United States Postal Service v. Postal Regulatory Commission ( 2014 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued February 19, 2014 Decided April 8, 2014
No. 13-1229
UNITED STATES POSTAL SERVICE,
PETITIONER
v.
POSTAL REGULATORY COMMISSION,
RESPONDENT
GAMEFLY, INC.,
INTERVENOR
On Petition for Review of Orders
of the Postal Regulatory Commission
David C. Belt, Attorney, United States Postal Service,
argued the cause for the petitioner. Morgan E. Rehrig,
Attorney, was on brief. Stephan J. Boardman, Attorney,
entered an appearance.
Jeffrey A. Clair, Attorney, United States Department of
Justice, argued the cause for the respondent. Stuart F. Delery,
Assistant Attorney General, Michael S. Raab, Attorney,
Stephen L. Sharfman, General Counsel, Postal Regulatory
2
Commission, R. Brian Corcoran, Deputy General Counsel,
and Richard A. Oliver, Attorney, were on brief.
David M. Levy, John F. Cooney and Matthew D. Field
were on brief for intervenor GameFly, Inc. in support of the
respondent.
Before: HENDERSON and KAVANAUGH, Circuit Judges,
and RANDOLPH, Senior Circuit Judge.
Opinion for the Court filed by Circuit Judge
HENDERSON.
KAREN LECRAFT HENDERSON, Circuit Judge: The
United States Postal Service (USPS) seeks review of three
orders of the Postal Regulatory Commission (Commission or
PRC) implementing our mandate in GameFly, Inc. v. Postal
Regulatory Commission (GameFly I), 704 F.3d 145 (D.C. Cir.
2013). In GameFly I, the PRC had found that USPS violated
the proscription of “undue or unreasonable discrimination” in
39 U.S.C. § 403(c) when it refused to provide to GameFly,
Inc. (GameFly), a company that rents and sells DVD video
games by mail, the same special manual processing service
for first class round-trip letter DVD mailers that USPS
provided to Netflix, Inc. (Netflix), a company that rents DVD
movies by mail.1 Because of the disparate treatment,
GameFly was forced to use USPS’s more expensive first class
“flat” mailer service to avoid DVD breakage in transit. We
upheld the Commission’s finding of discrimination but
rejected the remedy it adopted—reducing the DVD flat
service rate—because it left in place unjustified residual
discrimination in that GameFly was still forced to pay a
higher rate than Netflix paid to obtain comparable DVD
1
“DVD” is an abbreviation for “digital versatile disk’’ or
‘‘digital video disc.’’ GameFly I, 704 F.3d at 146.
3
protection. Accordingly, we remanded for the Commission to
justify the residual discrimination or eliminate it entirely. On
remand, the Commission adopted a remedy which equalizes
the cost of first class letter and flat DVD rates, enabling
GameFly (or Netflix or any other DVD mailer) to use either
service at the same cost. We conclude the Commission’s
decision is consistent with our decision in Gamefly I and with
the Postal Accountability and Enhancement Act (PAEA),
Pub. L. No. 109–435, 120 Stat. 3198 (2006). Accordingly,
we deny USPS’s petition for review.
I.
In April 2009, GameFly filed a complaint with the PRC
alleging that USPS granted preferential rates and terms of
service to Netflix in violation of 39 U.S.C. § 403(c), which
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.
GameFly alleged that USPS routinely hand-processed round-
trip DVD mailers Netflix mailed at the first class one-ounce
letter rate of $0.44 each, while waiving the customary non-
machineable surcharge for mail that cannot be machine-
processed—but refused to provide the same service to
GameFly. As a result, to avoid the risk of DVD breakage in
the automated sorters, GameFly was forced to mail its games
in DVD flat mailers at the more expensive first class flat rate
of $0.88 and to use a protective cardboard insert that bumped
4
up the mailer to the two-ounce rate, adding another $0.20 to
the cost.
