Opinion ID: 2800057
Heading Depth: 2
Heading Rank: 2

Heading: The Commission’s Decision Is Arbitrary and

Text: Capricious As noted above, the statute and regulations do not foreclose the Commission’s claim that, in regulating the inflation-based price cap, it has some authority to assess mail preparation requirements that have rate effects. However, the Commission’s Order in this case fails under arbitrary and capricious review. “Put simply, the [Administrative Procedure Act] requires that an agency’s exercise of its statutory authority be reasonable and reasonably explained.” Mfrs. Ry. Co., 676 F.3d at 1096. The agency fails to reasonably explain its decision if it gives “differential treatment of seemingly like cases.” LePage’s 2000, Inc. v. Postal Regulatory Comm’n, 642 F.3d 225, 232 (D.C. Cir. 2011). And we owe no 24 deference to an agency determination that is “largely incomprehensible.” Coburn v. McHugh, 679 F.3d 924, 926 (D.C. Cir. 2012). At its core, the Commission’s Order is arbitrary and capricious because it fails to articulate a comprehensible standard for the circumstances in which a change to mail preparation requirements such as the one in this case will be considered a “change in rates.” The failing is particularly concerning because the Commission acknowledges that its interpretation of its authority could have broad consequences for the Postal Service, theoretically allowing the Commission to superintend not only the changes in posted rates listed in the Mail Classification Schedule, but also any of the myriad operational changes that reclassify mailpieces and have “rate effects.” The Commission does not claim this unbridled authority. Indeed, the Commission concedes that it has a responsibility to provide “clear guidance to the Postal Service and its customers about the scope and contours of the price cap requirements.” Order on Price Adjustments at 15. In response to the Postal Service’s concern that the Commission’s reasoning would lead it to deem all mail preparation requirements to be changes in rates, the Commission sought to reassure the Postal Service with these words: “The Commission has not and will not indiscriminately treat all new mail preparation requirements as rate adjustments.” Id. at 25. Unfortunately, the Commission’s decision fails to set forth a standard that will ensure that this promise is kept. In attempting to define which operational changes would count as rate adjustments, the Commission is cryptic, to say the least. It says that a change in rates occurs when the mail preparation requirement change at issue “require[s] mailers to alter a basic characteristic of a mailing in order for the 25 mailing to qualify for the same rate category for which it was eligible before the change in requirements.” Id. at 18. This purported standard does not come close to satisfying the requirement of reasoned decisionmaking, most notably because the reference to a “basic characteristic of a mailing” has no content and is not accompanied by an adequate explanation of how the standard applies to the facts of this case. As a consequence, the purported standard is indiscriminate and offers no meaningful guidance to the Postal Service or its customers on how to treat future changes to mail preparation requirements. Indeed, the Commission’s application of the standard in this case appears to be inconsistent and inadequately explained. In the same Order that determined that the revised Intelligent Mail requirements constituted “changes in rates,” the Commission considered whether another change in “preparation requirements constitute[d] a price change.” Order on Price Adjustments at 71. The second operational change involved the Postal Service’s rules for preparing flatshaped mailpieces for shipment. Previously, the Postal Service had recommended that certain flat-shaped mailpieces be stacked in bundles of equal height so that they could more efficiently interact with the sequencing machines used by the Postal Service. In its notice of rate adjustment, however, the Postal Service proposed making the “bundling” rule mandatory for such flat-shaped mailpieces to qualify for certain rates. By making the “bundling” rule mandatory, the Commission acknowledged that “the new preparation requirements may result in some mailers paying higher prices” because those mailers who did not change their shipping methods would be forced into a higher rate cell. Id. Nevertheless, the Commission concluded that these operational changes do not count as changes in rates because 26 the requirements “do not change the basic characteristics of a mailing.” Id. This is hard to fathom. The Commission’s attempt to explain the differences between the bundling rule and the Intelligent Mail change does not withstand scrutiny. In considering the Intelligent Mail change, the Commission stated that the requirement “change[d] the basic characteristics of a mailing” because it “compel[led] mailers to change