USPS v. PRC ( 2016 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued November 9, 2016 Decided December 6, 2016
No. 15-1338
UNITED STATES POSTAL SERVICE,
PETITIONER
v.
POSTAL REGULATORY COMMISSION,
RESPONDENT
GAMEFLY, INC.,
INTERVENOR
On Petition for Review of an Order of
the Postal Regulatory Commission
David C. Belt, Attorney, U.S. Postal Service, argued the
cause for petitioner. Stephan J. Boardman, Chief Counsel,
entered an appearance.
Henry C. Whitaker, Attorney, U.S. Department of Justice,
argued the cause for respondent. With him on the brief were
Benjamin C. Mizer, Principal Deputy Assistant Attorney
General, Michael S. Raab, Attorney, David A. Trissell, General
Counsel, Postal Regulatory Commission, and
Christopher J. Laver, and Anne J. Siarnacki, Deputy General
Counsels.
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Before: ROGERS and GRIFFITH, Circuit Judges, and
SILBERMAN, Senior Circuit Judge.
PER CURIAM: Under the Postal Accountability and
Enhancement Act, Pub. L. No. 109-435, 120 Stat. 3198 (2006),
the rates charged by the United States Postal Service for its
products are determined primarily according to their
classification as either “market-dominant” or “competitive.”
Subject to conditions, a product is competitive unless “the Postal
Service exercises sufficient market power that it can effectively
set the price of such product substantially above costs, raise
prices significantly, decrease quality, or decrease output, without
risk of losing a significant level of business to other firms
offering similar products.” 39 U.S.C. § 3642(b)(1). Market-
dominant products are subject to rate regulation by the Postal
Regulatory Commission, id. § 3622(a), which entails a price cap
that cannot rise more than the rate of inflation in any year, id. §
3622(d)(1). Competitive products are subject only to
requirements that effectively set a price floor. See 39 U.S.C. §
3633(a).
In the instant case, the Postal Service petitions for review,
contending the Commission’s action denying its parcel
reclassification request was arbitrary and capricious, see 5
U.S.C. § 706(2)(A), for failing to acknowledge, much less
explain, its decision to depart from precedent granting similar
requests. It does not seek review of the denial of the request to
transfer the “keys and identification devices” product to the
competitive category. We grant the petition.
I.
In 2011, the Commission approved the reclassification of
commercial Standard Mail Parcels as competitive. Order No.
689, Order Conditionally Granting Request to Transfer
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Commercial Standard Mail Parcels to the Competitive Product
List, Docket No. MC2010-36, at 20 (P.R.C. Mar. 2, 2011). It
did so based largely on the Postal Service’s estimate of its share
of the under one-pound parcel market, which, when compared
to the market shares of “formidable competitors” UPS and
FedEx, “demonstrated that the ground shipping market is
competitive.” Id. at 14, 16. The Commission granted the
request over opposition from the Parcel Shippers Association,
id. at 10, and despite the Postal Service’s inability to provide an
estimate of the likely impact that a significant price increase
would have on its market share, id. at 15.
One month later, the Commission approved the
reclassification of commercial First-Class Mail Parcels as
competitive. Order No. 710, Order Adding Lightweight
Commercial Parcels to the Competitive Product List, Docket
No. MC2011-22, at 11 (P.R.C. Apr. 6, 2011). In its request, the
Postal Service had identified three different segments of the
under one-pound parcel market (two-to-three day air;
consolidator ground; and commercial carrier ground). Id. at 5.
It acknowledged that it had captured most of the two-to-three
day air segment, but estimated that its competitors’ consolidator
ground services made up about 33% of the total market, and
commercial ground carriers made up about 20%. Id. at 5-6.
Based on the Postal Service’s own market share estimates of
44% (by volume) and 34% (by revenue), the Commission found
“significant competition in the marketplace” and approved the
request. Id. at 6, 11.
The following year, the Commission approved the
reclassification of the single-piece Parcel Post product – a
ground delivery service for parcels weighing one pound or more
– as competitive. Order No. 1411, Order Conditionally
Granting Request to Transfer Parcel Post to the Competitive
Product List, Docket No. MC2012-13, at 14 (P.R.C. July 20,
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2012). The Postal Service had estimated that this product
captured only 17.6% of the ground package retail market, and
1.1% of the entire ground package market, despite its lower
price than comparable UPS and FedEx products. Id. at 5. Based
on these estimates, the Commission determined that “[t]he
parcel delivery market is competitive,” and that “UPS and
FedEx are the dominant carriers, precluding the Postal Service
from exercising” market power, id. at 6, and granted the request,
id. at 14.
Subsequently, the Postal Service, in the instant case, sought
reclassification of retail First-Class Mail Parcels as competitive.