In April 2011, the PRC issued an order concluding that
USPS’s disparate treatment had subjected GameFly to “undue
or unreasonable discrimination among users of the mails” in
violation of 39 U.S.C. § 403(c) and imposing a remedy
pursuant to its authority under section 205 of PAEA, 39
U.S.C. § 3662(c).2 Rejecting the two straightforward
remedies GameFly had suggested—to require that USPS offer
GameFly the same manual processing at the same rates as
Netflix or to offer a reduced automation rate for flat DVD
mailers—the Commission instead directed that USPS (1)
waive the $0.20 second-ounce rate for DVD flat mailers and
(2) refrain from imposing the non-machineable surcharge on a
round-trip first class DVD letter mailer weighing one ounce
or less. Order on Complaint at 2, Complaint of GameFly,
Inc., Docket No. C2009-1 (PRC Apr. 20, 2011) (2011 PRC
Order). The Commission acknowledged that its remedy
“could still require GameFly to ‘continue to generate more
than double the contribution per piece than Netflix mail’ ’’
2
Section 205 provides:
If the Postal Regulatory Commission finds the complaint
to be justified, it shall order that the Postal Service take
such action as the Commission considers appropriate in
order to achieve compliance with the applicable
requirements and to remedy the effects of any
noncompliance (such as ordering unlawful rates to be
adjusted to lawful levels, ordering the cancellation of
market tests, ordering the Postal Service to discontinue
providing loss-making products, or requiring the Postal
Service to make up for revenue shortfalls in competitive
products).
39 U.S.C. § 3662(c).
5
but explained that “ ‘the remaining rate disparity is reasonable
in light of the differences between the letter-shaped and flat-
shaped round-trip DVD mailers.’ ’’ GameFly I, 704 F.3d at
148 (quoting 2011 PRC Order at 115).
GameFly filed a petition for review which we granted in
GameFly I. We found the Commission’s order was arbitrary
and capricious because it left in place, without adequate
justification, the very discrimination of which GameFly
complained: that USPS provided manual processing to
Netflix but not to GameFly. Without such special handling,
GameFly was compelled either to pay the higher flat mail rate
or to switch to letter mail and thereby risk “an epidemic of
cracked and shattered DVDs.” Id. at 149. Accordingly we
vacated the PRC’s order and remanded for “an adequate
remedy,” directing that the PRC “either remedy all
discrimination or explain why any residual discrimination is
due or reasonable under § 403.” Id.
On remand, after a PRC-ordered settlement conference
proved unsuccessful, the Commission issued a new remedial
order. Order on Remand, Complaint of GameFly, Inc.,
Docket No. C2009-1R (PRC June 26, 2013) (Remand Order)
(JA 269). The Commission first set out three objectives it
found essential to whatever remedy was adopted: that the
remedy be (1) effective at redressing the residual
discrimination, (2) that it be readily enforceable and (3) that it
be able to be expeditiously implemented. The Commission
then selected, in the alternative, the only two remedies it
found met all three of the objectives:
The Postal Service shall equalize the rates for letter-
and flat-shaped DVD mail either by: (1) establishing
new equalized rates for letter-shaped and flat-shaped
DVD mail; or (2) reducing the price for a two-ounce
6
First-Class flat-shaped round-trip DVD mailer to the
price for a one-ounce First-Class letter-shaped
round-trip DVD mailer.
Remand Order at 39; see id. at 35 (“[T]he Commission
concludes that an equalized rate remedy will be effective,
enforceable, and can be implemented without unnecessary
delay.”). The Commission directed that, whichever
alternative it chose, USPS was to file a notice of price
adjustment within 30 days of the order and implement the
change within 45-65 days thereafter. USPS moved for
reconsideration of the Remand Order and also submitted a
request to create a new “competitive” mail product for
DVDs—a single all-purpose “Round-Trip Mailer”—to
replace the separate first class letter and first class flat round-
trip mailers, which are “market-dominant” products. See
Request of USPS under § 3642 to Create Round-Trip Mailer
Product at 3, Complaint of GameFly, Inc., Docket No. C2009-
1R (July 26, 2013).3 The PRC denied reconsideration but
opened a docket to consider USPS’s new product request.
On September 4, 2013, the Commission issued its final
remedial order. Order Prescribing Remedy, Complaint of
3
“A service is ‘market-dominant’ if either (1) the Postal
Service has achieved a level of market power in providing that
service that would allow it to raise prices without losing ‘a
significant level of business,’ [39 U.S.C.] § 3642(b)(1), or (2) it is a
service covered by the statutory postal monopoly, id. § 3642(b)(2).”
Newspaper Ass’n of Am. v. Postal Regulatory Comm’n, 734 F.3d
1208, 1210 (D.C. Cir. 2013). The PRC is charged with ensuring
that competitive products not be subsidized by market-dominant
products, that each competitive product cover its own costs and that
collectively they cover “an appropriate share” of USPS’s
institutional costs. 39 U.S.C. § 3633(a).