their mailing practices in order to qualify for the same rates they currently qualify for.” Id. at 30. This is precisely what the bundling rule requires. Yet the Commission ruled that the rate effects of the bundling rule do not count in assessing the inflation-based price cap. The Commission never satisfactorily explains why one change in mailing practices alters “a basic characteristic of a mailing” while the other does not. Nor is it obvious or intuitively clear why putting a barcode on a mailpiece is different from moving an address label or changing the bundling configuration of mailpieces, both of which the Commission has said would not constitute changes to a basic characteristic of mailpieces. Id. at 72. The Commission relies on a factually contested point that one change is greater in magnitude than the other, with barcoding requiring “significant” changes, id. at 29, while bundling requires “minor modifications,” id. at 72. But, even accepting this as true, it is unclear from the Commission’s decision why the size of the change determines the “type” of the change – i.e., why a small change that admittedly affects rates is not a “change in rates.” It is likewise unclear why the magnitude of the change determines whether the change affects “a basic characteristic of a mailing.” 27 The Commission’s brief to this court belatedly asserts that “trivial preparation changes are the most likely to have virtually universal adoption by mailers” and therefore may not actually change rates paid by mailers. Br. for the Postal Regulatory Comm’n 42. This claim is nowhere to be found in the Commission’s decision. Therefore, “whatever the merits of this position, we cannot consider it because the Commission did not set it forth below.” LePage’s 2000, Inc., 642 F.3d at 231. Furthermore, the assertion cannot be squared with the Commission’s rule that the Postal Service may not rely on forecasts of mailer behavior. Neither the Commission’s unelaborated “basic characteristic” standard nor its application here effectively explains the Commission’s reasoning or resolves the ambiguity about the treatment under the price cap of future mail preparation requirement changes. As the Commission itself has noted, indiscriminately treating mail preparation requirement changes as rate changes could have far-reaching and enormous consequences for the day-to-day and month-tomonth operations of the Postal Service, including its ability to reasonably manage its own policies. While the Commission may well be able to determine a basis for treating the Intelligent Mail rule and the bundling rule differently, it has not enunciated that basis in this case or provided guidance for future cases. “At the least, the Commission must explain this differential treatment of seemingly like cases,” and “explain how it can read the same evidence differently when applied” to apparently similar changes. Id. at 232. Although the Commission may have the authority under the price cap statute and regulations to consider mail preparation requirement changes of the kind at issue in this case as changes in rates, its decision here “must be remanded because of a basic inconsistency in its reasoning.” Air Line 28 Pilots Ass’n v. FAA, 3 F.3d 449, 453 (D.C. Cir. 1993). During oral argument, counsel for the Commission argued that the Commission’s decision is “rulemaking through adjudication,” as if to suggest that it is not subject to serious scrutiny. The case law surely does not support this view. [T]he arbitrary and capricious standard governs review of all proceedings that are subject to challenge under the APA. Thus, if an action is subject to review under the APA, it does not matter whether it is a formal or informal adjudication or a formal or informal rulemaking proceeding – all are subject to arbitrary and capricious review under Section 706(2)(A). EDWARDS, ELLIOTT, & LEVY, FEDERAL STANDARDS OF REVIEW 203 (2d ed. 2013) (citation omitted); see also Allentown Mack, 522 U.S. at 374 (“[A]djudication is subject to the requirement of reasoned decisionmaking as well.”). We have previously remanded adjudications to the Commission when we have found “that the Commission acted within its statutory authority” but “the Commission’s explanatory gap [was] palpable” with respect to its “inconsistent” application of its rules or “the bounds of its authority.” USPS, 676 F.3d at 1106–08; see also LePage’s 2000, Inc., 642 F.3d at 234 (remanding to allow the Commission to explain the “inconsistencies in its order”); Checkosky v. SEC, 23 F.3d 452, 463 (D.C. Cir. 1994) (discussing the authority of courts to “remand to the agency for a more complete explanation of a troubling aspect of the agency’s decision” in an adjudication); Plumbers and Steamfitters Local 342 v. NLRB, 598 F.2d 216, 217 (D.C. Cir. 1979) (“[W]e remand to the NLRB to clarify its decision.”). Given the noted deficiencies in the Commission’s decision in this case, we have no choice but to remand. 29