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Newsweek Inc. v. United States Postal Service

decided: November 2, 1981.

NEWSWEEK, INC., TIME INCORPORATED, MAGAZINE PUBLISHERS ASSOCIATION, INC., COUNCIL OF PUBLIC UTILITY MAILERS, READER'S DIGEST ASSOCIATION, INC., AND UNITED PARCEL SERVICE OF AMERICA, INC., PETITIONERS,
v.
UNITED STATES POSTAL SERVICE, RESPONDENT, WARSHAWSKY & COMPANY, AMERICAN BUSINESS PRESS, INC., DOW JONES & COMPANY, INC., INTERNATIONAL LABOR PRESS ASSOCIATION, AFL-CIO/CLC, PARCEL SHIPPERS ASSOCIATION, DIRECT MAIL/MARKETING ASSOCIATION, INC., MARCH OF DIMES, MAIL ORDER ASSOCIATION OF AMERICA, ASSOCIATION OF AMERICAN PUBLISHERS, INC., RECORDING INDUSTRY ASSOC. OF AMERICA, INC., NATIONAL ASSOCIATION OF GREETING CARD PUBLISHERS, MAGAZINE PUBLISHERS ASSOCIATION, INC., CLASSROOM PUBLISHERS ASSOCIATION, AMERICAN LUNG ASSOCIATION, NATIONAL EASTER SEAL SOCIETY, ST. JUDE CHILDREN'S RESEARCH HOSPITAL, AMERICAN CANCER SOCIETY, AND NATIONAL WILDLIFE FEDERATION INTERVENORS ; COUNCIL OF PUBLIC UTILITY MAILERS, PETITIONERS, V. UNITED STATES POSTAL SERVICE, RESPONDENT, NEWSWEEK, INC., DOW JONES & COMPANY, INC., TIME INCORPORATED, ASSOCIATION OF AMERICAN PUBLISHERS, INC., RECORDING INDUSTRY ASSOC. OF AMERICA, INC., PARCEL SHIPPERS ASSOCIATION, READER'S DIGEST ASSOCIATION, INC., MAIL ORDER ASSOCIATION OF AMERICA, UNITED PARCEL SERVICE OF AMERICA, INC., NATIONAL ASSOCIATION OF GREETING CARD PUBLISHERS, INTERNATIONAL LABOR PRESS ASSOCIATION, AFL-CIO/CLC, DIRECT MAIL/MARKETING ASSOCIATION, INC., WARSHAWSKY & COMPANY, MAGAZINE PUBLISHERS ASSOCIATION, INC., CLASSROOM PUBLISHERS ASSOCIATION, AMERICAN BUSINESS PRESS, INC., AMERICAN LUNG ASSOCIATION, NATIONAL EASTER SEAL SOCIETY, ST. JUDE CHILDREN'S RESEARCH HOSPITAL, AMERICAN CANCER SOCIETY, NATIONAL WILDLIFE FEDERATION, INTERVENORS



Appeal from an order of the Board of Governors of the United States Postal Service, which ordered into effect, under porotest, and returned to the Postal Rate Commission for further consideration certain changes in postal rates in accordance with The Postal Reorganization Act of 1970, 39 U.S.C. §§ 101 et seq . (1976). Remanded.

Before Meskill and Kearse, Circuit Judges, and Coffrin, District Judge.*fn*

Author: Meskill

These consolidated cases arise from an order of the Board of Governors of the United States Postal Service which allowed, under protest, certain changes in postal rates and fees to take effect pursuant to the rate-making provisions of the Postal Reorganization Act of 1970, 39 U.S.C. § 101 et seq. (1976) ("Act").

Collectively, the petitioners and intervenors in this case attack the order of the Postal Board of Governors on a broad front. The principal issue presented for review is whether the resulting changes in rates and fees are lawful. To that end, two major challenges are presented. Several parties argue that the rates are unlawful because they are based upon an incorrect interpretation of 39 U.S.C. § 3622(b) that was foisted upon the postal system by the United States Court of Appeals for the District of Columbia Circuit.*fn1 Other parties contend that the D.C. Circuit's interpretation is correct, but argue that the Service-Related Cost ("SRC") concept, which was used to allocate various costs in setting the current rates, is irrational and that the rates are accordingly unlawful. The respondent Postal Service, while it defends its decision to allow the changes to take effect under protest as legal and proper, also aligns itself with the petitioners to the extent that it contests the D.C. Circuit's interpretation of section 3622(b) and rejects the SRC concept. These issues are treated first in this opinion.

