United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 7, 2010 Decided April 17, 2012
No. 11-1117
UNITED STATES POSTAL SERVICE,
PETITIONER
v.
POSTAL REGULATORY COMMISSION,
RESPONDENT
AMERICAN CATALOG MAILERS ASSOCIATION, ET AL.,
INTERVENORS
On Petition for Review of an Order
of the Postal Regulatory Commission
Michael J. Elston, Chief Counsel, U.S. Postal Service,
argued the cause and filed the briefs for petitioner.
William D. Blakely, Lauren P. DeSantis-Then, and
William E. Quirk were on the briefs for intervenor American
Catalog Mailers Association in support of petitioner.
Abby C. Wright, Attorney, U.S. Department of Justice,
argued the cause for respondent. With her on the brief were
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Tony West, Assistant Attorney General, Michael S. Raab,
Attorney, Stephen L. Sharfman, General Counsel, Postal
Regulatory Commission, R. Brian Corcoran, Deputy General
Counsel, and Katrina R. Martinez, Attorney.
William J. Olson, John S. Miles, Herbert W. Titus, and
Thomas W. McLaughlin were on the brief for intervenors L.L.
Bean, Inc., et al. in support of respondent.
Before: GARLAND and GRIFFITH, Circuit Judges, and
WILLIAMS, Senior Circuit Judge.
Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
WILLIAMS, Senior Circuit Judge: As amended by the
2006 Postal Accountability and Enhancement Act (“PAEA”),
title 39 of the U.S. Code requires the United States Postal
Service to submit to the Postal Regulatory Commission,
within 90 days of the end of each fiscal year, a financial report
that “analyze[s] costs, revenues, rates, and quality of
service . . . in sufficient detail to demonstrate that all products
during [that] year complied with all applicable requirements
of this title.” 39 U.S.C. § 3652(a). After a period for public
comment, the Commission must issue an order determining
“whether any rates . . . in effect during [that] year (for
products individually or collectively) were not in compliance
with applicable provisions of this chapter,” and may direct the
Postal Service to remedy any violations. See id. § 3653(b)(1).
Fulfilling these duties, the Commission issued its 2010
Annual Compliance Determination (“ACD”), finding in part
that the rates for a particular product—Standard Mail Flats, a
subset of Standard Mail—were in violation of 39 U.S.C.
§ 101(d)’s mandate that “[p]ostal rates shall be established to
apportion the costs of all postal operations to all users of the
3
mail on a fair and equitable basis.” See Annual Compliance
Determination Report for Fiscal Year 2010, available at
http://www.prc.gov/Docs/72/72382/PRC_ACD_2010.pdf, at
106. Because the revenues from Standard Flats fell
significantly short of the product’s costs, a deficit that had
only increased in recent years, the Commission determined
that current rates “reflect[ed] an unfair and inequitable
apportionment of the costs of postal operations of all Standard
Mail users,” contrary to the demands of § 101(d). Id. In the
Commission’s view, the persistent losses incurred by Standard
Flats amounted to a subsidy of Flats at the expense of other
Standard Mail products (and their customers), whose rates it
saw as being artificially inflated in order to make up the
difference. In order to remedy the violation, the Commission
ordered the Postal Service to “increase the cost coverage” for
Standard Flats “until such time that the revenues for this
product exceed attributable costs.” Id.
The Postal Service seeks review of this determination,
arguing that the PAEA does not permit reliance on 39 U.S.C.
§ 101(d) for purposes of the ACD, and that the determination
regarding Standard Flats was otherwise arbitrary and
capricious. We think that the Commission acted within its
statutory authority but remand for an explanation of the
relation between its remedy, on one hand, and its treatment of
other products and indeed the bounds of its authority, on the
other.
* * *
Some statutory mandates apply generally to all of the
Postal Service’s products, see, e.g., 39 U.S.C. § 101, whereas
many differ depending on whether the product is market-
dominant (as is true of Standard Mail products) or belongs to
a second category—“competitive products,” which consists of
products also offered by other carriers, such as UPS.
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Compare id. §§ 3621-29 (governing market-dominant
products), with id. §§ 3631-34 (governing competitive ones).
In particular, the PAEA provides the Commission with
fourteen factors to consider when reviewing Postal Service
rates for market-dominant products, see id. § 3622(c), and a
separate list for competitive products, see id. § 3633(a).
Two of § 3622(c)’s fourteen factors governing market-
dominant products are of particular relevance here: (1)
subsection (c)(2)’s requirement “that each class of mail . . .
bear the direct and indirect postal costs attributable to each
class” (emphasis added) and (2) subsection (c)(14)’s general
stipulation that the Commission consider “the policies of [title
39] as well as such other factors as the Commission
determines appropriate.”