It again provided estimates of its market share: 7.2% of the
entire parcels market, 7.9% of the 0-70 pound 2-3 day air and
ground market, and 38.7% of the under-one pound 2-3 day air
and ground market, and again identified the primary competitors
as UPS and FedEx. As with the previous request to reclassify
commercial Standard Mail Parcels, the Commission received
comments opposing the request. This time the Commission
denied the request because “the Postal Service has not presented
adequate evidence, beyond mere assertions, sufficient to
determine what market Single-Piece, First-Class Mail Parcels
operates within.” Order No. 2686, Order Denying Transfer of
First-Class Mail Parcels to the Competitive Product Category,
Docket No. MC2015-7, at 17-18 (P.R.C. Aug. 26, 2015).
II.
“The fact that the Commission has decided to change . . .
the nature of the proof required of [the Postal Service] is not, in
and of itself, objectionable,” provided it has acknowledged the
change and offered a reasoned explanation for it. Hatch v.
FERC, 654 F.2d 825, 834 (D.C. Cir. 1981). If the change was
acknowledged and explained in a prior order, then the
Commission can satisfy its obligations by referencing that order.
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See Ramaprakash v. FAA, 346 F.3d 1121, 1129 (D.C. Cir.
2003).
In the challenged order, the Commission neither
acknowledged a change in course nor explained it. And unlike
in the round-trip mailer order, Order No. 2306, Order Denying
Request, Docket No. MC2013-57, CP-2013-75 (P.R.C. Dec. 23,
2014), where the Commission performed a more rigorous
analysis of market definition and power, id. at 13-54, there was
no obvious reason to change course here. In the round-trip
mailer case, the Postal Service had acknowledged that no other
shipping companies offered a comparable product, but it
nevertheless contended that it lacked market power due to
competition it faced from non-shipping alternatives. Id. at 2.
Given this novel proposition, the Commission had to consider
in depth whether to define the market to include alternative
delivery methods such as internet streaming and DVD kiosks.
See id. at 19-20. Order No. 2306 did not announce any
overarching change in course by the Commission, either
evidentiary or substantive. To the contrary, it cited with
approval parcel reclassification Order No. 689, id. at 46 n.32,
48, and it rejected the Postal Service’s argument that it was
imposing a new evidentiary burden, id. at 49 & n.34.
Consequently, “the Commission’s duty to explain itself
[was not] discharged by its fleeting reference to [the round-trip
mailer order] since it [did] not contain announcement of a new
standard and supporting rationale either.” See Hatch, 654 F.2d
at 834; see also Ramaprakash, 346 F.3d at 1129. Of course, the
Commission is not required “to grapple with every last one of its
precedents, no matter how distinguishable.” Resp’t Br. 42
(quoting Jicarilla Apache Nation v. U.S. Dep’t of Interior, 613
F.3d 1112, 1120 (D.C. Cir. 2010)). But the previous parcel
reclassification orders were relevant to the challenged order on
parcel reclassification; it was the round-trip mailer order, in
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which no other shipping service offered a competing product,
that was the distinguishable outlier. Neither could the
Commission fulfill its obligation to undertake reasoned
decisionmaking by distinguishing precedent “simply by
emphasizing the importance of considerations not previously
contemplated,” id. at 46-48 (quoting Envtl. Action v. FERC, 996
F.2d 401, 411-12 (D.C. Cir. 1993)), when the prior parcel
reclassification orders did not involve “materially different
situations.” Envtl. Action, 996 F.2d at 411 (quoting Hall v.
McLaughlin, 864 F.2d 868, 873 (D.C. Cir. 1989)). In Order No.
2686, the Commission was obliged to “forthrightly distinguish
or outrightly reject” those orders. See Hatch, 654 F.2d at 834.
Counsel’s effort in its brief to provide a post hoc rationale for
the Commission’s order — e.g., that the new standard is a
reasonable interpretation of the statute and the earlier parcel-
transfer cases had been superceded by a Commission order
while the instant request was pending — cannot fill the void.
See Burlington Truck Lines, Inc. v. United States, 371 U.S. 156,
168-69 (1962) (citing SEC v. Chenery, 332 U.S. 194, 196
(1947)); LePage’s 2000, Inc. v. Postal Regulatory Comm’n, 642
F.3d 225, 232 (D.C. Cir. 2011).
To the extent the Commission maintains any error was
harmless, see 5 U.S.C.§ 706, because its denial was without
prejudice, see Resp’t Br. 53; see also Zevallos v. Obama, 793
F.3d 106, 115 (D.C. Cir. 2015), the burden on the Postal Service
to show prejudice is not “a particularly onerous requirement,”
Shinseki v. Sanders, 556 U.S. 396, 410 (2009). The Postal
Service can refile its request, but it is unclear what evidentiary
standard will apply. It is also not a foregone conclusion that the
Commission would reach the same result on remand, see
Jicarillo, 613 F.3d at 1121, and even if it does, its more fulsome
explanation will guide the Postal Service’s submissions in future
cases.
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In view of our conclusion, it is unnecessary to address the
Postal Service’s alternative contention that the Commission’s
failure to address the dissenting opinion was arbitrary and
capricious. Accordingly, we grant the petition for review and
remand the case to the Commission for further proceedings.