An additional issue of primary importance raised on this appeal concerns the Postal Service's general revenue requirements. This issue is reviewed second. Finally, a plethora of issues concerning much narrower disputes is reviewed.

An appropriate resolution of the esoteric issues presented in this case requires a general understanding of the postal system's organization and rate-making structure which will therefore be discussed first.

The Postal Service

The postal system is comprised of two independent executive agencies, the United States Postal Service, see 39 U.S.C. § 201, which is governed by a Board of Governors ("Board"), see 39 U.S.C. § 202, and a Postal Rate Commission ("PRC"), see 39 U.S.C. § 3601.

The issues in this case arise from a rate-making proceeding, yet also touch upon certain tensions that exist within the structure of the postal system, specifically between the Board and the PRC.

The rate-making process in the postal system is unique. While the Board is entrusted with the power "to establish ... reasonable and equitable rates of postage and fees for postal services," see 39 U.S.C. § 3621, its actual rate-making authority, with a few exceptions, is limited to approving, rejecting, modifying, or allowing under protest recommendations of the PRC, see 39 U.S.C. § 3625(a). The PRC, however, may not initiate a rate proceeding on its own. Rather, pursuant to section 3622(a), the PRC must await a "request" from the Board

to submit a recommended decision on changes in a rate or rates of postage or in a fee or fees for postal services if the Postal Service (Board) determines that such changes would be in the public interest and in accordance with the policies (of the Act).*fn2

Section 3622(b) provides that upon receiving such a request from the Board, the PRC "shall make a recommended decision on the request for changes in rates or fees in each class of mail or type of service in accordance with the policies of this title and (certain) factors." For convenience, the individual factors are omitted at this point, but will be discussed in detail below.

Once the PRC responds with its recommended decision, the Board has several options. Section 3625(a) provides that "the Governors may approve, allow under protest, reject, or modify that decision in accordance with the provisions of this section."

As a prerequisite to modification, the Board must first reject the PRC's recommended decision and "resubmit" it to the PRC for further consideration. 39 U.S.C. § 3625(d). Then, upon receiving the PRC's decision following reconsideration, the Board, only if it is unanimous, may modify the decision. Id.

Finally, if pursuant to section 3625(c) the Board "under protest, allow(s) a recommended decision to take effect," it must either seek judicial review of the PRC's decision, or return the decision to the PRC for reconsideration and a further recommended decision.

In the case before us, the Board opted for subdivision (c), placing the PRC's recommended decision into effect under protest, and returning the decision to the PRC for further consideration.

The Board's decision to allow under protest and return the decision to the PRC constituted a final order subject to judicial review upon the appeal of an "aggrieved party." 39 U.S.C. § 3628. Section 3628 provides that a decision of the Board may be appealed to any circuit court of appeals in the United States and further provides that the circuit court

may affirm the decision or order that the entire matter be returned for further consideration, but the court may not modify the decision. The court shall make the matter a preferred cause and shall expedite judgment in every way. The court may not suspend the effectiveness of the changes, or otherwise prevent them from taking effect until final disposition of the suit by the court. No court shall have jurisdiction to review a decision made by the Commission or Governors under this chapter except as provided in this section.

Id.

The Case

The chronology of events giving rise to this litigation commenced with the Postal Service, through its Board of Governors, "requesting" a recommended decision on changes in postal rates on April 21, 1980. The Board's action initiated R80-1, the fifth general rate-making proceeding since the enactment of the Act in 1970. The Postal Service had determined that an annual revenue requirement of $22.9 billion was necessary for the "test year" beginning March 21, 1981 and ending March 20, 1982. The Postal Service had also determined that its proposed rates and fees would increase postal revenues by $3.75 billion annually. The Postal Service requested the PRC to recommend specific changes in hundreds of rates for classes and subclasses of mail and in certain fees. The "request" was accompanied by testimony of eleven witnesses and thousands of documents.*fn3

Pursuant to sections 3622(b) and 3624, 39 U.S.C. §§ 3622(b), 3624, the PRC conducted extensive hearings in which more than fifty parties participated. On February 19, 1981, the PRC sent its recommended decision to the Postal Service. The recommendation included a staggering $1 billion reduction in the Postal Service's proposed general revenue requirements and major changes in cost distribution and in the rates compared with those proposed by the Postal Service.

