Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-15-05330/USCOURTS-caDC-15-05330-0/pdf.json

Parties Involved:
Aspen Marketing Services, LLC
Appellant
Sears, Roebuck & Co.
Appellant
Segerdahl Graphics, Inc.
Appellant
United States Postal Service
Appellee

Document Text:

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 19, 2016 Decided December 20, 2016

No. 15-5330

SEARS, ROEBUCK & CO., ET AL.,

APPELLANTS

v.

UNITED STATES POSTAL SERVICE,

APPELLEE

Appeal from the United States District Court

for the District of Columbia

(No. 1:14-cv-01031)

David M. Levy argued the cause for appellants. With him 

on the briefs were John F. Cooney, Moxila A. Upadhyaya, and 

Katie M. Wright. 

Peter C. Pfaffenroth, Assistant U.S. Attorney, argued the 

cause for appellee. With him on the brief were R. Craig 

Lawrence, Assistant U.S. Attorney, Stephan J. Boardman, Chief 

Counsel, U.S. Postal Service, and Alice L.A. Covington, 

Appellate Counsel.

Before: SRINIVASAN and PILLARD, Circuit Judges, and 

EDWARDS, Senior Circuit Judge.

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Opinion for the Court filed by Senior Circuit Judge 

EDWARDS.

EDWARDS, Senior Circuit Judge: This case arises from 

Appellants’—Sears, Roebuck and Co. (“Sears”), Segerdahl 

Graphics, Inc. (“Segerdahl”), and Aspen Marketing Services, 

LLC (“Aspen”)—use of the United States Postal Service

(“Postal Service”) for delivery of bulk mailings. In 2009, 

Appellants mailed over 8.2 million folded self-mailers, i.e., mail 

that can be folded and sent without envelopes, for which they 

paid postage at a discounted automation rate. To qualify for the 

discounted rate, Appellants certified that their mailings met the 

applicable sealing requirements for oblong self-mailers. These 

requirements stated, in relevant part: “If the piece is 7 inches 

long or more, the piece must be sealed on the top and the 

bottom.” Domestic Mail Manual (“Manual”) § 201.3.14.1c

(May 11, 2009). 

Following an investigation, the Postal Service determined 

that Appellants were ineligible for the discounted rate because 

their mailers, which exceeded seven inches in length, had been 

sealed only on the left edges, and not on the top and bottom 

edges. The Postal Service assessed revenue deficiencies against 

Appellants for over $1.25 million. The assessments were upheld 

by the Postal Service’s Pricing and Classification Service Center 

(“PCSC”).

Appellants sued the Postal Service in the District Court to 

overturn the decisions of the PCSC. Appellants argued that the 

Manual did not specify where along the top and bottom edges 

the seals must be placed, and that their seals along the left edge 

were close enough to the top and bottom to effectively seal those

edges in compliance with the Manual requirements. Appellants 

thus claimed that the Postal Service’s interpretation of the 

Manual, and the PCSC’s decisions upholding that interpretation, 

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should be set aside as unreasonable. In their appeal to this court, 

Appellants additionally contend that, in the arguments presented 

to the District Court, counsel for the Postal Service offered a 

new interpretation of the Manual that could not be squared with 

the PCSC’s decisions. According to Appellants, the District 

Court’s reliance on this new interpretation violated the 

commands of SEC v. Chenery Corp., 318 U.S. 80 (1943). 

We can find no inconsistency in the Postal Service’s 

interpretation of the Manual. The PCSC’s decisions clearly held 

that, under the applicable 2009 sealing requirements, seven-inch 

or longer oblong self-mailers had to be sealed somewhere “on” 

the top and bottom edges. The PCSC also found that seals on the 

left edge that approached the top and bottom were not “on” the 

top and bottom. The Postal Service’s arguments to the District 

Court were not at odds with the PCSC’s decisions. We also find 

that the Postal Service’s interpretation of the sealing 

requirements is perfectly consistent with the terms of the 

Manual and entirely reasonable. 

For the reasons explained below, we deny Appellants’ 

challenges to the PCSC’s decisions and affirm the judgment of 

the District Court enforcing the revenue deficiencies against 

Appellants. However, because the Government has confessed 

error with respect to surcharges on the revenue deficiencies, we 

reverse and vacate the District Court’s award of surcharges 

against Appellants.

