United States Court of Appeals, District of Columbia Circuit
January 5, 2018
Petition for Review of Orders of the Postal Regulatory
C. Belt, Attorney, U.S. Postal Service, argued the cause and
filed the briefs for petitioner. Stephan J. Boardman, Chief
Counsel, entered an appearance.
Kaersvang, Attorney, U.S. Department of Justice, argued the
cause for respondent. With her on the brief were Michael S.
Raab, Attorney, David A. Trissell, General Counsel, Postal
Regulatory Commission, and Christopher J. Laver, Deputy
Before: Pillard, Circuit Judge, and Edwards and Williams,
Senior Circuit Judges.
PILLARD CIRCUIT JUDGE.
United States Postal Service proposed to discontinue its
Return Receipt for Merchandise (RRM) service in 2014. RRM
service offers retail and commercial mailers of merchandise
the option to affix to their packages a postcard-style form
for the recipient to sign, which the Postal Service then
returns to the mailer as confirmation of delivery. Citing a
precipitous eighty-six per cent drop in RRM service usage
over the three years from 2011 to 2014, the Postal Service
argued that RRM service had become outdated and inefficient
in the wake of electronic delivery confirmation capacities.
The Postal Regulatory Commission agreed. As required by the
statute and regulations governing additions to or deletions
from the lists of Postal Service products, the Commission
considered a range of factors-including price effects and the
interests of RRM service users-before it approved the
same orders, however, the Commission took the unprecedented
step of holding that the discontinuation of a service on the
Postal Service's authorized list of market-dominant
products also amounted to a rate increase subject to the
statutory rate cap. Despite evidence that former RRM service
customers were now more cheaply obtaining electronic
signature delivery confirmation, the Commission assumed all
remaining RRM customers would continue to insist on physical
postcard delivery confirmation which, absent RRM service,
would only be available at a higher price, ancillary to
Certified Mail service. By treating the discontinuation of
RRM service as a price hike subject to the rate cap, the
Commission in effect conditioned dropping RRM on the Postal
Service's willingness to "pay" hundreds of
thousands of dollars via a rate cap application that would
force the Postal Service to lower overall prices on its other
Postal Service now seeks review of the Commission's
orders, arguing that they exceed the Commission's
statutory authority and are arbitrary and capricious. We
grant the Postal Service's petition for review and hold
that the Commission lacks statutory authority to subject the
wholesale discontinuation of RRM service to the rate cap
applicable to rate increases.
2006, Congress enacted the Postal Accountability and
Enhancement Act (Act), Pub. L. 109-435, 120 Stat. 3198, to
reform U.S. postal laws. In the decades leading up to the
Act's passage, Congress had authorized the Postal Service
to set its own postage rates, "with the goal of breaking
even." See United States Postal Service v. Postal
Regulatory Commission, 785 F.3d 740, 744 (D.C. Cir.
2015) (USPS I). Critics objected that, because the
Postal Service exercised market power allowing it to pass on
increased costs to consumers, it lacked incentives to improve
its efficiency. See id. Congress responded with
legislation encouraging the Postal Service to reduce costs,
increase efficiency, achieve stability in rates, and
empowering the Service to act with flexibility to experiment
with ways to improve its appeal to customers. 39 U.S.C.
§ 3622(b)(1)-(9); see also S. Rep. No. 108-318,
at 1 (2004). The Act also "guarantees a higher degree of
transparency to ensure fair treatment of customers of the
Postal Service's and those companies competing with the
Postal Service's competitive products." S. Rep. No.
108-318, at 1.
parties here invoke two principal sections of the Act: One,
Section 3642, governs the Commission's pre-approval,
based on a balancing of several criteria, of changes to the
composition of "the lists" of competitive and
market-dominant products the Postal Service offers. 39 U.S.C.
§ 3642(a). The Postal Service's competitive products
vie with similar products on the open market, while the
Postal Service exercises substantial market power or enjoys a
legal monopoly over its market-dominant products.
