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Parties Involved:
GameFly, Inc.
Intervenor for Respondent
Postal Regulatory Commission
Respondent
United States Postal Service
Petitioner

Document Text:

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.

USCA Case #15-1338 Document #1649488 Filed: 12/06/2016 Page 1 of 7
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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). Marketdominant 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 parceltransfer 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.

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