I. BACKGROUND

The eligibility requirements for automated rates are codified 

in the Manual and incorporated by reference in the Code of 

Federal Regulations. See 39 C.F.R. § 111.1. Appellants do not 

challenge the Postal Service’s authority to promulgate the 

sealing requirements at issue in this case. See 39 U.S.C. § 

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401(2). These requirements have been changed since 2009, but 

the parties agree that the May 11, 2009 version of the Manual

governs the resolution of this case.

In 2009, the Manual requirements for sealing on the open 

edges of folded self-mailers depended upon a mailer’s size, 

weight, number of pages, and place of folding. Manual § 

201.3.14.1. With respect to mailersfolded on the right edge, the

Manual stated:

The left edge (trailing edge) and other open edges must 

be secured with at least one tab or a glue line. The 

number of tabs required is determined by the final trim 

size and paper basis weight of the piece. If the piece is 

7 inches long or more, the piece must be sealed on the 

top and the bottom.

Manual § 201.3.14.1c. 

The Postal Service also published a Quick Service Guide

(“Guide”) that included illustrations showing examples of the 

correct use of tabs, seals, and glue strips or spots on folded selfmailers. Guide § 201b at 2. One illustration depicted a folded 

self-mailer folded on the right edge with the trailing (left), top, 

and bottom edges open. 

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Id. The illustration made it clear that separate sealants must be 

placed on the trailing, top, and bottom edges. Id. Although the 

illustration showed “tabs” as the method of sealing, the Guide 

made it plain that, “[a]s an alternative to tabs or wafer seals, the 

open edge of the length of the mailpiece may be continuously 

glued or spot glued.” Id. at 1.

In April 2009, an agent for Sears mailed out approximately 

5.8 million folded self-mailers (“Sears Mailers”). In August 

2009, Sears hired Segerdahl to mail out approximately half a 

million folded self-mailers(“Segerdahl Mailers”). In December 

2009, Aspen mailed out approximately 1.9 million folded selfmailers (“Aspen Mailers”). There is no dispute that all three 

mailers were subject to the sealant requirements of Manual § 

201.3.14.1c.

The Sears and Segerdahl Mailers were sealed by “a pair of 

elongated glue dots” parallel to the trailing edge, each elongated 

glue dot reaching to within one-half of an inch to one inch from 

the top or bottom edge. Joint Appendix (“JA”) 211; see also JA 

24, 211–12. The Aspen Mailers were similarly sealed with “two 

long glue lines placed at the end of the trailing edge,” JA 394, 

and extended “close to the top and bottom edges,” id., or were 

“flush” with the top and bottom edges, Br. for Appellants at 11. 

Aspen, Segerdahl, and Sears (through its agent) certified that 

their mailers complied with the automated standards and paid 

the discounted automated rates. See Manual § 607.1.1. 

The Postal Service assessed revenue deficiencies against 

each Appellant for their respective mailers. The deficiency letter 

to Searsstated that its mailers were “not prepared in accordance 

with automation design standards but receiv[ed] automation 

rates” and assessed a revenue deficiency of $1,033,597.19. JA

22. An Investigative Memorandum accompanying the 

deficiency letter stated the trailing edges were sealed, but 

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“[t]here were no additional tabs or glue spots on any of the other 

open sides,” JA 24, even though the Postal Service required 

“that all open sides needed to be sealed with tabs or glue spots, 

consistent with the illustration contained within the Quick 

Service Guide, section 201b,” JA 25. The Postal Service also 

assessed a deficiency of $94,978.27 against Sears for the 

Segerdahl mailings and a deficiency of $125,367.01 against 

Aspen for its mailers. Each letter stated that the mailers “lacked 

appropriate seals (tabbing or glue spot) at the open edges (top 

and bottom), as required.” JA 141, 172. Appellants then 

appealed to the PCSC to seek review of the deficiency 

assessments.

