Citations
- 656 F.2d 754
Full opinion text
Opinion for the court filed by Circuit Judge MIKVA.
MIKVA, Circuit Judge:
In 1970, as part of Congress’ comprehensive reform of postal administration, the Postal Service was directed to ensure “the establishment and maintenance of a fair and equitable classification system for all mail.” 39 U.S.C. § 3623(c)(1) (1976). This case arises from a classification decision of the Governors of the Postal Service that implemented a worksharing discount for third-class bulk mailers who presort their mail in a certain way. Although we reject most of petitioners’ challenges to that decision, we agree with petitioners that the Governors misinterpreted — and may have exceeded — their statutory authority by phasing in the discount only as applied to nonprofit third-class bulk mailers. Accordingly, we return the matter to the Postal Service for further consideration.
I. BACKGROUND
A. The Postal Reorganization Act of 1970
The Postal Reorganization Act of 1970 (Act), 39 U.S.C. §§ 101-5605 (1976), created the United States Postal Service (USPS), an “independent establishment of the executive branch of the Government.” Id. § 201. The Act also set up the Postal Rate Commission (PRC or Commission), an independent expert agency charged with making recommendations to the Governors of the Postal Service on rate and classification matters. See id. §§ 3601-3604, 3622-3624. One of the principal goals of the reorganization was to produce a self-supporting, efficient structure that would operate without congressional subsidies and also without excessive congressional regulation.
To that end, the Act contemplates that decisions on postal rates and classifications be made jointly by the Governors of the Postal Service and the Postal Rate Commission, acting as “partnerfs], . . . workfing] together to achieve a truly effective postal service.” S.Rep.No.912, 91st Cong., 2d Sess. 13 (1970). The Act provides that the Postal Service may initiate changes in postal rates and classifications by requesting that the Commission formulate a proposal. See 39 U.S.C. §§ 3622, 3623. After holding hearings and taking into account the relevant policies described in the Act, the PRC submits a recommended decision to the Governors. See id. §§ 3622-3624. The Governors, nine presidentially appointed officials who have, among other powers, the authority to act on the PRC’s rate and classification proposals, then have three options: they may approve the Commission’s suggestion; allow it to take effect under protest and either seek judicial review or return the issue to the PRC for reconsideration; or reject the proposal. See id. §§ 202, 3625.
If the third approach is taken, and the recommendation is rejected, the Postal Service may resubmit its request to the Commission for further study. The PRC’s recommendation after reconsideration is again subject to review by the Governors, who this time have the additional option of modifying that decision under certain circumstances. See id. § 3625(d). This was the process that led to the decision on review here.
B. The Controversy
Third-class mail, consisting primarily of circulars and catalogs, has traditionally been eligible for a bulk rate when mailed in quantity and sorted according to postal regulations. This rate, which is substantially lower than that for single-piece third-class mail, has been available to both regular (commercial) and nonprofit third-class mailers. Since 1952, the bulk rate for nonprofit mail has been less than that for regular mail. The postal regulations in effect before promulgation of the order challenged here required that bulk mail be sorted according to zip code: ten or more pieces of mail addressed to a particular zip code were to be bundled together and labelled accordingly.
On September 8, 1978, the Postal Service (respondent) submitted to the PRC a proposal for creation of a new subclassification of regular third-class bulk mail. Respondent recommended that a worksharing discount be offered to regular third-class mailers who presorted their mail according to the particular carrier routes. This additional sortation was to be optional, but the discount was available only to regular third-class mailers, and not to nonprofit mailers.
The PRC permitted petitioners (NESS) to intervene and to present a parallel proposal applicable to nonprofit third-class mailers. Hearings were held, as required by section 3624(a) of the Act. During the proceedings, the PRC notified the parties that it was considering a three-tier rate structure for third-class bulk mailers — the lowest rate for carrier-route presorted mail, a slightly higher rate for mail separated according to zip code, and the highest rate for all other third-class bulk mail. The Commission invited comments and heard testimony on this proposal, but did not publish notice in the Federal Register that it was contemplating a three-tier system.