Dissatisfied with the recommendation, the Board returned it to the PRC pursuant to 39 U.S.C. § 3625(c)(2), allowing the decision to take effect under protest. This was the first time that the Board had failed to accept the PRC's initial recommended decision in a rate-making proceeding. The Board stated in its decision that the PRC's decision set rates and revenues so low that the Postal Service might have to borrow funds to meet its obligations. Furthermore, the Board claimed that the decision would require that more frequent rate proceedings be conducted, which would destabilize postal rates. The Board also implied that the PRC lacked authority to scrutinize or adjust general revenue requirements. Nevertheless, the Board allowed the rates to go into effect, albeit under protest, "because of the Postal Service's urgent need for revenues."*fn4

The subsequent events were summarized by another panel of this Court in Newsweek, Inc. v. United States Postal Service, 652 F.2d 239 (2d Cir. 1981):

At 1:35 P.M. on March 10, four minutes after copies of the decision were time-stamped and distributed at Postal Service headquarters, Newsweek filed its petition for review in this Court. Time filed its petition here four minutes later. On March 23, the Council of Public Utility Mailers and UPS filed petitions in the District of Columbia Circuit. Petitions were also filed in that Court by the March of Dimes Birth Defects Foundation on March 27, and by the Readers Digest Association on April 3. Also on March 27 MPA filed its petition in this Court.

Id. at 241.

At issue in that earlier case was whether Newsweek and Time had prematurely filed their petitions, and, even if their filings had been proper, whether their petitions should be transferred to the District of Columbia Circuit in the interest of justice and for the convenience of the parties. The Court concluded

that Newsweek and Time have properly run-and won-the race to the courthouse. Further, the petitions here filed, together with the four consolidated petitions filed in the D.C. Circuit Court and transferred here on the motion of Newsweek by order of that Court on April 28, will remain in this Court to be adjudicated.

Id. at 240-41.

We now turn to the specific concerns raised on this appeal.

39 U.S.C. § 3622(b)

The primary issue raised on this appeal concerns the proper interpretation of 39 U.S.C. § 3622(b) (1976), which provides the procedure which the PRC must follow in setting recommended postal rates. Section 3622(b) provides in its entirety:

Upon receiving a request, the Commission shall make a recommended decision on the request for changes in rates or fees in each class of mail or type of service in accordance with the policies of this title and the following factors:

(1) the establishment and maintenance of a fair and equitable schedule;

(2) the value of the mail service actually provided each class or type of mail service to both the sender and the recipient, including but not limited to the collection, mode of transportation, and priority of delivery;

(3) the requirement that each class of mail or type of mail service bear the direct and indirect postal costs attributable to that class or type plus that portion of all other costs of the Postal Service reasonably assignable to such class or type;

(4) the effect of rate increases upon the general public, business mail users, and enterprises in the private sector of the economy engaged in the delivery of mail matter other than letters;

(5) the available alternative means of sending and receiving letters and other mail matter at reasonable costs;

(6) the degree of preparation of mail for delivery into the postal system performed by the mailer and its effect upon reducing costs to the Postal Service;

(7) simplicity of structure for the entire schedule and simple, identifiable relationships between the rates or fees charged the various classes of mail for postal services;

(8) the educational, cultural, scientific, and informational value to the recipient of mail matter; and

(9) such other factors as the Commission deems appropriate.