The PCSC confirmed that the Sears Mailers were “secured 

by means of two one inch glue lines on the trailing edge one 

within one inch of the top edge and the other within one inch of 

the bottom edge.” JA 2. The PCSC made it clear, however, that 

this arrangement did not satisfy the applicable sealing 

requirements. Id. The PCSC noted in passing that the 

Investigative Memorandum filed by the Postal Inspector stated

that “the top and bottom edges required a tab at the center of 

each edge,” id., but this was not the basis for PCSC’s decision. 

Rather, in rejecting Sears’ claim that the trailing edge glue 

served to seal the top and bottom, the PCSC stated that the

left edge (trailing edge) and other open edges must 

be secured with at least one tab or a glue line. The 

number of tabs required is determined by the final 

trim size and paper basis weight of the piece. If the 

piece is 7 inches long or more, the piece must be 

sealed on the top and the bottom . . . . [T]he 

placement of the glue lines near the trailing edge did 

not serve to secure the top and bottom open edges.

Id.

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As to the Segerdahl Mailers, the PCSC likewise found that 

the “placement of the glue lines near the trailing edge did not 

serve to secure the top and bottom open edges.” JA 126. As to 

the Aspen Mailers, the PCSC rejected the challenge to the

deficiency assessment on the ground that “the top and bottom 

edges were not sealed. . . . The standards clearly state that the 

top, bottom, and trailing edges must be sealed.” JA 166.

On June 18, 2014, Appellants filed suit in District Court 

against the Postal Service to set aside the revenue deficiencies.

Appellants alleged the Postal Service’s decisions violated the 

Manual because, “[w]hile the fourth sentence of former 

[Manual] § 201.3.14.1.c required that pieces ‘7 inches long or 

more’ be sealed ‘on the top and the bottom,’ the rule did not 

specify where along the top and bottom edges the seals must be 

placed.” JA 226–27. The Postal Service cross-claimed for 

enforcement of the revenue deficiencies. Appellants and the 

Postal Service then filed cross-motions for summary judgment.

The District Court upheld the PCSC’s decisions and entered 

judgment on the Postal Service’s counterclaim under the Federal 

Debt Collection Procedure Act, 28 U.S.C. §§ 3001 et seq., and 

the Federal Debt Collection Improvement Act, 31 U.S.C. §§

3701 et seq., in the amount of the revenue deficiencies assessed, 

plus a ten percent statutory surcharge. Sears, Roebuck & Co. v. 

USPS, 134 F. Supp. 3d 365 (D.D.C. 2015). The court found that 

the PCSC’s interpretation of the Manual was supported by the 

language and purpose of the regulation, and that the Postal 

Service had engaged in reasoned decision-making in issuing the 

deficiency assessments. The District Court additionally noted 

that Appellants’ “problem was not an off-center tab or glue spot; 

the problem was that there was essentially no seal on the top and 

the bottom.” Id. at 377. On November 20, 2015, Appellants filed 

a timely appeal with this court. 

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On September 22, 2016, the Postal Service submitted a 

letter to the court confessing error as to the ten percent

surcharges. The letter stated, inter alia, that,

upon further consideration, the government has 

determined that it is not in fact entitled to a surcharge 

under 28 U.S.C. § 3011(a) where, as here, it has not 

sought the pre- or post-judgment remedies referenced 

in § 3011(a). The government therefore will not collect 

the surcharge that the District Court awarded in this 

case, and it does not oppose vacatur of the part of the 

District Court’s judgment that awarded the surcharge.

Confession of Error Letter at 2 (Sept. 22, 2016), ECF No. 

1637245.

II. ANALYSIS

A. Standard of Review

“Apart from two very limited exceptions” that are irrelevant

here, the judicial review provisions of the Administrative 

Procedure Act (“APA”) are “not applicable ‘to the exercise of 

the powers of the Postal Service.’” Carlin v. McKean, 823 F.2d 

620, 622 (D.C. Cir. 1987) (quoting 39 U.S.C. § 410(a)); see also

N. Air Cargo v. USPS, 674 F.3d 852, 858 (D.C. Cir. 2012). 

Nevertheless, under the law of this circuit, Postal Service 

decisions are still subject to non-APA judicial review in some 

circumstances. See, e.g., Nat’l Ass’n of Postal Supervisors v. 