7
GameFly, Inc., Docket No. C2009-1R (PRC Sept. 4, 2013)
(Remedy Order) (JA 368). It explained therein that, because
of the delay posed by multiple parties’ opposition to USPS’s
new competitive product request combined with “the
potential complexity of the legal and factual issues” it raised,
the “appropriate solution” was to prescribe the second
alternative remedy effective no later than the deadline date.4
Remedy Order at 4-6. Accordingly, the Commission adopted
the second of the Remand Order’s alternative rate-based
remedies, to take effect September 30, 2013:
[T]he Commission directs the Postal Service to
equalize the rates for letter- and flat-shaped DVD
mail by reducing the price for a two-ounce First-
Class flat-shaped round-trip DVD mailer to the price
for a one-ounce First-Class letter-shaped round-trip
DVD mailer effective September 30, 2013.
Remedy Order at 1-2. In announcing the remedy, the
Commission invoked its “authority under [PAEA section 205]
to ‘take such action as the Commission considers appropriate
in order to achieve compliance with the applicable
requirements and to remedy the effects of any noncompliance
such as ordering unlawful rates to be adjusted to lawful
levels.’ ” Remedy Order at 8 (quoting 39 U.S.C. § 3662(c),
supra note 2) (bracketed insertion added; other alterations
omitted).
4
The PRC concluded that implementing the remedy would not
cause USPS “material injury” because its new product request
sought the same rate and effective date, the remedy would not have
“price cap implications” for USPS and USPS was free to proceed
with its new product request. Remedy Order at 6-7. On the flip
side, the PRC concluded implementation would prevent
“indeterminate” and “unacceptable” delay in redressing the
discrimination GameFly was then experiencing. Id. at 5.
8
USPS timely petitioned for review of the Remand Order,
the reconsideration denial and the Remedy Order.
II.
USPS challenges the Commission’s remedy on several
grounds. The court reviews the Commission’s orders
pursuant to the Administrative Procedure Act (APA), 5
U.S.C. §§ 701 et seq., and may therefore set them aside if
they are “arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law.” GameFly I, 704 F.3d
at 148 (quoting 5 U.S.C. § 706(2)(A)); see also 39 U.S.C.
§ 3663 (incorporating APA review standard). In our review,
we adhere to our “long-standing principle that ‘the breadth of
agency discretion is, if anything, at [its] zenith when the
action assailed relates primarily not to the issue of
ascertaining whether conduct violates the statute, or
regulations—but rather to the fashioning of . . . remedies and
sanctions.’ ” Am. Tel. & Tel. Co. v. FCC, 454 F.3d 329, 334
(D.C. Cir. 2006) (quoting Niagara Mohawk Power Corp. v.
Fed. Power Comm’n, 379 F.2d 153, 159 (D.C. Cir. 1967))
(ellipsis in original). So deferring to the Commission’s
remedial determination, we reject USPS’s arguments and
deny its petition for review.5
A. GameFly I’s Mandate
USPS first contends the PRC’s remedy is inconsistent
with our mandate in GameFly I. See City of Cleveland, Ohio
5
Intervenor GameFly also questions USPS’s standing but we
find USPS adequately demonstrated it has been injured—as well as
“adversely affected or aggrieved,” 39 U.S.C. § 3663—by the
PRC’s challenged orders under which it receives less compensation
for flat DVD mail than previously.
9
v. Fed. Power Comm’n, 561 F.2d 344, 346 (D.C. Cir. 1977)
(“The decision of a federal appellate court establishes the law
binding further action in the litigation by another body subject
to its authority. The latter is without power to do anything
which is contrary to either the letter or spirit of the mandate
construed in the light of the opinion of (the) court deciding
the case . . . .”) (quotation mark and footnote omitted). In its
challenge, USPS attempts to limit the scope of our mandate to
require that the Commission implement an operational
remedy—i.e., one changing the way that mail is processed—
rather than the rate-based remedy the PRC in fact adopted,
equalizing the letter and flat rates. USPS argues that in
Gamefly I, we faulted the PRC’s remedy because it “left in
place ‘terms of service discrimination,’ i.e., ‘providing
manual letter processing to Netflix but not GameFly,’ ” and
that therefore “the price difference between letters and flats
was irrelevant to the finding of discrimination, which
concerned the discriminatory terms of service offered for
DVDs sent as letters.” USPS Br. 37 (quoting GameFly I, 704
F.3d at 149) (emphases in original). USPS places too much
emphasis on the isolated language it quotes.
In GameFly I, we made clear the residual discrimination
lay in both the services offered and the rates charged therefor.
