relationship in order to use the special rates. Mailings may not be sent at the special rates if made in conjunction with or in support of a venture of an unauthorized entity or a joint venture between authorized and unauthorized entities even if it is claimed that the mail matter itself is “owned” by the authorized entity.

An examination of the mailing piece is not sufficient for a determination that the cooperative mailing is not acceptable at the special rate. Instead, it is necessary to determine the relationship between all of the participating entities. This requires a review of all contracts...