USPS, 602 F.2d 420, 432 (D.C. Cir. 1979) (“That the Postal 

Service has broad discretion . . . does not mean . . . that its 

decisions are entirely insulated from judicial surveillance”). The 

scope of non-APA review is narrow, however. See, e.g., Aid 

Ass’n for Lutherans v. USPS, 321 F.3d 1166, 1173 (D.C. Cir. 

2003) (“[J]udicial review is available when an agency acts ultra 

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vires”); see also Mittleman v. Postal Regulatory Comm’n, 757 

F.3d 300, 307 (D.C. Cir. 2014) (construing Aid Ass’n for 

Lutherans to apply to an analogous provision exempting the 

Postal Regulatory Commission from APA review; holding that 

judicial review “is available only to determine whether the 

agency has acted ‘ultra vires’—that is, whether it has ‘exceeded 

its statutory authority’”). 

In prior cases, we have construed the scope of non-APA 

review to include: (1) “a straightforward question of statutory 

interpretation,” Nat’l Ass’n of Postal Supervisors, 602 F.2d at 

432; see also N. Air Cargo, 674 F.3d at 858–59; (2) a question 

concerning whether a regulation in the Manual was a valid 

exercise of the Postal Service’s authority, Nat’l Retired 

Teachers Ass’n v. USPS, 593 F.2d 1360, 1363 (D.C. Cir. 1979); 

see also Aid Ass’n for Lutherans, 321 F.3d at 1175; and (3) a 

question focusing on whether a Postal Service decision was 

supported by the agency’s contemporaneous justification or, 

instead, reflected counsel’s post hoc rationalization, N. Air 

Cargo, 674 F.3d at 859–60 (applying Chenery, 318 U.S. 80). 

The Postal Service acknowledges that the applicable 

standard of review in this case is “whether the agency has 

engaged in ‘reasoned decision-making.’” Br. for Appellee at 18

(citing Greater Bos. Television Corp. v. FCC, 444 F.2d 841, 851 

(D.C. Cir. 1970); Motor Vehicle Mfrs. Ass’n v. State Farm 

Mutual Auto. Ins. Co. (“State Farm”), 463 U.S. 29, 43 (1983)). 

Although the Postal Service argues that “[t]his standard of 

review is ‘extremely limited’ and less intrusive than APA 

review,” id., the “reasoned decision-making” standard it cites is 

the paradigm of APA review, see EDWARDS, ELLIOTT, & LEVY,

FEDERAL STANDARDS OF REVIEW 203–10 (2d ed. 2013)

(discussing the requirement of “reasoned decisionmaking” under 

State Farm).

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Arguably, there is a question as to whether reasoned 

decision-making review can be squared with the seemingly 

more limited scope of review outlined in the court’s decisions in 

Aid Ass’n for Lutherans and Mittleman. We need not tarry over 

this question, however, because “[t]he judicial review provisions 

of the APA are not jurisdictional, so a defense based on 

exemption from the APA can be waived by the Government.” 

Air Courier Conf. v. Am. Postal Workers Union, 498 U.S. 517, 

523 n.3 (1991) (citation omitted). Because the Postal Service 

agrees that the reasoned decision-making standard of review

applies, Br. for Appellee at 17–22, we will assume the same.

B. The Agency’s Interpretation of the Sealing 

Requirement Has Not Changed over the Course of 

These Proceedings.

Under Chenery, “an administrative order cannot be upheld 

unless the grounds upon which the agency acted in exercising its 

powers were those upon which its action can be sustained.” 318 

U.S. at 95. “[T]he orderly functioning of the process of review 

requires that the grounds upon which the administrative agency 

acted be clearly disclosed and adequately sustained,” so that the 

reviewing court can be assured the agency “has exercised the 

discretion with which Congress has empowered it.” Id. at 94–95.

Appellants contend that the District Court’s decision flouts

the commands of Chenery. In particular, Appellants argue:

In the briefs of the Postal Service, the construction 

of former [Manual] § 201.3.14.1c underwent several 

radical changes. The briefs repudiated the legal theory 

actually adopted by the PCSC—that former [Manual] § 

201.3.14.1c required the top and bottom edges to be 

sealed “at the center of each” edge. Appellate counsel 

advanced instead a succession of alternative 

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interpretations of the rule—several of which the same 

counsel in turn abandoned.

