Court Opinion

ID: 4108972
Source: CourtListenerOpinion
Date Created: 2016-12-20 17:01:18.166901+00
Date Added: 2024-06-11T14:09:21.930553
License: Public Domain

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.
                                2
   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,
                                3
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. §
                                 4
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 mailers folded 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 self-
mailers. 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.
                                 5
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 self-
mailers (“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 Sears stated 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
                                 6
“[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.
                               7
     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.
                                8
     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
                               9
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).
                               10
     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
                                11
     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 off-
center.” 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
                                12
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
                                13
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
                               14
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
                             15
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.