On November 28,1979, the PRC issued its first Opinion and Recommended Decision (First PRC Opinion), PRC Docket No. MC78-2, reprinted in Supplemental Appendix (SA) at 1, which included a three-tier rate structure for both regular and nonprofit third-class bulk mail. The new discounts for nonprofit mailers were to be phased in over a period of years according to a schedule “which maintain[ed] the ratio of phased rates to full rates which existed prior to the restructuring of the classification schedule.” Id. at 51, SA at 55.
This recommendation was rejected on December 4, 1979, by the Governors of the Postal Service, who disapproved the PRC’s opinion on a number of grounds. See Decision of the Governors of the USPS re Recommended Decision of the PRC on Bulk Third-Class Mail (First USPS Opinion), reprinted in SA at 150. The Governors chastised the Commission for exceeding their statutory authority by transforming the USPS’s straightforward request into a complex set of recommendations that would work substantial changes on the rate structure for third-class bulk mail. See id. at 1-2, SA at 150-51. In addition, the Governors had a number of specific objections to the PRC’s decision, for example, that an increase was proposed in rates charged a majority of third-class bulk mailers, who had been given only minimal notice and no opportunity to present their views, and that the Commission lacked jurisdiction to adopt phasing schedules. See id. at 3, 5-6, SA at 152, 154-55.
After the Governors’ rejection of the PRC’s proposal, the Postal Service exercised its right to resubmit its request to the PRC. See 39 U.S.C. § 3625(d). Following reconsideration, the PRC issued a second opinion on March 24, 1980, with two of the five Commissioners dissenting. Opinion and Recommended Decision upon Reconsideration (Second PRC Opinion), reprinted in S.A. at 158. Although this opinion modified the first recommendation in part, the PRC refused to abandon the three-tier rate structure or the phasing schedule. The matter then went back to the Governors.
In an opinion issued April 20, 1980, the Governors utilized their statutory authority to modify a proposal submitted by the Commission after reconsideration, see 39 U.S.C. § 3625(d). Decision of the Governors of the USPS re Further Recommended Decision of the PRC on Bulk Third-Class Mail (Second USPS Opinion), reprinted in SA at 232. The Governors chose to implement a compromise settlement, reprinted in Joint Appendix (JA) at 778, which had been agreed to by respondent and five intervenors, but opposed by NESS and two other parties, and which had been recommended by the two dissenting Commissioners. Under the terms of this settlement, a two-tier rate structure was adopted for both regular and nonprofit third-class mailers: for each type of mail, the current rate was retained, with a discount added for carrier-route presorted mail. The discount was set at a level less than the cost savings expected to be realized by the Postal Service as a result of the worksharing. The Governors also modified the PRC’s phasing schedule for nonprofit rates to provide an immediate 0.1$ per-piece discount for carrier-route presorted mail, which would then gradually rise to 1.1$ by July 6, 1987; the entire discount for commercial mailers was to take effect at once.
It is from this order that petitioners appeal. They argue that the Governors’ phasing schedule for the discount is not authorized because the Act contemplates phasing only of postage increases, see 39 U.S.C. § 3626, and because applying the phase-in solely to nonprofit mailers is contrary to the Act’s prohibition of undue rate discrimination, see id. § 403(c). Petitioners also challenge the Governors’ decision to modify the PRC’s recommendation: they insist that the Governors erred in making the required determination that the rates proposed by the PRC would not generate sufficient revenues to cover costs. Finally, NESS maintains that the Governors violated the Administrative Procedure Act by failing to afford notice and opportunity for comment.
II. PHASING IN WORKSHARING DISCOUNTS
The Governors’ phasing schedule, which applies only to nonprofit third-class bulk mailers, must be evaluated for its conformity to the Act’s antidiscrimination provision, 39 U.S.C. § 403(c), which generally prohibits discrimination against any mailer with respect to rates and classifications. Section 403(c) does not forbid, however, differential treatment that is “specifically authorized” by another section of the Act. In considering petitioners’ argument that phasing in the discount here was impermissible, then, the first inquiry must be whether the phase-in adopted by the Governors is specifically authorized by section 3626 of the Act, the statutory provision relating to phasing and the one on which the Governors relied in implementing the phase-in.