We expressly noted the PRC “found that the Postal Service
had discriminated against GameFly in rates and terms of
service” and instructed that where it “allows discrimination to
exist in the postal rate structure, it must explain why that
discrimination is due or reasonable under § 403(c).” 704 F.3d
at 147-48 (emphases added). Moreover, our mandate was
quite broad, directing the PRC on remand to “either remedy
all discrimination or explain why any residual discrimination
is due or reasonable under § 403.” Id. at 149 (emphasis
added). In no wise did we foreclose adopting a rate-based
remedy. To the contrary, we foresaw that on remand the
10
Commission would “surely consider” the remedies GameFly
had already proposed (and the PRC rejected)—which were
themselves rate-based remedies, see id. at 147—while noting
“there may be a range of other possible remedies which
would withstand appellate review.” 704 F.3d 149 (emphasis
added). In the end, we rejected the Commission’s chosen
remedy not because it was rate-based—although it was—but
because the PRC had not adequately justified what it
acknowledged was a “ ‘difference in the rates that will be
paid by Netflix and GameFly under the remedy.’ ” Id. at 148(quoting 2011 PRC Order at 115) (emphasis added).
Contrary to USPS’s arguments, our decision in GameFly I (as
well as GameFly’s complaint and the 2011 PRC Order)
focused on rate discrimination and GameFly’s need to “resort
to [expensive] workarounds to get its DVDs to its customers”
and to spend “millions annually to avoid the Postal Service’s
automated letter processing stream.” Id. at 147. The high
costs of flat mailer services were part and parcel—the direct
result—of the service discrimination the PRC and this court
found. See id. at 149 (‘[T]he Commission’s findings establish
that the Postal Service’s terms of service discrimination
against GameFly . . . led to the companies’ use of different
mailers.”); id. at 149 (“[T]he use of different mailers is itself
the product of the service discrimination.”). Accordingly, we
conclude that the Commission’s rate based remedy is fully
consistent both with our decision in GameFly I and with the
Commission’s remedial authority—and obligation—under
PAEA to “take such action as . . . appropriate in order to
achieve compliance with the applicable requirements and to
remedy the effects of any noncompliance.” 39 U.S.C.
§ 3662(c) (emphasis added).
11
B. Alternative Remedies
Next, USPS asserts that the PRC was required to choose
its remedy from among the operational options proposed, any
one of which would have been effective in eliminating what
USPS views as the limited discrimination we identified in
GameFly I. This argument fails from the start given our
rejection, supra Part II.A, of USPS’s narrow characterization
of the discrimination that the Commission and the court found
existed (i.e., as limited to disparate service without regard to
the high rates GameFly paid as a consequence) and of the
permissible “range of remedies” therefore available to USPS
(i.e., as limited to operational remedies only). In any event,
the Commission reasonably explained why it rejected the six
operational remedies before it—none of them served all three
of the Commission’s stated objectives: that the remedy be
effective, enforceable and readily implemented. See Remand
Order at 26-35.
The Commission rejected three of the proposed
operational remedies as not “effective” because they lacked
an objective requirement to ensure parity of treatment among
DVD mailers so as to remedy the unlawful discrimination.6
6
See Remand Order at 18-19 (rejecting operational remedy that
required USPS to process GameFly letters using non-machine
processing “ ‘[t]o the extent possible and practicable’ and ‘to
substantially the same degree’ as other DVD mailers’ DVD mail”
because of the “vagueness of the standard”); id. at 20 (rejecting
remedy requiring both the non-machinable surcharge on letter DVD
mail and the second-ounce rate on 2-ounce flats as leaving open
“possibility that the Postal Service could continue to provide
manual processing only to Netflix (and not other letter-shaped
DVD mailers) and still subject all letter-shaped DVDs to the non-
machinable surcharge”); id. at 12, 20-21 (rejecting remedy that
requires manual handling of all letter-shaped DVDs “subject to
12
In contrast, the remedy the Commission selected was
unequivocally effective in equalizing the playing field,
thereby eliminating the discrimination—or at least its
injurious effects. The remaining three operational remedies—
each of which the Commission acknowledged “could at least,
in theory, be effective,” id. at 21—it also dismissed.7 The
Commission concluded each of these remedies was “likely to
prove prohibitively difficult to enforce,” as USPS had itself
acknowledged in a May 3, 2013 letter. Id. at 21-22 (USPS
wrote that it would be “ ‘unrealistic’ ” and “ ‘difficult, if not
practically impossible, or exceedingly costly, to maintain an
ongoing enforcement mechanism that would ensure that every
mailer’s DVD letters will receive exactly the same levels of
manual processing experienced by every other mailer of DVD
letters, either locally or nationally’ ”). The Commission
further reasonably found that any of the proposed operational
remedies would cause significant and unnecessary delay
because it would require reopening the docket—given
USPS’s assertion the record did not reflect recent operational
changes which affect the formulation of an operational
certain standards” because it “would leave implementation almost
entirely in the hands of local Postal Service managers” and USPS
itself warned PRC and GameFly to “expect significant variation in
actual implementation, depending on local processing decisions”).