The Postal Service’s primary argument is that the
Commission’s decision on Standard Flats looked beyond the
specific criteria Congress laid out for market-dominant
products in § 3622(c). In particular, the Service focuses our
attention on subsection (c)(2)’s use of the word “class,” rather
than “product.” The Service contrasts subsection (c)(2) with
the rules governing competitive products, which tell the
Commission to “ensure that each competitive product covers
its costs.” 39 U.S.C. § 3633(a)(2) (emphasis added). It draws
from this contrast the inference that within the market-
dominant domain the Commission’s power to require full cost
coverage applies only to classes, not to the individual products
within a class. Petitioner’s Br. 21. (The logic of the
distinction might be that non-cost-based pricing for a
competitive product inflicts special damage—on competition
and its expected consumer benefits. Of course that hypothesis
doesn’t explain how the Service, in marketing a class of
products all of which are competitive, could generate returns
sufficiently above cost to cross-subsidize other products
within the class.) Clearly the linguistic distinction tends to
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shore up the negative inference the Postal Service draws from
§ 3622(c)(2)’s omission of the word “product.”
The Commission does not altogether dispute that negative
inference, but argues in its brief that in an “extreme case”
subsection (c)(14)’s catch-all phrase—invoking “the policies
of this title as well as such other factors as the Commission
determines appropriate”—allows it to incorporate the more
generally applicable standards found in 39 U.S.C. § 101.
Respondent’s Br. 29. The “title” referred to is title 39, which
of course includes 39 U.S.C. § 101(d). It thus interprets
subsection (c)(14) to permit it to override the more particular
requirements found in subsection (c)’s thirteen specific
factors, where necessary to “apportion the costs of all postal
operations to all users of the mail on a fair and equitable
basis,” see id. § 101(d), and more generally to make sure that
market-dominant rates are “consistent with the overarching
financial and policy goals set forth” in the PAEA.
Respondent’s Br. 31 (quoting S. Rep. No. 108-318, at 8
(2004)). The Commission also invokes another broad clause:
Congress specifically ordered the Service to provide data, in
its annual reports, “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)(1) (emphasis
added). This mandate clearly goes beyond chapter 36
(dealing in specificity with postal rates, classes and services),
and reaches chapter 1, which contains § 101(d).
This conflict between the negative implication of the
PAEA’s seemingly divergent treatment of market-dominant
and competitive products, and the all-purpose language of
§§ 3622(c)(14) and 3652(a)(1), seems a close call. But
another provision helps tilt the scale to the Commission. The
PAEA allows interested individuals to file complaints with the
Commission asserting that Postal Service Rates are in
violation of the statute. 39 U.S.C. § 3662 provides that “[a]ny
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interested person (including an officer of the Postal
Regulatory Commission representing the interests of the
general public) who believes the Postal Service is not
operating in conformance with the requirements of the
provisions of sections 101(d) . . . , or this chapter . . . may
lodge a complaint with the Postal Regulatory Commission.”
It would hardly make sense that “any interested person” could
invoke the general standards of § 101(d) in a complaint filed
with the Commission if the Commission itself could not
consider such standards in its annual compliance
determinations. At oral argument the Service could offer us
no explanation for such an anomaly.
Given the ambiguous relationship between the special
criteria governing the different classes of mail and the various
other provisions of the statute, and finding the Commission’s
interpretation a reasonable one, see U.S. Postal Service v.
Postal Regulatory Comm’n, 599 F.3d 705, 710 (D.C. Cir.
2010), we uphold its view.
* * *
Our finding that § 3622(c) permits the Commission to
invoke § 101(d) vis-à-vis market-dominant products, at least
in extreme circumstances, does not end the case. The Postal
Service also contends that the remedy imposed by the
Commission was arbitrary and capricious. In its order, the
Commission directed “the Postal Service to increase the cost
coverage of the Standard Mail Flats product . . . until such
time that the revenues for this product exceed attributable
costs.” ACD at 106 (emphasis added). In other words, the
Commission’s order implied that only 100% cost coverage,
and nothing short of 100%, would bring Standard Flats into
compliance with § 101(d). This appears quite inconsistent
with the Commission’s treatment of other market-dominant
products, several of which have comparable, or even lower,
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cost coverage than Standard Flats. While Standard Flats’ cost
coverage is 82%, that of Standard Mail Not Flat-Machinable
Pieces (“NFMs”) and Parcels is only 78%. ACD at 101; see
also id. at 90-94 (discussing Periodicals’ cost coverage,
75.46%, though there the pricing is subject to special statutory
limitations). Yet for these products, unlike Standard Flats, the
Commission has not explicitly mandated complete cost
coverage. See id. at 101 (noting only that the Service is
making “significant efforts to address [the] problem” of
Standard Mail NFMs/Parcels). Further, to the extent that the
Commission’s authority to force increases in market-dominant
product rates on the basis of § 101(d) is limited to “extreme”
cases of deficiency in cost coverage, a point on which the
Commission hangs its argument here, the Commission’s
explanatory gap is palpable. Why might not Standard Flats
cease to be an extreme case at some slightly-less-than-
complete cost coverage number (Would 95% suffice? What
about 99%?).
We therefore grant the petition for review and remand to
the Commission for a definition of the circumstances that
trigger § 101(d)’s failsafe protection, and for an explanation
of why the particular remedy imposed here is appropriate to
ameliorate that extremity. See Public Citizen, Inc. v. FAA,
988 F.2d 186, 197 (D.C. Cir. 1993) (requiring agencies to
“adequately explain [their] result[s]”). We have also
considered the other contentions of the petitioner and
intervenors and reject them.
So ordered.