A. Section 3626: The Phase-In Provision
One of the purposes of the Postal Reorganization Act was to require for the first time that preferred mailers — such as nonprofit third-class mailers — pay the full direct and indirect costs attributable to their mail. To mitigate the impact of the resulting increases in rates, Congress enacted 39 U.S.C. § 3626, which sets a phase-in period during which such mailers can adjust to the new rate policy. This section provides that, for qualifying mailers such as petitioners, “a separate rate schedule” will be adopted “each time rates are established or changed .... with annual increases as nearly equal as practicable” so that the revenue generated by that mail will equal its direct and indirect attributable costs in sixteen years. Id. § 3626(a)(1). We agree with petitioners that this section does not authorize the Governors to phase in rate decreases.
The concept of phasing stemmed from Congress’ understandably narrow concern about the impact of rate increases on preferred mailers. When the Act was passed in 1970, no worksharing discounts were in effect, and Congress could not have envisioned the phasing of discounts. But because a primary purpose of the Act was to have previously preferred mailers start paying their own way and to get the Postal Service operating in the black, Congress did anticipate that rates for nonprofit third-class mail would increase. It was fear about the resultant financial burden on these mailers that led Congress to provide for phasing.
The Senate Report noted:
The Committee recommends that all other preferences heretofore established by law for the mailing of any mail matter be abolished, but that the mailers be given a sufficient period of time to adjust to any impact caused by rate increases.
Any mail or class of mail which under existing law pays a rate which is less than the rate established by the Postal Service in its first rate schedule shall be entitled to a period of adjustment to reach the rate prescribed.
This “grandfather clause” is designed to provide adequate protection to any class of mailers or type of mail which has been established, for whatever reason, as preferred groups, or which because of the existing rate structure, do not in fact pay the fair and equitable rate as determined by the Commission.
S.Rep.No.912, 91st Cong., 2d Sess. 10, 12 (1970) (emphasis supplied).
The House Report’s explanation of section 3626 is similar:
H.R. 17070 moreover, enjoins the Postal Service to take into account the financial impact upon affected users of the various classes of mail of any changes in postal rate structures. The Service is explicitly permitted to achieve the rate policy goals of H.R. 17070 over a duration of time that may be appropriate in view of the financial impact upon mailers of proposed changes. It is clear that an abrupt increase in postal rates for an enterprise relying heavily upon the use of the mails could cause a severe financial dislocation. H.R. 17070 provides for easing this impact over a period of years as the Service begins its operations. .
H.R.Rep.No.1104, 91st Cong., 2d Sess. 17, reprinted in [1970] U.S.Code Cong. & Ad. News 3649, 3665-66 (emphasis supplied). See a iso H.R.Rep.No.1363, 91st Cong., 2d Sess. 85-86 (conference report), reprinted in [1970] U.S.Code Cong. & Ad.News 3712, 3718.
The legislative history thus makes clear that Congress was concerned about the impact on nonprofit third-class mailers of rate increases. It conceived of phasing as a way to soften the blow. Section 3626 was not meant to address the phasing of rate decreases, or the worksharing discounts at issue here, which impose no extra financial burden on nonprofit mailers. Admittedly, the statutory language is somewhat ambiguous. Section 3626 is triggered when rates are “established or changed,” suggesting applicability to more than rate increases. But immediately following that phrase is the language setting out the guideline that a phasing schedule should be designed to effect “annual increases as nearly equal as practicable” (emphasis supplied). Moreover, the provision goes on to establish a sixteen-year phase-in period for increasing rates for nonprofit third-class mail. If Congress intended that the section apply also to rate reductions, one would expect analogous formulas and procedures for phasing in decreases.