Br. for Appellants at 21. We reject this argument because it 

misconstrues the record. 

As noted above, the PCSC’s decisions noted in passing that 

the Postal Inspector’s Investigative Memoranda stated that “the 

top and bottom edges required a tab at the center of each edge.” 

JA 2, 126. This, however, was not the basis for the PCSC’s 

decisions. Rather, the PCSC made it clear that, under the 

applicable sealing requirements, the “left edge (trailing edge) 

and other open edges must be secured with at least one tab or a 

glue line,” and that “the piece must be sealed on the top and the 

bottom.” Id. The PCSC did not say that center placement of the 

glue or tabs was part of the requirement. Rather, it merely said 

that “the placement of the glue lines near the trailing edge did 

not serve to secure the top and bottom open edges.” Id.

Before the District Court, counsel for the Postal Service 

reasonably referenced the final decisions of the PCSC to “make 

clear that the core problem with plaintiffs’ self-mailers was that 

there was no seal on the top or bottom at all, not that it was offcenter.” JA 322 n.6. This representation was not at odds with the 

PCSC’s decisions, nor did it reflect a post hoc rationalization of 

the agency’s interpretation of the Manual. See, e.g., Chiquita 

Brands Int’l Inc. v. SEC, 805 F.3d 289, 299 (D.C. Cir. 2015) 

(“Chenery does not bar an agency’s counsel from merely 

elaborating on the consistent stance the agency articulated 

below”). 

Appellants seem to suggest that the agency was bound to 

the statement in the Investigative Memoranda suggesting that a 

center placement of the glue or tabs was part of the sealing 

requirement. This is simply wrong. The Investigative 

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Memoranda were prepared by the Postal Inspector, whose 

authority is to “investigate all allegations of violations of postal 

laws or misconduct by all . . . persons [other than postal 

employees].” 39 C.F.R. § 233.1(b)(1)(ii). The Postal Inspector 

does not serve an adjudicative function. It is the local Post 

Office that assesses the initial revenue deficiency. Any dispute 

over an assessment must be appealed to the PCSC, which in turn 

“issues the final agency decision.” Manual § 607.2.1; see also

id. § 607.2.5. 

The separation of investigatory and adjudicatory functions

is a familiar feature in some administrative agencies. For 

example, in the Department of Labor, the Occupational Safety 

and Health Act of 1970 (“OSH”) “charges the Secretary [of 

Labor] with responsibility for setting and enforcing workplace 

health and safety standards. . . . If the Secretary (or the 

Secretary’s designate) determines upon investigation that an 

employer is failing to comply with such a standard, the 

Secretary is authorized to issue a citation and to assess the 

employer a monetary penalty.” Martin v. Occupational Safety & 

Health Review Comm’n, 499 U.S. 144, 147 (1991). However, 

the “Commission is assigned to ‘carr[y] out adjudicatory 

functions’ under the Act.” Id. (citation omitted); see also RAG 

Cumberland Res. LP v. Fed. Mine Safety & Health Review 

Comm’n, 272 F.3d 590, 592, 595 (D.C. Cir. 2001) (explaining 

division of authority in the Mine Act between inspecting and 

issuing citations for violations of the Mine Act, which is the 

purview of the Secretary of Labor, and adjudicating disputes 

under the Mine Act, “including challenges by mine operators to 

citations and orders issued by the Secretary of Labor,” which is 

the purview of the Federal Mine Safety and Health Review 

Commission). 

Here, the Postal Inspector’s purview is even more limited 

than the Secretary of Labor under OSH or the Mine Act, for the 

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Postal Inspector does not establish regulatory standards. And the 

Postal Inspector certainly does not issue decisions that constitute 

final agency actions. The Postal Inspector’s Investigative 

Memoranda in this case did not even recommend sanctions. 