7
See Remand Order at 21-25 (rejecting GameFly’s quondam
but since-abandoned operational proposals to require “a measurable
and enforceable level of manual culling and processing of DVD
mailers sent at machinable letter rates,” id. at 11 (quotation marks
omitted), or to require that USPS either provide same level of
manual processing to both Netflix and GameFly or discontinue
manual processing of Netflix mail altogether; and PRC’s own
proposal to retain 2011 PRC Order remedy but with an
“enforcement mechanism to ensure manual processing at a certain
level,” id. at 12).
13
remedy, GameFly’s claim the existing record was inadequate
and the inherent difficulty of creating an enforceable
operational remedy—all resulting in “potentially protracted
remand proceedings” that would only prolong the unlawful
discrimination and increase the injury to GameFly and other
DVD mailers. Id. at 25. Given the Commission’s thorough
and sound explanation for preferring the rate-based remedy it
chose over the proposed operational remedies, we defer to its
technical remedial choice.8 See AT&T Wireless Servs., Inc. v.
FCC, 365 F.3d 1095, 1099 (D.C. Cir. 2004) (although “[t]he
court is generally the authoritative interpreter of its own
remand . . . and . . . owes no deference to the Commission’s
interpretation of its task on remand[,] . . . [t]o the extent the
Commission’s explanation on remand encompasses technical
predictions within its expertise, . . . the court will defer to its
judgment so long as it is ‘not contrary to law, is rational, has
support in the record, and is based on a consideration of the
relevant factors[]’ . . . because ‘greater discretion is given
administrative bodies when their decisions are based upon
judgmental or predictive conclusions’ ” (quoting NAACP v.
FCC, 682 F.2d 993, 997, 1001 (D.C. Cir. 1982)) (alterations
added; citations omitted)).
8
We readily dismiss USPS’s challenge to the PRC’s reliance
on the three objectives—in particular enforceability and timeliness.
The Commission adequately explained why it adopted the three
common-sense objectives, see Remand Order at 14-18, and its
choices seem to us patently reasonable. Nor do we see merit in
USPS’s objections to the PRC’s analysis based on the chosen
objectives. USPS’s suggested enforcement alternatives—the
lengthy statutory complaint process and scanning a bar code to
determine the fact of manual processing, see USPS Br. 45-47—do
not so effectively enforce timely compliance with section 403 or
ensure equal quality of processing as does the simple upfront rate-
based remedy the Commission adopted.
14
C. Arbitrariness
Finally, USPS contends the “equalized rate” the
Commission chose is arbitrary because (1) it does not respond
to the discrimination that the PRC and this court found and
(2) the PRC failed to consider whether the new rate is
consistent with PAEA’s market-dominant provisions. The
first contention is easily answered. As we explained above,
supra Part II.A, the remedy adopted eliminates the
discriminatory treatment the PRC and the court found—and
the effects thereof—because it ensures that all mailers will
receive comparable service at no additional cost. Regarding
the second assertion, USPS argues that under PAEA the PRC
could not find the existing rate for flats was “unlawful”
“without resort to the objectives, factors and policies of 39
U.S.C. § 3622, which govern the rates for market-dominant
products.” USPS Br. 52 (citing 39 U.S.C. § 3622(a))
(emphasis omitted). As an initial matter, section 3622 on its
face applies only to the Commission’s fundamental statutory
duty “by regulation [to] establish . . . a modern system for
regulating rates and classes for market-dominant products.”
39 U.S.C. § 3622(a) (emphases added); it does not purport to
govern the Commission’s action here in adjusting individual
rates to remedy the effects of discrimination pursuant to its
duty and authority under 39 U.S.C. § 3662(c). See Remand
Order at 31 (explaining PRC’s exercise of its section 3662(c)
authority to resolve discrimination complaint). In any event,
to whatever extent the Commission was bound to consider the
statutory factors (as it apparently concedes that it was, see
PRC Br. 40), it reasonably concluded that those “generally
applicable ratemaking policies” were outweighed by the need
to afford the complete relief we ordered in GameFly I. See
Order on Reconsideration and Clarification at 5, Complaint of
GameFly, Inc., Docket No. C2009-1R (PRC Aug. 13, 2013).
15
For the foregoing reasons, we deny the petition for
review.
So ordered.