Id. The other provision in play, Section 3622, calls
on the Commission to enforce a cap on "changes in
rates" of market-dominant products and services to
ensure that average increases in prices of the group of
products within a given classification do not exceed the rate
of inflation. Id. § 3622(d)(1)(A). As the
Postal Service understands it, the Act confines the
Commission's review of product discontinuations to what
Section 3642 commands when the Postal Service "change[s]
the list[s]" of products. The Commission, for its part,
asserts authority to conduct twofold review of a product
discontinuation: It argues that some changes to the product
lists are also tantamount to rate increases, at least to the
extent that discontinuation of a product might funnel
customers to a more costly alternative-a form of abuse the
Commission asserts Congress authorized it to control by
subjecting such product discontinuations to review under both
Section 3642 and 3622.
Section 3642 of the Act charges the Postal Regulatory
Commission with maintaining and publishing accurate product
lists in the Mail Classification Schedule, and authorizes the
Commission to "change the list[s]" of
market-dominant and competitive products by adding, removing,
or transferring products. Id. § 3642(a).
Congress fashioned the initial lists of available
market-dominant and competitive products in the Act.
See 39 U.S.C. §§ 3621, 3631. First-class
letter mailing, for example, was characterized as a
market-dominant product, while bulk parcel post was deemed
competitive. Compare id. § 3621(a)(1), with
id. § 3621(a)(3). In addition to letter mailing and
parcel delivery, the Postal Service offers a host of
ancillary services, including mechanisms for commercial and
retail customers to track and verify the receipt of their
missives. Ancillary services such as RRM fit within the class
of "Special Services" on the Postal Service's
list of market-dominant products. See Postal
Regulatory Comm'n, Mail Classification Schedule Pt. A,
§§ 1500, 1505.14 (2018).
set the initial product lists, Congress also recognized that
both supply and demand for a given product would not remain
constant in a "rapidly" changing market.
See S. Rep. No. 108-318, at 18. The Commission may
add, remove, or transfer a listed product "[u]pon
request of the Postal Service or users of the mails, or upon
its own initiative." 39 U.S.C. § 3642(a).
The Act invests the Postal Service with substantial
flexibility to manage and innovate with its products, subject
to holistic review of additions to or deletions from its
lists. See Id. §§ 403(b), 3642; see
also S. Rep. No. 108-13, at 18 ("The goal of
increased flexibility and increased responsiveness to
customers' needs requires that the Postal Service manage
its product offerings."). Whenever the Postal Service
seeks permission to change the menu of market-dominant
products, it must publish a new list in the Federal Register
that "indicate[s] how and when any previous lists . . .
are superseded." 39 U.S.C. § 3642(d)(2).
determining whether to add, remove, or transfer a listed
product, the Commission must consider its availability in the
private sector, the "views of those who use the product,
" and the likely impact of the change on small
businesses. Id. § 3642(b)(3). Those factors are
capacious, and, as the Commission recognizes, require
"careful consideration, " time, and often
additional information to evaluate. See Order No.
3670, Order on Price Adjustments for Special Services
Products and Related Mail Classification Changes (Dec. 15,
2016), at 10-11. Regulations implementing Section 3642's
list-amending authority provide that "the product lists
and the Mail Classification Schedule may be modified subject
to the procedures specified in this part." 39 C.F.R.
§ 3020.1. Those procedures include specific requirements
of information the Postal Service must provide to the
Commission in support of its requested changes, id.
at §§ 3020.31-3020.32, and call on the Commission
to post any proposed change for public comment, id.
at § 3020.33; see id. § 3020.53. The
Commission then must scrutinize proposed changes, together
with any comments, to ensure that, among other things, the
product's suggested list location (competitive or
market-dominant), quality, desirability to the public, effect
on small business, and its pricing comport with the Act's
overall objectives of enhancing the efficiency and
competitiveness of the Postal Service and preventing abuse of
its market power. Id. at § 3020.32. In sum, in
its Section 3642 review of changes to the menu of products
the Postal Service offers, the Commission has broad authority
to act in the public interest and to prevent the Postal
Service from abusing its unique and powerful market position.
respect to market-dominant products, Congress separately
charged the Commission with overseeing and limiting the
Postal Service's annual price increases. 39 U.S.C. §
3622. Any price change for a market-dominant product requires
the Commission's approval, which can be granted subject
to the "rate cap, " that is, an "annual
limitation on the percentage changes in rates" tied to
the rate of inflation. Id. § 3622(d)(1)(A),
(C); see USPS I, 785 F.3d at 744-45; United
States Postal Service v. Postal Regulatory Comm'n,
No. 16-1284, slip ...