Instead, the Memoranda merely stated that the Postal Inspector 

“initiated an investigation of a potential revenue deficiency,” JA 

24, and concluded “a revenue loss . . . is attributed to this 

mailing,” JA 26. See also JA 174, 176. The initial 

determinations regarding assessments for revenue deficiencies 

were made by local post offices, and the PCSC issued the final 

agency decisions approving the assessments.

What matters here is what the PCSC said in justifying the 

assessments against Appellants. As we have explained, the 

PCSC did not interpret the Manual to require a center placement 

of the glue or tabs. What the PCSC found, and the District Court 

confirmed, was that Appellants’ “problem was not an off-center 

tab or glue spot; the problem was that there was essentially no

seal on the top and the bottom.” Sears, Roebuck & Co., 134 F. 

Supp. 3d at 377. This has been the consistent position of the 

Postal Service during the entire course of these proceedings. 

Therefore, we reject Appellants’ argument that the District 

Court’s decision defies Chenery.

C. The Postal Service’s Interpretation of the Sealing 

Requirements Was Reasonable.

Under the applicable standard of review, we are constrained 

to defer to the agency’s interpretation of the Manual if it 

“sensibly conforms to the purpose and wording of the 

regulations.” Fabi Constr. Co. v. Sec’y of Labor, 370 F.3d 29, 

36 (D.C. Cir. 2004) (quoting Montgomery KONE, Inc. v. Sec’y 

of Labor, 234 F.3d 720, 722 (D.C. Cir. 2000)). In their brief to 

this court, Appellants proffer alternative interpretations of the 

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sealing requirements in an effort to undercut the PCSC’s 

decisions. Their arguments cannot carry the day.

The PCSC’s decisions upholding the Postal Service’s 

interpretation of the Manual’s sealing requirements easily 

survive review pursuant to the reasoned decision-making 

standard. The PCSC held that a self-mailer longer than seven 

inches must have one tab (or glue line) on the left edge, one on 

the top, and one on the bottom. This holding conforms precisely 

to the plain language of the Manual. Likewise, the PCSC’s 

holding that the two glue lines on the left edge of Appellants’ 

mailers were not “on” the top or bottom merely because they 

were “near” the top and bottom edges is a perfectly reasonable 

construction of the Manual. Indeed, the illustration in the Postal 

Service’s Quick Guide – with three separate tabs sealing the left, 

top, and bottom edges – gave Appellants clear notice of the 

sealing requirements.

Appellants contend that it was not necessary for the Postal

Service to require three tabs or glue lines to prevent hollow, 

circular mail pieces that might jam mail sorting equipment. This 

is not the point, however. There is no doubt that the sealing 

requirements as interpreted by the Postal Service effectively 

served to limit jams in mail sorting equipment. It does not 

matter that different requirements might have served the same 

purpose. What matters here is that the sealing requirements were 

reasonable and Appellants had clear notice of what was 

necessary in order to qualify for the discounted automation rate. 

Therefore, pursuant to the reasoned decision-making standard, 

we will not second-guess the Postal Service’s reasonable 

judgments regarding Manual requirements. See, e.g., USPS v. 

Postal Regulatory Comm’n, 785 F.3d 740, 750 (D.C. Cir. 2015) 

(“[W]e review the [Postal Regulatory] Commission’s 

interpretation of its own regulations with substantial deference,

allowing that interpretation to control unless plainly erroneous 

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or inconsistent with the regulation” (citation and internal 

quotation marks omitted)); Orengo Caraballo v. Reich, 11 F.3d 

186, 193 (D.C. Cir. 1993) (“While we require the [Department 

of Labor] to offer a reasoned analysis . . ., we do not sit in 

review to substitute our judgment for that of the agency”).

Finally, Appellants contend that sealing requirements 

adopted after 2009 would not pass muster under the Postal 

Service’s construction of the 2009 requirements. This claim is 

self-evidently irrelevant because, as we have found, the 2009 

requirements were reasonable and we have no occasion here to 

assess requirements adopted after 2009.

III. CONCLUSION

We hereby deny Appellants’ challenges to the PCSC’s

decisions and affirm the judgment of the District Court 

enforcing the revenue deficiencies against Appellants. We 

reverse and vacate the District Court’s award of surcharges 

against Appellants.

So ordered.

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