In the first three general rate proceedings under the Act, the PRC and the Board were in agreement as to the meaning of section 3622(b). See Docket Nos. R71-1, R74-1, and R76-1. Both read the provision to require a two-step process for allocating postal costs. The first step consisted of determining which costs were directly or indirectly attributable to a specific mail class or service based upon volume variability, and allocating these attributable costs to the specific class or service. Approximately half of the postal system's costs were determined to vary with the volume of mail and were therefore found "attributable" within the meaning of section 3622(b)(3) (as it was then interpreted). The second step was to treat the remaining costs of the postal system as "institutional" and judgmentally "assign" them to the various mail classes and services on the basis of elasticity of demand and, ostensibly, on the basis of the non-cost factors listed in section 3622(b).

In Association of American Publishers, Inc. v. Governors of United States Postal Service, 157 U.S. App. D.C. 397, 485 F.2d 768 (D.C.Cir.1973), the D.C. Circuit expressed its dissatisfaction with the manner in which the Postal Service had been allocating costs of its operations to the various services it provided, as reflected in the fees for those services, and the various classes and subclasses of mail, as reflected in the postal rates designated for those classes and subclasses. Judge Bazelon's concurring opinion, which was joined by the other two members of the panel, noted that the PRC's response to section 3622(b)(3), "the requirement that each class of mail ... bear the direct and indirect postal costs attributable to that class ... plus that portion of all other costs of the Postal Service reasonably assignable to such class," was "questionable at best," 485 F.2d at 777. The American Publishers panel interpreted the language of the subsection to require allocation of costs in accordance with cost-of-service principles to the fullest extent possible. Id. at 779. However, in American Publishers, the court determined that the Postal Service should be allowed sufficient time in which to formulate a rate-making methodology which would comport with the D.C. Circuit's understanding of the legislative intent underlying the Act.

Then, in National Association of Greeting Card Publishers v. United States Postal Service, 186 U.S. App. D.C. 331, 569 F.2d 570 (D.C.Cir.1976), vacated as to other issues, 434 U.S. 884, 98 S. Ct. 253, 54 L. Ed. 2d 169 (1977) (NAGCP I), five years after its American Publishers decision, the D.C. Circuit decided to take a more active role. The court reaffirmed its earlier interpretation of section 3622, that subsection (b)(3) is the principal factor to be considered by the PRC in setting rates. 569 F.2d at 585. The court noted that of the factors listed only subsection (b)(3) contained the word "requirement." In addition, the court found that the subsection's reference to indirect, direct and "all other costs" of the Postal Service "further emphasize(s) its importance by suggesting a substantial breadth to its coverage." Id. Third, the court noted an emphasis throughout the subsection upon cost-of-service principles-that each class bear its "attributable" costs and a portion of all other costs "reasonably assignable" to it. Thus, the court concluded in NAGCP I that the plain language of section 3622(b) demanded "that each class of mail and postal service shoulder all the postal costs that may reasonably be traced to the provision of that class or service." Id.

The NAGCP I Court then declared that the PRC's methodology, which only "attributed" costs to a class of mail or service on the basis of "volume variability" (an accounting technique), was insufficient. Instead, the D.C. Circuit stated that the PRC should achieve greater attribution of costs through the use of "cost allocation formulae based on accounting principles" to fulfill Congress' intent that "attribution under subsection 3622(b)(3) ... extend beyond minimally attributable costs and ... include to a significant extent those additional costs which, although not measurably variable and therefore not directly attributable, may nonetheless be determined with reasonable confidence to be the consequence of providing the service." Id. at 586.

Second, the D.C. Circuit seized upon the term "reasonably assign" contained in subsection 3622(b)(3) and determined

that the other costs of the Postal Service that are to be "reasonably assigned" must also be allocated on cost-of-service principles. That is, after the process of extended attribution is complete, a portion of remaining costs are to be assigned to the various mail classes and postal services to the extent that it can reasonably be determined or estimated that certain classes of service may account for particular costs.

Id. at 586. Third, the court noted that some "costs will exist but will not be "reasonably assignable' to any particular class or type." Id. at 587. With respect to this residuum, the D.C. Circuit stated that the "other factors enumerated in section 3622 will govern the allocation of these nonattributable and nonassignable costs." Id. Thus, the court displaced the two-tier approach followed by the PRC and Board with three tiers-the attribution and reasonable assignment ...


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