Although the proper interpretation of section 3626 raises an issue of first impression, this court has always spoken as if it assumed that phasing is appropriate only for rate increases. See Direct Mail/Marketing Ass’n, Inc. v. United States Postal Service, 501 F.2d 717, 718-19 (D.C.Cir.1974) (“For certain classes of mail, including third class mail, rate increases approved by the Governors must be introduced in gradual year-by-year steps if Congress appropriates money to cover the revenue foregone by such ‘phasing.’ ”); Association of American Publishers, Inc. v. Governors of United States Postal Service, 485 F.2d 768, 775 (D.C.Cir.1973) (“Section 3626 of the Postal Reorganization Act, 39 U.S.C. § 3626, provides for third class mail rates which are to be at a high level immediately unless there is what is called by the parties here ‘the phasing of increases in permanent third-class mail rates.’ ”); Direct Mail Advertising Ass’n, Inc. v. United States Postal Service, 458 F.2d 813, 814 (D.C.Cir.1972) (“This section of the Act cushions the impact of the initial changes in permanent rates applicable to third-class mail by requiring that the increase over prior rates be added to the user’s rates in substantially equal installments over a five year period — thus the full impact of the increase is not felt until the fifth year. This is termed ‘phasing-in’ the full rate.”), cert. denied, 409 U.S. 843, 93 S.Ct. 43, 34 L.Ed.2d 83 (1972).
This court’s interpretations of section 3626 are thus consistent with the legislative purpose behind that provision, which indicates that the ambiguity in the language of section 3626 should be resolved as petitioners urge — that the section was meant to ease the financial burden of rate increases and does not permit phasing of rate decreases.
B. Section 408(c): Prohibition of Discriminatory Rates
Because the phase-in of worksharing discounts is not specifically authorized by section 3626, the question arises whether the phasing violates the Act’s antidiscrimination provision, 39 U.S.C. § 403(c). See Direct Mail/Marketing Ass’n, Inc. v. United States Postal Service, 501 F.2d 717, 721-22 (D.C.Cir.1974). Section 403(c) provides:
In providing services and in establishing classifications, rates, and fees under this title, the Postal Service shall not, except as specifically authorized in this title, make any undue or unreasonable discrimination among users of the mails, nor shall it grant any undue or unreasonable preferences to any such user.
This provision does not per se bar phasing of rate decreases, and we do not hold that the Governors lacked the statutory authority to phase in the worksharing discount here. But because such phasing is not explicitly authorized by the Act, any discriminatory phase-in of a rate decrease must satisfy the standards articulated in section 403(c).
The Governors did not analyze the phasing schedule they adopted in terms of that standard and saw no need to justify the disparate treatment. Instead, they felt bound by section 3626 to phase in the discount in relatively equal annual increments over the time period set by section 3626. See First USPS Opinion at 5-6, SA at 154-55; Second USPS Opinion at 16-17, SA at 247-48. As discussed in the previous section, the Governors erred in relying on that provision. Because the resulting record does not enable us to judge whether the Governors would independently have opted for the phasing schedule they implemented, or whether sufficient reason exists to permit phasing in the discount for nonprofit mailers only, we must return the matter to the Postal Service for reconsideration of the permissibility and advisability of phasing the discount in light of the mandate of section 403(c).
It may be that no rationale justifies the differential treatment of nonprofit third-class bulk mailers and that the discrimination effected by the phase-in is therefore “undue” and “unreasonable,” in contravention of section 403(c). The PRC specifically found that “there are no intrinsic characteristics of nonprofit mail which would warrant having different rate structures for regular-rate mail and nonprofit mail.” First PRC Opinion at 40, SA at 44. See also JA at 96-104 (testimony of Arthur Porwick). By performing the same works-haring functions as regular third-class mailers, nonprofit mailers may save the Postal Service an equal amount of time and money and may incur the same costs associated with presorting. They may therefore be entitled immediately to the full benefit of the discount, which the phase-in acts to deny them during the phasing period.
On the other hand, the distinction between the rates paid by regular third-class bulk mailers and those paid by nonprofit mailers may justify phasing in the discount for nonprofit mailers only. As noted above, one of the purposes of the Postal Reorganization Act was to reduce the subsidy given these preferred mailers so that the revenue generated by nonprofit third-class mail would eventually cover all its direct and indirect costs. An unphased worksharing discount — reducing the rates paid by this class of mail — may be inconsistent with that plan.
Even if some phase-in is appropriate, and not contrary to the Act’s antidiscrimination provision, the schedule adopted by the Governors — and based on section 3626 — may not be the optimal one. The Governors may find, for example, that nonprofit third-class mailers should have been given more in the first year than a 0.1